UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)of the Securities Act of 1934
Date of Report (Date of earliest event reported): January 25, 1997
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FAMILY BARGAIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-16309 51-0299573
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(State of (Commission (IRS Employer
Incorporation) File Number) Identification
Number)
4000 Ruffin Road, San Diego, CA 92123
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(Address of principal executive offices) (Zip code)
Registrant's telephone number: (619) 627-1800
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ITEM 1 - CHANGES IN CONTROL OF REGISTRANT
On January 13, 1997, the Registrant completed the sale of $22 million of a
new convertible preferred stock (the "Series B Preferred Stock") to three
funds advised by Three Cities Research, Inc. (the "Three Cities Funds"). The
Three Cities Funds will purchase an additional $5 million and management will
purchase $1.5 million of Series B Preferred Stock by February 15, 1997. The
Registrant also issued a ninety day option to purchase up to $5 million
additional shares of Series B Preferred Stock to the Three Cities Funds.
On January 13, 1997, the Registrant completed its agreements with Benson A.
Selzer, Joseph Eiger and John A. Selzer (Chairman, Vice Chairman and Chief
Executive Officer, respectively) whereby Mr. Eiger and Messrs. Selzer resigned
as officers and directors, terminated their employment, bonus and retirement
arrangements with the Registrant and agreed not to compete with the Registrant.
The Registrant paid Mr. Eiger and Messrs. Selzer $7.0 million to
terminate their employment agreements and their bonus and retirement plans.
It will also pay them $1.9 million for their agreements not to compete.
William W. Mowbray, who has been the president and Chief Executive Officer of
the Registrant's principal operating subsidiaries, has become the President
and Chief Executive Officer of the Registrant. Jeffrey C. Gerstel has become
its Chief Financial Officer. The Registrant has moved its headquarters from
New York to San Diego, California. San Diego will continue to be the
headquarters of the operating subsidiaries.
In connection with the change in control, the Registrant also redeemed the
rights under its Shareholder Rights Plan. Before the redemption, each share
of common stock was accompanied by one right. As a result of the redemption,
shareholders will receive a payment of $.001 for each right which was
redeemed.
The Series B Preferred Stock the Three Cities Funds are purchasing will become
convertible after there are no outstanding shares of the Registrant's Series A
preferred stock (the "Series A Preferred Stock") (or if there is an earlier
change in control of the Registrant) into approximately 14.2 million shares
of common stock. This will equal approximately 44% of the common stock
(assuming all of the Series A Preferred Stock has been converted and all
options are exercised). The Series B Preferred Stock will rank junior to the
Series A Preferred Stock and will carry no dividend for five years, except
under certain circumstances.
The Three Cities Funds also completed the purchase of 668,780 shares of common
stock and 88,725 shares of Series A Preferred Stock from Benson A. Selzer,
John A. Selzer and their affiliates. Benson A. Selzer, John A. Selzer and
Joseph Eiger have agreed to cancel all of their stock options and no longer
hold any equity interest in the Registrant. The Three Cities Funds have
agreed to convert the 88,725 shares of Series A Stock into common stock.
The Series B Preferred Stock will vote together with the common stock on all
matters with the Series B Preferred Stock having a number of votes equal to
the number of shares of common stock into which it could eventually be
converted. Therefore, the Three Cities Funds will cast 76% of the votes prior
to the conversion of the Series A Preferred Stock and the exercise of stock
options.
If the Three Cities Funds exercise their option to purchase an additional $5
million of Series B Preferred Stock, this will increase to 16.8 million shares
the number of shares into which their preferred stock would become convertible
and will increase the Three Cities Funds' current voting rights to 79% of the
total votes.
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In connection with the change in control, Edwin C. Nevis and Francis Warburton
also resigned as directors of the Registrant. J. William Uhrig, H. Whitney
Wagner and Thomas G. Weld, all managing directors of Three Cities Research,
Inc., have been elected directors of the Registrant effective January 19,
1997. The Registrant's Board now consists of Messrs. Uhrig, Wagner and Weld
as well as William W. Mowbray (who has become President and Chief Executive
Officer of the Registrant) and John J. Borer III.
In addition, as a result of the cancellation of a number of outstanding stock
purchase options, the number of common shares issuable upon conversion of the
Series A Preferred Stock will decrease from 2.75 common shares per preferred
share to approximately 2.55 shares.
The transaction will result in a January 1997 restructuring charge.
ITEM 5 - OTHER EVENTS
In November 1995, the Registrant acquired Factory 2-U, Inc. ("Factory 2-U")
in a transaction accounted for under the purchase method of accounting.
Sales and gross margin results for the stores in the Factory 2-U chain for
the 1996 November and December holiday operating period (the "Holiday Season")
were lower than expected and demonstrated that certain Factory 2-U stores
would experience losses on both an accrual and cash basis for the fiscal year
ending February 1, 1997. The Holiday Season is the most important segment
of the operating cycle for Factory 2-U and is considered by management to be
the key period for measuring and evaluating the performance of the business
for a full operating cycle. In particular, approximately 15 stores of the
30 stores in the Factory 2-U chain demonstrated by their poor Holiday Season
performance that they were clearly not contributing or were marginal
contributors to the cash flows of the Factory 2-U chain.
Following the poor Holiday Season results, the Registrant determined
it was necessary to estimate whether it expects to recover the full
carrying value of the long-lived assets and goodwill (collectively the
"Assets") recorded in connection with the Factory 2-U acquisition. In
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"), the Registrant has determined
that estimated cash flows for at least 15 stores are expected to be negative
or are expected, on an undiscounted basis, to be insufficient to recover
the carrying value of the Assets related to those stores. Therefore,
the carrying value of the Assets related to those stores is considered
impaired and should be adjusted to fair value.
Accordingly, the Registrant will record a charge to income from operations
in January 1997 for the difference between the carrying value of
the Assets and their estimated fair value. Although the estimated fair
value of the Assets has not been determined, the Registrant expects to
incur a charge equal to approximately 40% to 80% of the carrying value
of the Assets. The carrying value of the Assets was approximately $15.0
million (unaudited) as of December 28, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FAMILY BARGAIN CORPORATION
Date: January 28, 1997 By: /s/ Jeffrey C. Gerstel
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Name: Jeffrey C. Gerstel
Title: Executive Vice President, Finance
(duly authorized officer and
principal financial officer)
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