SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant <square>
Filed by a party other than the registrant <square>
Check the appropriate box:
<TABLE>
<CAPTION>
<S> <C>
<checked-box> Preliminary proxy statement <square> Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
</TABLE>
<square> Definitive proxy statement
<square> Definitive additional materials
<square> Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
- --------------------------------------------------------------------------------
Family Bargain Corporation
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
Family Bargain Corporation
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
<square> No Fee Required.
<checked-box> Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, SERIES A PREFERRED, SERIES B PREFERRED
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
8,678,172
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$10.43
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$11,760,378.08{1}
- --------------------------------------------------------------------------------
(5) Total fee paid:
$23,530.76
- --------------------------------------------------------------------------------
<square> Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
<square> Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
[FN]
- ---------------------------------------
{1} For purposes of calculating the fee only, the proposed maximum aggregate
value of the transaction is $11,760,378.08, which represents the value of the
post-merger common stock received as a result of the Merger, calculated as (a)
$10.43 (which represents $2.78125 (the closing market price of the common stock
on June 11, 1998) times 3.75 (to give effect to a proposed, post-Merger 3.75 to
1 stock split)) times (b) 11,275,530.88 (the number of shares of common stock
to be issued in the Merger). The total fee of $23,520.76 was paid by wire
transfer on June 18, 1998, to the federal lock box depository account at Mellon
Bank. The amount of the filing fee, calculated in accordance with Rule 0-11
promulgated under the Securities Exchange Act of 1934, as amended, equals 1/50
of one percent of the maximum aggregate value of the transaction.
</FN>
<PAGE>
FAMILY BARGAIN CORPORATION
_________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
_________________
TO OUR STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the stockholders of
Family Bargain Corporation (the "Company") will be held at the Sheraton San
Diego, 1380 Harbor Island Drive, San Diego, California, on Wednesday,
, 1998 at 10:00 a.m., local time, for the following purposes:
1. To elect four directors to hold office, as follows:
a. Three Class II directors to hold office until the Annual
Meeting of Stockholders in 2001 and their successors are
elected and qualified.
b. One Class III director to hold office until the Annual
Meeting of Stockholders in 1999 and his successor is elected
and qualified.
2. To consider a proposal to approve a merger of General Textiles,
Inc. (a wholly-owned subsidiary of the Company) into the Company.
3. To consider a proposal to approve the Amended and Restated Family
Bargain Corporation 1997 Stock Option Plan.
4. To consider a proposal to ratify the selection of the Company's
independent accountants.
5. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on , 1998
are entitled to notice of and to vote at the meeting and any adjournment or
postponement.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE
IN THE ENCLOSED ENVELOPE. ANY STOCKHOLDER WHO LATER FINDS THAT HE OR SHE CAN BE
PRESENT AT THE MEETING, OR FOR ANY OTHER REASON DESIRES TO REVOKE THE PROXY,
MAY DO SO AT ANY TIME BEFORE IT IS VOTED.
APPROVAL OF THE MERGER WITH GENERAL TEXTILES, INC. REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF 50% IN VOTING POWER OF THE COMMON STOCK AND THE SERIES B
PREFERRED STOCK VOTING TOGETHER AND OF THE HOLDERS OF 50% OF THE SERIES A
PREFERRED STOCK, VOTING SEPARATELY. THEREFORE, FAILURE TO VOTE WITH REGARD TO
THE MERGER WILL HAVE THE SAME EFFECT AS A NEGATIVE VOTE.
By Order of the Board of Directors,
Wm. Robert Wright II
San Diego, California Secretary
_______, 1998
<PAGE>
FAMILY BARGAIN CORPORATION
4000 RUFFIN ROAD
SAN DIEGO, CALIFORNIA 92123
(619) 627-1800
_______________
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
_______________
INFORMATION CONCERNING SOLICITATION AND VOTING
Proxies in the form enclosed are being solicited by the Board of Directors
of Family Bargain Corporation (the "Company") to be voted at the Annual Meeting
of Stockholders to be held on , 1998 at 10:00 a.m., local time, at
the Sheraton San Diego, 1380 Harbor Island Drive, San Diego, California, or any
adjournment or postponement of that meeting (the "Annual Meeting"). The
accompanying Notice of Meeting, this Proxy Statement and the form of Proxy are
first being sent to stockholders on or about , 1998.
RECORD DATE AND SHARES OUTSTANDING
Only stockholders of record at the close of business on , 1998
(the "Record Date") are entitled to vote at the Annual Meeting. With regard to
all matters other than the merger of General Textiles, Inc., ("General
Textiles") into the Company the ("Merger") the Company's voting stock consists
of the Company's common stock, par value $.01 per share ("Common Stock"), and
the Company's Series B Junior Convertible Exchangeable Preferred Stock, par
value $.01 per share ("Series B Preferred"). Each share of Common Stock is
entitled to one vote and each share of Series B Preferred is entitled to 526.09
votes on each proposal that comes before the Annual Meeting. On the Record
Date, there were 5,004,122 outstanding shares of Common Stock and 35,360
outstanding shares of Series B Preferred. With regard to the Merger the
holders of the Company's Series A 9.5% Cumulative Convertible Preferred Stock,
par value $.01 per share ("Series A Preferred") will also be entitled to vote
as a separate class. See "Proposal Regarding Merger." On the Record Date,
there were 3,638,690 outstanding shares of Series A Preferred.
VOTING AND REVOCABILITY OF PROXIES
Stockholders do not have cumulative voting rights in the election of
directors. The presence (in person or by proxy) of holders of shares of Common
Stock and Series B Preferred representing a majority of the votes that would be
cast if all shares were present and voted constitutes a quorum. Shares for
which proxies are marked "abstain" will be treated as present for purposes of
determining the presence of a quorum. Proxies that are voted on only some of
the proposals will be treated as present for purposes of determining the
presence of a quorum, but will be voted only as instructed in the proxy. The
election of a nominee as a director requires a plurality vote of the votes
cast. Approval of Proposal 2 (the Merger) requires (i) the affirmative vote of
a majority of the votes which can be cast by holders of Common Stock and Series
B Preferred, voting together as though they were a single class and (2) the
affirmative vote of holders of a majority of the outstanding Series A
Preferred. Approval of Proposals 3 (the stock option plan) and 4 (ratification
of the appointment of auditors) each requires the vote of holders of a majority
in voting power of the Common Stock and Series B Preferred which is voted with
regard to the Proposal.
If the enclosed proxy is properly executed and returned, the shares to
which it relates will be voted in accordance with the stockholder's
instructions. In the absence of voting instructions, the shares represented by
a proxy will be voted for the four nominees for director, for approval of the
Merger and of the Amended Stock Option Plan and for ratification of the
appointment of accountants. Any stockholder giving a proxy may revoke it at
any time prior to its being voted, by delivering to the Secretary of the
Company at the Company's principal executive office, 4000 Ruffin Road, San
Diego, California 92123, or at the meeting, an instrument of revocation or a
duly executed proxy bearing a later date, or by attending the meeting and
voting in person. Revocation of a proxy will not apply to any matter on which
it has already been voted.
1
<PAGE>
SOLICITATION
Solicitation of proxies may be made by directors, officers and other
employees of the Company by mail, telephone, telegram, facsimile or personal
contact. No additional compensation will be paid for any such services. In
addition, the Company has retained to assist in the
solicitation of proxies with regard to the Merger. The Company will pay the
customary fees of that firm, which it estimates will be $ . Costs of
solicitation, including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any other information furnished to the
stockholders, will be borne by the Company. The Company will, upon request,
reimburse the reasonable charges and expenses of brokerage houses and other
nominees or fiduciaries for forwarding proxy materials to, and obtaining
authority to execute proxies from, beneficial owners for whose account they
hold shares.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 Annual Meeting
of Stockholders must be received by the Company no later than ,
1999. Proposals may be mailed to the Company, to the attention of Wm. Robert
Wright II, Secretary, Family Bargain Corporation, 4000 Ruffin Road, San Diego,
California 92123.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Voting Stock as of January 31, 1998: (i) by each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock, the Series A Preferred or the Series B
Preferred; (ii) by each of the Company's directors; (iii) by each of the
Company's executive officers named in the Summary Compensation Table below (the
"Named Executive Officers"); and (iv) by all directors and executive officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the securities listed below have sole investment and
voting power with respect to the shares shown as being beneficially owned by
them.
2
<PAGE>
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
COMMON STOCK SERIES B PREFERRED VOTING POWER
-------------------------- ------------------------- OF COMMON SERIES A PREFERRED
STOCK AND ------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER PERCENT NUMBER PERCENT SERIES B NUMBER PERCENT
OWNER{(1)} OF SHARES OF CLASS{(2)} OF SHARES OF CLASS{(3)} PREFERRED{(5)} OF SHARES OF CLASS
--------- ------------- --------- ------------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Cities Fund II L.P.{(4)} 231,198 4.7% 6,665 19.8% 16.5%
Three Cities Offshore II 390,978 7.9% 11,272 33.4% 27.9%
C.V.{(5)}
Quilvest American Equity, 763,984 14.0% 4,484 13.3% 13.5% 210,000 5.7%
Ltd.{(6)}
Craigmuir Chambers
P.O. Box 71, Road Town
Tortola, British Virgin Islands
Kennedy Capital Management, 620,708 12.0% 2,580 7.6% 8.6% 97,000 2.7%
Inc.{(7)}
10829 Olive Blvd.
St. Louis, MO 63141
Wynnefield Group{(8)} 278,000 5.64% 1.2%
c/o Mr. Nelson Obus
One Penn Plaza - Suite 4720
New York, NY 10119
Bank of New York{(9)} 2,243 6.7% 5.2%
as Trustee for
Employees Retirement Plan of
Brooklyn Union Gas Co.
<FN>
- ----------
{(1)} Except as otherwise indicated, the address of the beneficial owners is
c/o Three Cities Research, Inc., 135 East 57 Street, New York, NY 10022.
For information concerning the beneficial ownership of shares by
Messrs. J. William Uhrig, H. Whitney Wagner and Thomas G. Weld, see the
table concerning Security Ownership of Directors, ET AL.
{(2)} The percent of the class is calculated based on 4,929,122 shares
outstanding on January 31, 1998.
{(3)} The percent of the class is calculated based on 33,714 shares outstanding
on January 31, 1998.
{(4)} TCR Associates, as general partner of Three Cities Fund II, and William
F.P. de Vogel, as general partner of TCR Associates, may also be deemed to
be beneficial owners of the shares held by Three Cities Fund II.
{(5)} Offshore Associates, as general partner of Three Cities Offshore II, may
be deemed to be a beneficial owner of the shares held by Three Cities
Offshore II. With regard to information concerning the beneficial
ownership of shares by Messrs. J. William Uhrig and H. Whitney Wagner, see
the following table concerning Security Ownership of Directors, ET AL.
{(6)} The ownership of the Common Stock by Quilvest American Equity, Ltd.
includes 538,440 shares of Common Stock issuable upon conversion of 210,000
shares of Series A Preferred.
{(7)} The ownership of the Common Stock by Kennedy Capital Management, Inc.
includes 248,708 shares of Common Stock issuable upon conversion of 97,000
shares of Series A Preferred.
{(8)} Information obtained from Schedule 13D, filed with the SEC on November 7,
1997 by Wynnefield Partners Small Cap Value, L.P. (the "Partnership"),
Wynnefield Small Cap Value Offshore Fund, Ltd. (the "Fund") and Wynnefield
Partners Small Cap Value, L.P. I (the "Partnership I", and, collectively
with the Partnership and the Fund, the "Wynnefield Group"). Wynnefield
Capital Management, LLC, a New York limited liability company ("WCM"), is
the general partner of the Partnership and the Partnership I. Messrs.
Nelson Obus, Joshua Landes and Robert Melnick are the managing members of
WCM and the principal executive officers of Wynnefield Capital, Inc., the
3
<PAGE>
investment manager of the Fund. Messrs. Obus, Landes and Melnick disclaim
beneficial ownership of any shares owned by the Wynnefield Group and
disclaim membership in the Wynnefield Group with respect to the shares for
the purposes of Sections 13(d) and 13(g) of the Exchange Act.
</FN>
</TABLE>
(B) SECURITY OWNERSHIP OF DIRECTORS, NAMED EXECUTIVE OFFICERS AND EXECUTIVE
OFFICERS AND DIRECTORS AS A GROUP.
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
COMMON STOCK SERIES B PREFERRED VOTING POWER
OF COMMON SERIES A PREFERRED
STOCK AND
NAME AND ADDRESS OF BENEFICIAL NUMBER PERCENT NUMBER PERCENT SERIES B NUMBER PERCENT
OWNER{(1)} OF SHARES OF CLASS{(2)} OF SHARES OF CLASS{(3)} PREFERRED{(5)} OF SHARES OF CLASS
- ----------------------------- --------- ------------- --------- ------------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Borer III 255,569{(3)} 4.9% 90 * 1.3% 89,200{(4)} 2.3%
William F. Cass 50 * * *
Peter V. Handal 41,697{(5)} * 250 * * 14,800
Denis LeClair
B. Mary McNabb 12,500 * 200 * *
William W. Mowbray{(6)} 500 1.5% *
Ronald Rashkow 101,900{(7)} 2.0% 350{(8)} 1.0% 1.3% 25,200 *
James D. Somerville 19,000 * 750 2.2% *
Jonathan W. Spatz 250 * *
Michael Searles{(9)}
J. William Uhrig{(10)(11)} 399,952 8.1% 11,272 33.4% 27.9% 3,500 *
H. Whitney Wagner{(10)} 390,978 7.9% 11,272 33.4% 27.9%
Thomas G. Weld{(12)} 238,890 4.8% 6,665 19.9% 16.5% 3,000 *
All Officers and Directors 1,069,508{(13)} 20.1% 20,377 60.4% 51.1% 140,200 3.8%
as a Group (13 persons)
4
<PAGE>
<FN>
- ----------
* Less than 1%.
{(1)} The percent of the class is calculated based on 4,929,122 shares
outstanding on January 31, 1998.
{(2)} The percent of the class is calculated based on 33,714 shares outstanding
on January 31, 1998.
{(3)} Includes 23,750 shares which Mr. Borer has a right to acquire within 60
days through the exercise of stock options; 15,896 shares of Common Stock
issuable upon conversion of 6,200 shares of Series A Preferred; and 212,812
shares issuable upon conversion of 83,000 shares of Series A Preferred
which Mr. Borer has the right to acquire within 60 days through the
exercise of a warrant.
{(4)} Includes 83,000 shares of Series A Preferred which Mr. Borer has the right
to acquire within 60 days through exercise of a warrant.
{(5)} Includes 3,750 shares which Mr. Handal has a right to acquire within 60
days through the exercise of stock options and 37,947 shares issuable upon
conversion of 14,800 shares of Series A Preferred.
{(6)} Mr. Mowbray resigned from his position as President and Chief Executive
Officer of the Company in August 1, 1997.
{(7)} Includes 11,000 shares of Common Stock held by members of Mr. Rashkow's
family; 64,612 shares of Common Stock issuable upon conversion of 25,200
shares of Series A Preferred held by Mr. Rashkow; 11,538 shares of Common
Stock issuable upon conversion of 4,500 shares of Series A Preferred held
by members of Mr. Rashkow's family; and 3,750 shares which Mr. Rashkow may
acquire within 60 days through the exercise of stock options.
{(8)} Includes 250 shares of Series B Preferred held by members of
Mr. Rashkow's family.
{(9)} Mr. Searles was appointed Chief Executive Officer of General Textiles and
Factory 2-U in March 1998.
{(10)} All shares are held by Offshore II. Messrs. Uhrig and Wagner, in their
capacity as general partners of Offshore Associates, the general partner of
Offshore II, are deemed to have beneficial ownership of all shares held by
Offshore II. Messrs. Uhrig and Wagner both report shared voting power and
shared dispositive power with respect to such shares.
{(11)} Mr. Uhrig's beneficial ownership also includes 8,974 shares issuable upon
conversion of 3,500 shares of Series A Preferred held directly by Mr.
Uhrig.
{(12)} All shares are held by Fund II. Mr. Weld, in his capacity as general
partner of TCR Associates, the general partner of Fund II, is deemed, to
have beneficial ownership of all shares held by Fund II. Mr. Weld's
beneficial ownership also includes 7,692 shares issuable upon conversion of
3,000 shares of Series A Preferred held directly by Mr. Weld.
{(13)} Includes 31,250 shares of Common Stock which Officers and Directors of
the Company have the right to acquire within 60 days through the exercise
of stock options; 146,660 shares of Common Stock issuable upon conversion
of 57,200 shares of Series A Preferred held by Officers and Directors of
the Company; and 212,812 shares of Common Stock issuable upon conversion of
83,000 shares of Series A Preferred which Mr. Borer has the right to
acquire within 60 days through the exercise of a warrant.
</FN>
</TABLE>
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors (the "Board") of the Company is divided into three
classes. Directors are elected, by class, for three-year terms. Successors to
the class of directors whose term expires at any annual meeting are elected for
a new three-year term. Each of Messrs. Peter V. Handal, Ronald Rashkow and J.
William Uhrig is nominated as a member of Class II, to serve for a three-year
term until the Annual Meeting of Stockholders in 2001 and until his successor
is elected and qualified. Mr. Michael Searles is nominated as a member of
Class III, to serve for a one-year term until the Annual Meeting of
Stockholders in 1999 and until his successor is elected and qualified.
Unless a proxy contains a contrary instruction, all proxies submitted in
the accompanying form will be voted for the election of the four nominees. If
any nominee becomes unable or unwilling to serve, the accompanying proxy may be
voted for the election of such other person as may be designated by the Board.
The proxies being solicited will be voted for no more than four nominees at the
Annual Meeting. Each director will be elected by a plurality of the votes
cast, in person or by proxy, at the Annual Meeting, assuming a quorum is
present. Stockholders do not have cumulative voting rights in the election of
directors.
DIRECTORS
The following table sets forth certain information regarding each nominee
for election as a director and each director whose term of office will continue
after the Annual Meeting.
<TABLE>
<CAPTION>
EXPIRATION OF
NAME AGE POSITION TERM AS DIRECTOR
- ---- --- -------- ----------------
<S> <C> <C> <C>
James D. Somerville 56 Director, Chairman of the Board 2000
John J. Borer III 40 Director 1999
Peter V. Handal 55 Director 1998
Ronald Rashkow 56 Director 1998
Michael Searles 48 Director, President and Chief Executive 1998
Officer of General Textiles, Inc.
