UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
-----------------------
FAMILY BARGAIN CORPORATION
(Name of Issuer)
COMMON STOCK, PAR VALUE $.01
(Title of Class of Securities)
306889403
(CUSIP Number)
-----------------------
ROBERT M. HIRSH, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-6064
TEL. NO.: (212) 373-3000
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
-----------------------
JANUARY 10, 1997
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
statement because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP NO. 306889403
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Terfin International, Ltd.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
7 SOLE VOTING POWER
NUMBER OF 2,493,824
SHARES
BENEFICIALLY OWNED
BY EACH REPORTING
PERSON
WITH
8 SHARED VOTING POWER
0
9 SOLE DISPOSITIVE POWER
2,493,824
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,493,824
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
35.4%
14 TYPE OF REPORTING PERSON
CO
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<PAGE>
CUSIP NO. 306889403
ITEM 1. SECURITY AND ISSUER.
The title of the class of equity securities of Family Bargain
Corporation, a Delaware corporation (the "Company"), to which this Schedule 13D
(this "Statement") relates is the Company's common stock, par value $.01 per
share (the "Common Stock"). The address of the principal executive offices of
the Company is 4000 Ruffin Road, San Diego, California 92123.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This Statement is filed by Terfin International, Ltd., a British
Virgin Islands international business company ("Terfin"). The principal business
of Terfin is the investment and reinvestment of its resources, directly or
through affiliates, in the securities of enterprises in various parts of the
world, including the United States.
Terfin is a wholly owned subsidiary of Real Limited, a British
Virgin Islands international business company ("Real"). The principal business
of Real is the investment of its resources in marketable securities and
commodities and, through affiliates such as Terfin, in securities of other
enterprises in various parts of the world.
Real is a subsidiary of Entreprises Quilmes S.A. ("EQ"), a
Luxembourg holding company whose shares, which are issued in bearer form, are
listed and traded on the Paris and Luxembourg Stock Exchanges. EQ's principal
business is serving as an investment holding company.
The names of the directors and executive officers of Terfin, Real
and EQ are set forth on Schedules 1, 2 and 3 hereto, respectively, which are
incorporated herein by reference. No person controls or shares in the control of
EQ who is not a member of its board of directors.
(b) The address of the principal office of Terfin and Real is
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. The
principal business address of EQ is 84, Grand-Rue, L-1660 Luxembourg. The
business address of each of the other persons named in Item 2(a) is set forth on
Schedules 1, 2 and 3 hereto, which are incorporated herein by reference.
(c) The present principal occupation of each individual set forth in
Item 2(a) is set forth on Schedules 1, 2 and 3 hereto, which are incorporated
herein by reference.
(d) Neither Terfin nor, to the best of its knowledge, Real, EQ or
any of the directors or executive officers of Terfin, Real or EQ has been
convicted
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CUSIP NO. 306889403
during the last five years in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) Neither Terfin nor, to the best of its knowledge, Real, EQ or
any of the directors or executive officers of Terfin, Real or EQ has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which such individual was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) The citizenship of each individual set forth in Item 2(a) is set
forth on Schedules 1, 2 and 3 hereto.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR
OTHER CONSIDERATION.
As more fully described in Item 6 below, Terfin purchased an
aggregate of 133,756 shares of Common Stock and 17,745 shares of Series A 9 1/2%
Cumulative Convertible Preferred Stock ("Series A Preferred") for an aggregate
purchase price of $598,000 and 4,400 shares of Series B Junior Convertible,
Exchangeable Preferred Stock ("Series B Preferred") for an aggregate purchase
price of $4,400,000 on January 10, 1997. Terfin obtained the funds for the
purchase of such Common Stock entirely from its own resources.
ITEM 4. PURPOSE OF TRANSACTION.
Terfin consummated the transactions described herein in order to
acquire a significant interest in the Company and for investment purposes.
Terfin intends to review continuously their position in the Company.
Depending upon future evaluations of the business prospects of the Company and
upon other developments, including, but not limited to general economic and
business conditions, Terfin may retain or from time to time increase, or dispose
of all or a portion of, its holdings, subject to any applicable legal or other
restrictions on its ability to do so.
In addition, the matters set forth in Item 6 below are incorporated
in this Item 4 by reference as if fully set forth herein.
Except as described above, Terfin has no plans or proposals which
relate to or would result in:
(a) The acquisition by any person of additional securities of the
Company, or the disposition of securities of the Company;
<PAGE>
CUSIP NO. 306889403
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries;
(c) A sale or transfer of a material amount of assets of the
Company or any of its subsidiaries;
(d) Any change in the present board of directors or management of
the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board;
(e) Any material change in the present capitalization or dividend
policy of the Company;
(f) Any other material change in the Company's business or
corporate structure;
(g) Changes in the Company's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any person;
(h) Causing a class of securities of the Company to be delisted from
a National Securities Exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered National Securities Association;
(i) A class of equity securities of the Company becoming eligible
for termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"); or
(j) Any action similar to any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) Terfin may, pursuant to Rule 13d-3 of the Exchange Act, be
deemed to be the beneficial owner of 2,493,824 shares of Common Stock (including
2,314,810 shares of Common Stock issuable upon conversion of the 4,400 shares of
the Series B Preferred and 45,258 shares of Common Stock issuable upon
conversion of the 17,745 shares of the Series A Preferred held by Terfin), which
constitutes approximately 35.4% of the 7,053,405 shares of Common Stock deemed
outstanding with respect to Terfin pursuant to Rule 13d-3(d)(1)(i) of the
Exchange Act.
(b) Terfin has the sole power to vote, direct the vote of, dispose
of or direct the disposition of any and all Common Stock held by Terfin.
(c) Except as set forth herein or in Exhibits filed herewith,
neither Terfin, nor to the best knowledge of Terfin, any of the persons listed
in Item 2(a) has
<PAGE>
CUSIP NO. 306889403
effected any transaction in the Common Stock of the Company within the past 60
days.
(d) Except as set forth in this Item 5, to the best knowledge of
Terfin, none of the persons named in Item 2(a) beneficially owns any shares of
Common Stock of the Company. On the basis of its control, through an
intermediate holding company, of Terfin, the board of directors of EQ may be
deemed to have the ultimate power to direct the voting or disposition, as well
as the application of dividends from, or the proceeds of the sale of, the Common
Stock owned by Terfin.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS
OR RELATIONSHIPS WITH RESPECT TO SECURITIES
OF THE ISSUER.
Pursuant to the Securities Purchase Agreement, dated December 30,
1996 (the "Securities Purchase Agreement"), by and among the Company and the
Persons (as defined therein) set forth on Schedule 2.2 thereof, the Company
agreed to issue and sell to Three Cities Fund II, L.P., Three Cities Offshore II
C.V. and Terfin (collectively, the "Purchasers"), and the Purchasers agreed to
purchase from the Company, an aggregate of 27,000 shares of Series A Preferred.
At the same time, Terfin entered into a Securities Purchase Agreement
("Stockholder Securities Purchase Agreement") with Benson A. Selzer, Joseph
Eiger, John A. Selzer, Dutford Limited and Coplex Foundation (the "Selling
Stockholders") pursuant to which Terfin agreed to purchase an aggregate of
133,756 shares of Common Stock and 17,745 shares of Series A Preferred for an
aggregate purchase price of $598,000.
On January 10, 1997, Terfin purchased 4,400 shares of Series B
Preferred and the Purchasers deferred their obligation to purchase an aggregate
of 5,000 additional shares of Series B Preferred until a date no later than
February 15, 1997. The Purchasers were also granted an option to purchase from
the Company, at the same price and on the same terms and conditions as the
Securities Purchase Agreement, at any time up to and including 90 days from
January 10, 1997, up to 5,000 additional shares of Series B Preferred. The
additional 10,000 shares of Series B Preferred will be allocated among the
Purchasers (and their designees) in a manner which has not yet been determined.
On January 10, 1997, Terfin purchased 133,756 shares of Common Stock and 17,745
shares of Series A Preferred from the Selling Stockholders.
In connection with the Stockholder Securities Purchase Agreement,
the Selling Stockholders executed a Standstill Agreement (the "Standstill
Agreement") in favor of Terfin and the other Purchasers pursuant to which the
Selling Stockholders agreed that, until January 9, 2000, the Selling
Stockholders shall not (i) acquire direct or indirect beneficial ownership of
any shares of any class of capital stock of the
<PAGE>
CUSIP NO. 306889403
Company, or any debt or equity securities (including warrants and options)
convertible or exchangeable into, or which may be exercised for, any class of
capital stock of the Company, with or without additional cash or consideration;
(ii) directly or indirectly solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the Exchange
Act) in opposition to a recommendation of the Board of Directors (the "Board")
of the Company; (iii) initiate or induce or attempt to induce or give material
support to any other person to initiate, or in any other way participate in, any
tender or exchange offer, for acquisition of shares of the Company or any change
in control of the Company, or any proxy solicitation which relates to the
Company; (iv) initiate any communication with, or respond to any communication
from, any shareholder of the Company in his, her or its capacity as a
shareholder if such communication relates to any of the matters set forth in
(i), (ii) or (iii) above; or (v) attempt to influence the affairs of the Company
in any other manner or respect.
The Board of the Company elected J. William Uhrig, H. Whitney Wagner
and Thomas G. Weld, each of whom is a Managing Partner of Three Cities Research,
Inc., to the Board of the Company. Three Cities Research, a Delaware
corporation, performs investment advisory services for Terfin and its portfolio
companies.
In connection with the Securities Purchase Agreement, the Company
and the Purchasers entered into the Registration Rights Agreement, dated as of
January 10, 1997 (the "Registration Rights Agreement"). The description of the
Registration Rights Agreement that follows is not, and does not purport to be,
complete and is qualified in its entirety by reference to the Registration
Rights Agreement, a copy of which is attached hereto as Exhibit 4. Pursuant to
the Registration Rights Agreement, the Purchasers and any of their respective
transferees to which shares of Common Stock are transferred (other than the
transferee to whom such securities have been transferred pursuant to a
registration statement under the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder (the "Securities Act"))
holding at least 25% of the Registrable Securities (as defined therein) have the
right, subject to certain limitations set forth in the Registration Rights
Agreement, to request the Company at any time to register under the Securities
Act, at the Company's expense, all or part of the shares of Common Stock owned
by the Purchasers and their transferees (a "Demand Registration"). The Company
agreed to pay such expenses in connection with three Demand Registrations;
provided that such Demand Registrations may be limited if the certain conditions
set forth in Section 3(f) of the Registration Rights Agreement are satisfied.
The Purchasers also have certain piggyback registration rights in connection
with registrations by the Company under the Securities Act.
<PAGE>
CUSIP NO. 306889403
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Power of Attorney
Exhibit 2 Securities Purchase Agreement
Exhibit 3 Stockholder Securities Purchase Agreement
Exhibit 4 Registration Rights Agreement
Exhibit 5 Standstill Agreement
<PAGE>
CUSIP NO. 306889403
SIGNATURE
After reasonable inquiry and to the best of the knowledge and belief
of the undersigned, the undersigned certifies that the information set forth in
this statement is true, complete and correct.
Dated: January 21, 1997
TERFIN INTERNATIONAL LTD.
By: /s/ J. William Uhrig
-------------------------------
Name: J. William Uhrig
Title: Attorney-in-Fact
<PAGE>
CUSIP NO. 306889403
Schedule 1
----------
TERFIN INTERNATIONAL LTD.
<TABLE>
<CAPTION>
Principal Occupation or
Employment and the Name,
Principal Business and
Address of Organization in
Residence or which such Employment is
Name Business Address Conducted (if any) Citizenship
---- ---------------- ------------------ -----------
<S> <C> <C> <C>
Christian Baillet 243, Blvd. St. Germain Company Director French
Director; President F-75007 Paris, France
Walter Knecht Regensdorferstrasse 144 Company Director Swiss
Director; Secretary CH-8049, Zurich
Switzerland
Kurt Sonderegger Birkenstrasse 18 Company Director Swiss
Director CH-8302, Kloten
Switzerland
</TABLE>
<PAGE>
CUSIP NO. 306889403
Schedule 2
----------
REAL LIMITED
<TABLE>
<CAPTION>
Principal Occupation or
Employment and the Name,
Principal Business and
Address of Organization in
Residence or which such Employment is
Name Business Address Conducted (if any) Citizenship
---- ---------------- ------------------ -----------
<S> <C> <C> <C>
Julio E. Nunez 69 Chester Square Company Director Argentine
Director; President London SWI, England
Christian Baillet 243, Blvd. St. Germain Company Director French
Director; Treasurer F-75007 Paris, France
Walter Knecht Regensdorferstrasse 144 Company Director Swiss
Director CH-8049, Zurich
Switzerland
Kurt Sonderegger Birkenstrasse 18 Company Director Swiss
Authorized signatory CH-8302, Kloten
Switzerland
Carlo Hoffman 84, Grand-Rue Company Director Luxembourg
Secretary General L-1660 Luxembourg
</TABLE>
<PAGE>
CUSIP NO. 306889403
Schedule 3
----------
ENTREPRISES QUILMES S.A.
<TABLE>
<CAPTION>
Principal Occupation or
Employment and the Name,
Principal Business and
Address of Organization in
Residence or which such Employment is
Name Business Address Conducted (if any) Citizenship
---- ---------------- ------------------ -----------
<S> <C> <C> <C>
Julio E. Nunez 69 Chester Square Company Director Argentine
Director; President London SWI, England
Christian Baillet 243, Blvd. St. Germain Company Director French
Director; CEO F-75007 Paris, France
Peter Bemberg 31, Rue De Bellechasse Company Director French
Director F-75007 Paris, France
Charles de Montalembert 82 Blvd. Arago Company Director French
Director F-75013 Paris, France
Alvaro Sainz de Vicuna Calle Dr Fleming 3 Company Director Spanish
Director 8th Floor
Madrid 98036, Spain
Andre Elvinger 15 Cote d'Eich Attorney-at-Law Luxembourg
Director 1450 Luxembourg Luxembourg
Gd. Duchy of Luxembourg
</TABLE>
<PAGE>
CUSIP NO. 306889403
<TABLE>
<CAPTION>
Principal Occupation or
Employment and the Name,
Principal Business and
Address of Organization in
Residence or which such Employment is
Name Business Address Conducted (if any) Citizenship
---- ---------------- ------------------ -----------
<S> <C> <C> <C>
Paul de Ganay 57, Rue St. Dominique Company Director French
Director F-75007 Paris, France
Hans Jorg Furrer Bleicherweg 33 Company Director Swiss
Director CH-8002, Zurich
Switzerland
Louis James de Viel Castel 25 bis rue de Constantine Company Director French
Director F-75007 Paris, France
Norberto Morita TTE Genl Ricchieri 1221 Company Director Argentine
Hurlingham, Buenos Aires
Argentina
International Advisory Craigmuir Chambers Company Director British Virgin Islands
Services (IAS) Road Town, Tortola
British Virgin Islands
Carlo Hoffman 84, Grand-Rue Company Director Luxembourg
Secretary General L-1660 Luxembourg
</TABLE>
<PAGE>
CUSIP NO. 306889403
EXHIBIT INDEX
Number Document
- ------ --------
1 Power of Attorney
2 Securities Purchase Agreement
3 Stockholder Securities Purchase Agreement
4 Registration Rights Agreement
5 Standstill Agreement
Exhibit 1
---------
TERFIN INTERNATIONAL, LTD.
POWER OF ATTORNEY
-----------------
Know all men by these presents, the TERFIN INTERNATIONAL,
LTD., a British Virgin Islands International Business company does hereby
constitute and appoint J. William Uhrig and H. Whitney Wagner of Three Cities
Research, Inc. at 135 East 57th Street, New York, New York 10022, its
Attorney-In-Fact, with full power, discretion and authority to take on behalf of
TERFIN INTERNATIONAL, LTD. all actions which said Attorney-In-Fact shall in his
sole discretion determine to be appropriate in connection with the purchase of
Jr. Convertible Exchangeable Preferred Stock in Family Bargain Corporation
including without limitation (i) the execution of all agreements, instruments,
certificates or other documents required with the Preferred Stock agreements. In
addition, TERFIN INTERNATIONAL, LTD. hereby gives and grants unto said
Attorney-In-Fact full power discretion and authority to execute all documents,
instruments and certificates upon such terms which said Attorney-In-Fact may
determine to be appropriate, and to take all actions which said Attorney-In-Fact
shall determine to be desirable in connection with the foregoing to the same
extent that TERFIN INTERNATIONAL, LTD. might do or could do by its duly
authorized officers if personally present, and TERFIN INTERNATIONAL, LTD. does
hereby confirm, approve and ratify all that said Attorney-In-Fact or his
delegates shall lawfully do or cause to be done by virtue hereof.
This Power of Attorney will expire March 31, 1997.
This instrument may not be changed orally and shall be
governed by and construed in accordance with the laws of the State of New York,
the United States of America.
Dated: January 2, 1997
TERFIN INTERNATIONAL, LTD.
