UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 1,
1997
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-10089
FAMILY BARGAIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0299573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Ruffin Road, San Diego, CA 92123
(Address of principal executive office) (Zip Code)
(619) 627-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [ ] NO
The number of shares outstanding of the registrant's of common stock, as of
December 8, 1997, was 4,929,822 shares.
<PAGE> 2
<TABLE>
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 1, 1997
INDEX
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated Balance
Sheets as of November 1, 1997 (Unaudited) and February 1, 19........F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the 13 weeks ended
November 1, 1997 and October 26, 1996...............................F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the 39 weeks ended
November 1, 1997 and October 26, 1996...............................F-4
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the 39 weeks ended
November 1, 1997 and October 26, 1996...............................F-5
Family Bargain Corporation and Subsidiaries Notes to Consolidated
Financial Statements (Unaudited) ...................................F-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................3
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................8
Item 2. Changes in Securities.................................................8
Item 3. Defaults Upon Senior Securities.......................................8
Item 4. Submission of Matters to a Vote of Security Holders...................8
Item 5. Other Information.....................................................8
Item 6. Exhibits and Reports on Form 8-K .....................................8
Signatures ....................................................9
Exhibit Index ...................................................10
</TABLE>
2
<PAGE> F-1
PART I
Item 1. Financial Statements
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<CAPTION>
November 1, February 1,
1997 1997
---- ----
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash $ 3,319 $ 3,261
Merchandise inventories 43,413 29,118
Prepaid expenses 1,174 505
--------- ---------
Total current assets 47,906 32,884
Leasehold improvements and equipment, net 14,229 10,714
Other assets, net 3,440 2,757
Excess of cost over net assets acquired,
less accumulated amortization of
$6,533 and $5,332 at November 1, 1997 and
February 1, 1997, respectively 33,111 34,314
-------- --------
Total assets $ 98,686 $ 80,669
======== ========
</TABLE>
(continued)
F-1
<PAGE> F-2
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
(Continued)
<CAPTION>
<S> <C> <C>
November 1, February 1,
1997 1997
---- ----
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 5,536 $ 5,748
Accounts payable 23,394 17,491
Accrued salaries, wages and bonuses 2,216 2,924
Other accrued expenses 7,629 6,907
--------- ---------
Total current liabilities 38,775 33,070
Revolving credit notes 27,230 17,887
Long-term debt, less current maturities 12,855 14,422
Deferred rent 2,484 2,098
Capital lease and other long-term obligations 3,056 1,984
--------- ---------
Total liabilities 84,400 69,461
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 4,500,000 shares authorized,
3,638,690 and 3,727,415 shares issued and
outstanding (aggregate liquidation preference
of $36,387 and $37,274) at November 1, 1997 and
February 1, 1997, respectively 36 37
Series B junior convertible, exchangeable
preferred stock , $.01 par value, 40,000
shares authorized, 33,465 and 22,000 shares
issued and outstanding (aggregate liquidation
preference of $33,465 and $22,000) at November 1,
1997 and February 1, 1997, respectively - -
Common stock, $.01 par value, 80,000,000
shares authorized, 4,929,822 and 4,693,337
shares issued and outstanding at November 1, 1997
and February 1, 1997, respectively 49 47
Additional paid-in capital 82,614 71,057
Accumulated deficit (68,413) (59,933)
--------- ---------
Total stockholders' equity 14,286 11,208
--------- ---------
Total liabilities and stockholders' equity $ 98,686 $ 80,669
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> F-3
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<CAPTION>
13 Weeks Ended
-----------------------------
<S> <C> <C>
November 1, October 26,
1997 1996
---- ----
Net sales $ 77,263 $ 65,557
Cost of sales 48,450 42,264
--------- ---------
Gross profit 28,813 23,293
Selling and administrative expenses 25,450 21,609
Amortization of excess of cost over
net assets acquired 400 467
--------- ---------
Operating income 2,963 1,217
Interest expense (1,357) (1,297)
--------- ---------
Net income (loss) 1,606 (80)
Preferred stock dividends - Series A (864) (885)
Preferred stock dividends - Series B (672) -
-------- ---------
Net income (loss) applicable
to common stock $ 70 $ (965)
========= =========
Net income (loss) per share applicable to
common stock $ 0.01 $ (0.21)
Weighted average common shares outstanding 4,930 4,693
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> F-4
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<CAPTION>
39 Weeks Ended
-----------------------------
<S> <C> <C>
November 1, October 26,
1997 1996
---- ----
Net sales $ 207,074 $ 172,891
Cost of sales 134,105 110,864
--------- ---------
Gross profit 72,969 62,027
Selling and administrative expenses 71,728 58,023
Amortization of excess of cost over
net assets acquired 1,201 1,406
--------- ----------
Operating income 40 2,598
Interest expense (3,964) (3,607)
---------- ----------
Net loss (3,924) (1,009)
Preferred stock dividends - Series A (2,592) (2,624)
Preferred stock dividends - Series B (1,963) -
---------- ----------
Net loss applicable to common stock $ (8,479) $ (3,633)
========== ==========
Net loss per share applicable
to common stock $ (1.73) $ (0.82)
Weighted average common shares outstanding 4,893 4,441
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> F-5
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
39 Weeks Ended
----------------------------
<S> <C> <C>
November 1, October 26,
1997 1996
Cash Flows from Operating Activities
Net loss $ (3,924) $ (1,009)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,307 3,221
Debt discount amortization 1,596 785
Loss on disposal of equipment 94 -
Deferred rent expense 386 (179)
Gain on repurchase of subordinated notes (75) -
Changes in operating assets and liabilities:
Merchandise inventories (14,295) (17,683)
Prepaid expenses (669) (777)
Accounts payable and accrued expenses 5,805 2,540
Other (398) (1,895)
---------- ----------
Net cash used in operating activities (7,173) (14,997)
---------- ----------
Cash Flows from Investing Activities:
Purchase of leasehold improvements
and equipment (5,282) (3,496)
Sale of real property - 4,500
---------- ----------
Net cash provided by (used in) investing activities (5,282) 1,004
---------- ----------
Cash Flows from Financing Activities:
Borrowings on revolving credit notes 248,830 221,868
Payments on revolving credit notes (239,487) (208,115)
Proceeds from the issuance of notes payable - 3,100
Payments on notes payable and capital
lease obligations (3,636) (3,647)
Payment of deferred debt issuance costs (196) (30)
Net proceeds from issuance of preferred
stock 9,594 2,856
Payment of dividends on Series A preferred stock (2,592) (2,624)
---------- ---------
Net cash provided by financing activities 12,513 13,408
---------- ---------
</TABLE>
(continued)
F-5
<PAGE> F-6
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
<CAPTION>
39 Weeks Ended
---------------------------
<S> <C> <C>
November 1, October 26,
1997 1996
---- ----
Net increase (decrease) in cash $ 58 $ (585)
Cash at the beginning of the period 3,261 1,958
-------- ---------
Cash at the end of the period $ 3,319 $ 1,373
======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,991 $ 2,183
Cash paid during the period for income taxes $ 16 $ -
Supplemental disclosure of non-cash investing activities:
Capital lease purchases $ 793 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> F-7
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements do not
include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements and
should be read in conjunction with the financial statements for the
fiscal year ended February 1, 1997 included in the Family Bargain
Corporation and Subsidiaries' (the Company) Form 10-K as filed with the
Securities and Exchange Commission. The unaudited consolidated
financial statements include the accounts of Family Bargain Corporation
and its subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
In the opinion of management, the unaudited consolidated financial
statements as of and for the 13 weeks and 39 weeks ended November 1,
1997 and October 26, 1996 reflect all adjustments (which include normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for the periods
presented. Due to the seasonal nature of the Company's business, the
results of operations for the interim period may not necessarily be
indicative of the results of operations for a full year.
(2) Long-term Debt and Revolving Credit Notes
Effective June 2, 1997, Factory 2-U, amended its agreement with its
working capital lender to increase its revolving credit facility to
$15.0 million from $10.0 million, with borrowings limited to 65% of
eligible inventory (as defined), an interest rate of prime plus 3/4%
per annum and an expiration date (subject to annual one year
extensions) of November 1999.
Effective June 2, 1997, General Textiles amended its agreement with its
working capital lender to increase its revolving credit facility to
$35.0 million from $25.0 million, with advances limited to 65% of
eligible inventory (as defined), an interest rate of prime plus 3/4%
per annum and an expiration date (subject to annual one year
extensions) of November 1999.
On September 24, 1997, the Company amended certain terms and conditions
of its revolving credit facilities. Under the amended terms and
conditions, the Company's debt covenants will be reset to be reflective
of anticipated earnings, capital expenditures and cash flow over the
remaining term of the revolving credit facilities. In addition, the
borrowings may exceed the 65% limit of eligible inventory not to exceed
$3.5 million, between October 1, 1997 and October 31, 1997 and $1.75
million commencing November 1, 1997 through and including December 15,
1997. Such excess borrowings will bear interest at an interest rate of
prime plus 3% per annum.