J. William Uhrig 36 Director 1998
H. Whitney Wagner 41 Director 2000
Thomas G. Weld 34 Director 2000
</TABLE>
JAMES D. SOMERVILLE has been a director and Chairman of the Board of the
Company since February 1997. He has more than 30 years of broad-based
experience in both consulting and general management. Since 1996, Mr.
Somerville has headed his own firm, Somerville & Associates, consulting to
senior management and boards of directors. He also serves as Chairman of the
Board of American Re-Manufacturers, Inc. From 1991 until 1996, he served as
Executive Vice President of BET, Inc. and as a director of BET plc, an
international services conglomerate.
JOHN J. BORER III has been a director of the Company since August 1994.
From October 1991 to March 1998, Mr. Borer was a Managing Director of Rodman
and Renshaw, Inc., an investment banking firm. Since March 1998, Mr. Borer has
been a Senior Managing Director of R&R Capital Group. On March 18, 1998,
Rodman & Renshaw, Inc. and its parent holding company filed petitions for
liquidation under Chapter 7 of the U.S. Bankruptcy Code.
PETER V. HANDAL has been a director of the Company since February 1997.
Since 1990, he has been President of COWI International Group (a management
consulting firm). Mr. Handal is also a partner in Carlisle & Handal
International (consultants and advisors on matters relating to international
business), Chief Executive Officer of J4P Associates LP (a real estate
developer), and President of Fillmore Leasing Company, Inc. (which leases
automobiles, computers and warehouse equipment). He serves on the Board of
6
<PAGE>
Directors of Cole National Corporation, Jos. A. Bank Clothiers and Perry Ellis
International.
RONALD RASHKOW has been a director of the Company since February 1997. He
has been a principal of Chapman Partners, L.L.C., an investment banking firm,
since its founding in September 1995. For more than five years prior to that,
he served as Chief Executive Officer and Chairman of the Board of Directors of
Handy Andy Home Improvement Centers, Inc. (a building supply retailer started
by his family in 1946 and consensually liquidated in 1996). Mr. Rashkow is
also a director of Garden Ridge Corporation, a specialty retailing company
("Garden Ridge"). From 1989 to 1993, Mr. Rashkow was a director, vice
president and consultant to Spirit Holdings Company, Inc. and its two operating
subsidiaries, Central Hardware Company, Inc. and Witte Hardware Corporation
(each a retailer and wholesaler of hardware and building materials). Spirit
Holdings Company, Inc., Central Hardware Company, Inc. and Witte Hardware
Corporation filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in March 1993 and emerged from bankruptcy in February 1994.
J. WILLIAM UHRIG has been a director of the Company since January 1997.
Mr. Uhrig has been a Managing Director of TCR Associates since 1991. Mr. Uhrig
joined TCR Associates in 1984. From January 1993 to January 1998, Mr Uhrig
served on the board of directors of MLX Corp., a holding company ("MLX").
MICHAEL SEARLES has been a director of the Company and President and Chief
Executive Officer of General Textiles and Factory 2-U since March 1998.
Between May 1996 and June 1997, Mr. Searles held the position of President,
Merchandising and Marketing, at Montgomery Ward Inc. Prior to that, from April
1993 to July 1995, Mr. Searles served as President and Chief Executive Officer
of the Women's Special Retail Group (Casual Corner Group), a division of U.S.
Shoe Corp. Earlier in his career, from 1984 to 1993, Mr. Searles was President
of Kids "R" US, a division of Toys "R" US, Inc.
H. WHITNEY WAGNER has been director of the Company since January 1997. He
has been a Managing Director of TCR Associates since 1989. He joined TCR
Associates in 1983 and was elected a Vice President in 1986. Mr. Wagner also
serves on the boards of directors of Garden Ridge. From January 1993 to
January 1998, Mr. Wagner served on the board of directors of MLX.
THOMAS G. WELD has been a director of the Company since January 1997. Mr.
Weld has been a Managing Director of TCR Associates since 1993. From 1988
until 1993, Mr. Weld was an associate with McKinsey and Company, a management
consulting firm.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers of the Company, in addition to Messrs. Searles and Somerville, who are
listed in the table above.
<TABLE>
<CAPTION>
OFFICER OF THE
COMPANY AND/OR ITS
NAME POSITION AGE SUBSIDIARIES SINCE
<S> <C> <C> <C>
B. Mary McNabb........ Executive Vice President - 49 1990
Merchandising for General Textiles {(1)}
William F. Cass....... Executive Vice President - 48 1996
Operations for General Textiles {(2)}
Jonathan W. Spatz..... Executive Vice President and 42 1997
Chief Financial Officer
<FN>
- ----------
{(1)} General Textiles is a wholly owned operating subsidiary of the Company.
</FN>
</TABLE>
B. MARY MCNABB is the Executive Vice President of Merchandising of General
Textiles and Factory 2-U. Ms. McNabb joined General Textiles and Factory 2-U
in 1990.
7
<PAGE>
WILLIAM F. CASS is the Executive Vice President of Operations of General
Textiles and Factory 2-U. Mr. Cass joined General Textiles and Factory 2-U in
March 1996. Prior to joining General Textiles and Factory 2-U, Mr. Cass held
positions as Managing Director, Director of New Business Development and Senior
Vice President of Merchandising at Clothestime.
JONATHAN W. SPATZ is the Executive Vice President and Chief Financial
Officer of the Company. Mr. Spatz joined the Company in June 1997. Prior to
joining the Company, from July 1994 to June 1997, Mr. Spatz was the Chief
Financial Officer of Strouds.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon the review of the copies of the forms furnished to
the Company, or written representations from certain reporting persons that no
Forms 5 were required, the Company believes that during the fiscal year ended
January 31, 1998, the Section 16(a) filing requirements were complied with,
except that the following reports were filed late. Five reports for eleven
transactions by Ronald Rashkow, one report for one transaction by Thomas A.
Weld, three reports for four transactions by William W. Mowbray, four reports
for five transactions by James D. Somerville, one report for one transaction by
J. William Uhrig, one report for two transactions by B. Mary McNabb, two
reports for five transactions by William F. Cass, three reports for four
transactions by James M. Baker, four reports for five transactions by John J.
Borer III and one report for two transactions by Jonathan W. Spatz.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 20, 1997 and June 16, 1997, the Company sold 1,865 shares and 250
shares, respectively, of Series B Preferred to its senior employees and
officers (of which 1000 shares were sold to Named Executive Officers) at a
purchase price of $1,000 per share, which was paid in the form of full-recourse
notes secured by the issued stock. The notes accrue interest at 8% per annum
and require principal payments equivalent to 16.25% of the annual bonus of each
purchaser and a balloon payment of the unpaid principal and interest at
maturity. The notes mature in March 2002.
COMMITTEES OF THE BOARD
The Board of Directors has established five committees. The committees,
their duties and their members are described below.
The Executive Committee is authorized to take such action as the Board of
Directors may from time to time direct. Its members are Messrs. Searles,
Somerville and Wagner.
The Compensation Committee reviews and approves compensation arrangements
for top management and employee compensation programs. The Company's Board of
Directors determines the compensation of the Company's executive officers based
on recommendations from the Compensation Committee. The Compensation Committee
consists of Messrs. Borer, Rashkow, Somerville and Weld.
The Stock Option Committee has adopted, and if it is adopted by the
Company's stockholders at the Annual Meeting will administer, the Amended and
Restated Family Bargain Corporation 1997 Stock Option Plan. Its members are
Messrs. Weld and Rashkow.
The Audit Committee reviews and evaluates the results and scope of the
audit and other services provided by the Company's independent accountants, as
well as the Company's accounting principles and system of internal accounting
controls. The Company's By-Laws provide that affiliated transactions and
acquisitions by the Company of businesses not within certain SIC Codes
(including certain codes covering wholesale apparel trade, retail stores, and
apparel stores) must be unanimously approved by the Audit Committee; PROVIDED,
HOWEVER, that (i) if any time there are fewer than two independent directors
designated or approved by the representative of the underwriters of the
Company's 1994 public offering on the Audit Committee, such transactions shall
require the unanimous consent of all independent directors on the Board and
(ii) if any time there are no remaining shares of Series A Preferred
outstanding, acquisition by the Company of businesses not within certain SIC
Codes will require approval by only a majority of the Audit Committee. The
members of the Audit Committee are Messrs. Borer, Handal and Wagner.
8
<PAGE>
The Nominating Committee considers potential nominees for election to the
Board by either incumbent directors or stockholders. Its members are Messrs.
Handal, Somerville and Wagner.
EXECUTIVE COMPENSATION
The following tables and descriptive materials set forth information
concerning compensation of current and former Chief Executive Officers of the
Company, and the Company's four other most highly compensated executive
officers who were serving as executive officers of the Company at January 31,
1998, the end of fiscal 1997.
SUMMARY OF COMPENSATION
The following table summarizes the compensation of the Named Executive
Officers during fiscal 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
OTHER AWARDS
ANNUAL RESTRICTED SECURITIES PAYOUTS ALL OTHER
FISCAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR{(1)} SALARY BONUS SATION AWARD(S) OPTIONS/SARS PAYOUTS SATION{(2)}
- --------------------------- --------- ------ ----- ------ --------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Somerville............. 1997 $137,308 $0 $-(3) $0 257,500 $0 $0
Chairman of the
Board
William F. Cass................. 1997 $199,038 $32,500 $-(3) $0 110,000 $0 $3,900
Executive Vice President - 1996 $110,769 $0 $-(3) $0 10,000 $0 $0
Operations for General
Textiles and Factory 2-U
B. Mary McNabb.................. 1997 $197,596 $42,500 $-(3) $0 275,000 $0 $ 900
Executive Vice President - 1996 $168,846 $0 $-(3) $0 7,417 $0 $1042
Merchandising for General 1995 $154,372 $17,832 $-(3) $0 17,583 $0 $789
Textiles and Factory 2-U
Denis LeClair................... 1997 $145,000 $3,800 $-(3) $0 32,417 $0 $870
Vice President 1996 $138,692 $ 0 $-(3) $0 0 $0 $549
Divisional Merchandise 1995 $109,858 $25,328 $-(3) $0 17,583 $0 $723
Manager for General
Textiles and Factory 2-U
William W. Mowbray.............. 1997 $388,328 $125,000 $-(3) $0 652,500 $0 $900
Former President and Chief 1996 $332,078 $0 $-(3) $0 10,000 $0 $900
Executive Officer{(4)} 1995 $260,345 $224,852 $-(3) $0 100,000 $0 $410
Michael Searles................. 1997 $0 $0 $0 $0 0 $0 $0
President and Chief Executive
Officer of General Textiles
and Factory 2-U{(5)}
Jonathan W. Spatz............... 1997 $139,423 $65,000 $-(3) $0 120,000 $0 $3,398
Executive Vice President
and Chief Financial Officer{(6)}
<FN>
{(1)} In previous years the Company referred to a fiscal year according to the
year in which the fiscal year ended (for example, the fiscal year ended
February 1, 1997 was previously referred to by the Company as Fiscal Year
1997). The Company now refers to the fiscal year as the year in which
most of the activity occurred (for example, the fiscal year ended
January 31, 1998 is referred to herein as Fiscal Year 1997).
9
<PAGE>
(2) "All Other Compensation" for 1997 includes (i) contributions made for the
named Executive Officers under the Family Bargain Corporation 401(k)
Savings Plan, a defined contribution plan meeting the requirements of
Section 401(k) of the Internal Revenue Code of 1986, as amended, to match
1997 pre-tax elective deferral contributions (included under "Salary")
made to such plan by the named Executive Officer, (ii) with regards to
Mr. Cass an additional $3,000 paid for moving expenses and (iii) with
regards to Mr. Spatz $3,398 paid for moving expenses.
(3) The aggregate amount of such compensation is less than the lesser of
either $50,000 or 10% of such person's total annual salary and bonus.
(4) Mr. Mowbray was President and Chief Executive Officer of the Company until
his resignation on August 1, 1997.
(5) Mr. Searles was appointed President and Chief Executive Officer of General
Textiles and Factory 2-U in March 1998.
(6) Mr. Spatz was appointed Executive Vice President and Chief Financial
Officer of the Company in June 1997.
</FN>
</TABLE>
GRANTS OF STOCK OPTIONS
The following table sets forth information concerning the award of stock
options to the Named Executive Officers during Fiscal 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF
UNDERLYING OPTIONS/SARS STOCK PRICE
OPTIONS/SARS GRANTED TO EXERCISE OF APPRECIATION FOR
GRANTED EMPLOYEES IN BASE PRICE OPTION TERM {(1)}
NAME (#) FISCAL YEAR ($/SH) EXPIRATION DATE 5%($) 10%($)
- ---- ------------------------------------------ --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
William F. Cass......... 110,000 4.05% $ 2.25 4/3/2002 $ 68,200 $ 150,700
Danis LeClair........... 32,417 1.20% $ 2.25 4/3/2002 $ 20,099 $ 44,411
B. Mary McNabb.......... 275,000 10.13% $ 2.25 4/3/2002 $170,500 $ 376,750
William W. Mowbray...... 652,500 24.08% $ 2.25 4/3/2002 $404,550 $ 893,925
Michael Searles......... 0 0% $ 0 - $ 0 $ 0
James D. Somerville..... 257,500 9.48% $ 2.25 4/3/2002 $159,650 $ 352,775
Jonathan W. Spatz....... 120,000 4.42% $ 2.25 6/24/2002 $ 55,200 $ 140,400
_______________
<FN>
{(1)} These amounts represent assumed rates of appreciation only. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the Common Stock.
</FN>
</TABLE>
EXERCISE OF STOCK OPTIONS
The following table sets forth information concerning the exercise of stock
options during Fiscal 1997 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options.
10
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY END(#) AT FY END($)
--------------------- -------------------
Shares Acquired Exercisable/ Exercisable/
NAME ON EXERCISE VALUE ($) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
William F. Cass............. 0 0 0/120,000 $0/1,560
Denis LeClair............... 0 0 0/50,000 $0/2,374
B. Mary McNabb.............. 0 0 0/300,000 $0/3,900
William W. Mowbray.......... 0 0 0/762,500 $0/17,160
Michael Searles............. 0 0 0/0 $0/0
James D. Somerville......... 0 0 0/257,500 $0/0
Jonathan W. Spatz........... 0 0 0/120,000 $0/0
</TABLE>
_______________
COMPENSATION OF DIRECTORS
Directors who are not salaried employees of the Company or TCR receive a
$10,000 annual fee payable quarterly and a fee of $1,000 for each meeting of
the Board of Directors attended. In addition, commencing as of June 20, 1997,
the three independent directors of the Company, Messrs. Borer, Handal and
Rashkow are granted at the end of each fiscal quarterly period, options to
acquire 1,250 shares of Common Stock, exercisable immediately. The Chairman of
the Board is a salaried employee of the Company and consequently does not
receive a director's fee. All directors are reimbursed for any out-of-pocket
travel expenses incurred by them in attending meetings of the Board of
Directors or committees of the Board. There are no other arrangements or
agreements pursuant to which any of the directors are entitled to be
compensated for serving as directors.
EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS AND SEVERANCE ARRANGEMENTS
THE MOWBRAY SEPARATION AGREEMENT. On August 1, 1997 the Company and Mr.
William W. Mowbray entered into a Separation Agreement (the "Separation
Agreement"), whereby Mr. Mowbray resigned from his positions as director and
officer of the Company and the Amended and Restated Employment Agreement, dated
February 24, 1997 (the "Employment Agreement"), between Mr. Mowbray and the
Company was terminated. Under the Separation Agreement, Mr. Mowbray agreed
that for the period ending December 31, 2000, he will not, directly or
indirectly, compete with the Company or any of its subsidiaries in any of the
States in which the Company is operating. In consideration therefor, the
Company agreed to pay Mr. Mowbray the following sums: (i) $970,000 to be paid
in three installments on March 30, 1998, March 30, 1999 and August 1, 2000 and
(ii) $341,536, $365,444, $391,025 and $418,396, to paid during the years 1997,
1998, 1999 and 2000, respectively, in addition to the bonus due for Fiscal 1997
under the Company's existing bonus plan and payment for accrued and unused
vacation days. In the event of a change of control of the Company, all such
amounts mentioned in (ii) above shall become immediately due and payable.
The Company also agreed to continue to provide Mr. Mowbray with all of the
health, life insurance and automobile benefits set forth in the Employment
Agreement. In addition, the Company agreed to amend the Secured Promissory
Note, which Mr. Mowbray issued to the Company in connection with his purchase
of Series B Preferred, to forgive and waive all interest payable thereunder.
Mr. Mowbray's stock options were also amended to enable him to exercise
fifty percent of such options if the market price of the Common Stock exceeds
$6 per share for sixty consecutive days and the remaining fifty percent of such
options if the market price of the Common Stock exceeds $7.50 per share for
sixty consecutive days.
THE SEARLES EMPLOYMENT AGREEMENT. Mr. Michael Searles, General Textiles'
President and Chief Executive Officer and a member of the Company's Board of
Directors, is employed pursuant to a five-year employment agreement, dated
March 30, 1998, among the Company, General Textiles and Mr. Searles (the
11
<PAGE>
"Searles Agreement"). Pursuant to the Searles Agreement, Mr. Searles is
entitled to receive an annual salary of not less than $600,000 and (b) an
annual bonus targeted at 50% of the base salary.
In connection with the execution of the Searles Agreement, Mr. Searles was
granted equity compensation in the form of (a) options under the Company's
stock option plan to acquire 300,000 shares of Common Stock at the closing
market price on March 10, 1998. Such options shall vest in equal increments
on the first five anniversaries of the Searles Agreement; (b) options to
acquire 900,000 shares of Common Stock at a price of $2.00 per share of which
options to purchase 450,000 shares shall become exercisable when the closing
market price is equal to or exceeds $6.00 for 60 trading days during any twelve
month period and the options to purchase the remaining 450,000 shares shall
become exercisable when the closing market price is equal to or exceeds $7.50
for 60 trading days during any twelve month period; and (c) 1,400 shares of
Series B Preferred to be purchased by Mr. Searles, the cost of which shall be
loaned to Mr. Searles by the Company. With respect to such 1,400 shares, Mr.
Searles will grant the Company an option to acquire such shares in the event
that Mr. Searles' employment under the Searles Agreement shall be terminated,
at the prices and on the terms described in the Searles Agreement.
In connection with Mr. Searles employment, the Company purchased Mr.
Searles' home in Connecticut. The Company intends to sell that home at the
earliest opportunity.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION {1}
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of outside directors. The Committee is responsible for
establishing and administering the compensation policies applicable to the
Company's executive officers. All decisions by the Committee are subject to
review and approval of the full Board of Directors.
The Company's executive compensation philosophy and specific compensation
plans tie a significant portion of executive compensation to the Company's
success in meeting specific profit, growth and performance goals.