By: /s/ Kurt Sonderegger
---------------------------
Kurt Sonderegger
By: /s/ Walter Knecht
---------------------------
Walter Knecht
Exhibit 2
---------
================================================================================
SECURITIES PURCHASE AGREEMENT
AMONG
FAMILY BARGAIN CORPORATION
AND
THE PURCHASERS
================================================================================
------------------------
Dated: December 30, 1996
------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS........................................................1
2. CLOSING............................................................9
2.1 Time and Place of the Closings................................9
2.2 Transactions at the Closing...................................9
2.3 Transaction Expenses.........................................10
2.4 Post-Closing Option..........................................10
3. CONDITIONS TO THE CLOSING.........................................11
3.1 Conditions Precedent to the Obligations of the Purchasers....11
3.1.1 Compliance by the Company...........................11
3.1.2 Board of Directors..................................11
3.1.3 Consents............................................12
3.1.4 December Sales......................................12
3.1.5 Absence of Material Adverse Effect..................12
3.1.6 Officer's Certificate...............................12
3.1.7 No Injunction.......................................13
3.1.8 Other Transaction Agreements........................13
3.2 Conditions Precedent to Obligations of the Company...........13
3.2.1 Compliance by the Purchasers........................13
3.2.2 Consents............................................14
3.2.3 Officer's Certificate...............................14
3.2.4 No Injunction.......................................14
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................15
4.1 Corporate Existence and Power................................15
4.2 Power and Authority..........................................16
4.3 Affiliate Transactions.......................................17
4.4 No Contravention, Conflict, Breach, Etc......................17
4.5 Consents.....................................................18
4.6 Capitalization of the Company................................18
4.7 Rights Plan..................................................19
4.8 Registration Rights..........................................19
4.9 Subsidiaries.................................................20
4.10 SEC Documents................................................21
4.11 Financial Statements.........................................22
4.12 14(f) Notice.................................................24
4.13 No Existing Violation, Default, Etc..........................24
4.14 Licenses and Permits.........................................25
4.15 Title to Properties..........................................26
4.16 Intellectual Property........................................26
4.17 Environmental Matters........................................28
i
<PAGE>
Page
4.18 Taxes........................................................29
4.19 Litigation...................................................30
4.20 Labor Matters................................................30
4.21 Employee Benefits............................................31
4.22 Contracts....................................................33
4.23 Contingent Liabilities.......................................34
4.24 No Material Adverse Change...................................34
4.25 Finder's Fees................................................35
4.26 Investment Company...........................................35
4.27 Exemption from Registration; Restrictions on Offer and Sale of
Same or Similar Securities...................................35
4.28 Full Disclosure..............................................36
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..................37
5.1 Existence and Power..........................................37
5.2 Power and Authority..........................................37
5.3 No Contravention, Conflict, Breach, Etc......................37
5.4 Acquisition for Own Account..................................38
5.5 Finder's Fee.................................................39
5.6 Ownership of Common Stock....................................39
6. COVENANTS OF THE PARTIES..........................................39
6.1 Pre-Closing Activities.......................................39
6.2 Stock Exchange Listing.......................................43
6.3 14(f) Notification...........................................43
6.4 Access. ....................................................43
6.5 Publicity....................................................44
6.6 Acquisition Proposals........................................44
6.7 Certificates for Securities, Exchange Notes and Conversion
Shares To Bear Legends.......................................45
6.8 Removal of Legends...........................................46
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS............................................47
8. INDEMNIFICATION...................................................47
8.1 Indemnification by the Company...............................47
8.2 Notification.................................................48
9. TERMINATION.......................................................50
9.1 Termination..................................................50
9.2 Effect of Termination........................................51
ii
<PAGE>
Page
10. MISCELLANEOUS.....................................................52
10.1 Performance; Waiver..........................................52
10.2 Successors and Assigns.......................................52
10.3 Notices......................................................53
10.4 Governing Law................................................54
10.5 Severability.................................................54
10.6 Headings; Interpretation.....................................54
10.7 Entire Agreement.............................................55
10.8 No Third Party Rights........................................55
10.9 Counterparts.................................................55
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT"), dated December 30,
1996, among Family Bargain Corporation, a Delaware corporation (the "Company"),
and the Persons set forth on Schedule 2.2 hereof (the "Purchasers").
WHEREAS, the Company desires to sell to the Purchasers, and the
Purchasers desire to purchase, an aggregate of 27,000 shares (the "Securities")
of the Company's Series B Junior Convertible Exchangeable Preferred Stock, par
value $.01 per share (the "Series B Preferred"), at a purchase price equal to
$1,000.00 per Security (the "Purchase Price Per Security") (or $27,000,000 in
the aggregate) upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, each of the Company and the Purchasers agrees as follows:
1. DEFINITIONS.
The terms defined in this Section 1 shall have the following
meanings for all purposes of this Agreement:
"Acquisition Proposal" means any proposal or offer to the Company or
stockholders of the Company with respect to a merger, consolidation, tender
offer (including a self tender offer), exchange offer, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries, any purchase of, or option to purchase, any equity securities
(or securities convertible into equity securities) of the Company or any of its
Subsidiaries or any purchase of, or option to
<PAGE>
2
purchase, any of the assets of the Company or any of its Subsidiaries (other
than (i) the sale of inventory in the ordinary course of business of the Company
or any of its Subsid iaries and (ii) grants and exercises of options actually
granted prior to the date hereof.
"Act" means the Securities Act of 1933, as amended, or any
superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect from time to time. References to
a particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such superseding Federal
statute.
An "Affiliate" of, or a person "affiliated" with, a specified
Person, means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified. The term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, by
contract, or otherwise.
"Annual Reports" means the Company's Annual Report on Form 10-K for
the year ended January 28, 1995 as filed with the SEC and the Company's Annual
Report on Form 10-K for the year ended January 27, 1996 (as amended by the
Company's Form 10-K/A dated May 14, 1996), as filed with the SEC and delivered
to the Purchasers (including, in each case, all exhibits and schedules thereto
and documents incorporated by reference therein).
"Benefit Plans" has the meaning set forth in Section 4.21.
<PAGE>
3
"Board of Directors" means the Board of Directors of the Company, as
constituted from time to time.
"By-Laws" means the By-laws of the Company, as amended through the
date hereof.
"Certificate of Designations" means the Certificate of Designations
of the Company to be filed by the Company with the Secretary of State of the
State of Delaware on or prior to the date and time of the Closing, substantially
in the form attached as Exhibit A hereto.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company, as amended through the date hereof.
"Closings" has the meaning set forth in Section 2.1.
"Closing Date" has the meaning set forth in Section 2.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the Company's common stock, par value
$.01 per share.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Conversion Shares" means the shares of Common Stock issuable or
issued upon conversion of the Series B Preferred pursuant to the terms of this
Agreement and the Certificate of Designations.
"Disclosure Letter" has the meaning set forth in Article 4.
"Employee Preferred" has the meaning set forth in Section 4.6.
"Encumbrance" means any mortgage, pledge, lien, security interest,
restriction upon voting or transfer, claim or other encumbrance of any kind.
<PAGE>
4
"Environmental Information" has the meaning set forth in Section
4.17(D).
"Environmental Laws" means all federal, state, local and foreign
laws, principles of common law, regulations, codes and ordinances, as well as
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder relating to pollution, protection of the environment, or
health and safety.
"ERISA" has the meaning set forth in Section 4.21.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any superseding Federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of such
superseding Federal statute.
"Exchange Notes" means the Subordinated Notes of the Company
issuable or issued in redemption of the Series B Preferred pursuant to the terms
of this Agreement and the Certificate of Designations.
"Factory 2-U" means Factory 2-U, Inc., an Arizona corporation.
"Financial Advisory Agreement" means the Financial Advisory
Agreement, dated as of the date hereof, between the Company and TCR, as amended,
supplemented or modified from time to time in accordance with the terms thereof.
"FINOVA Credit Facility" means the credit facility provided under
the loan and security agreement dated November 10, 1995, between Factory 2-U and
FINOVA Capital Corporation, as amended through the date hereof and as may be
further amended in accordance with the terms hereof.
<PAGE>
5
"14(f) Notice" means a notice of the Company containing the
information required by Rule 14f-1 under the Exchange Act to be filed with the
SEC in compliance with such Rule in connection with the actions described in
Section 3.1.2, as amended, modified or supplemented (including all exhibits and
schedules thereto and documents incorporated by reference therein).
"General Textiles" means General Textiles, a California corporation.
"Governmental Authority" means the government of any nation or
state, or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GT Credit Facility" means the credit facility provided under the
loan and security agreement dated as of October 14, 1993, between General
Textiles and Greyhound Financial Capital Corporation (now named FINOVA Capital
Corporation), as amended through the date hereof.
"Intellectual Property" has the meaning set forth in Section
4.16(A).
"Initial Closing" has the meaning set forth in Section 2.1.
"IP Licenses" has the meaning set forth in Section 4.16(B).
"Knowledge of the Company" means the knowledge of the Company after
due inquiry.
"Law" means any law, treaty, rule or regulation of a Governmental
Authority or judgment, order, writ, injunction or determination of an arbitrator
or a court or other Governmental Authority.
<PAGE>
6
"Liabilities" has the meaning set forth in Section 9.1.
"Licenses" means any certificates, permits, licenses, franchises,
consents, approvals, orders, authorizations and clearances from appropriate
Governmental Authorities.
"Material Adverse Effect" means a material adverse effect on the
assets, results of operations, business, prospects or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
"Monthly Financial Statements" has the meaning set forth in
Section 4.11(B).
"NASDAQ Small-Cap Market" means the Nasdaq Small-Cap Market of
the Nasdaq Stock Market.
"1995 Audited Financial Statements" has the meaning set forth in
Section 4.11(A).
"Person" means any individual, firm, corporation, partnership,
limited liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in Section 4.6.
"Preliminary Prospectus" shall mean the Company's Preliminary
Prospectus, dated November 6, 1996 (subject to completion), relating to
convertible subordinated debentures due 2006 of the Company, which were never
sold.
<PAGE>
7
"Purchase Price Per Security" has the meaning set forth in the first
recital of this Agreement.
"Purchasers" has the meaning set forth in the preamble to this
Agreement.
"Quarterly Reports" means the Company's Quarterly Report on Form
10-Q for the quarter ended October 27, 1996, the Company's Quarterly Report on
Form 10-Q for the quarter ended July 27, 1996, the Company's Quarterly Report on
Form 10-Q for the quarter ended April 27, 1996, the Company's Quarterly Report
on Form 10-Q for the quarter ended October 28, 1995, the Company's Quarterly
Report on Form 10-Q for the quarter ended July 28, 1995 and the Company's
Quarterly Report on Form 10-Q for the quarter ended April 28, 1995, each as
filed with the SEC.
"Registration Rights Agreement" means the Registration Rights
Agreement to be dated as of the date of the Closing between the Company and the
Purchasers, substantially in the form attached as Exhibit B hereto, as amended,
supplemented or modified from time to time in accordance with the terms thereof.
"Representatives" shall mean the employees, counsel, accountants and
other authorized representatives of the Purchasers, investors in any of the
Purchasers and any of their respective Affiliates.
"Rights" shall mean the Company's Preferred Stock Purchase Rights
issued pursuant to the Rights Plan.
"Rights Plan" shall mean the Rights Agreement dated as of November
27, 1995, between the Company and Corporate Stock Transfer, Inc., as Rights
Agent.
"SEC" means the Securities and Exchange Commission.
<PAGE>
8
"SEC Documents" means the Annual Reports, the Quarterly Reports, the
Preliminary Prospectus and all other documents filed by the Company with the SEC
(including all exhibits and schedules thereto and documents incorporated by
reference therein) since January 1, 1994.
"Second closing" shall have the meaning set forth in Section 2.1.
"Securities" has the meaning set forth in the second recital of this
Agreement.
"Separation Agreement" means the Separation Agreement dated as of
the date hereof, a true and complete copy of which has been delivered by the
Company to the Purchasers, as amended, supplemented or modified from time to
time in accordance with the terms thereof and Section 3.1.8.
"Series A Preferred" has the meaning set forth in Section 4.6.
"Series B Preferred" has the meaning set forth in the first recital
of this Agreement.
"Shareholders Securities Purchase Agreement" has the meaning set
forth in Section 4.2.
"Subsidiary" means, with respect to any Person, any corporation,
limited or general partnership, joint venture, association, limited liability
company or partnership, joint stock company, trust, unincorporated organization,
or other entity analogous to any of the foregoing of which 50% or more of the
equity ownership (whether voting stock or comparable interest) is, at the time,
owned, directly or indirectly by such Person.
"Tax" or "Taxes" has the meaning set forth in Section 4.18.
<PAGE>
9
"TCR" means Three Cities Research, Inc.
"Transaction Agreements" means this Agreement, the Separation
Agreement, the Financial Advisory Agreement and the Registration Rights
Agreement.
"Transaction Expenses" means, with respect to the Company or the
Purchasers and their Affiliates, the expenses of such Person or Persons (whether
or not incurred prior to the date hereof) arising out of, relating to or
incidental to the discussion, evaluation, negotiation, documentation and closing
of the transactions contem plated hereby (including, without limitation, the
fees, disbursements and other expenses of lawyers, accountants, actuaries,
investment bankers and any other advisors thereto).
2. CLOSING.
2.1 Time and Place of the Closings. Subject to the terms and
conditions of this Agreement, the closing of the sale and purchase of the
Securities contemplated hereby (the "Closing") shall take place at the offices
of Baer, Marks & Upham LLP, 805 Third Avenue, New York, New York 10022, at 10:00
A.M., New York time on January 14, 1997 (the "Initial Closing") or at such other
date and such other place as the parties hereto shall agree; provided, however,
the Purchasers may defer their obligation to purchase up to $5,000,000.00 of the
Securities until a date no later than February 15, 1997 (the "Second Closing").
The "Closing Date" shall be the date the Initial Closing occurs.
2.2 Transactions at the Closings. At any Closing, subject to
the terms and conditions of this Agreement, the Company shall issue and sell to
each of the Purchasers, and each of the Purchasers shall purchase, the pro rata
portion (based upon
<PAGE>
10
the number of Securities to be purchased at such Closing) of such number of
Securities as are set forth opposite such Purchaser's name on Schedule 2.2 at
the Purchase Price Per Security. At such Closing, the Company shall deliver to
each of the Purchasers certificates representing the pro rata portion (based
upon the number of Securities to be purchased at such Closing) of such number of
Securities as are set forth opposite such Purchaser's name on Schedule 2.2, each
registered in the name of such Purchaser or its nominees, against payment of the
Purchase Price Per Security with respect thereto by wire transfer of immediately
available funds to an account or accounts previously desig nated by the Company.
2.3 Transaction Expenses. At any Closing, subject to the terms
and provisions of this Agreement, the Company shall pay to each of the
Purchasers or their respective designees an amount equal to the pro rata portion
(based upon the number of Securities to be purchased at such Closing) of the
Transaction Expenses, plus (without duplication) in the case of a Second
Closing, the Transaction Expenses incurred since the Initial Closing, of such
Purchaser and its Affiliates, in each case, by wire transfer of immediately
available funds to an account or accounts designated by the Purchasers.
2.4 Post-Closing Option. The Purchasers shall have an option
to purchase from the Company, at the same price and on the same terms and
conditions as this Agreement, at any time up to and including 90-days from the
Initial Closing, up to 5,000 shares of Series B Preferred in addition to the
27,000 shares purchased at the Initial Closing and/or deferred pursuant to the
proviso in Section 2.1. This option may be exercised by written notice by the
Purchasers to the Company.
<PAGE>
11
3. CONDITIONS TO THE CLOSING.
3.1 Conditions Precedent to the Obligations of the Purchasers.
The obligations of each of the Purchasers to be discharged under this Agreement
on or prior to the Closings are subject to satisfaction of the following
conditions at or prior to the Initial Closing (unless expressly waived in
writing by each of the Purchasers at or prior to the Initial Closing), except
for the conditions set forth in Section 3.1.3 and 3.1.7, which must be satisfied
at or prior to the Initial Closing and the Second Closing with respect to the
Initial Closing and the Second Closing, respectively (unless expressly waived in
writing by each of the Purchasers at or prior to such Closing):
3.1.1 Compliance by the Company. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Company at or prior to the Initial Closing shall have been complied with and
performed by it in all material respects, and the representations and warranties
made by the Company in this Agreement shall be true and correct at and as of the
Initial Closing, with the same force and effect as though such representations
and warranties had been made at and as of the Initial Closing, except for
changes expressly contemplated by this Agreement and except for representations
and warranties that are made as of a specific time, which shall be true and
correct only as of such time, and except for representations and warranties made
in Sections 4.14 to 4.17 and Section 4.24, which shall be true and correct as of
the date hereof.
3.1.2 Board of Directors. The members of the Board of
Directors identified on Schedule 3.1.2A shall have delivered irrevocable
resignations from the Board of Directors effective upon the Initial Closing.
The Board of Directors
<PAGE>
12
shall have elected the individuals set forth on Schedule 3.1.2B to fill such
vacancies and such newly-elected persons shall be legally entitled to fill such
vacancies upon the later to occur of (a) the Closing Date or (b) 10 days after
the later of the date that the 14(f) Notice is mailed to stockholders of the
Company and filed with the SEC.
3.1.3 Consents. All consents, approvals,
authorizations, orders, registrations, filings and qualifications of or with any
(A) Governmental Authority, (B) stock exchange on which the securities of the
Company are traded and (C) other Persons (whether acting in an individual,
fiduciary or other capacity) necessary or required to be made or obtained by the
Company or any of its Subsidiaries for the consummation of the transactions
contemplated by the Transaction Agreements shall have been made or obtained, as
the case may be, and shall be in full force and effect, and the Purchasers shall
have been furnished with appropriate evidence thereof.