At November 1, 1997, the Company's estimation of cash flows that
determine the timing and amounts of payments of certain subordinated
debt were the same as estimated for
F-7
<PAGE> F-8
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
February 1, 1997. Consequently, there were no adjustments to the
carrying value of such debt during the 39 weeks ended November 1, 1997
except for recurring amortization of debt discount.
(3) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings per Share
(SFAS No. 128), which the Company will adopt for interim and annual
periods ending after December 15, 1997. This Statement sets forth the
basis for the computation of "basic" earnings per share and "dilutive"
earnings per share from the previous method of computing both "primary"
and "fully diluted" earnings per share. Early implementation of SFAS
No. 128 is not permitted. However, had the Company applied SFAS No.
128, there would have been no difference between the loss per share
reported under SFAS No. 128 and the loss per share reported on the
accompanying consolidated statement of operations for the 13 weeks and
39 weeks ended November 1, 1997.
The preferred stock and other common stock equivalents were not
considered as converted because the calculation was anti-dilutive.
(4) Provision for Income Taxes
No provision for income taxes has been reflected in the accompanying
consolidated statements of operations for the 13 weeks and 39 weeks
ended November 1, 1997 and October 26, 1996 since the Company generated
tax losses during these periods. Although such losses would increase
the Company's net operating loss carry forwards (NOLs), realization of
such NOLs is less than likely due to limitations on utilization of NOLs
and the Company's history of losses. As a result, a full valuation
allowance has been recognized against the net deferred tax assets
arising from the increased NOLs and no benefit for income taxes is
reflected in the accompanying consolidated statements of operations.
(5) Dividends
The Series B Junior Convertible, Exchangeable Preferred Stock pays no
dividend through December 31, 2001. Beginning in 2002, the Company is
obligated to pay a dividend to holders of the Series B Preferred Stock
in the amount of $60 per share subject to increases of $20 per share
every year thereafter until 2005 up to a maximum of $120 per share. The
Company imputes dividends on the Series B Preferred Stock utilizing the
effective interest method to provide a level yield until the permanent
dividend of $120 per share is payable. The Company expects conversion
prior to any actual payment of dividends, therefore the liability is
zeroed to additional paid in capital. The accreted dividends therefore
increase the carrying value of that part of the additional paid in
capital attributable to the Series B Preferred Stock.
F-8
<PAGE> F-9
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Reclassifications
Certain reclassifications have been made to the February 1, 1997
amounts to conform to the November 1, 1997 presentation.
F-9
<PAGE> 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
Management's discussion of the results of operations provides analyses of the
Company's operations during the 13 and 39 weeks ended November 1, 1997 and
October 26, 1996.
Results of Operations
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Form 10-Q. As of November 1, 1997 there were 168 stores in operation
compared to 147 stores as of October 26, 1996.
13 Weeks Ended November 1, 1997 Compared to the 13 Weeks Ended October 26, 1996
Net sales were $77.3 million for the 13 weeks ended November 1, 1997 compared to
$65.6 million for the 13 weeks ended October 26, 1996, an increase of $11.7
million, or 17.8%. Of the total increase, $13.0 million was attributable to the
opening of new stores and expansion of existing stores offset by a $1.3 million,
or 2.2%, decrease in comparable store sales.
Gross profit was $28.8 million for the 13 weeks ended November 1, 1997 compared
to $23.3 million for the 13 weeks ended October 26, 1996, an increase of
approximately $5.5 million. As a percentage of sales, gross profit was 37.3% for
the 13 weeks ended November 1, 1997 compared to 35.5% for the 13 weeks ended
October 26, 1996. The increase in the gross profit margin is primarily
attributable to a higher markup partially offset by a higher markdown and
increased shrink.
Selling and administrative expenses were $25.5 million for the 13 weeks ended
November 1, 1997 compared to $21.6 million for the 13 weeks ended October 26,
1996, an increase of approximately $3.9 million. As a percentage of sales,
selling and administrative expenses decreased to 32.9% for the 13 weeks ended
November 1, 1997 from 33.0% for the 13 weeks ended October 26, 1996. The
decrease as a percentage of sales is primarily due to closure of the Company's
New York office partially offset by higher occupancy, store operating and
preopening costs.
Amortization of excess of cost over net assets acquired was $0.4 million for the
13 weeks ended November 1, 1997 compared to $0.5 million for the 13 weeks ended
October 26, 1996. The decrease is a result of the write-down in the carrying
value of excess of cost over net assets acquired disclosed in the consolidated
financial statements for the fiscal year ended February 1, 1997.
Interest expense was $1.4 million for the 13 weeks ended November 1, 1997 and
$1.3 million for the 13 weeks ended October 26, 1996. The increase of $0.1
million was attributable primarily to increased debt discount amortization
arising from changes in the projected timing and payment of the reorganization
securities of General Textiles.
-3-
<PAGE> 4
The net income applicable to common stock was $0.1 million for the 13 weeks
ended November 1, 1997 compared to a net loss of $1.0 million for the 13 weeks
ended October 26, 1996. The increase in net income for the 13 weeks ended
November 1, 1997 is a result of the operating factors cited above offset by
accreted dividends of $0.7 million on the Series B Preferred Stock.
39 weeks Ended November 1, 1997 Compared to the 39 weeks Ended October 26, 1996
Net sales were $207.1 million for the 39 weeks ended November 1, 1997 compared
to $172.9 million for the 39 weeks ended October 26, 1996, an increase of $34.2
million. This increase in sales was attributable to the opening of new stores
and expansion of existing stores offset by a $0.5 million, or 0.3% decrease in
comparable store sales.
Gross profit was $73.0 million for the 39 weeks ended November 1, 1997 compared
to $62.0 million for the 39 weeks ended October 26, 1996, an increase of $11.0
million, or 17.7%. As a percentage of sales, gross profit was 35.2% for the 39
weeks ended November 1, 1997 compared to 35.9% for the 39 weeks ended October
26, 1996. The decrease in the gross profit margin is primarily attributable to
an increase in the markdown and shrink offset by a higher initial markup.
Selling and administrative expenses were $71.7 million for the 39 weeks ended
November 1, 1997 compared to $58.0 million for the 39 weeks ended October 26,
1996, an increase of $13.7 million. As a percentage of sales, selling and
administrative expenses increased to 34.6% for the 39 weeks ended November 1,
1997 from 33.6% for the 39 weeks ended October 26, 1996. The increase in selling
and administrative expenses as a percentage of sales was primarily attributable
to a $1.8 million charge in the 2nd quarter for payments due under an employment
contract related to the resignation of the Company's President and Chief
Executive Officer and increased preopening costs. Savings from the closure of
the Company's New York office has been offset by higher store labor costs (due
to increases in the minimum wage) and store operating costs.
Amortization of excess of cost over net assets acquired was $1.2 million for the
39 weeks ended November 1, 1997 compared to $1.4 million for the 39 weeks ended
October 26, 1996. The decrease is a result of the write-down in the carrying
value of excess of cost over net assets acquired disclosed in the consolidated
financial statements for the fiscal year ended February 1, 1997.
Interest expense was $4.0 million for the 39 weeks ended November 1, 1997
compared to $3.6 million for the 39 weeks ended October 26, 1996. The increase
of $0.4 million was attributable primarily to increased debt discount
amortization arising from changes in the projected timing and payment of the
reorganization securities of General Textiles.
For loss periods, such as those presented in this Form 10-Q, the Company's
preferred stock is assumed not converted and the related dividends are added to
the loss for purposes of loss per share calculation. The increased loss for the
39 weeks ended November 1, 1997 is a result of the operating factors cited above
and by accreted dividends of $2.0 million on the Series B Preferred Stock.
-4-
<PAGE> 5
Liquidity and Capital Resources
Family Bargain Corporation
As of November 1, 1997, Family Bargain Corporation (the "Parent") had
outstanding indebtedness in the principal amount of $2.6 million, no material
change from its debt obligations at February 1, 1997. The entire $2.6 million
outstanding principal amount is due during the next twelve months.
Distributions of cash from General Textiles and Factory 2-U, (the "Operating
Subsidiaries") to the Parent company to pay Parent company debt service
obligations and preferred stock dividends for the Series A 9 1/2% Convertible
Preferred Stock (the "Series A Preferred Stock") (if declared) and certain
administrative expenses are limited under a plan of reorganization and certain
debt agreements of the Operating Subsidiaries. Permitted cash payments from
General Textiles include payments pursuant to a tax sharing agreement, certain
subordinated debt of General Textiles (which the Parent holds), and a management
agreement. Permitted cash payments by Factory 2-U to the Parent are limited to
payments pursuant to a management agreement and a guaranty fee agreement.
Management believes that permitted cash flows to the Parent company will be
adequate to finance its administrative expenses and meet the obligations under
its existing indebtedness as they become due for at least the next twelve
months. The ability of the Company to make dividend payments on its Series A
Preferred Stock as they become due will be dependent on the results of
operations of the Company. To date the Company has used its borrowing facilities
to fund dividend payments.
General Textiles
General Textiles finances its operations through credit provided by suppliers,
amounts borrowed under its $35.0 million revolving credit facility and
internally generated cash flow.