The Company's compensation objectives include attracting and retaining the
best possible executive talent, motivating executive officers to achieve the
Company's performance objectives, rewarding individual performance and
contributions, and linking executives' and stockholders' interests through
equity based plans.
The Company's executive compensation consists of three key components:
base salary, annual incentive compensation and stock options, each of which is
intended to complement the others and, taken together, to satisfy the Company's
compensation objectives. The Compensation Committee's policies with respect to
each of the three components are discussed below.
BASE SALARY. In the early part of each fiscal year, the Compensation
Committee reviews the base salary of the Chief Executive Officer ("CEO") and
the recommendations of the CEO with regard to the base salary of all other
executive officers of the Company and approves, with any modifications it deems
appropriate, annual base salaries for each of the executive officers.
Recommended base salaries of the executive officers, other than the CEO, are
based on an evaluation of the individual performance of the executive officer,
including satisfaction of annual objectives. The recommended base salary of
the CEO is based on achievement of the Company's annual goals relating to
financial objectives, including earnings growth and return on capital employed,
and an evaluation of individual performance.
Recommended base salaries of the executive officers are also in part based
upon an evaluation of the salaries of those persons holding comparable
positions at comparable companies.
ANNUAL INCENTIVE COMPENSATION. The Company's executive officers are
entitled to participate in a discretionary incentive bonus plan which provides
for the payment of annual bonuses to be paid in cash, stock, or a combination
thereof, based on the relative success of the Company in attaining certain
financial objectives and certain subjective factors as established from time to
[FN]
- --------------------
{1}. Notwithstanding filings by the Company with the Securities and Exchange
Commission that may incorporate this proxy statement by reference, this
Compensation Committee Report will not be incorporated by reference into any
filings and will not be deemed to be "filed" with the SEC except as
specifically provided otherwise.
</FN>
12
<PAGE>
time by the Committee and/or the Board of Directors. The Committee will
consider aggregate incentive cash and stock bonus payments to the executive
officers, as a group, of up to 50% of aggregate annual executive base salaries,
and will consider bonus payments to be paid in stock in excess of 50% of
aggregate annual executive base salaries. The Committee awarded cash bonuses
of $280,000 to the named executive officers for Fiscal 1997.
STOCK OPTIONS. The primary objective of the stock option program is to
link the interests of the Company's stockholders to the executive officers and
other selected employees of the Company through the grant of significant annual
grants of stock options. The aggregate number of options recommended by the
Committee is based on practices of the same comparable companies utilized for
determining base salary, while actual grants of stock options reflect each
individual's expected long-term contribution to the success of the Company.
The Committee made grants of 1,415,000 stock options to the named executive
officers in Fiscal 1997.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. As of March 30, 1998, the
Company entered into an employment agreement with Michael Searles, the new
Chief Executive Officer of the company's subsidiaries. In order to attract Mr.
Searles, the company paid Mr. Searles a signing bonus and assisted him with
certain relocation expenses. Mr. Searles base salary was set at $600,000 which
the committee believed was commensurate with the salaries paid to other
executives with similar experience in comparable companies. The Compensation
Committee and Mr. Searles have agreed that Mr. Searles' annual bonus will be
based on the achievement of corporate objectives set annually by the committee
in conjunction with Mr. Searles. Mr. Searles' annual bonus is targeted at 50%
of his base salary, but may vary depending on Company performance. Similarly,
options have been awarded to Mr. Searles on similar terms as the Corporation's
other executive management (including time vesting provisions and vesting
provisions tied to an increase in market value of the Corporation's common
stock), recognizing his senior position. Additionally, the company has
financed the purchase by Mr. Searles of Series B Preferred Stock of the Company
with a partial recourse loan in the amount of $1.4 million. The Committee
believes that the most significant portion of Mr. Searles potential
compensation should be tied to the appreciation of the share price of the
Corporation's Common Stock.
Compensation Committee: John J. Borer III, Ronald Rashkow, James D.
Somerville and Thomas G. Weld.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. John J. Borer III,
Ronald Rashkow, James D. Somerville and Thomas G. Weld. Except for Mr.
Somerville, no member of the Compensation Committee of the Board of Directors
of the Company was, during fiscal 1997, an officer or employee of the Company
or any of its subsidiaries, or was formerly an officer of the Company or any of
its subsidiaries.
PERFORMANCE GRAPH OF THE COMPANY
The following graph compares the five-year cumulative total return (change
in stock price plus reinvested dividends) on the Common Stock with the total
returns of the Nasdaq Composite Index, a broad market index covering stocks
listed on the Nasdaq National Market, the Dow Jones Retailers Broadline Index
("Industry Index") which currently encompasses 32 companies, and the companies
in the Family Clothing Retail industry (SIC Code 5651), a group currently
encompassing 22 companies (the "SIC Index"). The Company has selected the SIC
Index because its composition reflects the closest peer group of the Company.
This information is provided through January 31, 1998, the end of Fiscal 1997.
13
<PAGE>
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG FAMILY BARGAINCORP., NASDAQ MARKET INDEX,
INDUSTRY INDEX AND SIC CODE INDEX
DOLLARS
14
<PAGE>
FISCAL YEAR ENDING JANUARY 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Family Bargain Corporation $100 $ 63.80 $ 13.79 $ 18.39 $ 18.39 $ 14.08
Nasdaq Composite Index 100 125.97 119.05 166.69 219.37 258.39
Industry Index 100 94.93 82.77 87.15 102.28 148.30
SIC Index 100 98.66 81.37 98.68 117.13 206.69
</TABLE>
Assumes $100 invested on February 1, 1993 and dividends are reinvested.
The composition of the Industry Index is as follows: Ames Department
Stores, Bon-Ton Stores Inc., Buckle Inc., Carson Pirie Scott & Co., Coles Myer
Ltd., Controladora Comer Mex, Crowley, Milner & Co., Dai Ei Inc. ADR, Dayton
Hudson Corp., Dillard's Inc., Dollar General Corp., Duckwall-Alco Stores Inc.,
Family Dollar Stores Inc., Federated Dept. Stores, Fred Meyer Inc. Holding Co.,
Fred's Inc., Hills Stores Co., JG Industries Inc., K Mart Corp., Krantor
Corporation, May Department Stores, Pamida Holdings Corp., J.C. Penney Co.,
Inc., Proffitt's Inc., Saks Holdings Inc., Sears, Roebuck & Co., Shopko Stores
Inc., Stein Mart Inc., Value City Dept. Stores, Venture Stores Inc. and Wal
Mart Stores Inc.
The composition of the SIC Index is as follows: Abercrombie & Fitch Co.,
American Eagle Outfitter, Big Dog Holdings Inc., Buckle Inc., Burlington Coat
Factory Warehouse, Chico's FAS Inc., Children's Place Retail Stores, Designs
Inc., Family Bargain Corp., Filene's Basement Corp., Gadzooks Inc., Gap Inc.,
Goody's Family Clothing, Gymboree Corp., Harolds Stores Inc., K&G Men's Center
Inc., Nordstrom Inc., Ross Stores Inc., Stein Mart Inc. and Syms Corp.
Source: Media General Financial Services.
PROPOSAL 2
MERGER WITH GENERAL TEXTILES, INC.
GENERAL
The Company has agreed to a merger with General Textiles (the "Merger")
in a transaction in which (a) the Company will be the survivor of the Merger,
(b) the Company's name will be changed to "Family Bargain Stores, Inc." and (c)
the Company will be recapitalized (the "Recapitalization") so that (i) each
share of the Company's Common Stock will be converted into 0.30133 shares of
post-Recapitalization Common Stock, (ii) each share of Series A Preferred will
be converted into one share of post-Recapitalization Common Stock (the "Series
A Recapitalization Consideration") and (iii) each share of Series B Preferred
will be converted into 173.33 shares of post-Recapitalization Common Stock (the
"Series B Recapitalization Consideration" and, together with the Series A
Recapitalization Consideration, the "Preferred Stock Recapitalization
Consideration"). A copy of the Plan and Agreement of Merger dated June 18,
1998 (the "Merger Agreement") between the Company and General Textiles is
attached as Exhibit A.
The ratios at which pre-Recapitalization shares will be converted into
shares of the surviving corporation's Common Stock will result in the holders
of the pre-Recapitalization shares receiving the same number of shares they
would have received if (i) each share of pre-Recapitalization Common Stock had
been converted into 1.13 shares of the surviving corporation's Common Stock,
(ii) each share of Series A Preferred had been converted into 3.75 shares of
the surviving corporation's Common Stock, (iii) each share of Series B
Preferred had been converted into 650 shares of the surviving corporation's
Common Stock, and (iv) there had been a reverse split by which each 3.75 shares
of the surviving corporation's Common Stock had become one share of post-
Recapitalization Common Stock. The last reported sale prices of the Common
Stock and the Series A Preferred on June 1, 1998 (the day before the Company
announced the Merger and its intention to make a rights offering) were $3.094
and $9.75, respectively. Assuming the Recapitalization would cause the market
price of a share of post-Recapitalization Common Stock to be 3.32 (i.e., 3.75
divided by 1.13) times the market price of a share of Common Stock immediately
15
<PAGE>
before the Recapitalization, based upon the last reported sale price of the
Common Stock on June 1, 1998, the value of the post-Recapitalization Common
Stock received as a result of the Merger would be $3.095 per share of pre-
Recapitalization Common Stock, $10.27 per share of Series A Preferred and
$1,780.29 per share of Series B Preferred. Based on the $13 per share at which
the Company expects to offer 800,000 shares of post-Recapitalization Common
Stock in a rights offering (and at which investors advised by Three Cities
Research, Inc. have agreed to exercise their rights and to purchase all the
shares which are available to them because other rights are not exercised), the
value of the post-Recapitalization Common Stock to be received as a result of
the Merger would be $3.92 per share of pre-Recapitalization Common Stock, $13
per share of Series A Preferred and $2,253 per share of Series B Preferred.
However, the market price of a share of post-Recapitalization Common Stock
immediately after the Merger will not necessarily be either 3.32 times the
market price of a share of pre-Recapitalization Common Stock immediately before
the Merger or $13 per share. On June , 1998, the last reported sale prices
of the Common Stock and the Series A Preferred were $ per share and $
per share, respectively.
REASONS FOR THE MERGER
Because General Textiles is a wholly-owned subsidiary of the Company,
the Merger will not affect the Company's consolidated financial condition or
results of operations. It will, however, simplify the Company's internal
structure, by having the Company operate its businesses directly, rather than
having them operated by a subsidiary (or by two subsidiaries, as was the case
before the June 1998 merger of Factory 2-U, Inc., another wholly-owned
subsidiary of the Company, with General Textiles). More importantly, the
Recapitalization will significantly simplify the Company's capital structure.
Currently, the Company has outstanding 5,004,122 shares of Common Stock,
3,638,690 shares of Series A Preferred and 35,360 shares of Series B Preferred.
The Series A Preferred has a preference over the Common Stock on liquidation of
the Company, has a cumulative preference with regard to dividends (currently
totalling almost $3.5 million per year), sometimes has no voting powers and
sometimes votes together with the Common Stock as though they were a single
class. Further, anything which will adversely affect the Series A Preferred,
increase the number of shares of Series A Preferred which may be issued or
result in issuance of stock which will be senior to, or on a parity with, the
Series A Preferred must be separately approved by holders of a majority of the
outstanding shares of Series A Preferred. The Series B Preferred has a
preference over the Common Stock on liquidation and with regard to dividends,
will be entitled to receive quarterly dividends beginning in 2002, or possibly
before that, may become convertible into approximately 526.093 shares of Common
Stock per share of Series B Preferred, and votes together with the Common
Stock, with each share of Series B Preferred having a number of votes equal to
the number of shares of Common Stock into which it is, or may become,
convertible. Although the Company will not be required actually to pay
dividends on the Series B Preferred until 2002, it is accruing approximately
$2.6 million per year for future dividends (which reduces earnings available to
Common Stock by that amount). After the Recapitalization, the Company no
longer will have any outstanding preferred stock. Its only outstanding stock
will be Common Stock, 13.4% of which will be held by pre-Recapitalization
holders of Common Stock, 32.3% of which will be issued to the pre-
Recapitalization holders of Series A Preferred and 54.3% of which will be
issued to the pre-Recapitalization holders of Series B Preferred.
VOTE REQUIRED
The Merger must be approved by the holders of a majority of the
outstanding Common Stock and Series B Preferred, voting together as though they
were a single class (with the holders of Series B Preferred being entitled to
cast 526.09 votes for each share of Series B Preferred held by them), and must
also be approved by the holders of a majority of the outstanding Series A
Preferred, voting as a separate class. Investors (the "Three Cities
Investors") advised by Three Cities Research, Inc. ("Three Cities Research")
own a total of 1,386,160 shares of Common Stock and 22,421 shares of Series B
Preferred. This is equal to approximately 27% of the outstanding Common Stock
and 63% of the outstanding Series B Preferred and will entitle the Three Cities
Investors to cast approximately 56% of the total number of votes which may be
cast by the holders of the Common Stock and Series B Preferred with regard to
the Merger The Three Cities Investors have agreed with the Company that they
will vote all those shares in favor of the Merger Therefore, the
Recapitalization will be approved by the holders of the Common Stock and the
Series B Preferred, even if no other holders vote in favor of the Merger.
However, the Merger also must be approved by the holders of a majority of the
outstanding shares of Series A Preferred. No holders of Series A Preferred
have made (or have been asked to make) any commitments as to how they will vote
with regard to the Merger, except that Peter V. Handal and John J. Borer, III,
the members of the Independent Committee, have said they will vote any shares
of Common Stock, Series B Preferred Stock or Series A Preferred Stock they own
for and against the Merger in the same proportions other stockholders vote for
and against the Merger.
16
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE
THE MERGER OF GENERAL TEXTILES, INC. INTO THE COMPANY.
BACKGROUND OF THE MERGER
The Merger is part of a restructuring and recapitalization being
undertaken by the Company. The steps of this restructuring and
recapitalization, some of which have already been completed, are as follows:
<circle> On April 30, 1998, General Textiles issued (i) $3,350,000 principal
amount of Subordinated Notes due 2003 in satisfaction of $4,900,000
principal amount of Subordinated Reorganization Notes, and (ii)
$17,335,097.65 principal amount of Junior Subordinated Notes due 2005, as
well as 75,000 shares of Common Stock and warrants entitling the holders to
purchase 274,418 shares of Common Stock for $6.00 per share, in
satisfaction of $17,335,097.65 principal amount of Junior Subordinated
Reorganization Notes.
<circle> On June __, 1998, Factory 2-U, Inc. and the corporation that was then
General Textiles were merged into a newly formed Delaware corporation, the
full name of which is "General Textiles, Inc." The Company, as the sole
stockholder of both Factory 2-U, Inc. and General Textiles, received all
the shares of the new General Textiles.
<circle> The Company has distributed to its stockholders (including its
preferred stockholders) transferable Rights entitling the holders to
purchase a total of 800,000 shares of post-Recapitalization Common Stock
for $13 per share (or, if the Merger is not approved, 3,000,000 shares of
pre-Recapitalization Common Stock for $3.467 per Share) on or before
________, 1998. The Company's stockholders received one Right for each
41.46 shares of Common Stock, one Right for each 16.07 shares of Series A
Preferred and 12.78 Rights for each share of Series B Preferred. The
Rights provide that any holder who exercises the Rights evidenced by a
Subscription Certificate may "oversubscribe" to purchase, in addition to
the shares as to which the Rights are exercised, up to any specified number
of shares of Common Stock which are offered to holders of Rights but are
not purchased through exercise of Rights, with the total number of shares
as to which Rights are not exercised to be allocated among holders who
exercise the oversubscription privilege on the basis of the numbers of
shares as to which they exercise the oversubscription privilege. A group
of Three Cities Investors, which will receive Rights to purchase 305,490
shares as holders of Common Stock and Series B Preferred, have committed to
exercise all the Rights they will receive and to exercise their
oversubscription privilege as to 494,510 shares of Common Stock (the entire
number of shares subject to Rights which are being issued to stockholders
other than the group of Three Cities Investors). Therefore, all 800,000
shares of Common Stock which are being offered to holders of Rights will be
purchased, even if no one but the group of Three Cities Investors exercises
Rights.
<circle> At the meeting to which this Proxy Statement relates, the Company's
stockholders are being asked to vote upon the Merger. If the Merger is
approved, (i) the Company will directly operate its business rather than
its being operated through a subsidiary, (ii) the Company's name will be
changed to "Family Bargain Stores, Inc." and (iii) the only outstanding
stock of the Company will be Common Stock (the Series A Preferred and
Series B Preferred will be converted into Common Stock).
<circle> If the Merger is not approved by the Company's stockholders:
<circle> As promptly as practicable after the stockholders meeting at which
the Merger is not approved, General Textiles will begin an exchange
offer in which holders of all three classes or series of the Company's
stock will be given the opportunity to exchange their stock of the
Company for General Textiles common stock at the rate of 0.30133 shares
of General Textiles common stock for each share of the Company's Common
Stock, one share of General Textiles common stock for each share of the
Company's Series A Preferred and 173.33 shares of General Textiles
common stock for each share of the Company's Series B Preferred. The
group of Three Cities Investors has agreed that if this exchange offer
is made, they will exchange all their Family Bargain Common Stock and
Series B Preferred for a total of 5,488,210 shares of General Textiles
common stock (or a higher number of shares if the Three Cities
Investors purchase common stock by exercising the oversubscription
privilege in the Rights offering). If no shares of the Company's stock
owned by anyone other than the group of Three Cities Investors are
exchanged, the issuance of General Textiles common stock to the Three
Cities Investors as a result of the exchange offer would reduce the
Company's ownership of General Textiles to 64% or less of its common
stock. Any exchanges of the Company's stock by other stockholders
would further reduce the Company's percentage ownership of General
Textiles. The Company's interest in General Textiles and the $11.3
million principal balance of a General Textiles Subordinated Note owned
by the Company would be the Company's only significant assets.
17
<PAGE>
<circle> As promptly as practicable after the General Textiles exchange
offer terminates, the Company will hold a stockholders meeting at which
its stockholders will (x) elect new directors (who, the Company has
been advised, will not include anyone affiliated with Three Cities
Research) and (y) be asked to vote upon a proposal to exchange shares
of General Textiles which the Company owns for shares of the Company's
stock which General Textiles acquired through the exchange offer. At
this meeting, General Textiles will vote its Common Stock and Series B
Preferred pro rata with the Company's other stockholders with regard to
the election of directors, but will vote all the Company's stock which
General Textiles owns in favor of the proposal to exchange some of the
Company's General Textiles common stock for the Company's stock which
General Textiles owns. That exchange will eliminate the interlocking
relationship in which the Company may own as much as 64% of General
Textiles' common stock and General Textiles will own at least 64% in
voting power of the Company's Common Stock and Series B Common Stock.