3.1.4 December Sales. The Company shall have sales for
the five weeks ended on December 28, 1996 of at least $42 million, as reflected
in the unaudited monthly consolidated financial statements of the Company or, if
such unaudited monthly consolidated financial statements of the Company have not
been completed, in a certificate of the chief financial officer of the Company.
3.1.5 Absence of Material Adverse Effect. No event or
events shall have occurred between October 27, 1996 and the date hereof that
individually or in the aggregate has had or would reasonably be expected to have
a Material Adverse Effect.
3.1.6 Officer's Certificate. The Purchasers shall have
received a certificate, dated the Closing Date and signed by the Chief Operating
Officer
<PAGE>
13
of the Company, certifying that the conditions set forth in this Section 3.1
have been satisfied on and as of such date.
3.1.7 No Injunction. There shall be no judgment,
injunction, order or decree enjoining the Company or the Purchasers from
consummating the transactions contemplated by this Agreement to be consummated
at or before the Closing.
3.1.8 Other Transaction Agreements. The Separation
Agreement, the Financial Advisory Agreement and the Registration Rights
Agreement shall have each been executed and delivered by the parties thereto
(other than the Purchasers and TCR) and remain in full force and effect. The
Company shall not have agreed to any amendment of, or waived any of its rights
under, the Separation Agreement.
3.2 Conditions Precedent to Obligations of the Company. The
obligations of the Company to be discharged under this Agreement on or prior to
the Closings are subject to satisfaction of the following conditions at or prior
to the Initial Closing (unless expressly waived in writing by the Company at or
prior to the Initial Closing), except for the conditions set forth in Sections
3.2.2 and 3.2.4, which must be satisfied at or prior to the Initial Closing and
the Second Closing with respect to the Initial Closing and the Second Closing,
respectively (unless expressly waived in writing by the Company at or prior to
such Closing):
3.2.1 Compliance by the Purchasers. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchasers in all material respects at or prior to the Initial Closing,
shall have been
<PAGE>
14
complied with and performed by the Purchasers and the representations and
warranties made by the Purchasers in this Agreement, shall be true and correct
at and as of the Initial Closing, with the same force and effect as though such
representations and warranties had been made at and as of the Initial Closing,
except for changes contemplated by this Agreement.
3.2.2 Consents. All consents, approvals,
authorizations, orders, registrations, filings and qualifications of or with any
(A) Governmental Authority and (B) other Persons (whether acting in an
individual, fiduciary or other capacity) necessary or required to be made or
obtained by the Purchasers for the consum mation of the transactions
contemplated by the Transaction Agreements to which any Purchaser is a party,
shall have been made or obtained, as the case may be, and shall be in full force
and effect, and the Company shall have been furnished with appropriate evidence
thereof.
3.2.3 Officer's Certificate. The Company shall have
received a certificate, dated the Closing Date and signed by an appropriate
officer of each Purchaser, certifying that the conditions set forth in this
Section 3.2 have been satisfied on and as of such date.
3.2.4 No Injunction. There shall be no judgment,
injunction, order or decree enjoining the Company or the Purchasers from
consummating the transactions contemplated by this Agreement to be consummated
at or before the Closing.
<PAGE>
15
4. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.
The Company hereby represents and warrants to each Purchaser that,
except as disclosed in writing by the Company to the Purchasers in a letter
specifically with respect to this Article 4 (the "Disclosure Letter") delivered
to the Purchasers on or prior to the date hereof:
4.1 Corporate Existence and Power.
(A) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company has the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the SEC Documents and as
currently conducted. The Company is duly qualified to transact business as a
foreign corporation and is in good standing (if applicable) in each jurisdiction
in which the conduct of its business or its ownership, leasing or operation of
property requires such qualification, other than any failure to be so qualified
or in good standing as would not singly or in the aggregate with all such other
failures reasonably be expected to have a Material Adverse Effect.
(B) True and complete copies of the Certificate of
Incorporation and the By-Laws as in effect on the date hereof have been provided
by the Company to the Purchasers. The minute books of the Company contain in all
material respects true and complete records of all meetings and consents in lieu
of meetings of the Board of Directors (and any committees thereof) and of the
stockholders of the Company.
<PAGE>
16
4.2 Power and Authority. The Company has the full corporate
power and authority to execute and deliver the Transaction Agreements and to
perform its obligations thereunder. The execution, delivery and performance by
the Company of the Transaction Agreements and the consummation by the Company of
the transactions contemplated thereby have been duly authorized and approved by
the Board of Directors and no further corporate action on the part of the
Company is necessary to authorize the execution, delivery and performance by the
Company of such agreements or the consummation by the Company of the
transactions contemplated thereby. The purchase of securities of the Company
under the Securities Purchase Agreement, dated December 30, 1996 ("Shareholders
Securities Purchase Agreement"), by and between Benson A. Selzer, Joseph Eiger,
John A. Selzer, Dutford Limited and Coplex Foundation and the purchasers listed
on the signature pages thereof has been approved by the Board of Directors. Each
of the Transaction Agreements has been duly executed and delivered by the
Company and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. Assuming the Purchasers
(individually or as a group) have not been the beneficial owners (within the
meaning of Rule 13d-3 of the Exchange Act) of any shares of Common Stock prior
to their execution and delivery of this Agreement other than such shares as have
been disclosed in writing to the Company prior to the execution of this
Agreement, the foregoing authorizations and approvals by the Board of Directors
(including the approval of the acquisition of securities under the Shareholders
Securities Purchase Agreement) constitute prior approval by the Board of
Directors of the transactions which resulted in the Purchasers
<PAGE>
17
becoming "interested stockholders" within the meaning of paragraph (a)(1) of
Section 203 of the Delaware General Corporation Law.
4.3 Affiliate Transactions. Except for the transactions
contemplated by the Separation Agreement or as disclosed in any SEC Document or
in the Disclosure Letter, the Company and its Subsidiaries have not entered into
any material transaction or material series of transactions with any
stockholder, director, officer, employee or Affiliate of the Company other than
any transactions with any Subsidiary in the ordinary course of business of the
Company and its Subsidiaries.
4.4 No Contravention, Conflict, Breach, Etc. The execution,
delivery and performance of each of the Transaction Agreements by the Company
and the consummation of the transactions contemplated thereby will not conflict
with, contravene or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the creation or
imposition of any Encumbrance upon any assets or properties of the Company or of
any of its Subsidiaries, or cause the Company or any of its Subsidiaries to be
required to redeem, repurchase or offer to repurchase any of their respective
indebtedness under (A) the certificate of incorporation, the by-laws or other
organizational document of the Company or any of its Subsidiaries, (B) any
material Law of any Governmental Authority having jurisdiction over the Company
or any of its Subsidiaries, or any of their respective assets, properties or
operations or (C) any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or any material lease, permit, license or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or
<PAGE>
18
any of its Subsidiaries is bound or to which any of the assets, properties or
operations of the Company or any of its Subsidiaries is subject.
4.5 Consents. No consent, approval, authorization, order,
registration, filing or qualification of or with any (A) Governmental Authority,
(B) stock exchange on which the securities of the Company are traded or (C)
other Person (whether acting in an individual, fiduciary or other capacity) is
required to be made or obtained by the Company or any of its Subsidiaries for
the execution, delivery and performance by the Company of the Transaction
Agreements and the consummation of the transactions contemplated thereby, except
for the actions described in Section 3.1.2 and 3.1.6 and except consents which
are not material to the business or operations of the Company and its
Subsidiaries, taken as a whole.
4.6 Capitalization of the Company. The authorized capital
stock of the Company consists of: (A) 80,000,000 shares of Common Stock of which
4,693,337 shares are issued and outstanding; and (B) 7,500,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), of which
4,500,000 shares are designated as Series A 9 1/2% Cumulative Convertible
Preferred Stock (the "Series A Preferred") and 25,000 shares are designated as
Series A Junior Participating Preferred. There are not more than 3,881,261
shares of the Series A Preferred issued and outstanding. No other class of
capital stock of the Company is, or, other than the Securities, up to an
aggregate of $1,500,000 in value of Class B Preferred offered to the employees
of the Company (the "Employee Preferred") and such additional number of shares
of Class B Preferred as may be agreed to by the Purchasers in writing, at the
Closings will be issued. From the date hereof until the Initial Closing, except
for the
<PAGE>
19
issuance of the Securities and the Employee Preferred and the exercise of any
options or the conversion of the Preferred Stock described in the Disclosure
Letter, the Company will not issue any shares of its capital stock. All
outstanding shares of capital stock of the Company have been duly authorized,
are validly issued, fully paid and nonassessable and have been issued in
compliance with applicable federal and state securities laws. At the Initial
Closing, all of the Securities subject to such Closing will be duly authorized
and, when issued in accordance with this Agreement, will be validly issued,
fully paid and nonassessable. The stockholders of the Company have no preemptive
or similar rights with respect to the securities of the Company. Except as set
forth in the Disclosure Letter, there are no outstanding (i) securities or
obligations of the Company (other than the Series A Preferred) convertible into
or exchangeable for any capital stock of the Company, (ii) warrants (other than
414,105 warrants), rights (other than 4,693,337 Rights), or options to subscribe
for or purchase from the Company any such capital stock or any such convertible
or exchangeable securities or obligations or (iii) obligations of the Company to
issue such shares, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
4.7 Rights Plan. The Board of Directors has voted to redeem
the rights issued under the Rights Plan effective on the Closing Date, after
which such Rights Plan has no further force and effect.
4.8 Registration Rights. The Purchasers shall, by virtue of
their purchase of Securities hereunder and conversion thereof into Conversion
Shares in accordance with the terms of this Agreement and the Certificate of
Designations, be entitled to the rights of a holder under the Registration
Rights Agreement. Other than
<PAGE>
20
the Registration Rights Agreement and except as set forth in the Disclosure
Letter, neither the Company nor any of its Subsidiaries has previously entered
into any agreement granting any registration rights to any Person.
4.9 Subsidiaries. The Disclosure Letter sets forth a complete
and accurate list of all of the Subsidiaries of the Company together with their
respective jurisdictions of incorporation or organization. Except for its
Subsidiaries, the Company holds no equity, partnership, joint venture or other
interest in any Person. True and complete copies of the certificate of
incorporation, by-laws and other organizational documents of the Subsidiaries of
the Company as in effect on the date hereof have been provided by the Company to
the Purchasers. Each Subsidiary of the Company has been duly incorporated or
organized and is validly existing as a corporation or other legal entity in good
standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or other power and authority to own, lease and
operate its properties and to conduct its business as currently conducted and is
duly qualified to transact business as a foreign corporation or other legal
entity and is in good standing (if applicable) in each jurisdiction in which the
conduct of its business or its ownership, leasing or operation of property
requires such qualification, other than any failure to be so qualified or in
good standing as would not singly or in the aggregate with all such other
failures reasonably be expected to have a Material Adverse Effect. All of the
outstanding capital stock of each Subsidiary of the Company has been duly
authorized and validly issued, is fully paid and nonassessable and is owned by
the Company, directly or through other Subsidiaries of the Company (other than
directors' qualifying shares), free and clear of any Encumbrance (other than
such transfer restrictions as may
<PAGE>
21
exist under federal and state securities laws or any Encumbrances between or
among the Company and/or any Subsidiary of the Company or as may be reflected in
the financial statements included in the SEC Documents or described in the
Disclosure Letter), and there are no rights granted to or in favor of any third
party (whether acting in an individual, fiduciary or other capacity), other than
the Company or any Subsidiary of the Company, to acquire any such capital stock,
any additional capital stock or any other securities of any such Subsidiary.
Except as set forth in the SEC Documents, there exists no restriction, other
than those pursuant to applicable law or regulation, on the payment of cash
dividends by any Subsidiary.
4.10 SEC Documents.
(A) The Company has delivered true and complete copies
of all SEC Documents to the Purchasers.
(B) As of its filing date, each SEC Document filed,
and each SEC Document that will be filed by the Company prior to the Closing
Date, as amended or supplemented prior to the Closing Date, if applicable,
pursuant to the Exchange Act (i) complied or will comply in all material
respects with the applicable requirements of the Exchange Act and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(C) Each final registration statement filed with the
SEC pursuant to the Act, as of the date such statement or amendment became
effective (i) complied in all material respects with the applicable requirements
of the Act and
<PAGE>
22
(ii) did not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of any prospectus, in light of
the circumstances under which they were made).
4.11 Financial Statements.
(A) The audited consolidated financial statements and
related schedules and notes included in the SEC Documents comply in all material
respects with the requirements of the Exchange Act and the Act and the rules and
regulations of the SEC thereunder, were prepared in accordance with generally
accepted accounting principles consistently applied throughout the period
involved and fairly present in all material respects the financial condition,
results of operations, cash flows and changes in stockholders' equity of the
Company and its Subsidiaries at the dates and for the periods presented. The
Company previously delivered true and complete copies of the audited
consolidated financial statements and related schedules and notes of the Company
as of January 27, 1996 and January 28, 1995 and for each of the three years in
the period ended January 27, 1996 (the "1995 Audited Financial Statements").
Except as set forth in the Disclosure Letter, the 1995 Audited Financial
Statements comply in all material respects with the requirements of the Exchange
Act and the Act and the rules and regulations of the SEC thereunder, were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the period involved and fairly present in all
material respects the financial condition, results of operations, cash flows and
changes in stockholders' equity of the Company and its Subsidiaries at the dates
and for the periods presented. The unaudited quarterly consolidated financial
<PAGE>
23
information included in the SEC Documents were derived from financial statements
which fairly present in all material respects the financial condition, results
of operations and cash flows of the Company and its Subsidiaries at the dates
and for the periods to which they relate, subject to year-end adjustments
(consisting only of normal recurring accruals), and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis except as otherwise stated therein and have been prepared on a basis
consistent with that of the audited financial statements referred to above
except as otherwise stated therein.
(B) The unaudited monthly consolidated financial
statements for the month of November 1996 (the "Monthly Financial Statements")
previously delivered by the Company to the Purchasers fairly present in all
material respects the financial condition and results of operations of the
Company and its Subsid iaries at the dates and for the periods to which they
relate, subject to quarter-end and year-end adjustments (consisting only of
normal recurring accruals), and have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the monthly
financial statements of the Company for 1994 and 1995 except as otherwise stated
therein. Notwithstanding the foregoing, the Monthly Financial Statements do not
reflect an inventory shrinkage adjustment, which adjustment shall be an amount
not to exceed $560,000. Such inventory shrinkage adjustment shall be provided
for in the Monthly Financial Statements for the months of December 1996 and
January 1997. For each fiscal month after the date hereof and prior to the
Closing, beginning with December 1996, as soon as reasonably practicable and in
any event within 14 days after the end of each such fiscal month, the Company
shall prepare and
<PAGE>
24
deliver to the Purchasers monthly financial statements of the Company that shall
fairly present in all material respects the financial condition and results of
operations of the Company and its Subsidiaries at the dates and for the periods
to which they relate, subject to quarter-end and year-end adjustments
(consisting only of normal recurring accruals), prepared in accordance with
generally accepted accounting principles applied on a basis consistent with the
Monthly Financial Statements.
4.12 14(f) Notice. At the time the 14(f) Notice is first
mailed to the stockholders of the Company and filed with the SEC, it will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of circumstances
under which they were made, not misleading; provided that the Company makes no
representation or warranty with respect to (i) any statement or omissions
included in the 14(f) Notice based upon information furnished in writing to the
Company by or on behalf of the Purchasers specifically for use therein or (ii)
any portion thereof which is not deemed to be filed under applicable SEC rules
and regulations.
4.13 No Existing Violation, Default, Etc. None of the Company
nor any of its Subsidiaries is (A) in violation of any provision of its
certificate of incorporation, by-laws or other organizational documents or (B)
in violation of any applicable Law, stock exchange rule or regulation, which
violation has or would reasonably be expected to have a Material Adverse Effect.
Except as set forth in Schedule 4.13, no breach, event of default or event that,
but for the giving of notice or the lapse of time or both, would constitute an
event of default exists under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money,
<PAGE>
25
any guarantee of any agreement or instrument for borrowed money or any lease,
permit, license or other agreement to which the Company or any of its
Subsidiaries is a party or by which the Company or any such Subsidiary is bound
or to which any of the properties, assets or operations of the Company or any
such Subsidiary is subject, which breach, event of default, or event that, but
for the giving of notice or the lapse of time or both, would constitute an event
of default, has or would reasonably be expected to have a Material Adverse
Effect. Without giving effect to any waiver previously granted, there exists (i)
no event of default, (ii) no event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default and (iii) no event
that would require the Company or any of its Subsidiaries to prepay, redeem,
repurchase or offer to repurchase any of (a) its indebtedness existing under the
FINOVA Credit Facility, the GT Credit Facility or otherwise or (b) the Series A
Preferred.