At November 1, 1997, General Textiles was obligated to non-affiliate holders of
its subordinated notes and reorganization securities in the face amount of $22.9
million with a carrying value of $12.5 million, of which management estimates
principal payments in the amount of approximately $1.3 million will be paid in
the next twelve months.
As of November 1, 1997, General Textiles had $19.2 million outstanding and
$7.8 million available to borrow under its revolving credit facility.
Effective September 24, 1997, the Company amended certain terms and conditions
of its revolving credit facility. Under the amended terms and conditions, the
covenants will be reset to be reflective of anticipated earnings, capital
expenditures and cash flow over the remaining term of the revolving credit
facility. In addition, the borrowings may exceed the 65% of eligible inventory
not to exceed $3.5 million, between October 1, 1997 and October 31, 1997 and
$1.75 million commencing November 1, 1997 through and including December 15,
1997. Such excess borrowings will bear interest at an interest rate of prime
plus 3% per annum.
-5-
<PAGE> 6
Factory 2-U
Factory 2-U finances its operations through credit provided by suppliers,
amounts borrowed under its revolving credit facility and internally generated
cash flow. Effective June 2, 1997, Factory 2-U, amended its agreement with its
working capital lender to increase its revolving credit facility to $15.0
million from $10.0 million, with advances limited to 65% of eligible inventory
(as defined), an interest rate of prime plus 3/4% per annum and an expiration
date (subject to annual one year extensions) of November 1999.
As of November 1, 1997, Factory 2-U had $8.0 million outstanding and $2.0
million available to borrow under its revolving credit facility.
Effective September 24, 1997, Factory 2-U amended certain terms and conditions
of its revolving credit facility. Under the amended terms and conditions, the
covenants will be reset to be reflective of anticipated earnings, capital
expenditures and cash flow over the remaining term of the revolving credit
facility.
Capital Expenditures
The Company's planned future capital expenditures include costs to open new
Family Bargain Center and Factory 2-U stores, to renovate and/or relocate
existing stores, to expand its central administrative and distribution
facilities and to upgrade its information systems. Management believes that
future expenditures will be financed from internal cash flow and the General
Textiles and Factory 2-U revolving credit facilities. Through November 1, 1997
the Company has spent approximately $6.1 million on capital expenditures. The
Company anticipates spending approximately $1.9 million during the remainder of
the current fiscal year.
Inflation
In general, the Company believes that it will be able to offset the effects of
inflation by increasing operating efficiency, monitoring and controlling
expenses and increasing prices to the extent permitted by competitive factors.
Seasonality and Quarterly Fluctuations
The Company historically has realized its highest level of sales and income
during the third and fourth quarters of the fiscal year (the quarters ending in
fiscal October and January) as a result of the "Back to School" (August and
September) and Christmas (November and December) seasons. If the Company's sales
are substantially below seasonal expectations during the third and fourth
quarters, the Company's annual operating results will be adversely affected. The
Company historically has realized lower sales in its first two quarters, which
often has resulted in the Company incurring losses during those quarters.
Deferred Tax Assets
The Company has net operating loss ("NOL") carryforwards for Federal and
California income tax purposes. The utilization of these NOLs will be partially
limited due to restrictions imposed under the Federal and State laws upon a
change in ownership.
-6-
<PAGE> 7
At November 1, 1997, the Company's total net deferred income tax assets, a
significant portion of which relates to NOLs discussed above, have been
subjected to a 100% valuation allowance since realization of such assets is not
more likely than not in light of the Company's recurring losses from operations.
Cautionary Statement Regarding Forward-Looking Information
Statements, other than those based on historical facts, which address
activities, events or developments that the Company expects or anticipates may
occur in the future are forward-looking statements which are based upon a number
of assumptions concerning future conditions that may ultimately prove to be
inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve such
results is subject to certain risks and uncertainties, including, but not
limited to, economic and weather conditions that affect buying patterns of the
Company's customers, changes in consumer spending and the Company's ability to
anticipate buying patterns and implement appropriate inventory strategies,
continued availability of capital and financing, competitive factors and other
factors affecting the Company's business beyond the Company's control.
Consequently, all of the forward-looking statements are qualified by these
cautionary statements and there can be no assurance that the results or
developments anticipated by the Company will be realized or that they will have
the expected effects on the Company or its business or operations.
-7-
<PAGE> 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is at all times subject to pending and threatened legal actions,
which arise out of the normal course of business. In the opinion of management,
based in part on the advice of legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment No. 7 to Loan and Security Agreement, dated as
of September 24, 1997, between Factory 2-U and Finova
Capital Corporation (7 pages)
10.2 Amendment No. 10 to Loan and Security Agreement, dated as
of September 24, 1997, between General Textiles and Finova
Capital Corporation (10 pages)
10.3 Acknowledgment and Reaffirmation (Re: Affiliate Debt,
Management Fees, Intercreditor Agreement), dated as of
September 24, 1997, between Family Bargain Corporation
and Finova Capital Corporation (2 pages)
10.4 Separation Agreement, dated August 1, 1997, between Family
Bargain Corporation and William W. Mowbray (9 pages)
11.1 Computation of per share loss (1 page)
27 Financial Data Schedule (1 page)
(b) Reports on Form 8-K
None.
-8-
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAMILY BARGAIN CORPORATION
Date: November 24, 1997
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)
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<PAGE> 10
<TABLE>
EXHIBIT INDEX
<CAPTION>
<S> <C> <C>
Exhibit
Number Description Page
10.1 Amendment No. 7 to Loan and Security Agreement, dated as 11 - 17
of September 24, 1997, between Factory 2-U and Finova
Capital Corporation (7 pages)
10.2 Amendment No. 10 to Loan and Security Agreement, dated as 18 - 27
of September 24, 1997, between General Textiles and Finova
Capital Corporation (10 pages)
10.3 Acknowledgment and Reaffirmation (Re: Affiliate Debt, 28 - 29
Management Fees, Intercreditor Agreement), dated as of
September 24, 1997, between Family Bargain Corporation and
Finova Capital Corporation (2 pages)
10.4 Separation Agreement, dated August 1, 1997, between 30 - 38
Family Bargain Corporation and William W. Mowbray (9 pages)
11.1 Computation of per share loss (1 page) 39
27 Financial Data Schedule (1 page) 40
</TABLE>
-10-
AMENDMENT NO. 7 TO
LOAN AND SECURITY AGREEMENT AND WAIVER
This Amendment No. 7 to Loan and Security Agreement and Waiver
(this "Amendment") is entered into as of this 24th day of September, 1997, by
and between FACTORY 2-U, INC., an Arizona corporation ("Borrower"), and FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender").
W I T N E S S E T H :
WHEREAS, Borrower and Lender are parties to that certain Loan
and Security Agreement dated as of November 10, 1995, as amended by (i) an
Amendment No. 1 to Loan and Security Agreement and Waiver dated as of April 18,
1996, (ii) an Amendment No. 2 to Loan and Security Agreement and Waiver dated as
of April 22, 1996, (iii) an Amendment No. 3 to Loan and Security Agreement and
Waiver dated July 10, 1996, (iv) an Amendment No. 4 to Loan and Security
Agreement and Waiver dated December 31, 1996, (v) an Amendment No. 5 to Loan and
Security Agreement and Waiver dated April 23, 1997 and (vi) an Amendment No. 6
to Loan and Security Agreement dated as of May 30, 1997 (as so amended, the
"Loan Agreement") that evidences a loan from Lender to Borrower; and
WHEREAS, Borrower has asked Lender to modify the Loan
Agreement in accordance with the terms of, and subject to the conditions
contained in, this Amendment and Lender is willing so to amend the Loan
Agreement, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these recitals, the
covenants contained in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender and Borrower agree as follows:
1. Definitions. Unless otherwise defined in this Amendment,
all capitalized terms used herein, which are defined in the Loan Agreement, have
the same meaning as set forth in the Loan Agreement.
2. Amendments to Loan Agreement. The Loan Agreement is amended
as follows:
2.1 That subsection of that Section of the Schedule
to the Loan Agreement entitled "NEGATIVE COVENANTS (Section 14)", which
subsection is entitled "Capital Expenditures", is hereby amended in its
entirety to read as follows:
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<PAGE> 12
"Capital Expenditures. Borrower shall not make or incur any Capital
Expenditure if, after giving effect thereto, the
aggregate amount of all Capital Expenditures by
Borrower during any fiscal year would exceed
One Million Six Hundred Thousand Dollars
($1,600,000); provided, however, that before the
aggregate amount of Capital Expenditures
incurred by Borrower and by General Textiles
during any fiscal year of Borrower exceeds the
amount of Three Million Dollars ($3,000,000),
Borrower shall establish Availability of notless
than Three Hundred Thousand Dollars ($300,000)
and shall maintain such Availability for remaining
portion of such fiscal year. The Availability
required to be maintained by Borrower pursuant
to this subsection shall be in addition to any
required Availability which Borrower must
establish and maintain pursuant to other
provisions of the Loan Documents."
2.2. All references to the "Loan Documents" shall be
deemed to refer to any such Loan Documents as the same may be amended
as of the date the conditions precedent to the effectiveness of this
Amendment described in Section 4 have been fulfilled as set forth
therein, or as the same may be subsequently modified, amended, renewed
or restated.