However, it will further reduce the Company's ownership of General
Textiles to 48%, or less, depending on how many shares of the Company's
stock are exchanged for General Textiles common stock as a result of
the exchange offer.
The purpose of the restructuring described above and the
recapitalization which will result from the Merger is to simplify the Company's
internal structure and its capital structure. The Subordinated Reorganization
Notes and the Junior Subordinated Reorganization Notes, which had been issued
in 1994 as part of General Textiles' Chapter 11 Plan of Reorganization, would
for several years have absorbed almost all General Textiles' annual cash flow
in excess of a specified amount. This would have prevented General Textiles
from reinvesting at least part of its cash flow in its business. It also made
it inadvisable for the Company to merge General Textiles and Factory 2-U, even
though most of their functions (including administration, purchasing and
distribution) had been combined. A merger of the two companies would have
required Factory 2-U's cash flow to be applied to pay the Subordinated
Reorganization Notes and the Junior Subordinated Reorganization Notes, rather
than being available for operations and growth. By exchanging the Subordinated
Reorganization Notes and Junior Subordinated Reorganization Notes for new,
fixed payment notes, the Company made it possible to reinvest its cash flows in
excess of the amounts it has to pay with regard to the new notes and made it
feasible to merge General Textiles and Factory 2-U, which was then done.
The Company's Board of Directors believes that the complicated nature
of the Company's capital structure, together with the fact that the liquidation
preference of the two classes of preferred stock exceeds $71 million and annual
charges for dividends on the preferred stock (including charges for future
dividends on the Series B Preferred) exceed $6.1 million, have adversely
affected the market perception of the Common Stock. The Company believes the
most effective way to change this capital structure is through the Merger,
which will cause all the Series A Preferred and Series B Preferred
automatically to become Common Stock. If, however, the Company's stockholders
(and in particular, the holders of the Series A Preferred) do not approve the
Merger, the Company will cause General Textiles to offer to exchange its common
stock for Common Stock, Series A Preferred and Series B Preferred of the
Company. This offer will be registered under the Securities Act of 1933, as
amended, and will cause General Textiles' common stock to be publicly held.
Because General Textiles conducts all the Company's operations, and does not
have any outstanding preferred stock, the value of General Textiles' common
stock should approximate what the value of the Company's Common Stock would
have been if the Merger had been approved.
INDEPENDENT DIRECTORS' COMMITTEE
In connection with the Recapitalization, it was necessary to determine
the numbers of shares of post-Recapitalization Common Stock into which a share
of pre-Recapitalization Common Stock, a share of Series A Preferred and a share
of Series B Preferred would be converted. Although the pre-Recapitalization
Common Stock and the Series A Preferred are traded on the Nasdaq Small-Cap
Market, there is no market for the Series B Preferred. Further, the rights and
preferences of the Series A Preferred and Series B Preferred are very
different. Therefore, there was no simple formula for determining the numbers
of shares of post-Recapitalization Common Stock into which the pre-
Recapitalization common stock, the Series A Preferred and the Series B
Preferred would be converted. Because representatives of Three Cities hold
three of the six positions on the Company's Board of Directors, and Three
Cities Investors hold 87% of the Series B Preferred (as well as holding 18% of
the Common Stock), the Board of Directors felt that the decision as to the
numbers of shares of post-Recapitalization Common Stock into which the pre-
Recapitalization Common Stock, Series A Preferred and Series B Preferred would
be converted should be reviewed by a committee of directors who had no
relationship to Three Cities Research. Further, the Board of Directors felt it
was best that no employees of the Company be members of that Committee.
Accordingly, on March [___, 1998, the Board of Directors appointed John J.
Borer, III and Peter V. Handal as a Committee to negotiate the terms of the
Recapitalization on behalf of the holders of the pre-Recapitalization Common
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<PAGE>
Stock and to advise the Board as to whether the terms of the recapitalization
are fair to the pre-Recapitalization common stockholders. Shortly thereafter,
the Committee retained Kramer, Levin, Naftalis & Frankel as its legal counsel.
On April 8, 1998 the Committee held its first meeting and discussed the
proposed settlement with holders of the Company's Subordinated Reorganization
Notes and Junior Subordinated Reorganization Notes, that had been presented at
a meeting of the Company's Board of Directors that had occurred that morning.
The Committee felt that implementation of this settlement would affect whatever
reorganization proposal Three Cities presented. The Committee undertook to
contact several investment bankers with the intention of engaging a financial
advisor to evaluate the fairness of any proposed transaction to the pre-
Recapitalization holders of Common Stock.
On April 21, 1998, Three Cities delivered a recapitalization proposal
to the Committee. This proposal assumed:
(i) that each share of Common Stock would continue to be one share of
Common Stock, each share of Series A Preferred would be converted into
3.75 shares of Common Stock, and each share of Series B Preferred would
be converted into 650 shares of Common Stock;
(ii) that the Company would issue to the Company's stockholders rights
to purchase the equivalent of up to 3 million pre-Recapitalization
shares of Common Stock for $3.25 per pre-Recapitalization share and
that Three Cities Investors would agree to exercise their rights and
also any other rights the holders of which decline to exercise; and
(iii) that some of the proceeds from the exercise of the rights would
be used to prepay Subordinated Notes which the Company proposed to
issue in exchange for the Subordinated Reorganization Notes.
This proposal would have decreased the percentage ownership of the pre-
Recapitalization Common Stockholders from 15.4% to 12.1% and of the Series B
Preferred Stockholders from 55.0% to 53.5% (based upon the then outstanding
Common Stock and Series B Preferred), while increasing the percentage ownership
of the Series A Preferred stockholders from 29.7% to 34.4%.
On April 27, 1998, the Committee held its second meeting, at which the
proposal from Three Cities was discussed. The Committee felt that the proposal
attempted to strike a balance among the Company's stockholder constituencies,
but that it produced too great a dilution in the percentage of the Company that
the pre-Recapitalization Common Stockholders would own after the Merger. The
Committee discussed various changes to the Three Cities proposal that might
alleviate this problem.
Shortly thereafter, the members of the Committee met with
representatives of Three Cities to discuss various ways Three Cities' proposal
could be improved from the point of view of the Company's pre-Recapitalization
Common Stockholders. They discussed the possibility of having the Company
issue warrants to purchase additional shares of Common Stock to the pre-
Recapitalization Common Stockholders. Three Cities felt that any issuance of
new securities would undercut one of the primary goals of the reorganization,
i.e., to simplify the Company's capital structure.
After their meeting with Three Cities, the Committee members met with
the Company's Board of Directors. At that meeting they described their meeting
with the representatives of Three Cities, and told the Board of Directors that
they felt Three Cities' proposal was not unreasonable, but that the pre-
Recapitalization Common Stockholders' share needed to be improved.
On May 6, 1998, the Committee held its third meeting and discussed the
progress of the negotiations with Three Cities. At that meeting the Committee
formally decided to engage Ladenburg Thalmann & Co. Inc. ("Ladenburg") as its
financial advisor. Shortly thereafter Ladenburg began its analysis of Three
Cities' proposal.
On May 14, 1998, the Committee held its fourth meeting.
Representatives of Ladenburg and the Committee's legal counsel were present.
At the meeting, Ladenburg discussed its preliminary analysis of the proposal
from Three Cities.
On May 19, 1998, the Committee members had meetings with Ladenburg and
then with Ladenburg and Three Cities to discuss ways the proposal might be
improved for the pre-Recapitalization Common Stockholders. Three Cities
reiterated its objection to any plan that complicated the Company's post-
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<PAGE>
Recapitalization by creating a new class of securities. The possibility of
having the Company give a cash dividend to the Common Stockholders was also
rejected, inasmuch as it was felt that it would be more advantageous for the
Company to retain as much of its cash as possible. It was decided that the
best solution would be to have the Company issue more shares of post-
Recapitalization Common Stock to the pre-Recapitalization Common Stockholders,
although the exact method by which this would be accomplished was still to be
determined.
On May 19, 1998 Three Cities delivered a revised proposal to the
Committee. This revised proposal reflected the negotiations that had occurred
between Three Cities and the Committee, and called for the issuance of 640,000
additional shares of Common Stock to the pre-Recapitalization Common
Stockholders. The revised proposal provided that each share of pre-
Recapitalization Common Stock would be converted into 0.30133 shares of post-
Recapitalization Common Stock, each share of Series A Preferred would be
converted into one share of post-Recapitalization Common Stock, and each share
of Series B Preferred would be converted into 173.33 shares of post-
Recapitalization Common Stock, assuming in each case an effective one for 3.75
reverse stock split simultaneous with the conversion. This revision increased
the percentage of the post-Recapitalization Company that would be owned by the
pre-Recapitalization Common Stockholders to 13.5%, from the 12.1% they would
have owned under the first proposal (based in each case on the then outstanding
Common Stock and Series B Preferred). Three Cities also said that if the
Recapitalization were on those terms, the Three Cities Investors would vote in
favor of the Recapitalization, and would commit to purchase for $13 per share
in cash all the post-Recapitalization Common Stock they could purchase by
exercising Rights issued to them in connection with the rights offering and
exercising the oversubscription privilege to purchase all shares which are not
purchased by other Rights holders.
On May 21, 1998, the Committee met again with Ladenburg and then with
Ladenburg and Three Cities to discuss Three Cities' revised proposal. At that
meeting, the Committee asked Three Cities to analyze the tax consequences of
various methods of issuing additional shares of Common Stock to the pre-
Recapitalization Common Stockholders. After these meetings, the Committee met
with its counsel and with Ladenburg. At that meeting, Ladenburg stated to the
Committee that, subject to the completion of its due diligence investigation of
the Company, and to the tax analysis, it expected to be able to deliver its
written opinion that the revised consideration to be received by the holders of
the Series A Preferred and Series B Preferred was fair, from a financial point
of view, to the pre-Recapitalization Common Stockholders.
On May 27, 1998, the Committee held its seventh meeting. At this
meeting Ladenburg presented the Committee with a booklet that set forth in
draft form the methods Ladenburg had used in its analyses of the proposal. It
was also noted that a draft form of its fairness opinion was delivered to
counsel to the Committee for review. The Committee members analyzed the booklet
carefully and asked many questions of Ladenburg about its contents. Ladenburg
stated to the Committee that, subject to completion of its due diligence and
tax analysis, it remained of the preliminary view that the consideration to be
received by the holders of the Series A and Series B Preferred was fair, from a
financial point of view, to the pre-Recapitalization Common Stockholders. At
the end of this meeting, the Committee voted to inform the Board that, subject
to receipt of Ladenburg's final opinion and a suitable tax opinion from Rogers
& Wells, the Committee felt the terms of the Merger were fair to the
Committee's pre-Recapitalization Common Stockholders.
On June 16, 1998, Ladenburg delivered to the Committee copies of its
Family Bargain Corporation Presentation booklet, which described Ladenburg's
various analyses of the Recapitalization, and a revised draft of its fairness
opinion. The members of the Committee studied the booklet and draft opinion
and discussed their contents among themselves and with their legal counsel for
the next few days.
On June 18, 1998, the Committee held its eighth formal meeting.
Representatives of Ladenburg and of Kramer Levin were in attendance at this
meeting. At this meeting Ladenburg gave a presentation in which it described
the contents of the booklet and the fairness opinion. After this presentation
the Committee members asked Ladenburg numerous questions about Ladenburg's
analysis. At the end of this meeting the Committee voted to inform the Board
that, subject to receipt of a suitable tax opinion from Rogers & Wells, it was
the Committee's view that the terms of the Recapitalization were fair to the
Company's pre-Recapitalization Common Stockholders.
REASONS FOR THE COMMITTEE'S CONCLUSION
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<PAGE>
In reaching its conclusion, the Committee considered the factors
described below. In view of the wide variety of factors considered in
connection with its evaluation of the Merger, the Committee did not consider it
practicable to, and did not attempt to, quantify, rank or otherwise assign
relative weights to the specific factors it considered in reaching its
conclusion.
(i) ADVANTAGES TO THE COMPANY. The Committee considered the benefits
that consummation of the Merger would provide to the Company, including
(A) savings of administrative expenses resulting from the elimination
of the holding company structure, and (B) the greater flexibility and
certainty that the simplified capital structure will provide to the
Company's management. The Committee believes that these advantages
should be of benefit to the Company's pre-Recapitalization Common
Stockholders.
(ii) ADVANTAGES TO COMMON STOCKHOLDERS. The Committee believes that
the Company's simplified capital structure, especially the elimination
of the special rights of the two series of the Preferred Stock, after
the Merger will make the Common Stock more attractive to the financial
markets.
(iii) OPINION OF LADENBURG. The Committee considered the preliminary
view of its financial advisor, Ladenburg, on May 27, 1998 (which
preliminary view was confirmed in a written opinion dated June 18,
1998), to the effect that, as of such dates and subject to the
assumptions and limitations therein, the consideration to be received
by the holders of the Company's Series A Preferred and Series B
Preferred in the Merger was fair, from a financial point of view, to
the pre-Recapitalization holders of the Common Stock. The Committee
also considered the presentations made by Ladenburg. See "Opinion of
the Committee's Financial Advisor." A copy of Ladenburg's opinion to
the Committee, dated June 18, 1998, is attached as Exhibit C to this
Proxy Statement and is incorporated herein by reference. That opinion
should be read in its entirety for a description of the opinion
expressed, procedures followed, assumptions made, matters considered
and limitations of review undertaken in connection with the opinion.
The Committee considered such opinion and such presentations to
support its recommendation. In light of its familiarity with the
Company and Ladenburg's responses to questions during such
presentations (including questions with respect to the valuation
methods used by Ladenburg in its valuation analyses), the Committee
found reasonable, and relied upon, Ladenburg's analyses and opinion.
In particular, the Committee found reasonable the accretion/dilution
analysis, equity valuation, and EPS valuation analysis presented by
Ladenburg. The Committee concluded that the amount of dilution to
earnings per pre-Recpitalization common share that would occur as a
result of the Merger was acceptable, given the ositive effects the
Merger would have, including, (A) the increase in common stock market
capitalization, (B) the simplificaiton of the Company's capital
structure, (C) the elimination of the liquidation preferences of the
senior securities and (D) the elimination of cash dividends of Series A
Preferred and non-cash dividends of Series B Preferred. Moreover, the
Committee noted that part of this dilution in earnings per share would
result from the issuance of Common Stock pursuant to the Rights
Offering, for which issuance the Company would receive cash proceeds of
$13 per post-Recapitalization share.
(iv) INDEPENDENT NEGOTIATIONS. The Committee considered as supporting
its recommendation the fact that the terms of the Merger were
determined through arm's-length discussions and negotiations between
members of the Committee and the Committee's advisors on the one hand,
and representatives of Three Cities and their advisors on the other
hand, and the fact that such negotiations resulted in an increases in
the percentage of the post-Recapitalization Common Stock to be received
by the pre-Recapitalization Common Stockholders. The Committee was of
the view that, based on the history and nature of such discussions and
negotiations it was unlikely that Three Cities would accept any
proposal that offered the Company's pre-Recapitalization Common
Stockholders a higher percentage of the post-Recapitalization Company.
(v) THREE CITIES INVESTORS' WILLINGNESS TO EXERCISE RIGHTS. The
Committee considered the fact that a group of Three Cities Investors
were willing to purchase at least 305,490, and possibly as many as
800,000, shares of post-Recapitalization Common Stock for $13.00 per
share knowing the proposed terms of the Merger.
The Committee was aware that the percentage of the post-
Recapitalization Common Stock into which the Series A Preferred will be
converted as a result of the Merger will exceed the percentage of the Common
Stock into which it could be converted by exercising the conversion rights
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<PAGE>
which are part of its terms. The following table shows (without taking account
of the issuance of Common Stock as a result of the rights offering) the numbers
of shares and percentages of the Common Stock which would be held by the pre-
Recapitalization holders of the Common Stock, Series A Preferred and Series B
Preferred (i) if all the Series A Preferred and Series B Preferred were
converted into Common Stock in accordance with their terms, and (ii) as a
result of the Merger:
<TABLE>
<CAPTION>
Common Stock and
Preferred Stock Converted Preferred Stock
ACCORDING TO ITS TERMS CONVERTED IN THE MERGER
------------------------- ------------------------
Number of Number of
Pre-Recapitalization Shares Percentage of Shares Percentage of
HOLDERS OF: OF COMMON STOCK COMMON STOCK OF COMMON STOCK COMMON STOCK
- ----------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Common Stock 5,004,122 15.2% 1,507,742 13.4%
Series A Preferred stock 9,319,704 28.3% 3,638,690 32.3%
Series B Preferred 18,601,648 56.5% 6,128,949 54.3%
---------- ----- --------- -----
Total 32,926,474 100.0% 11,275,381 100.0%
</TABLE>
The Committee also was aware, however, that the holders of the Series A
Preferred are not required to convert their preferred stock into Common Stock,
and that at the current price of the Common Stock it is unlikely they would do
so. On June 1, 1998, the day before the Company announced the terms of the
rights offering and of the proposed Merger, the last sale price of the Series A
Preferred reported on the Nasdaq Small-Cap Market was $9.75 and the last
reported sale price of the Common Stock was $3.094. Accordingly, the market
price of the 2.561 shares of Common Stock into which a share of Series A
Preferred is convertible was $7.92, which was 19% less than the last reported
sale price of the Series A Preferred. Even at the $13 per post-
Recapitalization share at which Common Stock is being offered in the rights
offering (and at which a group of Three Cities Investors have said they will
exercise their rights and will purchase any other shares which are available
because rights are not exercised), the Common Stock into which the Series A
Preferred can be converted was worth only $10.03, which is only slightly more
than the last reported sale price of the Series A Preferred. Because of that,
and because the Merger would eliminate the preferential dividend and
liquidation rights of the Series A Preferred, the Committee felt it was
necessary for the holders of the Series A Preferred to receive more Common
Stock as a result of the Merger than they would receive if they converted their
Series A Preferred into Common Stock in accordance with the terms of the Series
A Preferred. Accordingly, it accepted the merger ratio for the Series A
Preferred, which, based upon a $13 per share value of a share of post-
Recapitalization Common Stock, would represent a premium of approximately 33%
over the June 1, 1998 last sale price of the Series A Preferred. The actual
premium may be greater or less than that, to the extent the market price of the
Common Stock immediately after the Merger is greater or less than $13 per
share.
OPINION OF THE COMMITTEE'S FINANCIAL ADVISOR
Ladenburg was engaged by the Committee to act as its financial advisor.