4.14 Licenses and Permits. The Company and its Subsidiaries
have such Licenses as are necessary to own, lease or operate their properties
and to conduct their businesses in the manner described in the SEC Documents and
as currently owned or leased and conducted and all such Licenses are valid and
in full force and effect except such Licenses that the failure to have or to be
in full force and effect individually or in the aggregate has not had, and would
not reasonably be expected to have, a Material Adverse Effect. None of the
Company nor any of its Subsidiaries has received any written notice that any
violations are being or have been alleged in respect of any such License and no
proceeding is pending or, to the Knowledge of the Company, threatened, to
suspend, revoke or limit any such License the effect of which would reasonably
be expected to have a Material Adverse Effect. The Company and its
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26
Subsidiaries are in compliance with their respective obligations under such
Licenses, with such exceptions as individually or in the aggregate have not had,
and would not reasonably be expected to have, a Material Adverse Effect, and no
event has occurred that allows, or after notice or lapse of time would allow,
revocation, suspension, limitation or termination of such Licenses, except such
events as have not had, or would not reasonably be expected to have, a Material
Adverse Effect.
4.15 Title to Properties. The Company and its Subsidiaries
have sufficient title to all material properties (real and personal) owned by
the Company and any such Subsidiary that are necessary for the conduct of the
business of the Company and any such Subsidiary as described in the SEC
Documents and as currently conducted, free and clear of any Encumbrance that may
materially interfere with the conduct of its business, and all material
properties held under lease by the Company and the Subsidiaries are held under
valid, subsisting and enforceable leases except for such leases the loss of
which would not reasonably be expected to have a Material Adverse Effect.
4.16 Intellectual Property.
(A) The Company and each of its Subsidiaries owns or
is licensed to use all (i) patents, trademarks, trade names, service marks,
copyrights and any applications therefor and (ii) trade secrets, know-how,
computer software programs and proprietary information, in each case, that are
material to the conduct of the business of the Company and its Subsidiaries as
described in the SEC Documents and as currently conducted, free and clear of any
Encumbrance that may materially interfere with the conduct of their business
("Intellectual Property").
<PAGE>
27
(B) None of the Company, any of its Subsidiaries, nor,
to the Knowledge of the Company, any other party is in breach of or default
under any material licenses, sublicenses and agreements ("IP Licenses") under
which the Company or any of its Subsidiaries is either a licensor or licensee of
Intellectual Property. Each IP License is now, and immediately following the
consummation of the transactions herein contemplated will be, valid and in full
force and effect.
(C) No litigation is pending or, to the Knowledge of
the Company, threatened, that challenges the validity, enforceability or
ownership of, or right to use or license, any Intellectual Property, nor does
the Company or any Subsidiary know of any valid grounds for any such claim,
which would reasonably be expected to have a Material Adverse Effect.
(D) No item of Intellectual Property is subject to any
outstanding order, ruling, judgment, decree or agreement restricting the use
thereof by the Company or its Subsidiaries except for agreements made in the
ordinary course of business of the Company or its Subsidiaries. None of the
Company or any of its Subsidiaries has agreed to indemnify any person against
any charge of infringement or other violation with respect to any Intellectual
Property owned or used by the Company or any of its Subsidiaries except in the
ordinary course of business.
(E) To the Knowledge of the Company, none of the
Company or its Subsidiaries has infringed upon or otherwise violated the
intellectual property rights of third parties which would reasonably be expected
to have a Material Adverse Effect. None of the Company or its Subsidiaries has
received any complaint or notice alleging any such infringement or other
violation.
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28
(F) To the Company's knowledge, no third party is
infringing upon or otherwise violating the Intellectual Property rights of the
Company or any of its Subsidiaries which would reasonably be expected to have a
Material Adverse Effect.
(G) All material registered trademarks and copyrights
held by the Company or any of its Subsidiaries are valid and subsisting. The
Company and its Subsidiaries have taken all necessary action to maintain and
protect the Intellectual Property that they own or use other than such actions
taken in the ordinary course of business of the Company and its Subsidiaries
that would not reasonably be expected to have a material adverse effect on any
of the Intellectual Property.
4.17 Environmental Matters. Subject to such disclosures as
are contained in the SEC Documents:
(A) the Company and its Subsidiaries, and their
respective operations and properties, are and have been in compliance with all
applicable Environmental Laws except for such failures which, individually and
in the aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect.
(B) There is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to their
knowledge, threatened against the Company or any of its Subsidiaries pursuant to
Environmental Laws which could reasonably be expected to result in a fine,
penalty or other obligation, cost or expense, except such obligations, costs or
expenses which, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect.
<PAGE>
29
(C) There are no past or present events, conditions,
circumstances, activities, practices, incidents, agreements, actions or plans
which may prevent compliance by the Company or its Subsidiaries with, or which
have given rise to, or will give rise to, material liability to the Company or
any of its Subsidiaries under Environmental Laws, except any such events,
conditions, circumstances, activities, practices, incidents, agreements, actions
or plans which, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
(D) Any facts or circumstances that are the subject of
a written report provided to the Purchasers as a result of an environmental
investigation conducted by the Purchasers of the Company and its Subsidiaries
(the "Environmental Information") shall be deemed to amend the Disclosure Letter
as of the date hereof.
4.18 Taxes. The Company and its Subsidiaries have filed or
caused to be filed, or have properly filed extensions for, all material Tax
returns that are required to be filed and have paid or caused to be paid all
material Taxes as shown on said returns and on all material assessments received
by it to the extent that such Taxes have become due, except Taxes the validity
or amount of which is being contested in good faith by appropriate proceedings
and with respect to which adequate reserves, in accordance with generally
accepted accounting principles, have been set aside. The Company and its
Subsidiaries have paid or caused to be paid, or have established reserves that
the Company or such Subsidiaries reasonably believe to be adequate in all
material respects, for all Tax liabilities applicable to the Company and its
Subsidiaries for all fiscal years that have not been examined and reported on by
the taxing authorities (or closed by applicable statutes). There is no pending
examination of United States
<PAGE>
30
Federal income tax returns of the Company and its Subsidiaries. For purposes of
this Section 4.18, "Tax" or "Taxes" means any federal, state, county, local,
foreign and other taxes (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with contesting any proposed adjustments related to any of the foregoing.
4.19 Litigation. Except as set forth in SEC Documents filed
with the SEC prior to the date of this Agreement, there are no pending actions,
suits, proceedings, arbitrations or investigations against or affecting the
Company or any of its Subsidiaries or any of their respective properties, assets
or operations, or with respect to which the Company or any such Subsidiary is
responsible by way of indemnity or otherwise, that are required under the
Exchange Act to be described in such SEC Documents or that, if successful, could
singly, or in the aggregate, with all such other actions, suits, investigations
or proceedings, reasonably be expected to have a Material Adverse Effect and, to
the Knowledge of the Company, no such actions, suits, proceedings or
investigations are threatened.
4.20 Labor Matters. No labor disturbance by the employees of
the Company or any of its Subsidiaries that has had or that could reasonably be
expected to have a Material Adverse Effect exists or, to the Knowledge of the
Company, is threatened.
<PAGE>
31
4.21 Employee Benefits.
(A) Except for the plans set forth in the Disclosure
Letter (the "Benefit Plans"), there are no employee benefit plans or
arrangements of any type (including, without limitation, plans described in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
and the regulations thereunder ("ERISA")), under which the Company or any of its
Subsidiaries has or in the future could have directly, or indirectly through a
Commonly Controlled Entity (within the meaning of Sections 414(b), (c), (m) and
(o) of the Code), any material liability with respect to any current or former
employee of the Company, any of its Subsidiaries, or any Commonly Controlled
Entity. No such Benefit Plan is a "multiemployer plan" (within the meaning of
ERISA Section 4001(a)(3)).
(B) With respect to each Benefit Plan the Company has
delivered or made available to the Purchasers complete and accurate copies of
(i) all plan texts and agreements (as amended or modified to date), (ii) all
summary plan descriptions and similar material employee communications, (iii)
the most recent annual report (Form 5500 including, if applicable, Schedule B
thereto), (iv) the most recent annual and periodic accounting of plan assets,
(v) the most recent determination letter received from the Internal Revenue
Service and (vi) the most recent actuarial valuation.
(C) With respect to each Benefit Plan: (i) such
Benefit Plan has been maintained and administered at all times in material
compliance with its terms and applicable law and regulation; (ii) to the
Knowledge of the Company, no event has occurred and there exists no circumstance
under which the Company or any of its Subsidiaries could directly, or indirectly
through a Commonly Controlled Entity, incur
<PAGE>
32
any material liability under ERISA, the Code or otherwise (other than routine
claims for benefits and other liabilities arising in the ordinary course
pursuant to the normal operation of such Benefit Plan); (iii) there are no
actions, suits or claims (other than routine claims for benefits) pending or, to
the Knowledge of the Company, threatened, with respect to any Benefit Plan or
against the assets of any Benefit Plan with respect to which suits the Company
or any of its Subsidiaries could incur any material liability; (iv) all
contributions and premiums due and owing to any Benefit Plan have been made or
paid on a timely basis and no "accumulated funding deficiency", as defined in
Code Section 412, has been incurred, whether or not waived; (v) all
contributions made under any Benefit Plan have met the requirements for
deductibility under the Code, and all contributions that have not been made have
been properly recorded on the books of the Company or a Commonly Controlled
Entity thereof in accordance with generally accepted accounting principles and
(vi) if such Benefit Plan is intended to be qualified under Section 401(a) of
the Code, such Benefit Plan has been determined to be so qualified and each
trust created under such Benefit Plan has been determined to be exempt from tax
under Section 501(a) of the Code and no event has occurred since the date of
such determinations, including effective changes in laws or regulations or
modifications to the Benefit Plans, that would adversely affect such
qualification or tax exempt status.
(D) The Accumulated Postretirement Benefit Obligation
(as defined in Statement of Financial Accounting Standards No. 106) in respect
of post- retirement health and medical benefits for current and former employees
of the Company and its Subsidiaries, calculated as of December 31, 1995 on the
basis of reasonable
<PAGE>
33
actuarial assumptions in accordance with generally accepted accounting
principles, does not exceed $25,000.00. Except as set forth in the Separation
Agreement, no condition exists that would prevent the Company or any of its
Subsidiaries from amending or terminating any plan providing health or medical
benefits in respect of current or former employees of the Company or its
Subsidiaries.
(E) There is no contract, plan or arrangement (written
or otherwise) covering any employee or former employee of the Company or its
Subsidiaries that, individually or collectively, could give rise to the payment
by the Company or its Subsidiaries of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code other than transactions under
the Separation Agreement and provisions of the employment agreements with
William W. Mowbray and Jeffrey Gerstel.
(F) Except as set forth in Schedule 4.21(F), no
employee or former employee of the Company or its Subsidiaries will become
entitled to any bonus, retirement, severance, job security or similar benefit or
enhanced such benefit (including acceleration of vesting or exercise of an
incentive award) as a result of the transactions contemplated hereby.
4.22 Contracts. Except as set forth in Schedule 4.22, all of
the material contracts of the Company or any of its Subsidiaries that are
required to be described in the SEC Documents or to be filed as exhibits thereto
are described in the SEC Documents or filed as exhibits thereto and are in full
force and effect. True and complete copies of all such material contracts have
been delivered by the Company to the Purchasers. Neither the Company nor any of
its Subsidiaries nor, to the Knowledge
<PAGE>
34
of the Company, any other party is in breach of or in default under any such
contract except for such breaches and defaults as in the aggregate have not had,
and would not reasonably be expected to, have a Material Adverse Effect.
4.23 Contingent Liabilities. Except as fully reflected or
reserved against in the 1995 Audited Financial Statements, or disclosed in the
footnotes contained in such financial statements, the Company and its
Subsidiaries had no liabilities (including tax liabilities) at the date of such
financial statements, absolute or contingent, that were required by generally
accepted accounting principles consistently applied to be reflected or reserved
against in such 1995 Audited Financial Statements or disclosed in the footnotes
contained in such financial statements.
4.24 No Material Adverse Change. Except as set forth in
Schedule 4.24, since October 27, 1996: (A) the Company and its Subsidiaries have
not incurred any material liability or obligation (indirect, direct or
contingent), or entered into any material oral or written agreement or other
transaction, that is not in the ordinary course of business or that would
reasonably be expected to result in a Material Adverse Effect; (B) the Company
and its Subsidiaries have not sustained any loss or interference with its
business or properties from fire, flood, windstorm, accident or other calamity
(whether or not covered by insurance) that has had or that would reasonably be
expected to have a Material Adverse Effect; (C) there has been no material
change in the indebtedness of the Company and its Subsidiaries (other than
increases or decreases in working capital borrowings in the ordinary course of
business); (D) other than with respect to dividends required to be paid on the
outstanding Series A Preferred there has been no dividend or distribution of any
kind declared, paid or made by the Company or
<PAGE>
35
any of its Subsidiaries on any class of its capital stock; (E) neither the
Company nor any of its Subsidiaries has made (nor does it propose to make) (i)
any material change in its accounting methods or practices or (ii) any material
change in the depreciation or amortization policies or rates adopted by it, in
either case, except as may be required by law or applicable accounting
standards; and (F) there has been no event causing a Material Adverse Effect,
nor any development that would, singly or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
4.25 Finder's Fees. Except for Rodman & Renshaw, no broker,
finder or other party is entitled to receive from the Company or any of its
Subsidiaries any brokerage or finder's fee for the transactions contemplated by
the Transaction Agreements as a result of the actions of the Company, any of its
Subsidiaries, or any of its Affiliates.
4.26 Investment Company. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
4.27 Exemption from Registration; Restrictions on Offer and
Sale of Same or Similar Securities. Assuming the representations and warranties
of the Purchasers set forth in Section 5.4 hereof are true and correct in all
material respects, the offer and sale of the Securities made pursuant to this
Agreement will be exempt from the registration requirements of the Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Securities, engaged in (A) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Act), (B) any action involving a public offering within the meaning of
Section 4(2) of the Act, or (C) any other action that would require the
<PAGE>
36
registration under the Act of the offering and sale of the Securities pursuant
to this Agreement or that would violate applicable state securities or "blue
sky" laws with respect to the Securities. The Company has not made and will not
prior to the Closing make, directly or indirectly, any offer or sale of
Securities or of securities of the same or a similar class as the Securities if
as a result the offer and sale of the Securities contemplated hereby could fail
to be entitled to exemption from the registration require ments of the Act. As
used herein, the terms "offer" and "sale" have the meanings specified in Section
2(3) of the Act.
4.28 Full Disclosure. To the Knowledge of the Company, no
statement by the Company contained in this Agreement, the Disclosure Letter, the
SEC Documents or any other documents listed in the Disclosure Letter, or any
certificates, notices or consents delivered to the Purchasers in connection with
the purchase and sale of the Securities at or prior to the Closing, taken as a
whole, in light of the circumstances in which made, contains (or will contain)
an untrue statement of a fact material either individually or in the aggregate
to the Company and its Subsidiaries taken as a whole or omits (or will omit) to
state a fact material either individually or in the aggregate to the Company and
its Subsidiaries taken as a whole required to be stated therein or necessary to
make the statements made, in the light of the circumstances in which made, not
materially false or misleading.
<PAGE>
37
5. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS.
The Purchasers hereby represent and warrant to the Company that:
5.1 Existence and Power. Each Purchaser is duly organized,
validly existing and in good standing under the laws of the State of its
formation and has all requisite power and authority to own, lease and operate
its properties and to conduct its business as currently conducted.
5.2 Power and Authority. Each of the Purchasers has the full
power and authority to execute and deliver the Transaction Agreements to which
it is a party and to perform its obligations thereunder. The execution, delivery
and performance by each Purchaser of such Transaction Agreements and the
consummation by each Purchaser of the transactions contemplated thereby have
been duly authorized. Each of such Transaction Agreements has been duly executed
and delivered by each Purchaser and is a valid and binding agreement of each of
the Purchasers, enforceable against each of the Purchasers in accordance with
its terms.
5.3 No Contravention, Conflict, Breach, Etc. The execution,
delivery and performance by each Purchaser of the Transaction Agreements to
which it is a party and the consummation of the transactions contemplated
thereby will not conflict with, contravene or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (A) the
partnership agreement or other organizational documents of each such Purchaser,
(B) any Law of any Governmental Authority having jurisdiction over each such
Purchaser or (iii) any agreement to which each such Purchaser is a party.
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38
5.4 Acquisition for Own Account. The Securities to be acquired
by the Purchasers pursuant to this Agreement are being acquired by them for
their own accounts and with no intention of distributing or reselling the
Securities in any transaction that would be in violation of the Act or the
securities laws of any state, without prejudice, however, to the rights of the
Purchasers at all times to sell or otherwise dispose of all or any part of the
Securities under an effective registration statement under the Act, under an
exemption from such registration available under the Act, and subject,
nevertheless, to the disposition of the Purchasers' property being at all times
within their control, except as otherwise provided by this Agreement. The
Purchasers (A) have such knowledge, sophistication and experience in business
and financial matters that they are capable of evaluating the merits and risks
of an investment in the Securities, (B) fully understand the nature, scope and
duration of the limitations on transfer contained in this Agreement and (C) can
bear the economic risk of an investment in the Securities and can afford a
complete loss of such investment. The Purchasers acknowledge receipt of the SEC
Documents, the Disclosure Letter and all documents delivered in accordance
therewith and that they have been afforded the opportunity to ask such questions
as they deemed necessary, and to receive answers from, representatives of the
Company concerning the merits and risks of investing in the Securities and to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information contained in the SEC Documents.
Notwithstanding the foregoing, nothing contained in this Section 5.5 shall
affect or be deemed to modify any representation or warranty made by the
Company.