3. Waivers. Provided that the conditions precedent described
in Section 4 hereof are met to the satisfaction of Lender, and subject to the
terms of this Amendment, Lender hereby waives Borrower's non-compliance with (i)
the covenant with respect to Borrower's Capital Expenditures, described in that
subsection of that Section of the Schedule to the Loan Agreement entitled
"NEGATIVE COVENANTS (Section 14)", which subsection is entitled "Capital
Expenditures", for Borrower's fiscal year-to-date period ended July 31, 1997,
and (ii) the covenant with respect to Borrower's consolidated-basis ratio of
Operating Cash Flow to Total Contractual Debt Service, described in that
subsection of that Section of the Schedule to the Loan Agreement entitled
"FINANCIAL COVENANTS (Section 13.14)", which subsection is entitled "Debt
Service Coverage Ratio", for the calendar month ended August 31, 1997. The
waivers set forth in this Section 3 shall be effective only in this specific
instance and for the specific purpose for which given, and Lender's granting of
such waivers shall not entitle Borrower to any further or other waiver in any
similar or other circumstances.
4. Conditions Precedent. This Amendment, and the waivers
described in Section 3 above, will not be effective unless and until each of the
following conditions
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<PAGE> 13
precedent have been satisfied, in form, manner and substance satisfactory to
Lender prior to September 24, 1997:
(a) Borrower shall have delivered or caused to be
delivered to Lender the following documents, all of which shall be
properly completed, executed and otherwise satisfactory to Lender:
(i) This Amendment;
(ii) Consent of Guarantor in the form attached hereto;
(iii) Such acknowledgments, reaffirmations
and consents of third parties as Lender shall deem necessary;
(iv) A corporate resolution of Borrower
approving the transactions contemplated hereby to which it is
a party;
(v) A corporate resolution of Guarantor approving the transactions
contemplated hereby to which it is a party; and
(vi) Such other items as Lender may require or deem necessary.
(b) Lender and General Textiles shall have executed
an Amendment No. 10 to the GenTex Loan Agreement and each condition to
the effectiveness thereof shall have been satisfied other than the
execution of this Amendment.
(c) There shall not then exist an Event of Default or
any act or event which with notice, passage of time, or both would
constitute an Event of Default.
(d) All the representations and warranties of the
Loan Parties in the Loan Documents shall be true and correct, in all
material respects, before and after giving effect to the making of this
Amendment.
(e) Borrower shall have paid all closing costs,
recording fees and taxes, appraisal fees and expenses, travel expenses,
fees and expenses of Lender's counsel, and all other costs and expenses
incurred by Lender in connection with the preparation of, closing of
and disbursement of the advances pursuant to this Amendment, which
costs, fees and expenses may be payable from the first advance made
pursuant to this Amendment.
5. Indebtedness Acknowledged. Borrower acknowledges that the
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
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<PAGE> 14
such indebtedness in accordance with the terms of the Loan Documents. Borrower
further acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a breach, default or Event of Default by
Lender under the Loan Agreement or any of the other Loan Documents, with or
without notice or lapse of time.
6. Validity of Documents. Borrower hereby ratifies, reaffirms,
acknowledges and agrees that the Loan Agreement and the other Loan Documents
represent valid, enforceable and collectable obligations of Borrower, and that
Borrower presently has no existing claims, defenses (personal or otherwise) or
rights of setoff whatsoever with respect to the Obligations of Borrower under
the Loan Agreement or any of the other Loan Documents. Borrower furthermore
agrees that it has no defense, counterclaim, offset, cross-complaint, claim or
demand of any nature whatsoever which can be asserted as a basis to seek
affirmative relief or damages from Lender.
7. Reaffirmation of Warranties. Borrower hereby reaffirms to
Lender each of the representations, warranties, covenants and agreements of
Borrower as set forth in each of the Loan Documents with the same force and
effect as if each were separately stated herein and made as of the date hereof.
Borrower represents and warrants to Lender that, with respect to the financing
transaction herein contemplated, no Person is entitled to any brokerage fee or
other commission and Borrower agrees to indemnify and hold Lender harmless
against any and all such claims.
8. Ratification of Terms and Conditions. All terms, conditions
and provisions of the Loan Agreement, and of each of the other Loan Documents
shall continue in full force and effect and shall remain unaffected and
unchanged except as specifically amended hereby. In the event of any conflict
between the terms and conditions of this Amendment and any of the other Loan
Documents, the provisions of this Amendment shall control. Without limiting the
generality of the foregoing, Borrower reaffirms its obligation to deliver to
Lender Landlord's Consents with respect to all of Borrower's facilities in which
Collateral is or is intended to be kept or maintained and further acknowledges
that Lender has not waived its right to require the delivery of such Landlord's
Consents.
9. Other Writings. Lender and Borrower will execute such other
writings as may be necessary to confirm or carry out the intentions of Lender
and Borrower evidenced by this Amendment.
10. Benefit of the Amendment. The terms and provisions of this
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.
-14-
<PAGE> 15
11. Choice of Law. The Loan Documents and this Amendment shall
be performed and construed in accordance with the laws of the State of Arizona.
12. Entire Agreement. Except as modified by this Amendment,
the Loan Documents remain in full force and effect. The Loan Documents as
modified by this Amendment embody the entire agreement and understanding between
Borrower and Lender, and supersede all prior agreements and understandings
between said parties relating to the subject matter thereof.
13. Counterparts; Telecopy Execution. This Amendment may be
executed in any number of separate counterparts, all of which when taken
together shall constitute one and the same instrument, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
[SIGNATURE PAGE FOLLOWS]
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first written above.
FINOVA CAPITAL CORPORATION, a Delaware corporation
By: /s/ Pete Martinez
Name: Pete Martinez
Title: Vice President
FACTORY 2-U, INC., an Arizona corporation
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President
-16-
<PAGE> 17
CONSENT OF GUARANTOR
The undersigned ("Guarantor") hereby executes this Consent for
the purpose of (i) evidencing Guarantor's consent to the execution and
performance of the foregoing Amendment No. 7 to Loan and Security Agreement (the
"Seventh Amendment") by Lender and Borrower, (ii) reaffirming the terms of the
Guaranty Agreement executed by Guarantor, (iii) evidencing Guarantor's agreement
that the Borrower's Obligations as set forth in the Guaranty Agreement shall,
for all purposes, include the Loan Documents, as amended by the Seventh
Amendment, and shall further include all additional amounts which may be funded
or advanced to Borrower pursuant to the Loan Agreement described above as
amended by the Seventh Amendment, and (iv) ratifying and affirming all terms and
provisions of the Guaranty Agreement. Except to the extent otherwise indicated,
terms used herein with initial capital letters shall have the meanings set forth
in the Loan Agreement, as amended by the Seventh Amendment.
Guarantor agrees that it has no defense, counterclaim, offset,
cross-complaint, claim or demand of any nature whatsoever which can be asserted
as a basis to seek affirmative relief or damages from Lender.
IN WITNESS WHEREOF, the undersigned has hereunto executed this
Consent as of this 24th day of September, 1997.
FAMILY BARGAIN CORPORATION, a Delaware corporation
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President
-17-
AMENDMENT NO. 10 TO
LOAN AND SECURITY AGREEMENT AND WAIVER
This Amendment No. 10 to Loan and Security Agreement and Waiver (this
"Amendment") is entered into as of this 24th day of September, 1997, by and
between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and
GENERAL TEXTILES, a California corporation ("Borrower").
W I T N E S S E T H :
WHEREAS, Borrower and Greyhound Financial Capital Corporation, an
Oregon corporation, predecessor by merger and name change to Lender, entered
into a Loan and Security Agreement dated as of October 14, 1993, as amended by
(i) an Amendment No. 1 to Loan and Security Agreement dated as of July 11, 1994,
(ii) an Amendment No. 2 to Loan and Security Agreement dated as of March 31,
1995, (iii) an Amendment No. 3 to Loan and Security Agreement dated as of July
27, 1995, (iv) an Amendment No. 4 to Loan and Security Agreement dated as of
November 10, 1995, (v) an Amendment No. 5 to Loan and Security Agreement dated
as of April 18, 1996, (vi) an Amendment No. 6 to Loan and Security Agreement
dated as of July 10, 1996, (vii) an Amendment No. 7 to Loan and Security
Agreement dated as of December 31, 1996, (viii) a Letter Agreement dated January
10, 1997 with respect to the establishment of certain letters of credit (ix) an
Amendment No. 8 to Loan and Security Agreement and Waiver dated April 23, 1997
and (x) an Amendment No. 9 to Loan and Security Agreement dated as of May 30,
1997 (as so amended, the "Loan Agreement"), that evidences a loan from Lender to
Borrower; and
WHEREAS, Borrower has asked Lender to modify the Loan Agreement in
accordance with the terms of, and subject to the conditions contained in, this
Amendment and Lender is willing so to amend the Loan Agreement, upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of these recitals, the covenants
contained in this Amendment, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender and Borrower
agree as follows:
1. Definitions. Unless otherwise defined in this Amendment, all
capitalized terms used herein which are defined in the Loan Agreement have the
same meaning as set forth in the Loan Agreement.