Ladenburg is an internationally recognized investment banking firm which, as
part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, merchant banking, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. The Committee retained Ladenburg based on these qualifications and
expertise.
On June 18, 1998, at a meeting of the Committee, Ladenburg delivered a
written opinion to the Committee to the effect that, as of the date of such
opinion and based upon and subject to certain matters therein, including the
Common Stock Recapitalization Consideration, the Preferred Stock
Recapitalization Consideration was fair, from a financial point of view, to the
pre-Recapitalization Common Stockholders of the Company.
The full text of the written opinion of Ladenburg, which sets forth
assumptions made, matters considered and limitations on the review undertaken,
is attached as Exhibit C to this Proxy Statement and should be read carefully
in its entirety. Although each of the analyses employed by Ladenburg in
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<PAGE>
rendering its opinion is summarized below, the summary does not purport to be a
complete description of Ladenburg's analyses and contains those aspects of
Ladenburg's analyses deemed most relevant. Ladenburg did not determine or make
any recommendation with respect to the type or amount of consideration to be
paid in connection with the Recapitalization. The opinion of Ladenburg is
directed to the Committee and relates only to the fairness of the Preferred
Stock Recapitalization Consideration, from a financial point of view, to the
pre-Recapitalization Common Stockholders of the Company and does not constitute
a recommendation to any stockholder of the Company as to how such stockholder
should vote at the Annual Meeting. The opinion of Ladenburg is subject to
certain conditions and limitations set forth therein, and the summary of that
opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinion, Ladenburg reviewed and considered such
information as it deemed necessary or appropriate for the purposes of stating
its opinion including (i) drafts, in the forms furnished to it by
representatives of the Company, of the Merger Agreement, this Proxy Statement
and the registration statement (the "Registration Statement") pursuant to which
the Company proposes to offer and sell to holders of Rights it will issue to
its stockholders, including the Three Cities Investors, 800,000 shares of post-
Recapitalization Common Stock at $13.00 per share (or 3,000,000 shares of pre-
Recapitalization Common Stock at $3.467 per share if the Merger is not
approved) (the "Rights Offering"), (ii) certain business and financial
information relating to the Company provided by the Company, including the
financial condition and results of operations of the Company, the historical
financial performance, certain projected financial information provided by the
Company and pro forma financial statements giving effect to the proposed
transactions of the Company as provided by the Company, and the historical
trading performance of the Common Stock and Series A Preferred, (iii) certain
public filings made by the Company with the Securities and Exchange Commission,
(iv) the terms of the Series A Preferred and Series B Preferred, as set forth
in the Certificates of Designations for the Series A Preferred and the Series B
Preferred, furnished to Ladenburg by the Company, (v) to the extent publicly
available, certain market criteria for securities with terms which Ladenburg
considered relevant in evaluating the Series A Preferred and the Series B
Preferred. In addition, Ladenburg conducted such other analyses and
examinations and reviewed and considered such other financial, economic and
market criteria as it deemed appropriate in arriving at its opinion. Ladenburg
also met with members of senior management of the Company to discuss, among
other things, the historical and prospective industry environment, financial
conditions and operating results for the Company and reasons for the
Recapitalization.
In rendering its opinion, Ladenburg assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or discussed
with it by the Company, the Committee, Three Cities (with the approval of the
Company) or their respective advisors. With respect to the information
provided by Three Cities utilized in its analyses, Ladenburg stated that it was
not aware of any reason why it could not reasonably rely on such information.
With respect to financial forecasts and other information and data provided to
or otherwise reviewed by or discussed with Ladenburg, the management of the
Company advised Ladenburg that such forecasts and other information and data
were reasonably prepared on bases reflecting reasonable currently available
estimates and judgments of management with respect to the future financial
performance of the Company. Ladenburg also assumed, with the Company's
consent, that the final terms of the Merger Agreement and Registration
Statement reviewed by it in draft form will not vary materially from the drafts
of such documents provided to it, and that the Recapitalization (if the Merger
is approved by the Company's stockholders) and the Rights Offering will be
consummated in all material respects as described in the drafts of this Proxy
Statement and the Registration Statement provided to it. Ladenburg was not
requested to and did not analyze or give any effect to the impact of any
federal, state or local income taxes to the Company's stockholders arising out
of the Merger. In this regard, Ladenburg assumed, with the Company's consent,
that, as set forth in the Proxy Statement, the Merger would be treated as a tax
free liquidation and recapitalization pursuant to the Internal Revenue Code of
1986, as amended, and would be consummated pursuant to the Merger Agreement.
See " - Federal Income Tax Consequences of the Merger." Ladenburg did not
express any opinion as to the value of the Common Stock or the prices at which
the Common Stock will be transferable, in each case, subsequent to the
Recapitalization. Ladenburg did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the
Company, nor has Ladenburg made any physical inspection of the properties or
assets of the Company. Ladenburg expressed no opinion as to the relative
merits of the Recapitalization as compared to any alternative business
strategies that might exist for the Company or the effect of any other
transaction in which the Company might engage. Although Ladenburg evaluated
the Preferred Stock Recapitalization Consideration from a financial point of
view, Ladenburg was not requested to, and did not, participate in the
negotiation of the Merger Agreement or related transactions described in this
Proxy Statement and was not requested to, and did not, recommend the specific
consideration payable in the Recapitalization.
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In its analyses, Ladenburg made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, based on, among other things, information
provided to Ladenburg by the Company, many of which are beyond the control of
the Company. Any estimates contained in Ladenburg's analyses are not
necessarily indicative of actual values, which may be significantly more or
less favorable than as set forth therein.
The opinion of Ladenburg is necessarily based upon information
available to Ladenburg, and financial, stock market and other conditions and
circumstances existing and disclosed to Ladenburg, as of the date of the
opinion. Ladenburg's analyses do not reflect, among other things, changes in
the Company's business or prospects, changes in general business and economic
conditions or any other transactions or events that have occurred since the
date of its opinion or that may occur and that were not anticipated at the time
such materials were prepared.
The preparation of a fairness opinion is a complex analytical process
that involves various determinations as to the most appropriate and relevant
qualitative and quantitative methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to partial analyses or summary description.
Accordingly, Ladenburg believes that its analyses must be considered as a whole
and that considering any portion of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion. The
estimates contained in such analyses and the valuation ranges resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be more or less favorable
than those suggested by such analyses. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to reflect
the prices at which businesses or securities may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Ladenburg's opinion and analyses were only one of many factors considered by
the Committee in its evaluation of the Recapitalization and should not be
viewed as determinative of the views of the Committee or the Company's Board of
Directors with respect to the Preferred Stock Recapitalization Consideration or
the proposed Recapitalization.
OVERVIEW OF ANALYSES
Ladenburg used both qualitative and quantitative assessments to
evaluate the Preferred Stock Recapitalization Consideration. Inherent in such
assessments by Ladenburg was the view that the proposed transaction is a
recapitalization of the Company in which each of the existing common and
preferred stockholder classes are exchanging their existing securities for a
new security in a simplified capital structure with one class of stock
outstanding. In addition, compared with the existing capital structure, there
would be fewer shares outstanding (having the effect of increasing the value of
each new share).
Ladenburg's determination that the Preferred Stock Recapitalization
Consideration was fair, from a financial point of view, to the pre-
Recapitalization Common Stockholders of the Company is based on all the
qualitative and quantitative analyses described below. Such opinion takes into
consideration the fact that the Company could not compel the holders of the
Series A Preferred or Series B Preferred to approve a recapitalization on terms
similar to the proposed Recapitalization, and that, as a result, the
Recapitalization, in the manner desired by the Company, could not occur without
the approval of the holders of at least a majority of the Series A Preferred
and of nearly a majority of the Series B Preferred.
QUALITATIVE CONSIDERATIONS
In addition to the quantitative analyses discussed below, Ladenburg
considered a number of qualitative factors related to the Company. Ladenburg
did not apply valuation weightings to any of these qualitative analyses. Among
the positive qualitative factors relating to the Company, Ladenburg noted:
(i) the significantly increased Common Stock market capitalization
resulting from the Recapitalization is contemplated to have effects of
(a) increasing trading volume and market liquidity for Common
Stockholders, (b) eliminating the valuation discount associated with an
illiquid security, (c) creating potential interest from institutional
investors and portfolio managers, (d) increasing the likelihood of
securities analyst coverage to increase the flow of information about
the Company, (e) simplifying the capital structure for potential
investors to evaluate and (f) increasing the likelihood of the common
stock being listed on the Nasdaq National Market or becoming a
marginable security;
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(ii) the significant accretion to operating earnings per common share
based on pro forma prior year and current year earnings (fiscal year
1997 and 1998) in the near term;
(iii) the ability to recapitalize the Company without using working
capital or requiring additional financing which would require
significant cash and financing risk and which might not achieve the
desired simplification of the capital structure and the elimination of
in excess of $70.0 million of liquidation preference;
(iv) the elimination of the right of the holders of the Series B
Preferred to convert such securities into 8% Convertible Subordinated
Notes with accompanying cash interest payments;
(v) the reduction in the downside risk to the pre-Recapitalization
Common Stockholders;
(vi) the improvement of the Company's cash flow through the
elimination of cash dividends payable on the Series A Preferred;
(vii) that the improvement in cash flow and simpler capital structure
increases the Company's ability to raise equity capital to fund future
investments or the redemption of debt securities;
(viii) the elimination of cash dividends on the Series A Preferred and
dividend accruals on the Series B Preferred increases the probability
of demonstrating positive earnings on the Common Stock; and
(ix) the elimination of the burden, liquidation preference, and other
rights of the senior securities.
Among the negative qualitative factors relating to the Company,
Ladenburg noted: (i) the dilution associated with the holders of the Series A
Preferred and the holders of the Series B Preferred receiving more shares of
Common Stock than they would have received if they had converted their shares
to Common Stock under their respective Certificates of Designations; and (ii)
the potential earnings dilution to the holders of the post-Recapitalization
Common Stock in the 1999 and 2000 fiscal years.
QUANTITATIVE ANALYSES
Ladenburg evaluated the Preferred Stock Recapitalization Consideration
through various methods described below. For presentation purposes, all share
values and per share calculations for pre-Recapitalization data have been
adjusted for the 1-for-3.75 share reverse stock split implicit in the
Recapitalization exchange ratios. See "-General."
ACCRETION/DILUTION ANALYSIS. The Accretion/Dilution Analysis was used to
determine the impact of exchanging the Series A Preferred and the Series B
Preferred for the Common Stock on the earnings per common share of the Company.
In deriving its analysis, Ladenburg examined the fiscal year 1997 actual
earnings per common share for the Company as well as projected earnings per
common share for the fiscal years of 1998, 1999 and 2000 under the pre-
Recapitalization capital structure. Ladenburg compared those results to pro
forma earnings per common share calculated based on the completion of the
proposed Recapitalization. Pro forma common shares used in such analysis
included the shares of Common Stock to be issued to the holders of the Series A
Preferred, Series B Preferred and the pre-Recapitalization Common Stock in the
proposed Recapitalization, and the elimination of associated dividends on the
Series A Preferred and Series B Preferred. Based on the above, pro forma
earnings per common share for 1997 would have been $0.23 as compared to actual
results of a loss of $3.44 for the period. For 1998, based on the Company's
projected results, earnings per share would have increased from a loss of $2.38
to a gain of $0.34 if the Recapitalization and the Rights Offering would have
occurred as of February 1, 1998. For 1999 and 2000, consummation of the
Recapitalization would result in an anticipated decline in projected earnings
per share from $0.97 and $1.23 (assuming conversion of the Series A Preferred
and Series B Preferred at their contractual rates and assuming that the Rights
Offering is not consummated) to $0.81 and $1.04. As a result of the Common
Stock Recapitalization Consideration (in which the pre-Recapitalization Common
Stockholders effectively receive approximately 1.13 shares per each pre-
Recapitalization common share prior to the reverse split), the earnings per
common share attributable to the pre-Recapitalization Common Stockholders,
based upon the Company's projected results and assuming that the
Recapitalization and the Rights Offering would have occurred as of February 1,
1998, would, in effect, be $0.38 in 1998, $0.92 in 1999 and $1.18 in 2000.
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EQUITY VALUATION. The Equity Valuation derives the relative value of
the ownership stake in the Company of the holders of the Common Stock of the
Company on a pre- and post-Recapitalization basis, based on the current market
price of a share of the Common Stock of $9.83 (assumed to be the 30-day average
of the market closing prices of the Common Stock for the period ending one day
prior to the announcement of the Recapitalization, May 5, 1998) and an implied
equity value per share for the Company based on the projected EBITDA (defined
as earnings before interest, taxes, depreciation and amortization) for the
fiscal year ending January 31, 1999. Based on the current market price
calculated above, on a pre-Recapitalization and pre-Rights Offering basis, the
value of the pre-Recapitalization Common Stockholders' ownership of the Common
Stock is $13.1 million, derived by multiplying the 1.3 million shares
outstanding by $9.83. Post-Recapitalization, the value of the pre-
Recapitalization Common Stockholders' ownership of the Common Stock would be
$14.8 million, derived by multiplying the 1.5 million shares to be held by such
Common Stockholders after the Recapitalization by $9.83. The increase in value
to the pre-Recapitalization Common Stockholders, based on the above, is $1.7
million. Additionally, Ladenburg performed a similar analysis using a per
share equity valuation based on the Company's projected 1998 EBITDA, deriving
an implied per share equity value for the Common Stock of $10.57 on a pre-
Recapitalization basis and $10.05 on a post-Recapitalization basis. Based on
the EBITDA valuation implied per share values, and the additional shares to be
outstanding, the increase in value to the existing Common Stockholders is $1.0
million.
In calculating the implied per share equity value based on EBITDA,
Ladenburg multiplied the Company's projected EBITDA by the median comparable
company trading multiple of EBITDA of 9.0x derived from a comparable company
analysis, discounted by 14.5% to account for application to a projected EBITDA.
From this product, Ladenburg subtracted the total debt (including, for this
purpose, the preferred stock) and added cash and cash equivalents, if any, to
derive an implied equity value which Ladenburg subsequently divided by the
appropriate number of shares of Common Stock. Ladenburg selected the following
companies for use in the comparable company analysis: Ames Department Stores,
Consolidated Stores Corp., Dollar General Corp., Duckwall Alco Stores Corp.,
Family Dollar, Kmart Corp., Mazel Stores, Inc. and Wal-Mart Stores,Inc.
In calculating the implied per share equity value based on EBITDA for
the pre-Recapitalization Common Stock, Ladenburg multiplied the calculated
EBITDA per share valuation described in the preceding paragraph by a liquidity
discount of 18.2%. The liquidity discount is based upon an analysis of
restricted stock issues between January 1993 and May 1998. The liquidity
discount reflects the estimated discount to the relative trading value of the
Common Stock resulting from the pre-Recapitalization capital structure.
EPS VALUATION ANALYSIS. The EPS Valuation derives implied per share
values for the post-Recapitalization Common Stock based on market trading
multiples and the earnings per share ("EPS") for the projected fiscal years
1998 and 1999, pro forma for the Recapitalization. Ladenburg derived an
implied per share equity value for the Common Stock of $11.71 and $13.34 for
the fiscal years 1998 and 1999, respectively, on a pre-Rights Offering basis,
and $12.15 and $14.23, respectively, for the same periods on a post-Rights
Offering basis. As compared to the current market price of $9.83, on a pre-
Rights Offering basis, the current per share value based on 1998 and 1999
projections would be $1.89 and $3.52 greater than the current market price. As
compared to the current market price of $9.83, on a post-Rights Offering basis,
the current per share value based on 1998 and 1999 projections would be $2.32
and $4.41 greater than the current market price.
In calculating the implied per share equity value based on EPS,
Ladenburg multiplied the Company's EPS by the median comparable company price-
to-earnings per share ratio (P/E) multiple derived from a comparable company
analysis. Ladenburg then divided this product by the appropriate number of
shares of Common Stock. Ladenburg used the median comparable company P/E+1 and
P/E+2 multiples of 17.6x and 17.5x, respectively.
COMPARISON OF THE RECAPITALIZATION CONSIDERATION TO THE VALUES OF THE
COMPANY
Ladenburg used the qualitative analysis of the Recapitalization as well
as the values derived from each of the analyses discussed above to analyze the
consideration to be paid for the Series A Preferred and the Series B Preferred
as implied by the Preferred Stock Recapitalization Consideration and the
consideration to be paid to the pre-Recapitalization holders of Common Stock
and concluded, based upon and subject to certain matters, that the Preferred
Stock Recapitalization Consideration was fair, from a financial point of view,
to the pre-Recapitalization Common Stockholders of the Company.
LADENBURG'S COMPENSATION
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Ladenburg was engaged by the Committee in connection with the
Recapitalization and to render the Ladenburg Opinion and will receive fees in
connection therewith of $125,000. In addition, the Company has agreed to
reimburse Ladenburg for its related expenses. The Company has also agreed, in
a separate letter agreement, to indemnify Ladenburg, its affiliates and each of
their respective directors, officers, agents, consultants and employees and
each person, if any, controlling Ladenburg or any of its affiliates against
certain liabilities, including liabilities under federal securities laws. In
the ordinary course of its business, Ladenburg may trade the securities of the
Company for its own account and for the account of its customers, and may at
any time hold a long or short position in such securities. Ladenburg has not
rendered financial advisory services in the past to the Company.
THE TERMS OF THE MERGER
If the Merger is approved by the stockholders, the Merger will become
effective at 11:59 p.m. on the day a Certificate of Merger is filed with the
Secretary of State of Delaware (the "Effective Time"). The Effective Time is
expected to be on the day of the stockholders meeting at which the Merger is
approved. At the Effective Time, General Textiles, Inc. will be merged into
the Company. The Company's Certificate of Incorporation, By-laws, officers and
directors will continue to be the Certificate of Incorporation, By-laws,
officers and directors of the Surviving Corporation. However, the Company's
Certificate of Incorporation will be amended by the Merger to change the
Company's name to "Family Bargain Stores, Inc." and to change the par value of
its Common Stock from $.01 per share to $.0375 per share. As a result of the
Merger, each share of pre-Recapitalization Common Stock will become 0.30133
shares of post-Recapitalization Common Stock, each share of Series A Preferred
will become one share of post-Recapitalization Common Stock and each share of
Series B Preferred will become 173.33 shares of post-Recapitalization Common
Stock.
The Company will have the right to terminate the Merger Agreement
without completing the Merger if, among other things, holders of more than
72,000 shares of Common Stock, 19,000 shares of Series A Preferred or 110
shares of Series B Preferred demand appraisal under Section 262 of the Delaware
General Corporation Law ("DGCL"). See "Appraisal Rights."