<PAGE>
39
5.5 Finder's Fee. Except for Rodman & Renshaw, Inc., no
broker, finder or other party is entitled to receive from the Company or any of
its Subsidiaries any brokerage or finder's fee for the transactions contemplated
by the Transaction Agreements as a result of the actions of the Purchasers.
5.6 Ownership of Common Stock. Except as otherwise disclosed
in writing to the Company prior to the execution of this Agreement, no Purchaser
owns beneficially (within the meaning of Rule 13d-3 of the Exchange Act) any
shares of Common Stock.
5.7 14(f) Notice. At the time the 14(f) Notice is first mailed
to the stockholders of the Company, the information furnished in writing to the
Company by or on behalf of the Purchasers specifically for use therein shall be
complete in all material aspects and shall not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of circumstances under which they were made,
not misleading; provided, however, that the Purchasers make no representation or
warranty with respect to any portion thereof which is not deemed to be filed
under applicable SEC rules and regulations.
6. COVENANTS OF THE PARTIES.
6.1 Pre-Closing Activities. From and after the date of this
Agreement until the Initial Closing, each of the Company and the Purchasers
shall act with good faith towards, and shall use its reasonable efforts to
consummate, the transactions contemplated by this Agreement, and neither the
Company nor the Purchasers will take any action that would prohibit or impair
its ability to consummate
<PAGE>
40
the transactions contemplated by this Agreement, subject to the fiduciary duties
of the Board of Directors of the Company under Delaware law. From the date
hereof until the Initial Closing, the Company shall conduct the business of it
and its Subsidiaries in the ordinary course and shall use all reasonable efforts
to preserve intact its business organizations and relationships with third
parties and, except as otherwise provided herein or in the Separation Agreement,
to keep available the services of the present directors, officers and key
employees. Without limiting the generality of the foregoing, from the date
hereof until the Initial Closing, except as contemplated by this Agreement or as
permitted by Section 6.6, without the Purchasers' prior written consent:
(A) the Company shall not, and shall cause each of its
Subsidiaries not to, adopt or propose (or agree to commit to) any change
in the certificate of incorporation or by-laws of the Company or any of
such Subsidiaries;
(B) the Company shall not, and shall cause each of its
Subsidiaries not to, (i) enter into any loan agreement or other agreement
pursuant to which the Company or such Subsidiary incurs indebtedness for
borrowed money in excess of $250,000 (other than any such agreement among
the Company and its wholly owned Subsidiaries or among the Company's
wholly owned Subsidiaries) or (ii) amend any such existing agreement
(other than to increase the amount available for borrowing under and amend
the terms of the GT Credit Facility and the FINOVA Facility up to a
maximum of $50 million);
(C) the Company shall not, and shall cause each of its
Subsidiaries not to, sell any of the assets of the Company or such
Subsidiaries (or
<PAGE>
41
the securities of entities holding the same) in one transaction or a
series of related transactions, where the total consideration to be
received by the Company and its Subsidiaries exceeds $250,000 (other than
in the ordinary course of business of the Company and its Subsidiaries);
(D) other than in the ordinary course of business of the
Company consistent with past practice or as set forth in the Separation
Agreement, the Company shall not, and shall cause each of its Subsidiaries
not to, acquire any assets of any other Person or Persons or acquire any
equity, partnership or other interests in any other Person or Persons, in
one transaction or series of related transactions, where the total
consideration to be paid by the Company and its Subsidiaries exceeds
$100,000;
(E) except for required payments under the FINOVA Credit
Facility or the GT Credit Facility, the Company shall not, and shall cause
each of its Subsidiaries not to, repay, redeem or repurchase any
indebtedness of the Company or any of the Subsidiaries or any shares of
capital stock of the Company;
(F) except for the transactions contemplated by the
Separation Agreement or as agreed to by the Purchasers in writing, the
Company shall not, and shall cause each of its Subsidiaries not to, enter
into any transaction with any director, executive officer or Affiliate
(other than any transaction among the Company and its wholly-owned
Subsidiaries or among any wholly-owned Subsidiaries of the Company) of the
Company out of the ordinary course of its business;
<PAGE>
42
(G) the Company shall not, and shall cause each of its
Subsidiaries not to, (i) grant to any employee any increase in salary or
other remuneration not consistent with past practices or any increase in
severance or termination pay; (ii) grant or approve any general increase
in salaries of all or a substantial portion of its employees not
consistent with past practice; (iii) pay or award any bonus, incentive,
compensation, service award or other like benefit for or to the credit of
any employee except in accordance with written policy or consistent with
past practice; or (iv) except as set forth in the Separation Agreement,
enter into any employment contract or severance arrangement with any
employee except in accordance with written policy or consistent with past
practice or adopt or amend in any material respect any of its employee
benefit plans except as required by law;
(H) the Company shall, and shall cause each of its
Subsidiaries to, not take or agree to commit to take any action that would
make any representation or warranty of the Company hereunder required to
be true at and as of the Initial Closing as a condition to the Purchasers'
obligations to consummate the transactions contemplated hereby, inaccurate
at the Initial Closing; and
(I) except as permitted by the FINOVA Credit Facility
and the GT Credit Facility and in the ordinary course of business
consistent with past practice, the Company shall not, and shall cause its
Subsidiaries not to, agree to expend, commit or otherwise obligate itself
to make any capital expenditures.
<PAGE>
43
6.2 Stock Exchange Listing. Upon demand of the Purchasers,
the Company shall take all actions, if necessary, to cause the Conversion Shares
to be listed on the NASDAQ Small-Cap Market.
6.3 14(f) Notification.
(A) The Company: (i) shall promptly prepare, file
with the SEC and mail to its stockholders the 14(f) Notice in accordance with
Rule 14f-1 under the Exchange Act and (ii) shall otherwise comply with all legal
requirements applicable to the activities described in Section 3.1.2. The
Company shall make available to the Purchasers copies of the 14(f) Notice prior
to the filing thereof with the SEC or mailing thereof to the stockholders of the
Company and shall make any changes therein reasonably requested by the
Purchasers insofar as such changes relate to any matters relating to the
Purchasers or the description of the transactions contemplated by the
Transaction Agreements.
(B) The Purchasers shall promptly provide to the
Company such information concerning the individuals listed on Schedule 3.1.2B as
the Company shall reasonably request for the purpose of complying with its
obligations under Section 6.3(A).
6.4 Access. Upon reasonable notice prior to the Initial
Closing, the Company shall (and shall cause each of its Subsidiaries to) afford
the Purchasers and the Representatives reasonable access during normal business
hours to its properties, books, contracts and records and personnel and advisors
(who will be instructed by the Company to cooperate), and the Company shall (and
shall cause each of the Subsidiaries to) furnish promptly to the Purchasers all
information concerning its business, properties
<PAGE>
44
and personnel as the Purchasers or the Representatives may reasonably request;
provided, however, that any review will be conducted in a way that will not
interfere unreasonably with the conduct of the Company's business, and provided,
further, however, that no review pursuant to this Section 6.3 shall affect or be
deemed to modify any representa tion or warranty made by the Company.
6.5 Publicity. Except as required by law, regulation or stock
exchange requirements, neither (A) the Company or any of its Affiliates nor (B)
the Purchasers or any of their respective Affiliates shall, without the consent
of the other, make any public announcement or issue any press release with
respect to the transactions contemplated by the Transaction Agreements. In no
event will either (i) the Company or any of its Affiliates or (ii) the
Purchasers or any of their respective Affiliates make any public announcement or
issue any press release without consulting with the other party, to the extent
feasible, as to the content of such public announcement or press release.
6.6 Acquisition Proposals. From the date hereof until the
earlier of the Initial Closing or the termination of this Agreement, the Company
shall not, directly or indirectly, take (nor shall the Company authorize or
permit its officers, directors, employees, representatives, investment bankers,
attorneys, accountants or other agents or affiliates, to take) any action to:
solicit or initiate the submission of any Acquisition Proposal, or enter into
any agreement with respect to or propose any Acquisition Proposal or participate
in any way in discussions or negotiations with, or furnish any information to,
any Person (other than the Purchasers or any of their partners or their
respective officers, directors, employees, representatives, investment bankers,
<PAGE>
45
attorneys, accountants, other agents or Affiliates) in connection with, or take
any other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal.
The Company shall give immediate telephonic notice to the Purchasers (promptly
followed by written notice) of its receipt of any Acquisition Proposal or of any
inquiry or request for information contemplating an Acquisition Proposal. The
Company shall keep the Purchasers informed, on a current basis, of the status of
any Acquisition Proposal and any negotiations or discussions relating to such a
proposal. Except as required by law, the Company agrees that it shall not
disclose to any Person any written information furnished to it by the Purchasers
or any of their Representatives (including, without limitation, TCR and Paul,
Weiss, Rifkind, Wharton & Garrison).
6.7 Certificates for Securities, Exchange Notes and
Conversion Shares To Bear Legends.
(A) So long as the Securities are not sold pursuant to
an effective registration statement under the Act or pursuant to Rule 144 under
the Act, the Securities shall be subject to a stop-transfer order and the
certificates therefor shall bear the following legend by which each holder
thereof shall be bound:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION
FROM REGISTRATION THEREUNDER."
<PAGE>
46
(B) So long as the Conversion Shares are not sold
pursuant to an effective registration statement under the Act or pursuant to
Rule 144 under the Act, the Conversion Shares shall be subject to a
stop-transfer order and the certificates therefor shall bear the following
legend by which each holder thereof shall be bound:
"THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES OR
OTHER SECURITIES ISSUABLE UPON EXCHANGE HEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION
FROM REGISTRATION THEREUNDER.
(C) So long as the Exchange Notes are not sold
pursuant to an effective registration statement under the Act or pursuant to
Rule 144 under the Act, the Exchange Notes shall be subject to a stop-transfer
order and the certificates therefor shall bear the following legend by which
each holder thereof shall be bound:
"THESE NOTES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER.
6.8 Removal of Legends. After termination of the requirement
that all or part of such legend be placed upon a certificate, the Company shall,
upon receipt by the Company of evidence reasonably satisfactory to it that such
requirement has terminated and upon the written request of the holders of the
Securities, Conversion
<PAGE>
47
Shares or Exchange Notes issued with respect to the Securities, issue
certificates for such Securities or Conversion Shares or Exchange Notes, as the
case may be, that do not bear such legend.
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS.
The representations, warranties, covenants and agreements contained
herein shall survive the execution and delivery of this Agreement and the
Closing hereunder.
8. INDEMNIFICATION.
8.1 Indemnification by the Company. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless the Purchasers, their partners and their respective
Affiliates and the respective officers, directors, agents, employees,
subsidiaries, partners, advisors, representatives and controlling Persons of
each of the foregoing (each, an "indemnified party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel) or other
liabilities ("Liabilities") resulting from any legal, administrative or other
actions brought by any Person or entity (including actions brought by the
Company or any equity or debt holders of the Company or derivative actions
brought by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, the
transactions contemplated hereby, or any indemnified party's role therein or in
the transactions contemplated hereby; provided,
<PAGE>
48
however, that nothing contained in this Section 8.1 shall be construed as a
guarantee by the Company with respect to the value of the Securities being
purchased by the Purchasers hereunder or indemnification of the Purchasers
against any diminution in value thereof which may occur; provided, further,
however, that the Company shall not be liable under this Section 8.1 to an
indemnified party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the willful malfeasance of such
indemnified party; and provided, further, however, that if and to the extent
that such indemnification is unenforceable for any reason other than the
immediately preceding proviso, the Company shall make the maximum contribution
to the payment and satisfaction of such indemnified Liabilities that shall be
permissible under applicable laws. In connection with the obligation of the
Company to indemnify for Liabilities as set forth above, the Company further
agrees to reimburse each indemnified party for all such expenses (including
reasonable fees, disbursements and other charges of counsel) as they are
incurred by such indemnified party.
8.2 Notification. Each indemnified party under this Section 8
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such indemnified party in respect of which indemnity
may be sought from the Company hereunder, notify the Company in writing of the
commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability that
it may have to such indemnified party unless the Company is materially
prejudiced thereby. In case any such action or other proceeding shall be brought
against any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to
<PAGE>
49
participate therein and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that any indemnified party may, at its own expense, retain
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action or proceeding in which both the Company and an indemnified party
is, or is reasonably likely to become, a party, such indemnified party shall
have the right to employ separate counsel at the Company's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such indemnified party, there are or may be legal defenses
available to such indemnified party or to other indemnified parties that are
different from or additional to those available to the Company which, if the
Company and such indemnified party were to be represented by the same counsel,
would constitute a conflict of interest for such counsel or materially prejudice
the prosecution of the defenses available to such indemnified party; provided,
however, that in no event shall the Company be required to pay fees and expenses
under this Article 8 for more than one firm of attorneys representing the
indemnified parties (together, if appropriate, with one firm of local counsel
per jurisdiction) in any one legal action or group of related legal actions; and
provided, further, however, that the Company shall only be liable for the fees
and expenses of separate counsel with respect to such different or additional
defenses and such indemnified party shall instruct such separate counsel to
cooperate with the Company's counsel in order to reduce the fees and expenses
for which the Company is liable. The Company shall not be liable for any
settlement of such action or proceeding effected without its prior written
consent, not to be unreasonably withheld. The Purchasers agree that they will
not, without the prior written consent of the Company,
<PAGE>
50
not to be unreasonably withheld, settle, compromise or consent to the entry of
any judgment in any pending or threatened claim, action or proceeding relating
to any matter subject to indemnification hereunder unless such settlement,
compromise or consent includes an unconditional release of the Company and each
other indemnified party from all liability arising or that may arise out of such
claim, action or proceeding and the Purchasers and each other indemnified party
are not obligated to take or forego taking any action, including the payment of
money, thereunder. The rights accorded to indemnified parties hereunder shall be
in addition to any rights that any indemnified party may have at common law,
under federal and state securities laws, by separate agreement or otherwise.
9. TERMINATION.
9.1 Termination. Subject to Section 9.2, this Agreement may
be terminated at any time prior to the Initial Closing:
(A) by the Purchasers if there has been a material
breach of any representation, warranty, covenant or agreement of the Company
contained in this Agreement, which breach is incurable or has not been cured by
the Company within 15 days after written notice from the Purchasers;
(B) by the Company if there has been a material breach
of any representation, warranty, covenant or agreement of the Purchasers
contained in this Agreement, which breach is incurable or has not been cured by
the Purchasers within 15 days after written notice from the Company;
<PAGE>
51
(C) by the Purchasers if any one or more of the
conditions to the obligation of the Purchasers to close has not been fulfilled
as of the scheduled Closing Date;
(D) by the Company if any one or more of the
conditions to the obligation of the Company to close has not been fulfilled as
of the scheduled Closing Date;
(E) by the Company or the Purchasers, if the Initial
Closing shall not have occurred on or before January 14, 1997; provided,
however, that the right to terminate this Agreement under this Section 9.1(E)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date;
(F) by the Company or the Purchasers, if any judgment,
injunction, order or decree enjoining the Company or the Purchasers from
consummating the transactions contemplated by a Transaction Agreement is entered
and such judgment, injunction, order or decree becomes final and nonappealable;
provided, however, that the party seeking to terminate this Agreement must use
all reasonable efforts to remove such judgment, injunction, order or decree; and
(G) by mutual written consent of the Company and the
Purchasers.
9.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except (A) to the extent such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or
<PAGE>
52
agreements set forth in this Agreement and (B) that the covenants and agreements
contained in Section 6.5 shall survive the termination hereof.
10. MISCELLANEOUS.
10.1 Performance; Waiver. The provisions of this Agreement may
be modified or amended, and waivers and consents to the performance and
observance of the terms hereof may be given by written instrument executed and
delivered by the Company and (A) prior to the Initial Closing, by the Purchasers
and (B) after the Initial Closing by the holder or holders of the Securities
representing 66-2/3% of the aggregate outstanding Securities. The failure at any
time to require performance of any provision hereof shall in no way affect the
full right to require such performance at any time thereafter (unless
performance thereof has been waived in accordance with the terms hereof for all
purposes and at all times by the parties to whom the benefit of such performance
is to be rendered). The waiver by any party to this Agreement of a breach of any
provision hereof shall not be taken or held to be a waiver of any succeeding
breach of such provision of any other provision or as a waiver of the provision
itself.
10.2 Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of the parties hereto shall bind,
and inure the benefit of, the respective successors and assigns of the parties
hereto; provided, however, that the rights and obligations of either party
hereto may not be assigned without the prior written consent of the other
parties except that assignments of all or a
<PAGE>
53
portion of the Purchasers' rights hereunder may be made by the Purchasers
following the Initial Closing in connection with transfers of the Securities.
10.3 Notices. All notices or other communications given or
made hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
If to the Company:
Family Bargain Corporation
4000 Ruffin Road
San Diego, California 92123-1866
Telecopy: (619) 637-4180
Attention: William W. Mowbray
with copies to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telecopy: (212) 878-8375
Attention: David W. Bernstein, Esq.
If to the Purchasers:
Three Cities Research, Inc.
135 East 57th Street
New York, New York 10022
Telecopy: (212) 980-1142
Attention: J. William Uhrig
<PAGE>
54
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Robert M. Hirsh, Esq.