2. Loan Agreement. The Loan Agreement is amended as follows:
2.1. Section 1(A) is hereby amended by adding or substituting,
as the case may be, the following definitions:
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<PAGE> 19
"'Advance Rate' means (i) during the period commencing October 1, 1997
through and including October 31, 1997, an amount equal to seventy-five percent
(75.0%); (ii) during the period commencing November 1, 1997 through and
including December 15, 1997, an amount equal to seventy percent (70.0%); and
(iii) at all other times, an amount equal to sixty-five percent (65.0%)."
"'Mowbray Debt' means the settlement obligation of Borrower to William
Mowbray in the amount of $1,750,000."
"'Temporary Availability' has the meaning given to it in paragraph
2(B)(i)."
"'Tenth Amendment' means that certain Amendment No. 10 to Loan and
Security Agreement between Lender and Borrower dated as of September 24, 1997."
"'Tenth Amendment Effective Date' means September 24, 1997, the date upon
which the Tenth Amendment became effective pursuant to the terms and upon the
conditions thereof."
2.2. Paragraph 2(B) is hereby amended in its entirety to read as follows:
"2(B) Loans. Advances of the Total Facility shall be comprised of the
following:
(i) Inventory Loans. A revolving line of credit consisting of
loans against Borrower's Eligible Inventory ('Inventory Loans') in an
aggregate outstanding principal amount not to exceed the lesser of:
(a) the sum of (1) the amount obtained when the
Advance Rate is multiplied by the value of Borrower's Eligible
Inventory, calculated at the lower of cost or market and determined
on a first-in, first-out basis (and after reserving for Inventory
shrinkage in amounts determined by Lender from time to time in its
sole discretion) minus (2) the aggregate face amount of al
outstanding Letters of Credit; or
(b) Thirty-Five Million Dollars ($35,000,000) minus the sum of
the aggregate outstanding balances of (A) the Capex Note,
(B) the Term Note and (C) the Additional Term Note.
Notwithstanding the foregoing, Availability attributable to that portion of the
Advance Rate exceeding the amount of sixty-five percent (65.0%) (such
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<PAGE> 20
excess being herein the 'Temporary Availability') shall not exceed (x) during
the period commencing October 1, 1997 through and including October 31,
1997, an amount equal to THREE MILLION FIVE HUNDRED THOUSAND DOLLARS
($3,500,000), and (y) during the period commencing November 1, 1997 through and
including December 15, 1997, an amount equal to ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND DOLLARS ($1,750,000).
(ii) Capital Expenditure Line. The Capital Expenditure Line in
such amounts and on such terms as are set forth in the Second Amendment
and in the Capex Note.
(iii) Term Loan. The Term Loan on such terms as are set forth in
the Fifth Amendment and in the Term Note.
(iv) Additional Term Loan. The Additional Term Loan on such terms
as are set forth in the Sixth Amendment and in the Additional Term
Note."
2.3. For all purposes of the Loan Agreement as amended by the Tenth
Amendment, the value of Borrower's Eligible Inventory shall be calculated at the
lower of cost or market and determined on a first-in, first-out basis (and after
reserving for Inventory shrinkage in amounts determined by Lender from time to
time in its sole discretion).
2.4. Paragraph 3(A) is hereby amended in its entirety to read as follows:
"3(A) Interest. Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at a per annum rate of
three-quarters of one percent (0.750%) in excess of the rate of interest
announced publicly by Citibank, N.A., from time to time as its "base rate"
(or any successor thereto), which may not be such institution's lowest
rate (the "Base Rate"); provided, however, that the outstanding and unpaid
principal balance of each of the Capex Note, the Term Note and the
Additional Term Note shall accrue interest at the per annum rate
respectively provided therein; provided further, however, that the
outstanding and unpaid principal balance of any and all loans initially
advanced against Temporary Availability shall accrue interest at the per
annum rate of three percent (3.0%) in excess of the Base Rate. The
interest rate chargeable hereunder shall be increased or decreased, as the
case may be, without notice or demand of any kind, upon the announcement
of any change in the Base Rate. Each change in the Base Rate shall be
effective hereunder on the first day following the announcement of such
change, provided, that a cumulative change of less than one-fourth of one
percent (0.25%) shall not be considered. Interest charges and all other
fees and charges herein shall be computed on the basis of a
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<PAGE> 21
year of 360 days and actual days elapsed and will be payable to Lender in
arrears on the first day of each month hereafter at its address set forth
in Exhibit B of the Original Agreement."
2.5. Borrower acknowledges and agrees that Lender has no obligation to
fund any advance of Term Loan D. Accordingly, each and every reference to each
of "Term Loan D" and "Term Note D" shall be deemed deleted and of no further
effect.
2.6. Paragraph 14(N) is hereby amended in its entirety to read as follows:
"(N) Current Ratio. As of the end of each fiscal month of Borrower,
through and including September 30, 1997, and as of the end of each
quarter thereafter, beginning with the quarter ending October 31, 1997,
maintain a ratio of Current Assets to Current Liabilities of not less than
1.2 to 1.0."
2.7. Paragraph 14(P) is hereby amended in its entirety to read as follows:
"(P) Debt to Net Worth. As of the end of each fiscal month of
Borrower, commencing with the month ending October 31, 1997, maintain a
ratio of Indebtedness to Net Worth of not greater than 1.70 to 1.0. For
the purposes hereof, Net Worth shall not include the Guilford Subordinated
Debt, the New Subordinated Debt, the New Subordinated Notes, the Junior
Subordinated Reorganization Notes, the Subordinated Reorganization Notes,
the Mowbray Debt or any indebtedness of Borrower incurred under or in
connection with real estate leases; further, Net Worth shall be increased
by, and Indebtedness shall be decreased by, the unpaid and outstanding
principal balance of the 6.35MM Debt at the end of the period to be
tested."
2.8. Paragraph 15(I) is hereby amended in its entirety to read as follows:
"15(I) Capital Expenditures. Make or incur any Capital Expenditure
except to the extent set forth in this paragraph. Borrower shall be
permitted to make or incur Capital Expenditures during each fiscal year of
Borrower in an aggregate amount not in excess of the sum of Six Million
Five Hundred Thousand Dollars ($6,500,000); provided that all Capital
Expenditures are made from (A) the proceeds of capital contributions made
by Guarantor to Borrower, (B) the proceeds of Permitted Guarantor
Indebtedness or(C) the proceeds of Permitted Equipment Indebtedness or
(D) working capital representing the proceeds of an advance of the
Inventory Loans; provided further, that before the aggregate amount of
Capital Expenditures incurred by Borrower and by Factory 2-U during any
fiscal year of Borrower exceeds the amount of Three Million Dollars
($3,000,000), Borrower shall establish Availability of not less than Seven
Hundred Thousand Dollars ($700,000) and shall maintain such Availability
for remaining portion of such fiscal year. The Availability required to be
maintained by Borrower pursuant to this paragraph shall be in addition to
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<PAGE> 22
any required Availability which Borrower must establish and maintain
pursuant to other provisions of the Loan Documents. The foregoing covenant
shall be tested monthly."
2.9. Paragraph 22 of the Addendum to the Loan Agreement, entitled "Debt
Service Coverage Ratio", shall be amended to provide that, commencing with the
quarter ending October 31, 1997, each of Senior Contractual Debt Service and
Total Contractual Debt Service covenant compliance shall be tested quarterly,
on a cumulative quarter-to-date rolling basis up to twelve (12) months.
Paragraph 22 of the Addendum to the Loan Agreement shall be further amended to
provide that so long as any of the Obligations remain outstanding and the Loan
Agreement is in effect, Borrower shall maintain a ratio of Operating Cash Flow
to Senior Contractual Debt Service of not less than 1.6 to 1.0. Paragraph 22 of
the Addendum to the Loan Agreement shall be further amended to provide that so
long as any of the Obligations remain outstanding and the Loan Agreement is in
effect, Borrower shall maintain a ratio of Operating Cash Flow to Total
Contractual Debt Service of not less than 1.4 to 1.0.
2.10. All references to the "Loan Documents" shall be deemed to refer to
any such Loan Documents as the same may be amended as of the Tenth Amendment
Effective Date, or as the same may subsequently be modified, amended, renewed or
restated.
3. Waivers. Provided that the conditions precedent described in Section 6
hereof are met to the satisfaction of Lender, and subject to the terms of this
Amendment, Lender hereby waives Borrower's non-compliance with (i) the covenant
with respect to Borrower's ratio of Current Assets to Current Liabilities,
described in Section 14(N) of the Loan Agreement, through Borrower's fiscal
month ending September 30, 1997, (ii) the covenant with respect to Borrower's
ratio of Indebtedness to Net Worth, described in Section 14(P) of the Loan
Agreement, through Borrower's fiscal month ending September 30, 1997, (iii) the
covenant with respect to Borrower's ratio of Operating Cash Flow to Senior
Contractual Debt Service, described in Paragraph 22 to the Addendum to the Loan
Agreement, through Borrower's fiscal month ending September 30, 1997, and (iv)
the covenant with respect to Borrower's ratio of Operating Cash Flow to Total
Contractual Debt Service, described in Paragraph 22 to the Addendum to the Loan
Agreement, through Borrower's fiscal month ending September 30, 1997. The
waivers set forth in this Section 3 shall be effective only in this specific
instance and for the specific purpose for which given, and Lender's granting of
such waivers shall not entitle Borrower to any further or other waiver in any
similar or other circumstances.