At the Effective Time, a certificate which represented Common Stock,
Series A Preferred or Series B Preferred will automatically become a
certificate representing the number of shares of post-Recapitalization Common
Stock into which the shares of Common Stock, Series A Preferred or Series B
Preferred it had represented were converted as a result of the Merger.
However, the Company will promptly send the persons who held pre-
Recapitalization Common Stock, Series A Preferred or Series B Preferred
immediately before the Merger materials with which they can exchange their
stock certificates for post-Recapitalization Common Stock certificates.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Company has received an opinion of Rogers & Wells to the effect
that (i) the Merger will constitute a liquidation of General Textiles into the
Company within the meaning of Section 332 of the Internal Revenue Code of 1986,
as amended (the "Code"), (ii) that the Merger will constitute a
recapitalization of the Company within the meaning of Section 368(a)(1)(E) of
the Code and (iii) that neither the Company nor its stockholders will recognize
any income, gain or loss as a result of the Merger. The opinion of Rogers &
Wells also states that the aggregate tax basis of the shares of post-
Recapitalization Common Stock received by a stockholder in accordance with the
terms of the Merger Agreement will be the same as the aggregate tax basis of
the shares of pre-Recapitalization Common Stock, Series A Preferred or Series B
Preferred with regard to which the post-Recapitalization Common Stock is
issued. The holding period of the post-Recapitalization Common Stock will
include the period during which the pre-Recapitalization Common Stock, Series A
Preferred or Series B Preferred were held, providing they were held as capital
assets at the time of the Merger.
APPRAISAL RIGHTS
If the Merger is consummated, a holder of record of [Common Stock,
Series A Preferred or] Series B Preferred who (i) makes a demand for appraisal,
as described below, (ii) continues to hold those shares through the effective
time of the Merger (the "Effective Time"), (iii) strictly complies with the
procedures set forth under Section 262 of the DGCL, and (iv) has not voted in
favor of the Merger, will be entitled to have the shares appraised by the
Delaware Court of Chancery under Section 262 and to receive payment for the
"fair value" of these shares in lieu of the consideration provided for in the
Merger Agreement. This Proxy Statement constitutes notice of the appraisal
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rights available to those holders under Section 262. THE STATUTORY RIGHT OF
APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES
SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF THOSE PROCEDURES MAY RESULT
IN A TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER SECTION 262. The
following is a summary of certain of the provisions of Section 262 and is
qualified in its entirety by reference to the full text of Section 262, a copy
of which is attached to this Proxy Statement as Exhibit D.
A stockholder who elects to exercise appraisal rights under Section 262
must deliver a written demand for appraisal of the stockholder's shares to the
Company prior to the vote on the Merger. The written demand must identify the
stockholder of record and state the stockholder's intention to demand appraisal
of the stockholder's shares. All demands should be delivered to Family Bargain
Corporation, 4000 Ruffin Road, San Diego, California 92123, Attention: Jonathan
Spatz, Chief Financial Officer.
Only a holder of shares on the date of making a written demand for
appraisal who continuously holds those shares through the Effective Time is
entitled to seek appraisal. Demand for appraisal must be executed by or for
the holder of record, fully and correctly, as that holder's name appears on the
holder's stock certificates. If stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand should be
made in that capacity, and if stock is owned of record by more than one person,
as in a joint tenancy or tenancy in common, the demand should be made by or for
all owners of record. An authorized agent, including one or more joint owners,
may execute the demand for appraisal for a holder of record. That agent,
however, must identify the record owner or owners and expressly disclose in the
demand that the agent is acting as agent for the record owner or owners of the
shares.
A record holder such as a broker who holds shares of stock as a nominee for
beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of those beneficial owners with respect to the
shares held for those beneficial owners. In that case, the written demand for
appraisal should set forth the number of shares of each class or series of
stock covered by it. Unless a demand for appraisal specifies a number of
shares, the demand will be presumed to cover all shares of the Company's stock
held in the name of the record owner.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE
OF THE STOCKHOLDERS MEETING.
Within 10 days after the Effective Time, the surviving corporation is
required to send notice of the effectiveness of the Merger to each stockholder
who prior to the Effective Time complies with the requirements of Section 262.
Within 120 days after the Effective Time, the surviving corporation or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the
fair value of the shares of the surviving corporation Stock held by all
stockholders seeking appraisal. A dissenting stockholder must serve a copy of
the petition on the surviving corporation. If no petition is filed by either
the surviving corporation or any dissenting stockholder within the 120-day
period, the rights of all dissenting stockholders to appraisal will cease.
Stockholders seeking to exercise appraisal rights should not assume that the
surviving corporation will file a petition with respect to the appraisal of the
fair value of their shares or that the surviving corporation will initiate any
negotiations with respect to the fair value of those shares. The surviving
corporation is under no obligation, and has no present intention, to take any
action in this regard. Accordingly, stockholders who wish to seek appraisal of
their shares should initiate all necessary action with respect to the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. FAILURE TO FILE THE PETITION ON A TIMELY BASIS WILL
CAUSE THE STOCKHOLDER'S RIGHT TO AN APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from the surviving corporation a statement setting forth the
aggregate number of shares of stock not voted in favor of the Merger with
respect to which demands for appraisal have been received and the number of
holders of those shares. The statement must be mailed within 10 days after the
written request has been received by the Company or within 10 days after
expiration of the time for delivery of demands for appraisal under subsection
(d) of Section 262, whichever is later.
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If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
stock owned by those stockholders, determining the fair value of those shares,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, to be paid,
if any, upon the amount determined to be the fair value. In determining fair
value, the court is to take into account all relevant factors. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. The Delaware Supreme Court has stated that, in making this
determination of fair value, the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
that were known or that could be ascertained as of the date of the merger that
throw any light on future prospects of the merged corporation. The Delaware
Supreme Court also held that "elements of future value, including the nature of
the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered." In addition,
Delaware courts have decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenter's exclusive remedy.
THE FAIR VALUE OF SHARES DETERMINED IN AN APPRAISAL PROCEEDING UNDER
SECTION 262 COULD BE LESS THAN, THE SAME AS, OR MORE THAN, THE VALUE OF THE
CONSIDERATION PROVIDED FOR THE MERGER AGREEMENT.
The cost of the appraisal proceeding may be determined by the Court of
Chancery and assessed against the parties as the Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding (including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts) be
charged pro rata against the value of all shares of stock entitled to
appraisal. In the absence of such a determination or assessment, each party
bears its own expenses.
A stockholder who has demanded appraisal in compliance with Section 262
will not, after the Effective Time, be entitled to receive of dividends or
other distributions on the stock, except for dividends or distributions payable
to stockholders of record at a date prior to the Effective Time.
A stockholder may withdraw a demand for appraisal and accept the surviving
corporation stock at any time within 60 days after the Effective Time. After
that, a stockholder may withdraw a demand only with the written approval of the
Company. If an appraisal proceeding is properly instituted, the proceeding may
not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned on the Court of
Chancery's deeming the terms of a settlement to be just. If, after the
Effective Time, a stockholder who demanded appraisal fails to perfect or loses
the right to appraisal, the stockholder's shares will be treated as if they had
been converted into Common Stock as provided in the Merger Agreement at the
Effective Time.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT A
LEGAL ADVISOR.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Until May 1997, KPMG Peat Marwick LLP ("KPMG") was the principal firm of
accountants for the Company. On May 8, 1997, KPMG was dismissed and Arthur
Andersen LLP ("Arthur Andersen") was engaged as principal firm of accountants.
The change of accountants was recommended by the Audit Committee and approved
unanimously by the Board of Directors on May 1, 1997.
In connection with the audits of the fiscal year ended February 1, 1997,
and the subsequent interim period to May 8, 1997, there were no disagreements
with KPMG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
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The audit reports of KPMG on the consolidated financial statements of the
Company and subsidiaries as of and for the fiscal year ended February 1, 1997
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Arthur Andersen as the Company's independent accountant for the
fiscal year ending January 31, 1999. The stockholders are being asked to
ratify that appointment.
Representatives of Arthur Andersen are expected to be present at the Annual
Meeting, to have the opportunity to make statements, if they desire to do so,
and to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast on this proposal will
constitute ratification of the appointment of Arthur Andersen. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR ADOPTION OF THIS
PROPOSAL.
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PROPOSAL 4
APPROVAL OF THE AMENDED AND RESTATED FAMILY BARGAIN
CORPORATION 1997 STOCK OPTION PLAN
On May 1, 1997, the Stock Option Committee adopted, and the Board of
Directors ratified, The Family Bargain 1997 Stock Option Plan (the "Plan").
The Plan was adopted by the Company's stockholders at the 1997 Annual meeting,
on June 25, 1997. The Plan is designed to provide incentives to attract,
retain and motivate highly competent persons as key employees of the Company
and its subsidiaries by providing them opportunities to acquire shares of
Common Stock and to assist in aligning the interests of the Company's key
employees with those of its stockholders.
During Fiscal 1997, the Company granted options under the Plan entitling
holders to purchase a total of 2,715,617 shares of Common Stock. In order to
enable the Company to continue providing incentives to attract, retain and
motivate highly competent persons as key employees of the Company and its
subsidiaries, the Stock Option Committee and the Board of Directors decided to
amend and restate the Plan and increase the total number of shares of Common
Stock that may be subject to stock options under the Plan. On April 29, 1998
(the "Effective Date"), the Stock Option Committee adopted, and the Board of
Directors ratified, the Amended and Restated Family Bargain 1997 Stock Option
Plan (the "Amended and Restated Plan") thereby increasing the total number of
shares of Common Stock that may be subject to stock options from 3,500,000
shares to 6,000,000 shares. All grants of stock options to officers and other
key employees for the issuance of shares of Common Stock under the Amended and
Restated Plan, beyond the original 3,500,000 shares, are subject to stockholder
approval of the Amended and Restated Plan at the Annual Meeting.
In general, the Amended and Restated Plan provides for the grant of
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
stock options which do not constitute Incentive Stock Options ("Nonqualified
Stock Options" and, together with Incentive Stock Options, "Stock Options") to
key employees, directors, consultants and suppliers of the Company and its
subsidiaries ("participants"). The Amended and Restated Plan is designed to
meet the requirements for tax deductibility under Section 162(m) of the Code
with respect to certain compensation. The following summary of provisions of
the Amended and Restated Plan is qualified by reference to the text of the
Amended and Restated Plan which is attached as Exhibit B.
PLAN ADMINISTRATION
The Amended and Restated Plan will be administered by the Stock Option
Committee of the Board of Directors, which is comprised of non-employee
directors who meet the applicable requirements of "non-employee director" under
Rule 16b-3 of the Rules and Regulations of the SEC and of an "outside director"
under Section 162(m) of the Code. Messrs. Weld and Rashkow currently serve on
the Stock Option Committee.
The Amended and Restated Plan gives the Stock Option Committee sole
discretion to determine the key employees who will receive Stock Options under
the Amended and Restated Plan, the number of shares of Common Stock underlying
each Stock Option, and (consistent with the Amended and Restated Plan) the
terms and conditions to which such Stock Options will be subject from time to
time. Pursuant to the Amended and Restated Plan, the Stock Option Committee
will have the authority to grant to any key employee one or more Incentive
Stock Options, Nonqualified Stock Options, or both types of Stock Options, and
to grant to any other participant one or more Nonqualified Stock Options. The
Stock Option Committee will also be authorized to establish such rules and
regulations as it deems necessary for the proper administration of the Amended
and Restated Plan and to make such determinations and interpretations and to
take such action in connection with the Amended and Restated Plan and any Stock
Options granted thereunder as it deems necessary or advisable. All
determinations and interpretations made by the Stock Option Committee are made
binding and conclusive on all participants and their legal representatives.
31
<PAGE>
SHARES RESERVED FOR ISSUANCE AND LIMITATIONS ON NUMBER OF STOCK OPTIONS TO BE
GRANTED
The aggregate number of shares of Common Stock that may be subject to Stock
Options granted under the Amended and Restated Plan is 6,000,000 shares (which
may be authorized and unissued or treasury shares), and the maximum number of
shares of Common Stock with respect to which Stock Options may be granted to
any individual participant under the Amended and Restated Plan during its term
may not exceed 1,200,000 shares. The Amended and Restated Plan permits
equitable adjustments to those numbers upon a change in the Common Stock
resulting from a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Company. In addition, the aggregate market value (determined as of the
time the Stock Option is granted) of the Common Stock with respect to which
Incentive Stock Options (under all option plans of the Company) are exercisable
for the first time by a participant during any calendar year may not exceed
$100,000. For purposes of the preceding sentence, Incentive Stock Options will
be taken into account in the order in which they are granted. The Amended and
Restated Plan also permits any shares of Common Stock subject to a Stock Option
which for any reason is cancelled, terminated without having been exercised,
forfeited, or delivered to the Company as part of full payment for the exercise
of a Stock Option, to again become available for Stock Options under the
Amended and Restated Plan.
EXERCISE PRICE OF STOCK OPTIONS
The exercise price of each Stock Option granted under the Amended and
Restated Plan will be determined by the Stock Option Committee on the date of
grant, PROVIDED, HOWEVER, that with respect to Incentive Stock Options the
exercise price may not be less than 100% of the Fair Market Value of the Common
Stock on the date such Incentive Stock Option is granted, and PROVIDED,
FURTHER, that the exercise price of any Incentive Stock Options granted to any
participant who, at the time of grant, owns stock possessing (after the
application of the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting power of all outstanding classes of stock of
the Company or any of its subsidiaries, may not be less than 110% of the Fair
Market Value of the Common Stock on the date of grant.
The Amended and Restated Plan defines "Fair Market Value" as (i) the
closing price of the Common Stock on the date of calculation (or on the last
preceding trading date if Common Stock was not traded on such date) if the
Common Stock is readily tradeable on a national securities exchange or other
market system or (ii) if the Common Stock is not readily tradeable, the amount
determined in good faith by the Stock Option Committee as the fair market value
of the Common Stock.
The Stock Option exercise price may be paid in cash or, in the discretion
of the Stock Option Committee, by the delivery of shares of Common Stock then
owned by the participant, by the withholding of shares of Common Stock for
which a Stock Option is exercisable, or by a combination of these methods. In
the discretion of the Stock Option Committee, payment may also be made by
delivering a properly executed exercise notice to the Company together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price. The Stock
Option Committee may also prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purpose
of the Amended and Restated Plan.
EXERCISE PERIOD
The exercise period of Stock Options granted under the Amended and Restated
Plan will be determined by the Stock Option Committee, PROVIDED, HOWEVER, that
no Stock Option may be exercisable later than 10 years after it is granted and
PROVIDED, FURTHER, that no Incentive Stock Options granted to any participant
who, at the time of the grant, owns stock possessing (after the application of
the attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting power of all outstanding classes of stock of the Company or any
of its subsidiaries, may be exercisable later than 5 years after it is granted.
TRANSFERABILITY OF STOCK OPTION
Each Stock Option granted under the Amended and Restated Plan to a
participant will be exercisable, during the participant's lifetime, only by the
participant, and no such Stock Option will be transferable other than by will
or the laws of descent and distribution.
32
<PAGE>
CHANGE OF CONTROL OF THE COMPANY
In the event of a change of control of the Company, all then outstanding
Stock Options will immediately become exercisable. A change of control occurs
if: (i) any person or group within the meaning of Section 13(d)(3) of the
Exchange Act (other than the persons who do so on the Effective Date) shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) more
than 50% of the total voting power of all classes of capital stock of the
Company entitled to vote generally in the election of directors of the Company;
(ii) the Company consolidates with, merges into, or sells, leases or conveys
all or substantially all of its assets to, any other person; or (iii) the
Company enters into or approves any agreement, transaction or proposal that
would result in the occurrence of any event described in clauses (i) or (ii)
(including without limitation any agreement, transaction or proposal that would
have such result with the passage of time, upon the payment of money or other
consideration, or upon the occurrence of any contingency or contingencies).
The Amended and Restated Plan grants discretion to the Stock Option
Committee to terminate, upon the occurrence of a change of control, each Stock
Option then outstanding within a specified number of days after notice is given
to the holder thereof. Such holder will receive, with respect to each share of
Common Stock subject to such Stock Option, an amount equal to the excess of the
Fair Market Value of such share of Common Stock immediately prior to the
occurrence of such Change in Control over the exercise price per share of such
Stock Option; such amount is payable in cash, in one or more kinds of property
(including the property, if any, payable in the transaction) or in a
combination thereof, as the Stock Option Committee, in its discretion, may
determine.
PLAN AMENDMENT
The Board may amend the Amended and Restated Plan from time to time or
suspend or terminate the Amended and Restated Plan at any time but may not
reduce the amount of any existing Stock Option or change the terms and
conditions thereof without the participant's consent. In addition, no
amendment of the Amended and Restated Plan may, without approval of the
stockholders of the Company, (i) increase the total number of shares which may
be issued under the Amended and Restated Plan, (ii) increase the maximum number
of shares underlying all Stock Options that may be granted to any individual
participant during the term of the Amended and Restated Plan, (iii) modify the
requirements as to eligibility for Stock Options grants under the Amended and
Restated Plan, or (iv) disqualify any Incentive Stock Options granted
thereunder.
PLAN TERMINATION
No Stock Option may be granted more than 10 years after the Effective Date.
Unless sooner terminated by the Board, the Amended and Restated Plan will
terminate on the tenth anniversary of the Effective Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The statements in the following paragraphs of the principal federal income
tax consequences of Stock Options under the Amended and Restated Plan are based
on statutory authority and judicial and administrative interpretations, as of
the date of this Proxy Statement, which are subject to change at any time
(possibly with retroactive effect). The law is technical and complex and the
discussion below represents only a general summary.
INCENTIVE STOCK OPTIONS. Incentive Stock Options granted under the Amended
and Restated Plan are intended to meet the definitional requirements of Section
422(b) of the Code for "incentive stock options."
An employee who receives an Incentive Stock Option does not recognize any
taxable income upon the grant of such Incentive Stock Option. Similarly, the
exercise of an Incentive Stock Option generally does not give rise to federal
income tax to the employee, PROVIDED that (i) the federal "alternative minimum
tax", which depends on the employee's particular tax situation, does not apply
and (ii) the employee is employed by the Company from the date of grant of the
option until 3 months prior to the exercise thereof, except where such
employment terminates by reason of disability (where the 3 month period is
extended to 1 year) or death (where this requirement does not apply). If an
employee exercises an Incentive Stock Option after these requisite periods, the
Incentive Stock Option will be treated as a Nonqualified Stock Option (as
defined below) and will be subject to the rules set forth below under the
caption "Nonqualified Stock Options."