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
10.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS IN
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
10.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, each of the Company and the Purchasers directs
that such court interpret and apply the remainder of this Agreement in the
manner that it determines most closely effectuates their intent in entering into
this Agreement, and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
10.6 Headings; Interpretation. The index and section
headings herein are for convenience only and shall not affect the construction
hereof. References
<PAGE>
55
to sections means sections of this Agreement unless the context otherwise
requires. References to herein or hereof mean this Agreement.
10.7 Entire Agreement. The Transaction Agreements embody the
entire agreement between the parties relating to the subject matter hereof and
supersede any and all prior oral or written agreements, representations or
warranties, contracts, understandings, correspondence, conversations, and
memoranda, whether written or oral, between the Company and the Purchasers, or
between or among any agents, representatives, parents, Subsidiaries, Affiliates,
predecessors in interest or successors in interest, with respect to the subject
matter hereof (including, without limitation, the letter agreement heretofore
executed between the Company and TCR, except for the provisions regarding
confidentiality contained therein).
10.8 No Third Party Rights. Except for the indemnified
parties, directors and officers described in Article 8 and the rights of such
Persons expressly created under Article 8, this Agreement is intended solely for
the benefit of the parties hereto and is not intended to confer any benefits
upon, or create any rights in favor of, any Person (including, without
limitation, any stockholder or debtholder of the Company or any of the
Purchasers) other than the parties hereto.
10.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and both of which
together shall be deemed to be one and the same instrument.
<PAGE>
56
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date last set forth above.
FAMILY BARGAIN CORPORATION
By: /s/ Jeffrey Gerstel
--------------------------------------
Name: Jeffrey Gerstel
Title: Exec VP
THREE CITIES FUND II, L.P.
By: TCR Associates, L.P.,
as General Partner
By: /s/ J. William Uhrig
--------------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
THREE CITIES OFFSHORE II C.V.
By: TCR Associates Offshore, L.P.,
as General Partner
By: /s/ J. William Uhrig
--------------------------------------
Name: J. William Uhrig
Title: General Partner
TERFIN INTERNATIONAL LTD.
By: /s/ J. William Uhrig
--------------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
<PAGE>
Schedule 2.2
SECURITIES
Number
of
Purchaser Securities
--------- ----------
Three Cities Fund II, L.P. 6,540
Three Cities Offshore II C.V. 11,060
Terfin International Ltd. 4,400
------
Total 22,000
The remaining 5,000 shares shall be allocated among the Purchasers (and/or other
designees as determined by the Purchasers); provided that the Purchasers shall
be jointly and severally liable for the payment of the Purchase Price Per
Security for such shares from and after the Initial Closing.
<PAGE>
Schedule 3.1.2A
RESIGNING DIRECTORS
1. Benson A. Selzer
2. Joseph Eiger
3. John A. Selzer
<PAGE>
Schedule 3.1.2B
NOMINEES TO BOARD OF DIRECTORS
1. J. William Uhrig
2. H. Whitney Wagner
3. Thomas G. Weld
<PAGE>
Schedule 4.13
EXISTING VIOLATIONS, DEFAULTS, ETC.
None.
<PAGE>
Schedule 4.21(F)
ADDITIONAL OR ENHANCED BENEFITS
None.
<PAGE>
Schedule 4.22
CONTRACTS
None.
<PAGE>
Schedule 4.24
MATERIAL CHANGES
None.
Exhibit 3
---------
SECURITIES PURCHASE AGREEMENT
by and between
BENSON A. SELZER, JOSEPH EIGER, JOHN A. SELZER,
DUTFORD LIMITED and COPLEX FOUNDATION
and
THE PURCHASERS
December 30, 1996
<PAGE>
THIS SECURITIES PURCHASE AGREEMENT is made this ___ day of December,
1996, by and between the Purchasers listed on the signature pages hereof (the
"Purchasers") and Benson A. Selzer ("BAS"), Joseph Eiger ("JE"), John A. Selzer
("JAS") (BAS, JE and JAS are sometimes referred to herein as the "Selzer/Eiger
Group"), Dutford Limited, a British Virgin Islands corporation ("Dutford"), and
Coplex Foundation, a not-for-profit organization ("Coplex" and, together with
Dutford, the "Affiliates").
W I T N E S S E T H
WHEREAS, each of BAS, JAS and the Affiliates own certain equity
securities of Family Bargain Corporation, a Delaware corporation (the
"Company"), as more fully described herein (collectively, the "Equity
Securities").
WHEREAS, the parties desire for the Purchasers to purchase the
Equity Securities in accordance with the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto, each intending to be legally bound, hereby agree
as follows:
1. Purchase and Sale of Equity Securities. BAS, JAS and the
Affiliates hereby agree to sell to the Purchasers, and the Purchasers hereby
agree to purchase from BAS, JAS and such Affiliates, the Equity Securities, as
set forth in Schedule 1 hereof, BAS, JAS and such Affiliates shall deliver such
Equity Securities
<PAGE>
to the Purchasers, free and clear of all liens, security interests, pledges,
claims and encumbrances of every kind, nature and description.
2. Consideration to BAS and JAS and the Affiliates. In consideration
of the sale to the Purchasers of the Equity Securities, the Purchasers will
deliver on the Closing Date (as defined herein) to BAS, JAS and the Affiliates,
by wire transfer, to the bank account or bank accounts designated in writing by
BAS, JAS and the Affiliates on Schedule 2, $2,990,000.00 (the "Cash
Consideration").
3. Representations and Warranties by BAS, JE and JAS. As material
inducement for the Purchasers to enter into this Agreement, each of BAS and JAS
hereby jointly and severally represents and warrants to the Purchasers (for
himself only, except that each of BAS, JE and JAS make the representations and
warranties in subparagraphs (b) and (c) for himself and each of the Affiliates)
as follows:
a. That he is not aware of any breaches of representations,
warranties or covenants given by either him or the Company in any of the
agreements listed on Schedule 3(a) (the "Related Agreements').
b. That he and each of the Affiliates has full power and
authority to consummate the transactions contemplated by this Agreement; that
the Agreement, and to the extent he or any of the Affiliates is a party thereto,
the Related Agreements, constitute the valid and binding obligations of him and
such Affiliates, enforceable against them in accordance with their respective
terms; that neither the execution and delivery of this Agreement and the Related
Agreements, nor the consummation of the transactions contemplated herein or
therein in the manner herein
2
<PAGE>
or therein provided, will violate any agreement to which he or any of the
Affiliates is a party or by which he or any of the Affiliates is bound, or any
law, order, decree or judgment applicable to him or any of the Affiliates; that
any authorization, approval or consent of any third party that is required for
the lawful execution, delivery and performance of this Agreement and the Related
Agreements by him or the Affiliates has been obtained; and that the execution,
delivery and performance of this Agreement has been duly authorized by all
necessary corporate action on the part of the Affiliates.
c. That he and each of the Affiliates transfers the Equity
Securities attributed to him or it on Schedule 1 attached hereto, free and clear
of all liens, security interests and claims and encumbrances of every kind,
nature and description, and neither he nor any of the Affiliates owns, claims
ownership of or is the beneficial owner, directly or indirectly, of shares of
capital stock, or owns or claims ownership or right to any options or other
rights to purchase shares of capital stock, of the Company other than those
identified on Schedule 1.
4. Representations and Warranties by the Purchasers. As material
inducement for the members of Selzer/Eiger Group and the Affiliates to enter
into this Agreement, the Purchasers hereby represent and warrant to the
Selzer/Eiger Group and the Affiliates as follows:
a. That the Purchasers have full power and authority to
consummate the transactions contemplated by this Agreement.
3
<PAGE>
b. That this Agreement and the Related Agreements constitute
the legal, valid, and binding obligations of the Purchasers, enforceable against
them in accordance with their respective terms.
c. That neither the execution and delivery of this Agreement
and the Related Agreements, nor the consummation of the transactions
contemplated herein or therein in the manner provided herein or therein,
respectively, will violate any agreement to which any Purchaser is a party or by
which it or any of its property or assets is bound, or any law, order, decree or
judgment applicable to any Purchaser, or any provision of their certificate of
incorporation or by-laws, and that no authorization, approval or consent of any
third party is required for the lawful execution, delivery and performance of
this Agreement and the Related Agreements by any Purchaser.
d. That the execution, delivery, and performance of this
Agreement and the Related Agreements have been duly authorized by all necessary
corporate action on the part of each Purchaser.
e. That the Purchasers are purchasing the Equity Securities
for purposes of investment and not with a view toward the distribution thereof.
5. Indemnification by the Members of the Selzer/Eiger Group. Each of
BAS, JE, JAS and the Affiliates agrees to jointly and severally indemnify and
hold harmless the Purchasers from and against any claims, losses, costs
(including, without limitation, reasonable legal, witness and expert fees and
disbursements and other charges of counsel (collectively "Legal Fees")),
expenses, liabilities, damages or expenses arising from or relating to any
material misrepresentation or breach of any
4
<PAGE>
material covenant, warranty or agreement made by him in this Agreement or in any
Related Agreements or in connection with the enforcement of this paragraph.
6. Indemnification by the Purchasers. The Purchasers hereby agree to
indemnify and hold harmless BAS, JE and JAS and the Affiliates from and against
any claims, losses, costs (including Legal Fees), expenses, liabilities or
damages or expenses (including Legal Fees) arising from or relating to any
material misrepresentation or breach of any material covenant, warranty or
agreement made by any Purchaser in this Agreement or in any Related Agreements
or in connection with the enforcement of this paragraph.
7. Termination. This Agreement may be terminated by BAS, JAS
or any Affiliate or the Purchasers, if the Company Securities Agreement (as
defined herein) is terminated.
8. Cooperation. The Purchasers, on the one hand, and BAS, JE and JAS
and the Affiliates, on the other hand, shall, upon the reasonable request of the
other and without compensation, cooperate, including testifying in any relevant
proceeding, with the other in defending litigation to which any Purchasers or
the Selzer/Eiger Group and the Affiliates, as a result of their involvement with
any Purchaser, is a party; provided, however, that any party who agrees to so
testify shall be reimbursed for their reasonable out-of-pocket expenses, so long
as the nature of such expenses is approved in advance by the Purchasers or the
Selzer/Eiger Group, as the case may be, and is incurred in connection with such
testimony.
5
<PAGE>
9. Deliveries.
a. BAS, JAS and Affiliate Deliveries. On the Closing Date,
BAS, JAS and the Affiliates have delivered or caused to be delivered to the
Purchasers certificates for the Equity Securities, endorsed by the holder
thereof in blank or with stock transfer powers executed by the holder thereof in
blank attached.
b. Purchasers Delivery. On the Closing Date, the Purchasers
shall deliver to BAS, JAS and/or the Affiliates the Cash Consideration by wire
transfer, in immediately available funds, to such account or accounts as are
designated in writing and delivered before the Closing Date to the Purchasers.
10. Miscellaneous.
a. Indulgences, Etc. Neither the failure nor any delay on the
part of any party to execute any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
b. Controlling Law. THIS AGREEMENT AND ALL
QUESTIONS RELATING TO ITS VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT
(INCLUDING, WITHOUT LIMITATION, PROVISIONS CONCERNING LIMITATIONS OF ACTIONS),
6
<PAGE>
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
c. Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
personally delivered, or on the next business day when deposited with a
reputable overnight courier service, such as Federal Express, for delivery to
the intended addressee. All notices shall be addressed as follows:
(i) If to the Purchasers:
c/o Three Cities Research, Inc.
135 East 57th Street
New York, New York 10022
Attn.: J. William Uhrig
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Robert M. Hirsh, Esq.
(ii) If to the Selzer/Eiger Group or any of the
Affiliates:
c/o The Selzer/Eiger Group
315 East 62nd Street, 6th Floor
New York, NY 10021
Attn.: John Selzer
with a copy to:
Baer, Marks & Upham LLP
805 Third Avenue
New York, NY 10022
Attention: Joel M. Handel, Esq.
7
<PAGE>
Any person may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this subparagraph for the giving of notice, and such alteration
shall become effective upon actual receipt.
d. Binding Nature of Agreement; No Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, personal representatives, successors and assigns,
except that no party may assign or transfer its rights nor delegate its duties
under this Agreement without the prior written consent of the other parties
hereto.
e. Execution in Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed to be an original as against the
party whose signature appears thereon, and both of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one (1) or more counterparts hereof, individually or taken together, shall bear
the signatures of each of the parties reflected hereon as the signatories.
f. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provisions shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other or others of them may be invalid or unenforceable in whole or
in part.
g. Paragraph Headings. The Paragraph and subparagraph headings
in this Agreement are for convenience of reference only; they form no part of
this Agreement and shall not affect its interpretation.
8
<PAGE>
h. Gender, Etc. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
i. Number of Days. In computing the number of days for
purposes of this Agreement, only business days shall be counted.
j. Exhibits and Schedules. All Exhibits and Schedules attached
hereto are hereby incorporated by reference into, and made a part of, this
Agreement.
k. Affiliate. When the term affiliate is used in this
Agreement with a lower case "all," such term shall have the meaning ascribed to
it in Rule 251 of the Rules and Regulations promulgated pursuant to the
Securities Act of 1933, as amended.
l. Entire Agreement. This Agreement and the Related Agreements
contain the entire understanding among the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral or
written, except as herein and therein contained. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
m. Closing. The closing (the "Closing") with respect to this
Agreement shall occur concurrently with the Initial Closing (as defined in the
9
<PAGE>
Securities Purchase Agreement, dated December 30, 1996 (the "Company Securities
Purchase Agreement"), between the Company and the Purchasers) of the Company
Securities Purchase Agreement, at the offices of Baer, Marks & Upham LLP, 805
Third Avenue, New York, New York 10022, or at such other date and such other
place as the parties hereto shall agree (the "Closing Date").
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
Purchasers: THREE CITIES FUND II, L.P.
By: TCR Associates, L.P.,
as General Partner
By: /s/ J. William Uhrig
-----------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
THREE CITIES OFFSHORE II C.V.
By: TCR Associates Offshore, L.P.,
as General Partner
By: /s/ J. William Uhrig
-----------------------------------
Name: J. William Uhrig
Title: General Partner
TERFIN INTERNATIONAL LTD.
By: /s/ J. William Uhrig
-----------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
Selzer/Eiger Group: /s/ Benson A. Selzer
---------------------------------------
BENSON A. SELZER
/s/ Joseph Eiger
---------------------------------------
JOSEPH EIGER
/s/ John A. Selzer
---------------------------------------
JOHN A. SELZER
11
<PAGE>
Affiliates: COPLEX CORPORATION
/s/ Benson A. Selzer
By: /s/ Joel Handel
-----------------------------------
Name:
Title:
Attest:
-------------------------------
DUTFORD LIMITED
By: /s/ Joel Handel
-----------------------------------
Name:
Title: Attorney-In-Fact
Attest:
-------------------------------
12
<PAGE>
SCHEDULE 1
EQUITY SECURITIES
Cash
Seller Securities of the Company Consideration
Benson A. Selzer 342,140 shares of common stock
23,225 shares of Series A Preferred $ 1,254,524
John A. Selzer 30,500 shares of Series A Preferred 378,108
Dutford Limited 301,640 shares of common stock 850,369
Coplex Foundation 25,000 shares of common stock
35,000 shares of Series A Preferred 506,999
-------------
$ 2,990,000
=============
OPTIONS TO PURCHASE
COMMON STOCK OF THE COMPANY
EXERCISE PRICE
$1.38 $3.63
----- -----
Benson A. Selzer 163,917 350,000
Joseph Eiger 163,917 350,000
John A. Selzer 75,883 175,000
<PAGE>
SCHEDULE 2
WIRE TRANSFER INSTRUCTIONS
<PAGE>
SCHEDULE 3(a)
RELATED AGREEMENTS
1. Separation Agreement, dated December 30, 1996, by and between Benson A.
Selzer, Joseph Eiger and John Selzer and Family Bargain Corporation ("FBC").
2. Securities Purchase Agreement, dated December 30, 1996, by and among FBC and
the Purchasers listed on Schedule 2.2 thereof.
3. Registration Rights Agreement, dated as of January __, 1997, among FBC,
Three Cities Fund II, L.P., Three Cities Offshore II C.V. and Terfin
International Ltd.
4. Agreement Not to Compete, dated December 30, 1996, by each of Joseph Eiger,
Benson A. Selzer and John A. Selzer for the benefit of FBC.
5. Non-Compete Agreement, dated January ___, 1997, by and between FBC and
Benson A. Selzer.
6. Non-Compete Agreement, dated January ___, 1997, by and between FBC and
John Selzer.
7. Non-Compete Agreement, dated January ___, 1997, by and between FBC and
Joseph Eiger.
8. Side Letter, dated December 30, 1996, by FBC in favor of Benson A. Selzer,
Joseph Eiger and John A. Selzer with respect to payment of expenses and
cancellation of indebtedness.
9. Side Letter, dated January __, 1997, re Standstill Agreement by Benson A.
Selzer, Joseph Eiger, John A. Selzer, Coplex Corporation and Dutford Limited
in favor of Purchasers.
Exhibit 4
---------
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
FAMILY BARGAIN CORPORATION,
THREE CITIES FUND II, L.P.,
THREE CITIES OFFSHORE II C.V.
and
TERFIN INTERNATIONAL LTD.