4. Fees. In consideration of Lender's agreement to enter into this
Amendment and to the modification to the Loan Documents and the waivers by
Lender described herein, Borrower agrees to pay on or before the Tenth Amendment
Effective Date the amount of FIFTY THOUSAND DOLLARS ($50,000). Borrower and
Lender acknowledge that Lender may withhold the Fee from the proceeds of the
Total Facility, to the extent the Fee is not paid prior to disbursement thereof.
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<PAGE> 23
5. Subordination Agreement. Borrower is a party to that certain
Standstill and Subordination Agreement dated November 10, 1995, Factory 2-U and
Lender (the "GT Subordination Agreement"). Borrower hereby acknowledges that the
GT Subordination Agreement shall remain in full force and effect notwithstanding
the making of Amendment No. 7 to the Factory 2-U Loan Agreement and
notwithstanding the making of any previous amendments thereto. Borrower restates
and confirms each of Borrower's representations and warranties set forth the GT
Subordination Agreement as if made on the date hereof.
6. Conditions Precedent. This Amendment, and the waivers described in
Section 3 above, will not be effective unless and until each of the following
conditions precedent have been satisfied, in form, manner and substance
satisfactory to Lender prior to September 24, 1997:
(a) Borrower shall have delivered or caused to be delivered to
Lender the following documents, all of which shall be properly
completed, executed and otherwise satisfactory to Lender:
(i) This Amendment;
(ii) Consent of Guarantor in the form attached hereto;
(iii) Such acknowledgments, reaffirmations and
consents of third parties as Lender shall deem necessary;
(iv) A corporate resolution of Borrower approving the
transactions contemplated hereby to which it is a party;
(v) A corporate resolution of Guarantor approving the
transactions contemplated hereby to which it is a party;
(vi) Such other items as Lender may require or deem necessary.
(b) Lender and Factory 2-U shall have executed an Amendment
No. 7 to the Factory 2-U Loan Agreement and each condition to the
effectiveness thereof shall have been satisfied other than the
execution of this Amendment.
(c) There shall not then exist an Event of Default or any act
or event which with notice, passage of time, or both would constitute
an Event of Default.
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<PAGE> 24
(d) All the representations and warranties of the Loan Parties
in the Loan Documents shall be true and correct, in all material
respects, before and after giving effect to the making of this
Amendment.
(e) Borrower shall have paid all closing costs, recording fees
and taxes, appraisal fees and expenses, travel expenses, fees and
expenses of Lender's counsel, and all other costs and expenses incurred
by Lender in connection with the preparation of, closing of and
disbursement of the advances pursuant to this Amendment, which costs,
fees and expenses may be payable from the first advance made pursuant
to this Amendment.
(f) Borrower shall have paid the Fee.
7. Indebtedness Acknowledged. Borrower acknowledges that the
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
such indebtedness in accordance with the terms of the Loan Documents. Borrower
further acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a default or event of default by Lender
under the Loan Agreement or any of the other Loan Documents, with or without
notice or lapse of time.
8. Validity of Documents. Borrower hereby ratifies, reaffirms,
acknowledges and agrees that the Loan Agreement and the other Loan Documents
represent valid, enforceable and collectable obligations of Borrower, and that
Borrower presently has no existing claims, defenses (personal or otherwise) or
rights of setoff whatsoever with respect to the Obligations of Borrower under
the Loan Agreement or any of the other Loan Documents. Borrower furthermore
agrees that it has no defense, counterclaim, offset, cross-complaint, claim or
demand of any nature whatsoever which can be asserted as a basis to seek
affirmative relief or damages from Lender.
9. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender
each of the representations, warranties, covenants and agreements of Borrower as
set forth in each of the Loan Documents with the same force and effect as if
each were separately stated herein and made as of the date hereof. Borrower
represents and warrants to Lender that with respect to the financing transaction
herein contemplated, no Person is entitled to any brokerage fee or other
commission and Borrower agrees to indemnify and hold Lender harmless against any
and all such claims.
10. Ratification of Terms and Conditions. All terms, conditions and
provisions of the Loan Agreement, and of each of the other Loan Documents shall
continue in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. In the event of any conflict between the
terms and conditions of this Amendment and any of the other Loan Documents, the
provisions of this Amendment shall control. Without limiting the generality of
the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's
Consents with respect to all of Borrower's facilities in which Collateral is or
is intended to be kept or maintained and further acknowledges that Lender has
not waived its right to require the delivery of such Landlord's Consents.
-24-
<PAGE> 25
11. Other Writings. Lender and Borrower will execute such other
writings as may be necessary to confirm or carry out the intentions of Lender
and Borrower evidenced by this Amendment.
12. Benefit of the Amendment. The terms and provisions of this
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.
13. Choice of Law. The Loan Documents and this Amendment shall be
performed and construed in accordance with the laws of the State of Arizona.
14. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in full force and effect. The Loan Documents as modified by
this Amendment embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
15. Counterparts; Telecopy Execution. This Amendment may be executed in
any number of separate counterparts, all of which when taken together shall
constitute one and the same instrument, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
[SIGNATURE PAGE FOLLOWS]
-25-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first written above.
FINOVA CAPITAL CORPORATION, a Delaware
corporation, successor-by-merger to Greyhound
Financial Capital Corporation, an Oregon corporation
By: /s/ Pete Martinez
Name: Pete Martinez
Title: Vice President
GENERAL TEXTILES, a California corporation
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President
-26-
<PAGE> 27
CONSENT OF GUARANTOR
The undersigned ("Guarantor") hereby executes this Consent for
the purpose of (i) evidencing Guarantor's consent to the execution and
performance of the foregoing Amendment No. 10 to Loan and Security Agreement and
Waiver (the "Tenth Amendment") by Lender and Borrower, (ii) reaffirming the
terms of the Guaranty Agreement executed by Guarantor, (iii) evidencing
Guarantor's agreement that the Borrower's Obligations as set forth in the
Guaranty Agreement shall, for all purposes, include the Loan Documents, as
amended by the Tenth Amendment, and shall further include all additional amounts
which may be funded or advanced to Borrower pursuant to the Loan Agreement
described above as amended by the Tenth Amendment, and (iv) ratifying and
affirming all terms and provisions of the Guaranty Agreement. Except to the
extent otherwise indicated, terms used herein with initial capital letters shall
have the meanings set forth in the Loan Agreement, as amended by the Tenth
Amendment.
Guarantor agrees that it has no defense, counterclaim, offset,
cross-complaint, claim or demand of any nature whatsoever which can be asserted
as a basis to seek affirmative relief or damages from Lender.
IN WITNESS WHEREOF, the undersigned has hereunto executed this
Consent as of this 24th day of September, 1997.
FAMILY BARGAIN CORPORATION,
a Delaware corporation
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President
-27-
ACKNOWLEDGMENT AND REAFFIRMATION
The undersigned, FAMILY BARGAIN CORPORATION, a Delaware
corporation ("FBC") acknowledges:
1. FBC is a party to that certain Standstill and Subordination
Agreement (re: Affiliate Debt) dated as of July 11, 1994, as amended by that
certain Amendment No. 1 to Standstill and Subordination Agreement dated as of
March 31, 1995, and that certain Amendment No. 2 to Standstill and Subordination
Agreement dated as of July 27, 1995 (as amended, the "Affiliate Debt
Subordination Agreement").
2. FBC is a party to that certain Subordination and Standstill
Agreement dated October 14, 1993, as amended by that certain Amendment No. 1 to
Standstill and Subordination Agreement dated as of July 11, 1994, as amended by
that certain Amendment No. 2 to Standstill and Subordination Agreement dated as
of March 31, 1995, and that certain Amendment No. 3 to Standstill and
Subordination Agreement dated as of July 27, 1995 (as amended, the "Management
Fees Subordination Agreement").
3. FBC is a party to that certain Intercreditor, Standstill
and Subordination Agreement dated as of October 14, 1993, originally executed by
and among Greyhound Financial Capital Corporation, Westinghouse Electric
Corporation, Guilford Investments, Inc. and General Textiles, as amended by that
certain Amendment No. 1 to Intercreditor, Standstill and Subordination Agreement
dated as of July 11, 1994, that certain Amendment No. 2 to Intercreditor,
Standstill and Subordination Agreement dated as of March 31, 1995, and that
certain Amendment No. 3 to Intercreditor, Standstill and Subordination Agreement
dated as of July 27, 1995 (as amended, the "Intercreditor Agreement").
4. FBC is a party to that certain Subordination and Standstill
Agreement (re: 6.35MM Debt) dated as of May 30, 1997 (the "6.35MM Debt
Subordination Agreement").
5. FBC is a party to that certain Standstill and Subordination
Agreement dated as of November 10, 1995 (the "F2U Subordination Agreement").