33
<PAGE>
Further, if after exercising an Incentive Stock Option, an employee
disposes of the Common Stock so acquired more than two years from the date of
grant and more than one year from the date of transfer of the Common Stock
pursuant to the exercise of such Incentive Stock Option (the "applicable
holding period"), the employee will normally recognize capital gain or loss
equal to the difference, if any, between the amount received for the shares and
the exercise price. If, however, an employee does not hold the shares so
acquired for the applicable holding period - thereby making a "disqualifying
disposition" - the employee would realize ordinary income on the excess of the
fair market value of the shares at the time the Incentive Stock Option was
exercised (or, under certain circumstances, the selling price, if lower) over
the exercise price and the balance, if any, would be capital gain (provided the
employee held such shares as a capital asset at such time).
An employee who exercises an Incentive Stock Option by delivering Common
Stock previously acquired pursuant to the exercise of another Incentive Stock
Option is treated as making a "disqualifying disposition" of such Common Stock
if such shares are delivered before the expiration of their applicable holding
period. Upon the exercise of an Incentive Stock Option with previously
acquired shares as to which no disqualifying disposition occurs, despite some
uncertainty, it appears that the employee would not recognize gain or loss with
respect to such previously acquired shares.
The Company will not be allowed a federal income tax deduction upon the
grant or exercise of an Incentive Stock Option or the disposition, after the
applicable holding period, of the Common Stock acquired upon exercise of an
Incentive Stock Option. In the event of a disqualifying disposition, the
Company generally will be entitled to a deduction in an amount equal to the
ordinary income included by the employee, PROVIDED that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable and
the limitations of Section 162(m) of the Code (discussed below under "Certain
Limitations on Deductibility of Executive Compensation") do not apply.
NONQUALIFIED OPTIONS. Nonqualified Stock Options granted under the Amended
and Restated Plan are options that do not qualify as Incentive Stock Options.
An employee who receives a Nonqualified Stock Option will not recognize any
taxable income upon the grant of such Nonqualified Stock Option. However, the
employee generally will recognize ordinary income upon exercise of a
Nonqualified Stock Option in an amount equal to the excess of (i) the fair
market value of the shares of Common Stock at the time of exercise over (ii)
the exercise price.
An employee should consult his or her tax advisor as to whether, as a
result of Section 16(b) of the Exchange Act, the timing of income recognition
is deferred following the exercise of a Nonqualified Stock Option (I.E., the
"Deferral Period"). If there is a Deferral Period, absent a written election
(pursuant to Section 83(b) of the Code) filed with the Internal Revenue Service
to include in income, as of the date of transfer, the excess (on such date) of
the fair market value of such shares over their exercise price, recognition of
income by the individual will be deferred until the expiration of the Deferral
Period.
The ordinary income recognized with respect to the receipt of shares or
cash upon exercise of a Nonqualified Stock Option will be subject to both wage
withholding and employment taxes. In addition to the customary methods of
satisfying the withholding tax liabilities that arise upon the exercise of a
Nonqualified Stock Option, the Company may satisfy the liability in whole or in
part by withholding shares of Common Stock from those that otherwise would be
issuable to the individual or by the employee tendering other shares owned by
him or her, valued at their fair market value as of the date that the tax
withholding obligation arises.
A federal income tax deduction generally will be allowed to the Company in
an amount equal to the ordinary income included by the individual with respect
to his or her Nonqualified Stock Option, PROVIDED that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable and
the limitations of Section 162(m) of the Code do not apply.
If an individual exercises a Nonqualified Stock Option by delivering shares
of Common Stock to the Company, other than shares previously acquired pursuant
to the exercise of an Incentive Stock Option which is treated as a
"disqualifying disposition" as described above, the individual will not
recognize gain or loss with respect to the exchange of such shares, even if
their then fair market value is different from the individual's tax basis. The
individual, however, will be taxed as described above with respect to the
exercise of the Nonqualified Stock Option as if he or she had paid the exercise
price in cash, and the Company likewise generally will be entitled to an
equivalent tax deduction.
34
<PAGE>
CHANGE IN CONTROL. As described above, upon a "change in control" of the
Company, all the then outstanding Stock Options will immediately become
exercisable. In general, if the total amount of payments to an individual that
are contingent upon a "change of control" of the Company as defined in Section
280G of the Code), including payments under the Amended and Restated Plan that
vest upon a "change in control," equals or exceeds three times the individual's
"base amount" (generally, such individual's average annual compensation for the
five complete years preceding the change in control), then, subject to certain
exceptions, the payments may be treated as "parachute payments" under the Code,
in which case a portion of such payments would be nondeductible to the Company
and the individual would be subject to a 20% excise tax on such portion of the
payments.
CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION. With
certain exceptions, Section 162(m) of the Code denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year (including any deduction with
respect to the exercise of a Nonqualified Stock Option or the disqualifying
disposition of stock purchased pursuant to an Incentive Stock Option). One
such exception applies to certain performance-based compensation provided that
such compensation has been approved by stockholders in a separate vote and
certain other requirements are met. The Company intends that Stock Options
granted under the Amended and Restated Plan will qualify for the performance-
based compensation exception to Section 162(m).
APPROVAL
As of the date hereof, no Stock Options were granted with respect to shares
of Common Stock beyond the 3,500,000 shares previously approved in the Plan at
the 1997 Annual Meeting.
Approval of the Amended and Restated Plan requires the affirmative vote of
a majority of the outstanding shares of stock eligible to vote at the Annual
Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
VOTE FOR ADOPTION OF THIS PROPOSAL.
OTHER MATTERS
Neither the Board of Directors nor management intends to bring before the
meeting any business other than the matters referred to in the Notice of
Meeting and this Proxy Statement. If any other business should properly come
before the meeting, or any adjournment thereof, the persons named in the proxy
will vote on such matters according to their best judgment.
35
<PAGE>
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
DATED
JUNE 18, 1998
BETWEEN
GENERAL TEXTILES, INC.
AND
FAMILY BARGAIN CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
MERGER OF FBC AND GT
1.1 THE MERGER ........................................................ A-1
ARTICLE II
TERMS AND CONDITIONS OF THE MERGER
2.1 CERTIFICATE OF INCORPORATION ...................................... A-1
2.2 BY-LAWS ........................................................... A-1
2.3 DIRECTORS ......................................................... A-1
2.4 OFFICERS .......................................................... A-1
2.5 STOCK OF FBC ...................................................... A-1
2.6 STOCK OF GT ....................................................... A-2
2.7 EXCHANGE OF CERTIFICATES .......................................... A-2
2.8 DISSENTING SHARES ................................................. A-2
ARTICLE III
EFFECTIVE TIME
3.1 DATE OF THE MERGER ................................................ A-2
3.2 EXECUTION OF CERTIFICATE OF MERGER ................................ A-2
3.3 EFFECTIVE TIME OF THE MERGER ...................................... A-2
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF GT .............................. A-2
4.2 REPRESENTATIONS AND WARRANTIES OF FBC ............................. A-3
ARTICLE V
ACTIONS PRIOR TO THE MERGER
5.1 FBC'S EFFORTS TO FULFILL CONDITIONS ............................... A-3
5.2 SURVIVING EFFORTS TO FULFILL CONDITIONS ........................... A-4
ARTICLE VI
CONDITIONS PRECEDENT TO MERGER
6.1 CONDITIONS TO GT'S OBLIGATIONS .................................... A-4
6.2 CONDITIONS TO FBC'S OBLIGATIONS ................................... A-4
ARTICLE VII
TERMINATION
<PAGE>
7.1 RIGHT TO TERMINATE ................................................ A-5
7.2 EFFECT OF TERMINATION ............................................. A-5
ARTICLE VIII
FURTHER BROKERS
8.1 REPRESENTATIONS AND WARRANTIES REGARDING BROKERS AND OTHERS ....... A-5
ARTICLE IX
GENERAL
9.1 EXPENSES ......................................................... A-5
9.2 PLAN OF REORGANIZATION ........................................... A-5
9.3 ENTIRE AGREEMENT ................................................. A-5
9.4 EFFECT OF DISCLOSURES ............................................ A-5
9.5 CAPTIONS ......................................................... A-6
9.6 PROHIBITION AGAINST ASSIGNMENT ................................... A-6
9.7 BENEFIT OF AGREEMENT ............................................. A-6
9.8 NOTICES AND OTHER COMMUNICATIONS ................................. A-6
9.9 GOVERNING LAW .................................................... A-6
9.10 AMENDMENTS ....................................................... A-6
9.11 COUNTERPARTS ..................................................... A-7
<PAGE>
PLAN AND AGREEMENT OF MERGER
This is a Plan and Agreement of Merger dated as of June 18, 1998
between GENERAL TEXTILES, INC. ("GT"), a Delaware corporation, and FAMILY
BARGAIN CORPORATION ("FBC"), a Delaware corporation.
ARTICLE I
MERGER OF FBC AND GT
1.1 THE MERGER. At the Effective Time described in Article III, GT
will be merged into FBC (the "Merger"), which will be the surviving corporation
of the Merger (the "Surviving Corporation"). Except as specifically provided
in this Agreement, the real and personal property, other assets, rights,
privileges, immunities, powers, purposes and franchises of FBC will continue
unaffected and unimpaired by the Merger. When the Merger becomes effective,
the separate existence of GT will terminate, and its real and personal
property, other assets, rights, privileges, immunities, powers, purposes and
franchises will be merged into the Surviving Corporation.
ARTICLE II
TERMS AND CONDITIONS OF THE MERGER
The terms and conditions of the Merger will be as follows:
2.1 CERTIFICATE OF INCORPORATION. From the Effective Time until
subsequently amended, the Certificate of Incorporation of the Surviving
Corporation will be in the form of Exhibit 2.1, and that Certificate of
Incorporation, separate and apart from this Agreement, may be certified as the
Certificate of Incorporation of the Surviving Corporation.
2.2 BY-LAWS. At the Effective Time, the By-Laws of FBC in effect at
the Effective Time will be the By-Laws of the Surviving Corporation, until they
are altered, amended or repealed.
2.3 DIRECTORS. The persons who are the directors of FBC immediately
before the Effective Time will be the directors of the Surviving Corporation
after the Effective Time and will hold office in accordance with the By-Laws of
the Surviving Corporation.
2.4 OFFICERS. The persons who are the officers of FBC immediately
before the Effective Time will be the officers of the Surviving Corporation
after the Effective Time and will hold office at the pleasure of the Board of
Directors of the Surviving Corporation.
2.5 STOCK OF FBC. (a) Each share of common stock, par value $.01 per
share, of FBC ("FBC Common Stock") which is outstanding immediately prior to
the Effective Time will be converted into and become 0.30133 shares of common
stock, par value $.0375 per share, of the Surviving Corporation ("Common
Stock"), (b) each share of Series A 9-1/2% Cumulative Convertible Preferred
Stock, par value $.01 per share ("Series A Preferred") of FBC which is
outstanding immediately prior to the Effective Time will be converted into and
become one share of Common Stock, and (c) each share of Series B Junior
Convertible Exchangeable Preferred Stock, par value $.01 per share ("Series B
Preferred") of FBC which is outstanding immediately prior to the Effective Time
will be converted into and become 173.33 shares of Common Stock. Any record or
beneficial owner of FBC Common Stock, Series A Preferred or Series B Preferred
who would be entitled to receive a fraction of a share of Common Stock will
receive cash in lieu of the fraction of a share at the rate of $13.00 per full
share of Common Stock. At the Effective Time, all the FBC Common Stock, Series
A Preferred and Series B Preferred outstanding immediately before the Merger
will automatically be canceled and after the Effective Time a certificate which
represented FBC Common Stock, Series A Preferred or Series B Preferred prior to
the Effective Time will automatically become and be a certificate representing
the number of shares of Common Stock into which the FBC Common Stock, Series A
Preferred or Series B Preferred represented by the certificate was converted.
<PAGE>
2.6 STOCK OF GT. At the Effective Time, each share of common stock of
GT which is outstanding at the Effective Time will be cancelled.
2.7 EXCHANGE OF CERTIFICATES. At any time after the Effective Time,
any holder of a certificate which had represented FBC Common Stock, Series A
Preferred or Series B Preferred prior to the Effective Time may submit that
certificate to FBC or its agent, accompanied by such document of transmittal as
FBC may reasonably require, and receive a new certificate representing the
number of shares of Common Stock into which the number of shares of FBC Common
Stock, Series A Preferred or Series B Preferred represented by the submitted
certificate were converted, as well as any cash in lieu of a fractional share
to which the holder of that certificate is entitled to under Paragraph 2.5.
2.8 DISSENTING SHARES. Notwithstanding what is stated in Paragraphs
2.5 and 2.7, if a holder of FBC Common Stock, Series A Preferred and Series B
Preferred perfects the right to an appraisal of the fair value of the holder's
shares in accordance with Section 262 of the Delaware General Corporation Law
("DGCL"), unless and until the holder withdraws the demand for appraisal or
otherwise loses the right to an appraisal of the fair value of the shares, the
shares as to which the right to appraisal was perfected will not be converted
into and become shares of Common Stock, but instead will represent only the
right to receive the fair value of the shares as provided in Section 262 of the
DGCL.
ARTICLE III
EFFECTIVE TIME
3.1 DATE OF THE MERGER. The day on which the Merger is to take place
(the "Merger Date") will be the later of (i) the day on which the Merger is
approved by the shareholders of FBC or (ii) the third business day after the
day on which all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1974 (the "HSR Act"), if any, expire or are terminated.
The Merger Date may be changed by GT and FBC. For the purposes of this
Paragraph, a "business day" is a day on which certificates of merger may be
filed with the Secretary of State of Delaware.
3.2 EXECUTION OF CERTIFICATE OF MERGER. Not later than 3:00 P.M. on
the day before the Merger Date, FBC and GT will each execute a certificate of
merger (the "Certificate of Merger") substantially in the form of Exhibit 3.2-A
and deliver it to Rogers & Wells LLP for filing with the Secretary of State of
Delaware. Rogers & Wells LLP will be instructed that, if it is notified on the
Merger Date that all the conditions in Article VI have been fulfilled or
waived, it is to cause the Certificate of Merger to be filed with the Secretary
of State of Delaware on the Merger Date or as soon after that date as is
practicable.
3.3 EFFECTIVE TIME OF THE MERGER. The Merger will become effective
at 11:59 P.M. on the day when the Certificate of Merger is filed with Secretary
of State of Delaware (that being the "Effective Time").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF GT. GT represents and warrants
to FBC as follows:
(a) GT is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) GT has all corporate power and authority necessary to enable
it to enter into this Agreement and carry out the transactions contemplated by
this Agreement. All corporate actions necessary to authorize FBC to enter into
this Agreement and carry out the transactions contemplated by it have been
taken. This Agreement has been duly executed by GT and is a valid and binding
agreement of GT, enforceable against GT in accordance with its terms.
(c) If the consents described on Exhibit 4.1-C are obtained,
neither the execution or delivery of this Agreement or of any document to be
delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be delivered
in accordance with this Agreement will violate, result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or both
would constitute a default) under, the Certificate of Incorporation or by-laws
<PAGE>
of GT, any agreement or instrument to which GT or any subsidiary of GT is a
party or by which any of them is bound, any law, or any order, rule or
regulation of any court or governmental agency or other regulatory organization
having jurisdiction over FBC or any of its subsidiaries.
(d) The only authorized stock GT is 1,000 shares of common stock,
par value $.01 per share. The only outstanding stock of GT is 100 shares of
common stock. Except as shown on Exhibit 4.1-D, GT has not issued any options,
warrants or convertible or exchangeable securities, and is not a party to any
other agreements, which require, or upon the passage of time, the payment of
money or the occurrence of any other event may require, GT to sell or issue any
of its stock.
(e) Except as shown on Exhibit 4.1-E, no governmental filings,
authorizations, approvals, or consents, or other governmental action, other
than the termination or expiration of waiting periods under the HSR Act, if
any, are required to permit GT to fulfill all its obligations under this
Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF FBC. FBC represents and
warrants to GT as follows:
(a) FBC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) FBC has all corporate power and authority necessary to enable
it to enter into this Agreement and carry out the transactions contemplated by
this Agreement. All corporate actions necessary to authorize FBC to enter into
this Agreement and carry out the transactions contemplated by it, other than
approval of the Merger by the stockholders of FBC, have been taken. This
Agreement has been duly executed by FBC and is a valid and binding agreement of
FBC, enforceable against FBC in accordance with its terms.
(c) If the consents described on Exhibit 4.2-C are obtained,
neither the execution and delivery of this Agreement or of any document to be
delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be delivered
in accordance with this Agreement will violate, result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, the Certificate of Incorporation or by-laws
of FBC, any agreement or instrument to which FBC or any subsidiary of FBC is a
party or by which any of them is bound, any law, or any order, rule or
regulation of any court or governmental agency or other regulatory organization
having jurisdiction over FBC or any of its subsidiaries.
(d) The only authorized stock of FBC is 80,000,000 shares of FBC
Common Stock and 7,500,000 shares of preferred stock, par value $.01 per share,
of which 4,500,000 shares are designated as Series A Preferred and 40,000
shares are designated as Services B Preferred. The only outstanding stock of
GT is 5,004,122 shares of FBC Common Stock, 3,638,690 shares of Series A
Preferred and 35,360 shares of Series B Preferred. Except as shown on Exhibit
4.2-D, FBC has not issued any options, warrants or convertible or exchangeable
securities, and is not a party to any other agreements, which require, or upon
the passage of time, the payment of money or the occurrence of any other event
may require, FBC to sell or issue any of its stock.
(e) Except as shown on Exhibit 4.2-E, no governmental filings,
authorizations, approvals, or consents, or other governmental action, other
than (i) the termination or expiration of waiting periods under the HSR Act, if
any, and (ii) the filing of proxy materials relating to the Merger with the
Securities and Exchange Commission, are required to permit FBC to fulfill all
its obligations under this Agreement.
ARTICLE V
ACTIONS PRIOR TO THE MERGER
5.1 FBC'S EFFORTS TO FULFILL CONDITIONS. FBC will use its best
efforts to cause all the conditions set forth in Paragraph 6.1 to be fulfilled
prior to or at the Closing and will not take, or permit any of its subsidiaries
to take, any action, which could reasonably be expected to make fulfillment of
any of those conditions more difficult.
<PAGE>
5.2 SURVIVING EFFORTS TO FULFILL CONDITIONS. GT will use its best
efforts to cause all the conditions contained in Paragraph 6.2 to be fulfilled
prior to or at the Closing and will not take, or permit any of its subsidiaries
to take, any action, which could reasonably be expected to make fulfillment of
any of those conditions more difficult.