-----------------------------------
Dated as of January 10, 1997
----------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions............................................................1
2. Securities Subject to this Agreement...................................3
(a) Registrable Securities...........................................3
(b) Holders of Registrable Securities................................3
3. Demand Registration....................................................4
(a) Request for Demand Registration..................................4
(b) Effective Demand Registration....................................4
(c) Expenses.........................................................5
(d) Underwriting Procedures..........................................5
(e) Selection of Underwriters........................................5
4. Piggy-Back Registration................................................6
(a) Piggy-Back Rights................................................6
(b) Priority of Registrations........................................7
(c) Expenses.........................................................7
5. Registration Procedures................................................7
(a) Obligations of the Company.......................................7
(b) Seller Information..............................................10
(c) Notice to Discontinue...........................................11
(d) Sale to Underwriter.............................................11
6. Registration Expenses.................................................11
7. Indemnification; Contribution.........................................12
(a) Indemnification by the Company..................................12
(b) Indemnification by Holders......................................12
(c) Conduct of Indemnification Proceedings..........................13
(d) Contribution....................................................14
8. Rule 144; Other Exemptions............................................14
9. Certain Limitations on Registration Rights............................15
i
<PAGE>
Page
10. Miscellaneous.........................................................15
(a) Recapitalizations, Exchanges, etc...............................15
(b) No Inconsistent Agreements; Other Registration Rights...........15
(c) Remedies........................................................15
(d) Amendments and Waivers..........................................16
(e) Notices.........................................................16
(f) Successors and Assigns..........................................17
(g) Counterparts....................................................17
(h) Headings........................................................17
(i) Governing Law...................................................17
(j) Jurisdiction....................................................17
(k) Severability....................................................18
(l) Rules of Construction...........................................18
(m) Entire Agreement................................................18
(n) Further Assurances..............................................18
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 10, 1997, among
FAMILY BARGAIN CORPORATION, a Delaware corporation (the "COMPANY"), THREE CITIES
FUND II, L.P., a Delaware limited partnership ("FUND II"), THREE CITIES OFFSHORE
II C.V., a Netherland Antilles limited partnership ("OFFSHORE II") and TERFIN
INTERNATIONAL LTD., a British Virgin Islands corporation ("TERFIN").
This Agreement is made in connection with (i) the Securities
Purchase Agreement, dated as of December 30, 1996, among the Company, Fund II,
Offshore II and Terfin, relating to the acquisition by Fund II, Offshore II and
Terfin of an aggregate of 27,000 shares of Series B Convertible Exchangeable
Preferred Stock, $.01 par value per share, of the Company (the "CONVERTIBLE
PREFERRED STOCK"), for an aggregate purchase price of $27,000,000.00. In order
to induce Fund II, Offshore II and Terfin to acquire the Convertible Preferred
Stock, the Company has agreed to provide registration rights with respect to the
Registrable Securities (as hereinafter defined) as set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated hereunder.
"Approved Underwriter" has the meaning assigned such term in
Section 3(e).
"Approved Underwriter Amount" has the meaning assigned such
term in Section 3(d).
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Common Stock" means the Common Stock, $0.01 par value, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Company Underwriter" has the meaning assigned such term in
Section 4(a).
<PAGE>
2
"Convertible Preferred Stock" has the meaning assigned such
term in the second paragraph of this Agreement.
"Cumulative Convertible Preferred Stock" means the Cumulative
Convertible Preferred Stock, $.01 par value per share, of the Company, or any
other capital stock of the Company into which such stock is reclassified or
reconstituted.
"Demand Registration" has the meaning assigned such term in
Section 3(a).
"Designated Holder" means Fund II, Offshore II and Terfin and
any of their respective transferees to whom Registrable Securities have been
transferred other than the transferee to whom such securities have been
transferred pursuant to a registration statement under the Act or Rule 144 under
the Act.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended, and the rules and regulations of the SEC thereunder.
"Holder" has the meaning assigned such term in Section 2(b).
"Holders' Counsel" means (a) with respect to any Demand
Registration that has been requested pursuant to Section 3, the one counsel
selected by the Initiating Holders holding a majority of the Registrable
Securities held by all Initiating Holders being registered in such registration,
and (b) with respect to a request for registration of Registrable Securities
pursuant to Section 4, the one counsel selected by the Holders holding a
majority of the Registrable Securities being registered in such registration.
"Indemnified Party" has the meaning assigned such term in
Section 7(c).
"Indemnifying Party" has the meaning assigned such term in
Section 7(c).
"Initiating Holders" has the meaning assigned to such term in
Section 3(a).
"Inspector" has the meaning assigned such term in Section 5(a)
(viii).
"NASD" has the meaning assigned such term in Section 5(a)(xv).
"Other Investors" means holders of the Common Stock of the
Company not entitled to distribute such shares of Common Stock to the public
pursuant to Rule 144(k) (or any successor provision then in effect) under the
Act.
<PAGE>
3
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
any such entity.
"Registrable Securities" means, subject to Section 2(a), each
of the following: (a) any shares of Common Stock issued or issuable upon
conversion of or in exchange for shares of the Convertible Preferred Stock and
(b) any shares of Common Stock issued or issuable in respect of shares of Common
Stock issued, issuable or held pursuant to clause (a) above by way of a stock
dividend or stock split or in connection with a combina tion of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
"Registration Expenses" has the meaning assigned such term in
Section 6.
"SEC" means the Securities and Exchange Commission.
"Shares" means the Common Stock, the Convertible Preferred
Stock, the Cumulative Convertible Preferred Stock, any class of common stock of
the Company authorized after the date of this Agreement, or any other class of
stock resulting from successive changes or reclassifications of the Shares.
"Total Securities" has the meaning assigned such term in
Section 4(a).
"Underwriters" has the meaning assigned such term in Section
5(d).
"Valid Business Reason" has the meaning assigned such term in
Section 3(f).
2. Securities Subject to this Agreement.
(a) Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a registration statement covering such Registrable Securities has been
declared effective under the Act by the SEC and such Registrable Securities have
been disposed of pursuant to such effective registration statement or (ii) the
entire amount of Registrable Securities proposed to be sold in a single sale are
or, in the opinion of counsel satisfactory to the Company and the Holder, each
in their reasonable judgment, may, be distributed to the public pursuant to Rule
144 in compliance with the requirements of paragraphs (c), (e), (f) and (g) of
Rule 144 (notwithstanding the provisions of paragraph (k) of such Rule) (or any
successor provision then in effect) under the Act.
(b) Holders of Registrable Securities. A Person is deemed to
be a holder of Registrable Securities (a "HOLDER") whenever such Person (i) is a
party to this Agreement (or a permitted transferee thereof) and (ii) owns of
record Registrable Securities,
<PAGE>
4
or holds a security convertible into or exercisable or exchangeable for,
Registrable Securities, whether or not such purchase or conversion has actually
been effected and disregarding any legal restrictions upon the exercise of such
rights. If the Company receives conflicting instructions, notices or elections
from two or more persons with respect to the same Registrable Securities, the
Company may act upon the basis of the instructions, notice or election received
from the registered owner of such Registrable Securities. Registrable Securities
issuable upon conversion of another security shall be deemed outstanding for the
purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. Subject to Section 3(f)
below, at any time the Designated Holders holding at least 25% of the
Registrable Securities held by all of the Designated Holders (the "INITIATING
HOLDERS") may request in writing the registration of Registrable Securities
under the Act, and under the securities or blue sky laws of any jurisdiction
designated by such holder or holders (each such registration under this Section
3(a) that satisfies the requirements set forth in Section 3(b) is referred to
herein as a "DEMAND REGISTRATION"). Notwithstanding the foregoing, in no event
shall the Company be required to effect more than three Demand Registrations.
Two or more registrations filed in response to one demand shall be counted as
one registration statement. Each request for a Demand Registration by the
Initiating Holders in respect thereof shall specify the amount of the
Registrable Securities proposed to be sold, the intended method of disposition
thereof and the jurisdictions in which registration is desired. Upon a request
for a Demand Registration, the Company shall promptly take such steps as are
necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered. Within fifteen (15) days after the receipt of such
request, the Company shall give written notice thereof to all other Designated
Holders and include in such registration all Registrable Securities held by a
Designated Holder from whom the Company has received a written request for
inclusion therein at least ten (10) days prior to the filing of the registration
statement. Each such request will also specify the number of Registrable
Securities to be registered, the intended method of disposition thereof and the
jurisdictions in which registration is desired. Subject to Section 3(d), the
Company shall be entitled to include in any registration statement and offering
made pursuant to a Demand Registration, authorized but unissued shares of Common
Stock, shares of Common Stock held by the Company as treasury shares or shares
of Common Stock held by Stockholders other than the Holders; provided, that such
inclusion shall be permitted only to the extent that it is pursuant to and
subject to the terms of the underwriting agreement or arrangements, if any,
entered into by the Initiating Holders exercising the Demand Registration
rights.
(b) Effective Demand Registration. The Company shall use its
best efforts to cause any such Demand Registration to become effective not later
than ninety (90) days after it receives a request under Section 3(a). A
registration requested pursuant to Section 3(a) hereof shall not count as one of
the three demands to which the Designated Holders are entitled thereunder unless
such registration statement is declared effective and remains effective for at
least ninety (90) days.
<PAGE>
5
(c) Expenses. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses in connection
therewith, whether or not such requested Demand Registration becomes effective.
(d) Underwriting Procedures. If the Initiating Holders holding
a majority of the Registrable Securities held by all Initiating Holders to which
the requested Demand Registration relates so elect, the offering of such
Registrable Securities pursuant to such requested Demand Registration shall be
in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be the Approved
Underwriter selected in accordance with Section 3(e). In such event, if the
Approved Underwriter advises the Company in writing that, in its opinion, the
aggregate amount of such Registrable Securities requested to be included in such
offering (including those securities requested by the Company to be included in
such registration) is sufficiently large to have an adverse effect on the
success of such offering, then the Company shall include in such registration
only the aggregate amount of Registrable Securities that in the opinion of the
Approved Underwriter may be sold without any such effect on the success of such
offering (the "APPROVED UNDERWRITER AMOUNT"), and (i) each Designated Holder
shall be entitled to have included in such registration Registrable Securities
equal to its pro rata portion of the Approved Underwriter Amount, as based on
the amounts of Registrable Securities sought to be registered by the Designated
Holders in their requests for participation in the requested Demand Registration
and (ii) to the extent that the number of Registrable Securities to be included
by the Designated Holders is less than the Approved Underwriter Amount,
securities that the Company proposes to register shall also be included.
If, as a result of the proration provision of this Section 3(d), any
Designated Holder shall not be entitled to include all Registrable Securities in
a registration that such Designated Holder has requested to be included, such
Designated Holder may elect to withdraw his request to include Registrable
Securities in such registration or may reduce the number requested to be
included; provided, however, that (x) such request must be made in writing prior
to the earlier of the execution of the underwriting agreement or the execution
of the custody agreement with respect to such registration and (y) such
withdrawal or reduction shall be irrevocable.
(e) Selection of Underwriters. If any requested Demand
Registration is in the form of an underwritten offering, the Initiating Holders
holding a majority of the Registrable Securities held by all Initiating Holders
to be included in the requested Demand Registration shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "APPROVED UNDERWRITER"); provided, that such
underwriter shall be reasonably satisfactory to the Company.
(f) Limitations on Demand Registrations. The Demand
Registration rights granted to the Holders in Section 3(a) are subject to the
following limitations: (i) the Company shall not be required to cause a
registration pursuant to Section 3(a) to be declared effective within a period
of 90 days after the effective date of any registration statement of
<PAGE>
6
the Company effected in connection with a Demand Registration; and (ii) if the
Board of Directors of the Company, in its good faith judgment, determines that
any registration of Registrable Securities should not be made or continued
because it would materially interfere with any material financing, acquisition,
corporate reorganization or merger or other transaction involving the Company or
any of its subsidiaries (a "VALID BUSINESS REASON"), the Company may postpone
filing a registration statement relating to a Demand Registration until such
Valid Business Reason no longer exists, but in no event for more than ninety
(90) days.
Each Holder of Registrable Securities agrees that, upon receipt of
any notice from the Company that the Company has determined to withdraw any
registration statement pursuant to clause (ii) above, such Holder will
discontinue its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expenses) all copies, other than permanent file
copies, then in such Holder's possession, of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such notice.
If the Company shall give any notice of postponement or withdrawal of a
registration statement, the Company shall, at such time as the Valid Business
Reason that caused such postponement or withdrawal no longer exists (but in no
event later than ninety (90) days after the date of the postponement), use its
best efforts to promptly effect the registration under the Act of the
Registrable Securities covered by the postponed or withdrawn registration
statement in accordance with this Section 3 (unless the Holder(s) delivering the
Demand Registration request shall have withdrawn such request, in which case the
Company shall not be considered to have effected an effective registration for
the purposes of this Agreement), and such registration shall not be postponed or
withdrawn pursuant to clause (ii) above.
4. Piggy-Back Registration.
(a) Piggy-Back Rights. If the Company proposes to file a
registration statement under the Act with respect to an offering by the Company
for its own account of any class of security (other than a registration
statement on Form S-4 or S-8 (or any successor form thereto)) under the Act,
then the Company shall give written notice of such proposed filing to each of
the Holders at least twenty (20) days before the anticipated filing date, and
such notice shall describe in detail the proposed registration and distribution
(including those jurisdictions where registration under the securities or blue
sky laws is intended) and offer such Holders the opportunity to register the
number of Registrable Securities as each such Holder may request. The Company
shall use its best efforts (within ten (10) days of the notice provided for in
the preceding sentence) to permit the Holders who have requested to participate
in the registration for such offering to include such Registrable Securities in
such offering on the same terms and conditions as the securities of the Company
included therein. Notwithstanding the foregoing, if such registration involves
an underwritten offering and the managing underwriters or underwriters (the
"COMPANY UNDERWRITER") shall advise the Holders of Registrable Securities in
writing that, in its opinion, the total amount of securities requested to be
included in such offering (the "TOTAL SECURITIES") is sufficiently large so as
to have an adverse effect on the success of the
<PAGE>
7
distribution of the Total Securities, then the Company shall include in such
registration, to the extent of the number of Registrable Securities which the
Company is so advised can be sold in (or during the time of) such offering,
first, all Common Stock or securities convertible into, or exchangeable or
exercisable for, Common Stock that the Company proposed to register for its own
account, second, all securities proposed to be registered by all Designated
Holders and Other Investors, pro rata among such Designated Holders and Other
Investors, and third, all other securities proposed to be registered.
Notwithstanding anything in this Section 4 to the contrary, the Company shall
not be required to include any Registrable Securities in its Initial Public
Offering.
(b) Priority of Registrations. Subject to the provisions of
Section 3(f)(ii), if the Company proposes to register securities pursuant to
Section 4(a) hereof on the same day that the Designated Holders request a
registration pursuant to Section 3(a) hereof, then the Demand Registration
requested pursuant to Section 3(a) hereof shall be given priority.
(c) Expenses. The Company shall bear all Registration Expenses
in connection with any registration pursuant to this Section 4.
(d) Conditions and Limitations on Piggyback Registrations. If,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to all Holders of record
of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register the Registrable
Securities in connection with such abandoned registration, without prejudice,
however, to the rights of Holders under Section 3, and (ii) in the case of a
determination to delay the registration of its securities, shall be permitted to
delay the registration of such Registrable Securities for the same period as the
delay in registering such other equity securities.
Any Holder shall have the right to withdraw its request for
inclusion of its Registrable Securities in any registration statement pursuant
to this Section 4 by giving written notice to the Company of its request to
withdraw; provided, however, that (i) such request must be made in writing prior
to the earlier of the execution of the underwriting agreement or the execution
of the custody agreement with respect to such registration and (ii) such
withdrawal shall be irrevocable and, after making such withdrawal, a Holder
shall no longer have any right to include Registrable Securities in the
registration as to which such withdrawal was made.
5. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or 4 of this
Agreement, the Company shall use its best efforts to effect the registration and
sale of such Registrable
<PAGE>
8
Securities in accordance with the intended method of distribution thereof as
quickly as prac ticable, and in connection with any such request, the Company
shall, as expeditiously as possible:
(i) prepare and file with the SEC (in any event not
later than sixty (60) Business Days after receipt of a request to file a
registration statement with respect to Registrable Securities) a registration
statement on any form on which registration is requested for which the Company
then qualifies, which counsel for the Company and Holders' Counsel shall deem
appropriate and which shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution thereof, and
use its best efforts to cause such registration statement to become effective;
provided, however, that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall (A) provide Holders'
Counsel with an adequate and appropriate opportunity to participate in the
preparation of such registration statement and each prospectus included therein
(and each amendment or supplement thereto) to be filed with the SEC, which
documents shall be subject to the review of Holders' Counsel, and (B) notify
Holders' Counsel and each seller of Registrable Securities pursuant to such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the disposition of all
Registrable Securities covered by such registration statement until the earlier
of (a) such time as all of such Registrable Securities and other securities have
been disposed of in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement and (b) 180 days after
the effective date of such registration statement, except with respect to any
such registration statement filed pursuant to Rule 415 (or any successor Rule)
under the Act if the Company is eligible to file a registration statement on
Form S-3, in which case such period shall be two (2) years;
(iii) as soon as reasonably possible, furnish to each
seller of Registrable Securities, prior to filing a registration statement,
copies of such registration statement as it is proposed to be filed, and
thereafter such number of copies of such regis tration statement, each amendment
and supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as each such seller may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may request, and to
continue such qualification in effect in each such jurisdiction for as long as
is permissible pursuant to the laws of such jurisdiction, or for as long as any
such seller requests or until all of such Registrable
<PAGE>
9
Securities are sold, whichever is shortest, and do any and all other acts and
things which may be reasonably necessary or advisable to enable any such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, however, that the Company shall not
be required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 5(a)(iv), (B)
subject itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction;
(v) use its best efforts to obtain all other approvals,
covenants, exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the sellers of such Registrable
Securities to consummate the disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each such seller a reasonable number of copies of a supplement to or amendment
of such prospectus as may be necessary so that, after delivery to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3 or
4; provided, that the underwriting agreement, if any, shall be reasonably
satisfactory in form and substance to the Company) and take such other actions
as are reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities;
(viii) make available for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or any managing
underwriter (each, an "INSPECTOR" and, collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties of the
Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "RECORDS") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such registration statement; provided,
that such Inspector agrees to keep all such information confidential.