6. FINOVA Capital Corporation, successor by merger and name
change to Greyhound Financial Capital Corporation ("FINOVA") is also a party to
the Affiliate Debt Subordination Agreement, Management Fees Subordination
Agreement, Intercreditor Agreement, 6.35MM Debt Subordination Agreement and F2U
Subordination
Agreement.
-28-
<PAGE> 29
7. FBC has received a copy of that certain Loan and Security
Agreement dated as of October 14, 1993, by and between FINOVA and General
Textiles, a California corporation, and each amendment thereto, including
without limitation, that certain Amendment No. 10 to Loan and Security Agreement
and Waiver of even date herewith.
8. FBC has received a copy of that certain Loan and Security
Agreement dated as of November 10, 1995, by and between FINOVA and Factory 2-U,
Inc., an Arizona corporation, and each amendment thereto, including without
limitation that certain Amendment No. 7 to Loan and Security Agreement and
Waiver of even date herewith.
9. Each of the Affiliate Debt Subordination Agreement,
Management Fees Subordination Agreement, Intercreditor Agreement, 6.35MM Debt
Subordination Agreement and F2U Subordination Agreement remains in effect and
FBC re-states and confirms each term thereof, notwithstanding the terms of the
Amendment.
10. FBC restates and confirms each of FBC's representations
and warranties set forth in each of the Affiliate Debt Subordination Agreement,
Management Fees Subordination Agreement, Intercreditor Agreement, 6.35MM Debt
Subordination Agreement and F2U Subordination Agreement as if made on the date
hereof.
Executed as of this 24th day of September, 1997.
FAMILY BARGAIN CORPORATION
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President
-29-
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the "Agreement") made as of the 1st day of
August, 1997 by and between Family Bargain Corporation, a Delaware corporation
(the "Company") and William W. Mowbray ("Mowbray").
W I T N E S S E T H
WHEREAS, the Company and Mowbray are currently parties to the following
agreements:
(i) an Amended and Restated Employment Agreement dated February 24,
1997 (which replaced and superseded an Employment Agreement dated as of
November 1, 1996) (the "Employment Agreement"); and
(ii) Options to purchase One Hundred Ten Thousand (110,000)
shares of common stock of the Company at $1.375 per share expiring ten (10)
years after issuance ("First New Options"); and
(iii) a Secured Promissory Note and related agreement dated
March 21, 1997 (the "Note"); and
(iv) Options to purchase Six Hundred Seventeen Thousand (617,000)
shares of common stock of the Company at $2.25 per share expiring five (5) years
after issuance, which become exercisable in twenty-five percent (25%)
installments at such time as the market price of common stock of the Company
exceeds $6, $7.50, $10 and $15 per share for sixty (60) consecutive trading days
(the "Class A Second New Options"); and
(v) Options to purchase Thirty-Five Thousand Five Hundred (35,500)
shares of common stock of the Company at $2.25 per share expiring five (5) years
after issuance and currently exercisable (the "Class B Second New Options"); and
WHEREAS, Mowbray is a member of the Board of Directors of the Company; and
WHEREAS, the parties desire that:
(i) Mowbray resign from the Board of Directors of the Company and
as an officer of the Company;
(ii) the Employment Agreement be terminated;
-30-
<PAGE> 31
(iii)Mowbray agree not to compete with the Company (the
"Non-Competition Agreement"); and
(iv) the Note and Class A Second New Options be modified as herein
set forth,
all of the foregoing transactions to be in accordance with the terms hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereby agree as follows:
1. Resignation as Director and Officer. Effective upon the execution of
this Agreement by both parties, Mowbray resigns as a Director of the Company and
as an officer of the Company and as a director and/or officer of any subsidiary
of the Company for which he presently serves in such capacity.
2. Termination of the Employment Agreement. Effective upon the
execution of this Agreement by both parties, the Employment Agreement shall be
terminated and be of no further force or effect and the rights and obligations
of the parties thereunder shall be as set forth herein.
3. Non-Competition Agreement. In consideration of the payments to be
made by the Company pursuant to Paragraph 4A below, Mowbray agrees that from the
date of this Agreement until December 31, 2000, he will not, directly or
indirectly, (a) compete with the Company, or any direct or indirect subsidiary
of the Company, in the operation of a retail bargain clothing store or chain of
such stores which markets products to low income consumers in the States of
California, Arizona, New Mexico, Washington, Oregon, Texas and such other states
in which the Company is operating on the date hereof; or (b) be interested in,
employed by, engaged by, or participate in the ownership, management, operation,
or control of, or act in any advisory or other capacity for, any firm or
corporation which competes with the Company in the States of California,
Arizona, New Mexico, Washington, Oregon, Texas and such other states in which
the Company is operating on the date hereof (provided, however, that
notwithstanding the foregoing, Mowbray may make solely passive investments in
any corporation the common stock of which is Apublicly held,@ and of which
Mowbray shall not own or control securities which constitute more than one
percent (1%) of the voting rights or equity ownership of such corporation); or
(c) solicit or divert business from the Company or assist any person, firm or
corporation in doing so or attempting to do so; or (e) hire any person employed
on a full-time basis by the Company on the date hereof, or any person who was a
full-time employee of the Company within six (6) months from the date hereof, or
assist any person, firm or corporation in doing so or attempting to do so.
4. Consideration to Mowbray. A. In consideration of the Non-Competition
Agreement, the Company shall pay to Mowbray the sum of Nine Hundred Seventy
Thousand Dollars ($970,000) payable as follows:
-31-
<PAGE> 32
(i) Three Hundred Sixty Thousand Dollars ($360,000) on March 30,
1998; and
(ii) Three Hundred Sixty Thousand Dollars ($360,000) on March 30,
1999; and
(iii)Two Hundred Fifty Thousand Dollars ($250,000) on August 1, 2001.
B. In consideration for the termination of the Employment Agreement,
the Company shall pay to Mowbray:
I. (i) upon execution of this Agreement, the gross sum of $44,767.50
which is equal to $1,313.60 per day multiplied by the number of accrued and
unused vacation days as of the date hereof; and
(ii) from the date hereof until December 31, 1997, the pro rata
portion of Three Hundred Forty-One Thousand Five Hundred Thirty-Six Dollars
($341,536) payable in biweekly installments on the normal payroll cycle of the
Company; and
(iii) from January 1, 1998 to December 31, 1998, the sum of Three
Hundred Sixty-Five Thousand Four Hundred Forty-Four Dollars ($365,444) payable
in biweekly installments on the normal payroll cycle of the Company; and
(iv) on or about February 28, 1998, the bonus due, if any, under
the Company's existing bonus plan for the fiscal year ending January 31, 1998,
pro rated to the date hereof; and
(v) from January 1, 1999 to December 31, 1999, the sum of Three
Hundred Ninety-One Thousand Twenty-Five Dollars ($391,025) payable in biweekly
installments on the normal payroll cycle of the Company; and
(vi) from January 1, 2000 to January 31, 2000, the pro rata share
of Four Hundred Eighteen Thousand Three Hundred Thirty-Six Dollars ($418,396)
payable in biweekly installments on the normal payroll cycle of the Company.
II. Each of the payments described in subparagraph BI above shall be
subject to standard deductions for taxes and other withholding items. In the
event of a "Change in Control" (as that term is defined in the Employment
Agreement), all amounts payable under subparagraphs A and B of this Paragraph 4
shall become immediately due and payable.
-32-
<PAGE> 33
C. The Company shall continue to provide to Mowbray, all of the benefits
described in Sections 3.01, 3.04 and 3.05 of the Employment Agreement, which
provisions are incorporated herein by reference as if set forth in full, for the
five (5) year period commencing on August 1, 1997 and ending July 31, 2002. In
the event of Mowbray's death prior to the end of such five (5) year period, his
spouse shall continue to receive such benefits until July 31, 2002.
D. Amendment of Note. The Note is hereby amended to forgive and waive all
interest payable thereunder.
E. Stock Options. The First New Options and the Class B Second Options
shall continue to be exercisable by Mowbray in accordance with their
respective terms. The Class A Second New Options are hereby amended so that
Mowbray can exercise fifty percent (50%) thereof at such time as the market
price of the common stock of the Company exceeds $6 per share for sixty (60)
consecutive trading days and fifty percent (50%) at such time as the market
price of the common stock of the Company exceeds $7.50 per share for sixty (60)
consecutive trading days.
4. Representations and Warranties by Mowbray. Mowbray hereby represents and
warrants as follows:
(i) That he is not aware of any claims or causes of action
which are pending or threatened against him in his capacities as a director,
officer or employee of the Company or any subsidiary thereof.
(ii) That he is not aware of any material claims or causes of
action which are pending or threatened against the Company which have not been
disclosed to the Company.
5. Representations and Warranties by the Company. The Company hereby
represents and warrants as follows:
(i) That the Company has full power and authority to
consummate the transactions contemplated by this Agreement; this Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms; that neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated herein,
will violate any agreement to which the Company 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 the Company, or any provision of its Amended and Restated
Certificate of Incorporation or Restated Bylaws, and that no authorization,
approval or consent of any third party is required for the lawful execution,
delivery and performance of this Agreement by the Company; and
(ii) That the execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company.
-33-
<PAGE> 34
6. Indemnification by the Company. a) The Company agrees to indemnify
and hold harmless Mowbray against any claims, losses, costs (including, without
limitation, legal, witness and expert fees and disbursements and other charges
of counsel (collectively "Legal Fees"), expenses, liabilities, or damages in
connection with any claims or actions arising from or related to any of the
transactions consummated or contemplated pursuant to this Agreement (but not
legal fees relating to the transactions themselves), excluding federal, state
and local taxes (including interest, penalties and associated expenses) imposed
on Mowbray with respect to payments received by him pursuant to the transactions
consummated or contemplated by this Agreement, which shall be the sole
responsibility of Mowbray; or arising from or relating to any misrepresentation
or breach of any covenant, warranty or agreement made by the Company, or in
connection with the enforcement of this paragraph.
b. The indemnification set forth above shall be in addition
to, and without limiting or affecting, the Company's imdemnification obligations
pursuant to the Company's Articles of Incorporation and Amended and Restated
Bylaws (the "Bylaws"), provided, however that the Company further agrees that,
notwithstanding Section 5 of the Bylaws (provided that an undertaking of
repayment of expenses required by such Section 5 is given to the Company), any
expenses incurred by Mowbray defending any civil, criminal, administrative or
investigative action, suit or proceeding, or threat thereof, including without
limitation any claims or actions contemplated by this Paragraph 6, shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding, to the fullest extent permissible under the Company's Bylaws and
Delaware law.
7. Indemnification by Mowbray. Mowbray agrees to indemnify and hold
harmless the Company from and against any claims, losses, costs (including Legal
Fees), expenses, liabilities or damages arising from or relating to any
misrepresentation or breach of any covenant, warranty or agreement made by him
in this Agreement or connection with the enforcement of this Paragraph 7 and
from and against any liability for withholding taxes pursuant to federal, state
and local law (including interest, penalties and reasonable attorneys' fees)
with respect to any amounts payable to Mowbray under this Agreement or the
Non-Competition Agreement.
8. Mutual General Release. The Company on one hand, and Mowbray on the
other hand, hereby each release, remise, acquit and forever discharge the other
party and its respective, agents, principals, servants, parents, subsidiaries,
partners, affiliates, officers, directors, shareholders, attorneys, employees,
heirs, executors, successors and assigns from all actions, causes of action and
from any and all past, present or future actions, causes of action, suits,
claims, demands, debts, sums of money, judgments, liabilities (statutory or
otherwise), damages, costs, expenses, interest, compensation, liens and
attorneys' fees in law or in equity (collectively "Claims") which relate to or
in any way are based upon or arise out of in any respect the service, acts,
facts, circumstances, matters, claims, transactions or occurrences of or
involving Mowbray as an officer, director and/or employee of the Company.
Notwithstanding the foregoing, nothing herein will release the Company from its
obligations under this Agreement or its indemnification and expense advancement
-34-
<PAGE> 35
obligations to Mowbray under its Bylaws and under Delaware law. The Company
further agrees that it will not prosecute nor allow to be prosecuted on its
behalf in any administrative agency, whether federal or state, or in any court,
whether federal or state, any claims or actions against Mowbray, his agents and
attorneys, heirs, representatives, successors and assigns, related to the
matters discharged herein.
The parties hereby expressly waive all rights under California
Civil Code section 1542 which reads as follows:
Section 1542. A general release does not extend to claims
which the creditor does not know or suspect to exist
in his favor at the time of executing the release,
which if known by him must have materially affected
his settlement with the debtor.
10. No Derogatory Statements; Press Releases. a) Mowbray agrees not to
make any disparaging or derogatory statements about the Company, any of its
officers or directors, or any of its subsidiaries or other corporate affiliates,
except as may be required by law or in connection with the enforcement of his
rights under this Agreement or any other agreement related hereto.
b) The Company agrees not to make, and to cause the members of
the Executive Committee of the Company and the Company's directors not to make,
any disparaging or derogatory statements about Mowbray, except as may be
required by law or in connection with the enforcement of its rights under this
Agreement or any other agreement related hereto. The Company further agrees to
give positive references to any potential employer of Mowbray.
c) The Company shall provide Mowbray with the opportunity to
review and to approve, which approval shall not be unreasonably withheld, the
descriptions of this Agreement contained in (i) any Company press release, and
(ii) any of the Company's documents concerning this Agreement to be filed with
the Securities and Exchange Commission or distributed to the Company's
shareholders. Mowbray shall not issue any press release and shall not make any
other public statement except as required by law, concerning the transactions
consummated pursuant to this Agreement. The time permitted for obtaining
approval hereunder shall be subject to the Company's requirement of complying
with applicable law on timely disclosures.
11. Miscellaneous.
a. Expenses. The Company shall bear all of its costs and
expenses incurred in connection with the transactions contemplated hereunder and
shall, upon execution of this Agreement, pay directly to counsel for Mowbray,
for legal and accounting fees and costs in connection with the negotiation and
execution of this Agreement, or reimburse Mowbray if previously paid by him, the
sum of Seven Thousand Five Hundred Dollars ($7,500).
-35-
<PAGE> 36
b. Indulgences, Etc. Neither the failure nor any delay on the
part of either party to exercise 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.
c. Governing Law. This 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 California.
d. 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:
If to the Company: Family Bargain Corporation
4000 Ruffin Road
San Diego, California 92123
Attn: Chief Executive Officer
With a copy to: David Stone, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
If to Mowbray: William W. Mowbray
6814 Vianda Court
Carlsbad, California 92009
With a copy to: Lawrence M. Sherman, Esq.
Sherman & Lapidus LLP
750 B Street, Suite 1930
San Diego, California 92101
Either party may change 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 change of
address shall become effective upon actual receipt of such notice.
-36-
<PAGE> 37
e. 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 party
hereto.
f. Execution in Counterpart. This Agreement may be executed in
counterparts, each of which shall be deemed an original as against the party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
g. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other; and no provision 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.
h. 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.
12. Entire Agreement This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof, and
supersedes 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.
13. Court Jurisdiction. The parties agree that any action or proceeding
to enforce any provision of this Agreement, or otherwise arising out of or
relating to this Agreement, may be brought in any federal or state court in San
Diego County in the State of California, and in no other court, and each party
(a) consents to the jurisdiction of each of those courts in any such action or
proceeding (b) agrees not to seek to change the venue of any such action or
proceeding from any of those courts because of inconvenience of the forum or
otherwise (except that nothing in this Paragraph will prevent a party from
removing any action from a state court to a federal court sitting in the
appropriate venue, and (c) agrees that process in any such action or proceeding
may be served by registered mail or in any other manner permitted by the rules
of the court in which the action or proceeding is brought.
-37-
<PAGE> 38
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
Family Bargain Corporation, a Delaware corporation
By: /s/ James D. Somerville
Its: Chairman
/s/ William W. Mowbray
William W. Mowbray
-38-
<TABLE>
Family Bargain Corporation
Computation of Net Gain (Loss) Per Common Share
(Dollars in Thousands, except per share data)
(Audited)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------- --------------
Nov 1, Oct 26, Nov 1, Oct 26,
1997 1996 1997 1996
---- ---- ---- ----
The computation of net (loss)
available & adjusted shares
outstanding follows:
<S> <C> <C> <C> <C>
Net income (loss) $ 1,606 $ (80) $(3,924) $(1,009)
Less: Preferred stock dividends $(1,536) $ (885) $(4,555) $(2,624)
-------- ------- -------- --------
Net (loss) used for primary and
fully diluted computation $ 70 $ (965) $(8,479) $(3,633)
======== ======= ======== ========
Weighted average number of
common shares outstanding 4,929,822 4,693,337 4,892,573 4,440,572
Add:
Assumed exercise of those options
that are common stock equivalents - - - -
Assumed exercise of convertible
preferred stock - - - -
--------- --------- --------- ----------
Adjusted shares outstanding,
used for primary & fully
diluted computation 4,929,822 4,693,337 4,892,573 4,440,572
========= ========= ========= =========
Net loss applicable to common
stock per common & common
share equivalent $ 0.01 $ (0.21) $ (1.73) $ (0.82)
========= ========= ========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations as of and for the 39 weeks ended November 1,
1997 and is qualified in its entirety by reference to such financial statements
as included in the Company's Quarterly Report on Form 10-Q.
</LEGEND>
<CIK> 0000813775
<NAME> Family Bargain Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-2-1997
<PERIOD-END> NOV-1-1997
<CASH> 3,319
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 43,413
<CURRENT-ASSETS> 47,906
<PP&E> 21,390
<DEPRECIATION> 7,161
<TOTAL-ASSETS> 98,686
<CURRENT-LIABILITIES> 38,775
<BONDS> 0
0
36
<COMMON> 49
<OTHER-SE> 14,201
<TOTAL-LIABILITY-AND-EQUITY> 98,686
<SALES> 207,074
<TOTAL-REVENUES> 207,074
<CGS> 134,105
<TOTAL-COSTS> 134,105
<OTHER-EXPENSES> 79,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,964
<INCOME-PRETAX> (3,924)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,924)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> (1.73)
</TABLE>