<PAGE>
10
(ix) obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters, as Holders' Counsel or
the managing underwriter reasonably request;
(x) furnish, at the request of any seller of Registrable
Securities on the date such securities are delivered to the underwriters for
sale pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller may reasonably request and as are customarily
included in such opinions;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable but no later than fifteen (15) months
after the effective date of the registration statement, an earnings statement
covering a period of twelve (12) months beginning after the effective date of
the registration statement, in a manner which satisfies the provisions of
Section 11(a) of the Act;
(xii) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed (if any) if the listing of such Registrable Securities is then
permitted under the rules of such exchange or, if no similar securities are then
so listed, cause all such Registrable Securities to be listed on an exchange on
which the Initiating Holders request that such Registrable Securities be listed,
subject to the satisfaction of the applicable listing requirements of each such
exchange;
(xiii) keep each seller of Registrable Securities
advised in writing as to the initiation and progress of any registration under
Section 3 or 4 hereunder;
(xiv) provide officers' certificates and other customary
closing documents;
(xv) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (the "NASD"); and
(xvi) use its best efforts to take all other steps
necessary to effect the registration of the Registrable Securities contemplated
hereby.
(b) Seller Information. The Company may require as a condition
precedent of the Company's obligations under this Section 5 that each seller of
Registrable Securities as to which any registration is being effected furnish to
the Company such
<PAGE>
11
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing.
(c) Notice to Discontinue. Each Holder agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 5(a)(vi), such Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Sec tion 5(a)(vi) and,
if so directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
which is current at the time of receipt of such notice. If the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including, without limitation, the period referred to in Section 5(a)(ii)) by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 5(a)(vi) to and including the date when the
Holder shall have received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 5(a)(vi).
(d) Sale to Underwriter. Subject to the limitations on
inclusion of Registrable Securities in a registration under Sections 3(d) and
4(a), in lieu of converting any shares of Convertible Preferred Stock into
Registrable Securities to be included in a registration under Section 3 or 4
prior to or simultaneously with the filing or the effectiveness of any
registration statement filed pursuant thereto, the holder of such Convertible
Preferred Stock may sell such Convertible Preferred Stock to the Approved
Underwriter or the Company Underwriter, as the case may be, and any other
underwriters of the offering being registered (collectively, the Approved
Underwriter or Company Underwriter, as the case may be, and such other
underwriters, the "UNDERWRITERS") if the Underwriters consent thereto and if the
Underwriters undertake to convert such shares of Convertible Preferred Stock
into Registrable Securities before making any distribution pur suant to such
registration statement and to include such Registrable Securities among the
Registrable Securities being offered pursuant to such registration statement.
Assuming timely delivery by the Holder of the Convertible Preferred Stock
certificates to or for the account of the Underwriters, the Company agrees to
cause the relevant Registrable Securities to be issued so as to permit the
Underwriters to make and complete the distribution (including the distribution
of such Registrable Securities) contemplated by the underwriting.
6. Registration Expenses. The Company shall pay all expenses (other
than underwriting discounts and commissions) arising from or incident to the
performance of, or compliance with, this Agreement, including, without
limitation, (a) SEC, stock exchange and NASD registration and filing fees, (b)
all fees and expenses incurred in complying with securities or blue sky laws
(including, without limitation, reasonable fees, charges and dis bursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (c) all printing, messenger and delivery expenses, (d) the fees,
charges and disbursements of counsel to the Company and of its independent
public accountants and any
<PAGE>
12
other accounting and legal fees, charges and expenses incurred by the Company
(including, without limitation, any expenses arising from any special audits
incident to or required by any registration or qualification) and (e) the
reasonable fees, charges and expenses of any special experts retained by the
Company in connection with any requested Demand Registration or piggy-back
registration pursuant to the terms of this Agreement, regardless of whether the
registration statement filed in connection with such registration is declared
effective. In connection with each registration hereunder, the Company shall
reimburse the Holders of Registrable Securities being registered in such
registration for the reasonable fees, charges and disbursements of not more than
one Holders' Counsel. All of the expenses described in this Section 6 are
referred to in this Agreement as "REGISTRATION EXPENSES." Notwithstanding the
foregoing provisions of this Section 6, in connection with any registration
hereunder, each Holder of Registrable Securities being registered shall pay all
underwriting discounts and commissions and any capital gains, income or transfer
taxes, if any, attributable to the sale of such Registrable Securities, pro rata
with respect to payments of discounts and commissions in accordance with the
number of shares sold in the offering.
7. Indemnification; Contribution.
(a) Indemnification by the Company. In the event of any
proposed registration of securities of the Company pursuant to Section 3 or
Section 4, the Company agrees to indemnify and hold harmless each Holder, its
directors, officers, partners, employees, advisors and agents, and each Person
who controls (within the meaning of the Act or the Exchange Act) such Holder, to
the extent permitted by law, from and against any and all losses, claims,
damages, expenses (including, without limitation, reasonable costs of
investigation and fees, disbursements and other charges of counsel) or other
liabilities resulting from or arising out of or based upon any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or notification or offering
circular (as amended or supplemented if the Company shall have fur nished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by or on behalf of such Holder expressly for use therein. The Company
shall also indemnify any underwriters of the Registrable Securities, their
officers, directors and employees, and each Person who controls any such
underwriter (within the meaning of the Act and the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Holders of
Registrable Securities.
(b) Indemnification by Holders. In connection with any
proposed registration in which a Holder is participating pursuant to Section 3
or 4 hereof, each such Holder shall furnish to the Company in writing such
information with respect to such Holder as the Company may reasonably request or
as may be required by law for use in connection with any registration statement
or prospectus to be used in connection with such registration and each Holder
agrees to indemnify and hold harmless the Company, any underwriter retained by
the Company and their respective directors, officers, employees and each Person
<PAGE>
13
who controls (within the meaning of the Act and the Exchange Act) the Company or
such underwriter to the same extent as the foregoing indemnity from the Company
to the Holders (subject to the proviso to this sentence and applicable law), but
only with respect to any such information furnished in writing by or on behalf
of such Holder expressly for use therein; provided, however, that the liability
of any Holder under this Section 7(b) shall be limited to the amount of the net
proceeds received by such Holder in the offering giving rise to such liability.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") agrees to give
prompt written notice to the indemnifying party (the "INDEMNIFYING PARTY") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; provided, that, the failure so to
notify the Indemnifying Party shall not relieve the Indemnifying Party of any
liability that it may have to the Indemnified Party hereunder. If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and satisfactory to such Indemnified Party. The Indemnified Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
(other than reasonable costs of investi gation) shall be paid by the Indemnified
Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the
Indemnifying Party fails to assume the defense of such action with counsel
satisfactory to the Indemnified Party in its reasonable judgment, (iii) the
named parties to any such action (including any impleaded parties) have been
advised by such counsel that either (A) representation of such Indemnified Party
and the Indemnifying Party by the same counsel would be inappropriate under
applicable standards of professional conduct or (B) there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party; provided, however, that the Indemnifying
Party shall only have to pay the fees and expenses of one firm of counsel for
all Indemnified Parties in each jurisdiction, except to the extent
representation of all Indemnified Parties by the same counsel is inappropriate
under applicable standards of professional conduct. In either of such cases the
Indemnifying Party shall not have the right to assume the defense of such action
on behalf of such Indemnified Party. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the written
consent of the Indemnified Party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the Indemnified Party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(A) includes an unconditional release of the Indemnified Party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any Indemnified Party. The rights accorded to any
<PAGE>
14
Indemnified Party hereunder shall be in addition to any rights that such
Indemnified Party may have at common law, by separate agreement or otherwise.
(d) Contribution. If the indemnification provided for in
Section 7(a) from the Indemnifying Party is unavailable to an Indemnified Party
in respect of any losses, claims, damages, expenses or other liabilities
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, expenses or other
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, expenses or other liabilities,
as well as any other relevant equitable considerations. The relative faults of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, was made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the Indemnifying Party's and
Indemnified Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, expenses or other liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 7(a), 7(b) and 7(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution pursuant to this Section
7(d).
8. Rule 144; Other Exemptions. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the Act
in respect of Common Stock or securities of the company convertible into or
exchangeable or exercisable for Common Stock, the Company covenants that it
shall file any reports required to be filed by it under the Exchange Act and the
rules and regulations adopted by the SEC thereunder, and that it shall take such
further action as each Holder may reasonably request (including, but not limited
to, providing any information necessary to comply with Rules 144 and 144A under
the Act), all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 or Rule 144A under the
Act, as such rules may be amended from time to time, or (b) any other rules or
regulations now existing or hereafter adopted by the SEC. The Company shall,
upon the request of any Holder, deliver to such Holder a written statement as to
whether the Company has complied with such requirements.
<PAGE>
15
9. Certain Limitations on Registration Rights. In the case of a
registration under Section 4 if the Company has determined to enter into an
underwriting agreement in connection therewith, no person may participate in
such registration unless such person (a) agrees to sell such person's securities
on the basis provided therein and (b) completes and executes all questionnaires,
powers of attorney, indemnities, lock-up agreements, underwriting agreements and
other documents reasonably required under the terms of such underwriting
agreements.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to the
Shares, to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or in substitution
of, the Shares and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof.
(b) No Inconsistent Agreements; Other Registration Rights. The
Company shall not enter into any agreement with respect to its securities that
is inconsistent with or adversely affects the rights granted to the Holders in
this Agreement other than any lock-up agreement with the underwriters in
connection with an underwritten offering pursuant to which the Company agrees,
for a period not in excess of 180 days if such underwritten offering is an
Initial Public Offering or, for a period not in excess of 90 days if such
underwritten offering is not an Initial Public Offering, not to register for
sale, and not to sell or otherwise dispose of, Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock. The Company
shall not grant any other Person registration rights without the written consent
of the Designated Holders holding at least a majority of the Registrable
Securities held by all of the Designated Holders. If the Company shall at any
time hereafter provide to any holder of any securities of the Company rights
with respect to the registration of such securities and such rights are provided
on terms or conditions more favorable to such holder than the terms and
conditions applicable to the Designated Holders herein, the Company shall
provide (by way of amendment to this Agreement or otherwise) such more favorable
terms or conditions to the Designated Holders under this Agreement.
(c) Remedies. The Holders, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
<PAGE>
16
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions of such
section may not be given unless the Company has obtained the prior written
consent of (i) the Designated Holders holding at least a majority of the
Registrable Securities held by all of the Designated Holders and (ii) the
Holders holding at least a majority of the Registrable Securities.
(e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(i) if to Fund II, Offshore II or Terfin:
Three Cities Research, Inc.
135 East 57th Street
New York, New York 10022
Telecopier No.: (212) 980-1142
Attention: J. William Uhrig
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Robert M. Hirsh, Esq.
(ii) if to the Company:
Family Bargain Corporation
4000 Ruffin Road
San Diego, California 92123-1866
Telecopier No.: (619) 637-4180
Attention: William W. Mowbray
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telecopier No.: (212) 878-8375
Attention: David W. Bernstein, Esq.
<PAGE>
17
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto;
provided, however, that the registration rights and the other obligations of the
Company contained in this Agreement shall, with respect to any Registrable
Security, be automatically transferred from a Holder to any subsequent holder of
such Registrable Security (including any pledgee). Notwithstanding any transfer
of such rights, all of the obligations of the Company hereunder shall survive
any such transfer and shall continue to inure to the benefit of all transferees.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such State.
(j) Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
may be brought in the courts of the State of New York or of the United States of
America for the Southern District of New York and hereby expressly submits to
the personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10(e), such service to
become effective 10 days after such mailing.
(k) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
<PAGE>
18
(l) Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
(m) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings in respect of the subject matter contained
herein, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(n) Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
<PAGE>
19
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
FAMILY BARGAIN CORPORATION
By: /s/ Jeffrey Gerstel
----------------------------------
Name: Jeffrey Gerstel
Title: EVP
THREE CITIES FUND II, L.P.
By: TCR Associates, L.P.,
as General Partner
By: /s/ J. William Uhrig
----------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
THREE CITIES OFFSHORE II C.V.
By: TCR Associates Offshore, L.P.,
as General Partner
By: /s/ J. William Uhrig
----------------------------------
Name: J. William Uhrig
Title: General Partner
TERFIN INTERNATIONAL LTD.
By: /s/ J. William Uhrig
----------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
Exhibit 5
---------
January 10, 1997
Three Cities Fund II, L.P.
Three Cities Offshore II C.V.
Terfin International Ltd.
c/o Three Cities Research, Inc.
135 East 57th Street
New York, New York 10022
Re: Standstill Agreement
--------------------
Gentlemen:
Reference is made to the Securities Purchase Agreement, dated
December 30, 1996 (the "Securities Purchase Agreement"), by and between the
undersigned and Three Cities Fund II, L.P., Three Cities Offshore II C.V., and
Terfin International Ltd. (the "Purchasers") pursuant to which the Purchasers
agreed to purchase from the undersigned, and the undersigned agreed to sell to
such Purchasers, the Equity Securities (as defined in the Securities Purchase
Agreement) of Family Bargain Corporation, a Delaware corporation (the
"Company").
In consideration of the amount of $10,000.00, the receipt of which
is hereby acknowledged, the undersigned hereby covenant and agree with the
Purchasers that, for a period of three years from the date hereof, the
undersigned will refrain from (a) acquiring direct or indirect beneficial
ownership of any shares of any class of capital stock of the Company, or any
debt or equity securities (including warrants and options) convertible or
exchangeable into, or which may be exercised for, any class of capital stock of
the Company, with or without additional cash or consideration; (b) directly or
indirectly soliciting proxies or becoming a "participant" in a "solicitation"
(as such terms are defined in Regulation 14A under the Securities Exchange Act
of 1934, as amended) in opposition to a recommendation of the Board of Directors
of the Company; (c) initiating or inducing or attempting to induce or give
material support to any other person to initiate, or in other way participating
in, any tender or exchange offer, for acquisition of, shares of the Company or
any change of control of the Company, or any proxy solicitation which relates to
the Company; (d) initiating any communication with, or responding to any
communication from, any shareholder of the Company in his, her or its capacity
as a shareholder if such communication relates to any of the matters set forth
in (a), (b) or (c) above; or (e) attempting to influence the affairs of the
Company in any other manner or respect.
<PAGE>
2
This letter agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, whether oral or written,
among the parties hereto with respect to the subject matter hereof. The parties
hereby agree and acknowledge that the allocation of consideration for the
subject matter hereof is the proper allocation, and the parties will not agree
to any other allocation.
This letter agreement shall become effective, and the $10,000.00
(the "Payment") shall be delivered, upon, and only upon, the Closing (as defined
in the Securities Purchase Agreement) of the Securities Purchase Agreement. Such
Payment shall be made to the undersigned by wire transfer of immediately
available funds to an account or accounts designated by the undersigned prior to
the Closing.
This letter agreement and all questions relating to its validity,
interpretation, performance and enforcement (including, without limitation,
provisions concerning limitations of actions), shall be governed by and
construed in accordance with the laws of the State of New York.
This letter agreement may be executed in any number of counterparts,
each of which shall, when executed, be deemed to be an original and all of which
shall be deemed to be one and the same instrument.
Very truly yours,
/s/ Benson A. Selzer
------------------------------------
BENSON A. SELZER
/s/ Joseph Eiger
------------------------------------
JOSEPH EIGER
/s/ John A. Selzer
------------------------------------
JOHN A. SELZER
<PAGE>
3
DUTFORD LIMITED
By: /s/ Joel Handel
-------------------------------
Name:
Title: Attorney-In-Fact
COPLEX FOUNDATION
/s/ Joel Handel
By: /s/ Benson A. Selzer
-------------------------------
Name:
Title: Trustee
Accepted and agreed to as of the date first written above:
THREE CITIES FUND II, L.P.
By: TCR Associates, L.P.,
as General Partner
By: /s/ J. William Uhrig
--------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
THREE CITIES OFFSHORE II C.V.
By: TCR Associates Offshore, L.P.,
as General Partner
By: /s/ J. William Uhrig
--------------------------------
Name: J. William Uhrig
Title: General Partner
TERFIN INTERNATIONAL LTD.
By: /s/ J. William Uhrig
--------------------------------
Name: J. William Uhrig
Title: Attorney-In-Fact