ARTICLE VI
CONDITIONS PRECEDENT TO MERGER
6.1 CONDITIONS TO GT'S OBLIGATIONS. The obligations of GT to complete
the Merger are subject to satisfaction of the following conditions (any or all
of which may be waived by GT):
(a) The representations and warranties of FBC contained in this
Agreement will, except as contemplated by this Agreement, be true and correct
in all material respects on the Merger Date with the same effect as though made
on that date, and FBC will have delivered to GT a certificate dated that date
and signed by the President or a Vice President of FBC to that effect.
(b) FBC will have fulfilled in all material respects all its
obligations under this Agreement required to have been fulfilled prior to or on
the Merger Date.
(c) No order will have been entered by any court or governmental
authority and be in force which invalidates this Agreement or restrains GT from
completing the transactions which are the subject of this Agreement. Surviving
Corporation and its subsidiaries taken as a whole.
(d) The consents described on Exhibit 4.1-C will have been
obtained.
(e) The Merger will have been approved by the holders of a
majority in voting power of the of the outstanding shares of FBC Common Stock
and Series B Preferred voting as a single class, and by the holders of a
majority of the outstanding shares of Series A Preferred.
(f) Demands for appraisal under Section 262 of the Delaware
General Corporation Law are received from holders of more than 72,000 shares of
Common Stock, 19,000 shares of Series A Preferred or 110 shares of series B
Preferred.
(g) The Effective Time will occur on or before December 31, 1998.
6.2 CONDITIONS TO FBC'S OBLIGATIONS. The obligations of FBC to
complete the Merger are subject to the following conditions (any or all of
which may be waived by FBC):
(a) The representations and warranties of GT contained in this
Agreement will, except as contemplated by this Agreement, be true and correct
in all material respects on the Merger Date with the same effect as though made
on that date, and GT will have delivered to FBC a certificate dated that date
and signed by the President or a Vice President of GT to that effect.
(b) GT will have fulfilled in all material respects all its
obligations under this Agreement required to have been fulfilled prior to or on
the Merger Date.
(c) No order will have been entered by any court or governmental
authority and be in force which invalidates this Agreement or restrains FBC
from completing the transactions which are the subject of this Agreement and no
action will be pending against GT or FBC relating to the transactions which are
the subject of this Agreement which presents a reasonable likelihood of
resulting in an award of damages against the Surviving Corporation which would
be material to the Surviving Corporation and its subsidiaries taken as a whole.
(d) The consents described on Exhibit 4.2-C will have been
obtained.
<PAGE>
(e) The Merger will have been approved by the holders of a
majority in voting power of the outstanding shares of FBC Common Stock and
Series B Preferred, voting as a single class, and by the holders of a majority
of the outstanding shares of Series A Preferred.
(f) The Effective Time will occur on or before December 31, 1998.
ARTICLE VII
TERMINATION
7.1 RIGHT TO TERMINATE. This Agreement may be terminated at any time
prior to the Effective Time (whether or not the stockholders of one or both of
GT and FBC have approved the Merger):
(a) By mutual consent of GT and FBC.
(b) By either GT or FBC if, without fault of the terminating
party, the Effective Time is not on or before December 31, 1998.
(c) By GT if (i) it is determined that any of the representations
or warranties of FBC contained in this Agreement was not complete and accurate
in all material respects on the date of this Agreement or (ii) any of the
conditions in Paragraph 6.1 is not satisfied or waived by GT prior to or on the
Merger Date.
(d) By FBC if (i) it is determined that any of the
representations or warranties of GT contained in this Agreement was not
complete and accurate in all material respects on the date of this Agreement or
(ii) any of the conditions in Paragraph 6.2 is not satisfied or waived by FBC
prior to or on the Merger Date.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Paragraph 7.1, after this Agreement is terminated, neither party will have
any further rights or obligations under this Agreement. Nothing contained in
this Paragraph will, however, relieve either party of liability for any breach
of this Agreement which occurs before this Agreement is terminated.
ARTICLE VIII
FURTHER BROKERS
8.1 REPRESENTATIONS AND WARRANTIES REGARDING BROKERS AND OTHERS. GT
and FBC each represents and warrants to the other of them that nobody acted as
a broker, a finder or in any similar capacity in connection with the
transactions which are the subject of this Agreement.
ARTICLE IX
GENERAL
9.1 EXPENSES. GT and FBC will each pay its own expenses in connection
with the transactions which are the subject of this Agreement, including legal
fees, to the extent those expenses are payable before the Effective Time, if
any. If the Merger takes place, the Surviving Corporation will pay all the
expenses in connection with the transactions which are the subject of this
Agreement, including legal fees, to the extent expenses are not paid by the
Effective Time.
9.2 PLAN OF REORGANIZATION. This Agreement is intended to be a plan
of liquidation for the purposes of Section 332 plan of liquidation and
recapitalization for the purposes of Sections 332 and 368(A)(E) of the Internal
Revenue Code of 1986, as amended.
9.3 ENTIRE AGREEMENT. This Agreement and the documents to be
delivered in accordance with this Agreement contain the entire agreement
between GT and FBC relating to the transactions which are the subject of this
Agreement and those other documents, all prior negotiations, understandings and
agreements between GT and FBC are superseded by this Agreement and those other
<PAGE>
documents, and there are no representations, warranties, understandings or
agreements concerning the transactions which are the subject of this Agreement
or those other documents other than those expressly set forth in this Agreement
or those other documents.
9.4 EFFECT OF DISCLOSURES. Any information disclosed by a party in
connection with any representation or warranty contained in this Agreement
(including exhibits to this Agreement) will be treated as having been disclosed
in connection with each representation and warranty made by that party in this
Agreement.
9.5 CAPTIONS. The captions of the articles and paragraphs of this
Agreement are for reference only, and do not affect the meaning or
interpretation of this Agreement.
9.6 PROHIBITION AGAINST ASSIGNMENT. Neither this Agreement nor any
right of any party under it may be assigned.
9.7 BENEFIT OF AGREEMENT. This Agreement is solely for the benefit of
FBC and GT, and may not be enforced, or be the basis for recovery of damages
by, anyone other than FBC and GT.
9.8 NOTICES AND OTHER COMMUNICATIONS. Any notice or other
communication under this Agreement must be in writing and will be deemed given
when delivered in person or sent by facsimile (with proof of receipt at the
number to which it is required to be sent), or on the third business day after
the day on which mailed by first class mail from within the United States of
America, to the following addresses (or such other address as may be specified
after the date of this Agreement by the party to which the notice or
communication is sent):
If to FBC:
Family Bargain Corporation
4000 Ruffin Road
San Diego, California 92123-1866
Attention: Michael Searles
Facsimile: (617) 637-4180
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: David W. Bernstein or
Bonnie A. Barsamian
Facsimile No.: 212-878-8375
If to GT:
General Textiles
4000 Ruffin Road
San Diego, California 92123-1866
Attention: Michael Searles
Facsimile: (617) 637-4180
<PAGE>
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: David W. Bernstein or
Bonnie A. Barsamian
Facsimile No.: 212-878-8375
9.9 GOVERNING LAW. This Agreement will be governed by, and construed
under, the substantive laws of the State of Delaware.
9.10 AMENDMENTS. This Agreement may be amended only by a document in
writing signed by both GT and FBC.
9.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, some of which may be executed by fewer than all the parties.
Each of these counterparts will be deemed an original, but all of them together
will constitute one and the same agreement.
IN WITNESS WHEREOF, GT and FBC have executed this Agreement, intending
to be legally bound by it, on the day shown on the first page of this
Agreement.
GENERAL TEXTILES, INC.
By: -------------------------------
Title:
FAMILY BARGAIN CORPORATION
By: -------------------------------
Title:
<PAGE>
EXHIBIT B
THE AMENDED AND RESTATED
FAMILY BARGAIN CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE.
This Amended and Restated Family Bargain Corporation 1997 Stock Option Plan
(the "Plan") is intended to provide incentives which will attract, retain and
motivate highly competent persons as key employees of Family Bargain
Corporation (the "Company") and of any subsidiary now existing or hereafter
formed or acquired, by providing them opportunities to acquire shares of the
common stock, par value $0.01 per share, of the Company ("Common Stock").
Furthermore, the Plan is intended to assist in aligning the interests of the
Company's key employees with those of its stockholders.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") from among
its members. The Committee shall be comprised of not less than two
members. Each member of the Committee shall at all times be (i) a "Non-
Employee Director" within the meaning of Rule 16b-3(b)(3) (or any successor
rule) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and (ii) an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder. Subject to the
provisions of the Plan, the Committee is authorized to establish such rules
and regulations as it deems necessary for the proper administration of the
Plan and to make such determinations and interpretations and to take such
action in connection with the Plan and any Stock Options (as described in
Section 5 below) granted hereunder as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be binding
and conclusive on all participants and their legal representatives. No
member of the Board, no member of the Committee and no employee of the
Company shall be liable for any act or failure to act hereunder, except in
circumstances involving his or her bad faith, gross negligence or willful
misconduct, or for any act or failure to act hereunder by any other member
or employee or by any agent to whom duties in connection with the
administration of this Plan have been delegated. The Company shall
indemnify members of the Committee and any agent of the Committee who is an
employee of the Company, against any and all liabilities or expenses to
which they may be subjected by reason of any act or failure to act with
respect to their duties on behalf of the Plan, except in circumstances
involving such person's bad faith, gross negligence or willful misconduct.
(b) The Committee may delegate to one or more of its members, or to
one or more agents, such administrative duties as it may deem advisable,
and the Committee, or any person to whom it has delegated duties as
aforesaid, may employ one or more persons to render advice with respect to
any responsibility the Committee or such person may have under the Plan.
The Committee may employ such legal or other counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may
rely upon any opinion or computation received from any such counsel,
consultant or agent. Expenses incurred by the Committee in the engagement
of such counsel, consultant or agent shall be paid by the Company, or the
subsidiary or affiliate whose employees have benefitted from the Plan, as
determined by the Committee.
3. PARTICIPANTS.
Participants shall consist of such key employees, directors, consultants
and suppliers of the Company and any of its subsidiaries, as the Committee in
its sole discretion determines to be significantly responsible for the success
and future growth and profitability of the Company and whom the Committee may
designate from time to time to receive Stock Options under the Plan.
Designation of a participant in any year shall not require the Committee to
designate such person to receive a Stock Option in any other year or, once
designated, to receive the same type or amount of Stock Option as granted to
the participant in any other year. The Committee shall consider such factors
as it deems pertinent in selecting participants and in determining the type and
amount of their respective Stock Options.
<PAGE>
4. COMMON STOCK AVAILABLE UNDER THE PLAN.
The aggregate number of shares of Common Stock that may be subject to Stock
Options granted under this Plan shall be 6,000,000 shares of Common Stock,
which may be authorized and unissued or treasury shares, subject to any
adjustments made in accordance with Section 6 hereof. The maximum number of
shares of Common Stock with respect to which Stock Options may be granted to
any individual participant under the Plan during the term of the Plan shall not
exceed 1,200,000 shares, subject to any adjustments made in accordance with
Section 6 hereof. Any shares of Common Stock subject to a Stock Option which
for any reason is cancelled, terminated without having been exercised,
forfeited, or delivered to the Company as pan of full payment for the exercise
of a Stock Option shall again be available for Stock Options under the Plan.
The preceding sentence shall apply only for purposes of determining the
aggregate number of shares of Common Stock subject to Stock Options and shall
not apply for purposes of determining the maximum number of shares of Common
Stock subject to Stock Options that any individual participant may receive.
5. STOCK OPTIONS.
(a) IN GENERAL. The Committee is authorized to grant Stock Options to
key employees, directors, consultants and suppliers of the Company and any
of its subsidiaries, and shall, in its sole discretion, determine the key
employees, directors, consultants and suppliers who will receive Stock
Options and the number of shares of Common Stock underlying each Stock
Option. Stock Options may be (i) "incentive stock options" ("Incentive
Stock Options"), within the meaning of Section 422 of the Code, or (ii)
Stock Options which do not constitute Incentive Stock Options
("Nonqualified Stock Options"). The Committee shall have the authority to
grant to any key employee one or more Incentive Stock Options, Nonqualified
Stock Options, or both types of Stock Options, and to grant to any other
participant one or more Nonqualified Stock Options. Each Stock Option
shall be subject to such terms and conditions consistent with the Plan as
the Committee may impose from time to time. In addition, each Stock Option
shall be subject to the following limitations set forth in this Section 5.
(b) STOCK OPTION AGREEMENTS. Stock Options shall be evidenced by
agreements (which need not be identical) in such forms as the Committee may
from time to time approve; PROVIDED, HOWEVER, that in the event of any
conflict between the provisions of the Plan and any such agreements, the
provisions of the Plan shall prevail.
(c) EXERCISE PRICE. Subject to the provisions of Section 5(f) hereof,
each Stock Option granted hereunder shall have such exercise price as the
Committee may determine at the date of grant; PROVIDED, HOWEVER, that the
exercise price of any Incentive Stock Option shall not be less than 100
percent of the Fair Market Value (as defined in Section 9 below) of the
Common Stock on the date such Incentive Stock Option is granted.
(d) PAYMENT OF EXERCISE PRICE. The Stock Option exercise price may be
paid in cash or, in the discretion of the Committee, by the delivery of
shares of Common Stock then owned by the participant, by the withholding of
shares of Common Stock for which a Stock Option is exercisable, or by a
combination of these methods. In the discretion of the Committee, payment
may also be made by delivering a properly executed exercise notice to the
Company together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay
the exercise price. To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage
firms. The Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the
purpose of the Plan, including, without limitation, in lieu of the exercise
of a Stock Option by delivery of shares of Common Stock then owned by a
participant, providing the Company with a notarized statement attesting to
the number of shares owned, where upon verification by the Company, the
Company would issue to the participant only the number of incremental
shares to which the participant is entitled upon exercise of the Stock
Option. In determining which methods a participant may utilize to pay the
exercise price, the Committee may consider such factors as it determines
are appropriate; PROVIDED, HOWEVER, that with respect to Incentive Stock
Options, all such discretionary determinations by the Committee shall be
made at the time of grant and specified in the Stock Option agreement.
(e) EXERCISE PERIOD. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee; PROVIDED, HOWEVER, that no Stock
<PAGE>
Option shall be exercisable later than 10 years after the date it is
granted. All Stock Options shall terminate at such earlier times and upon
such conditions or circumstances as the Committee shall in its discretion
set forth in such Stock Option agreement at the date of grant.
(f) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options
may be granted only to participants who are key employees of the Company or
any of its subsidiaries at the date of grant. The aggregate market value
(determined as of the time the Stock Option is granted) of the Common Stock
with respect to which Incentive Stock Options (under all option plans of
the Company) are exercisable for the first time by a participant during any
calendar year shall not exceed $100,000. For purposes of the preceding
sentence, (i) Incentive Stock Options shall be taken into account in the
order in which they are granted and (ii) Incentive Stock Options granted
before 1987 shall not be taken into account. Incentive Stock Options may
not be granted to any participant who, at the time of grant, owns stock
possessing (after the application of the attribution rules of Section
424(d) of the Code) more than 10 percent of the total combined voting power
of all outstanding classes of stock of the Company or any of its
subsidiaries, unless the option price is fixed at not less than 110 percent
of the Fair Market Value of the Common Stock on the date of grant and the
exercise of such option is prohibited by its terms after the expiration of
5 years from the date of grant of such option. In addition, no Incentive
Stock Option shall be issued to a participant in tandem with a Nonqualified
Stock Option.
6. ADJUSTMENT PROVISIONS.
If there shall be any change in the Common Stock, through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
reverse stock split, split up, spinoff, combination of shares, exchange of
shares, dividend in kind or other like change in capital structure or
distribution (other than normal cash dividends) to stockholders of the Company,
an adjustment shall be made to each outstanding Stock Option such that each
such Stock Option shall thereafter be exercisable for such securities, cash
and/or other property as would have been received in respect of the Common
Stock subject to such Stock Option had such Stock Option been exercised in full
immediately prior to such change or distribution, and such an adjustment shall
be made successively each time any such change shall occur. In addition, in
the event of any such change or distribution, in order to prevent dilution or
enlargement of participants' rights under the Plan, the Committee shall have
authority to adjust, in an equitable manner, the number and kind of shares that
may be issued under the Plan, the number and kind of shares subject to
outstanding Stock Options, the exercise price applicable to outstanding Stock
Options, and the Fair Market Value of the Common Stock and other value
determinations applicable to outstanding Stock Options. Appropriate
adjustments may also be made by the Committee in the terms of any Stock Options
under the Plan to reflect such changes or distributions and to modify any other
terms of outstanding Stock Options on an equitable basis, including
modifications of performance targets and changes in the length of performance
periods. Notwithstanding the foregoing, (i) any adjustment with respect to an
Incentive Stock Option shall comply with the rules of Section 424(a) of the
Code, and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder other than an incentive stock option
for purposes of Section 422 of the Code.
7. CHANGE IN CONTROL.
(a) Notwithstanding any other provision of this Plan, if there is a
Change in Control of the Company, all then outstanding Stock Options shall
immediately become exercisable. For purposes of this Section 7, a "Change
in Control" of the Company shall be deemed to have occurred upon any of the
following events:
(i) any person or group within the meaning of Section 13(d)(3) of
the Exchange Act (other than the persons who do so on the Effective
Date) shall beneficially own (within the meaning of Rule 13d-3 under
the Exchange Act) more than 50% of the total voting power of all
classes of capital stock of the Company entitled to vote generally in
the election of directors of the Company;
(ii) the Company consolidates with, merges into, or sells, leases
or conveys all or substantially all of its assets to, any other person;
or
(iii) the Company enters into or approves any agreement,
transaction or proposal that would result in the occurrence of any
event described in clauses (i) or (ii) (including without limitation
any agreement, transaction or proposal that would have such result with
the passage of time, upon the payment of money or other consideration,
or upon the occurrence of any contingency or contingencies).
<PAGE>
(b) The Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Stock Option
outstanding hereunder shall terminate within a specified number of days
after notice to the holder, and such holder shall receive, with respect to
each share of Common Stock subject to such Stock Option, an amount equal to
the excess of the Fair Market Value of such shares of Common Stock
immediately prior to the occurrence of such Change in Control over the
exercise price per share of such Stock Option; such amount shall be payable
in cash, in one or more kinds of property (including the property, if any,
payable in the transaction) or in a combination thereof, as the Committee,
in its discretion, shall determine.
8. TRANSFERABILITY.
Each Stock Option granted under the Plan to a participant shall be
exercisable, during the participant's lifetime, only by the participant and no
such Stock Option shall be transferable otherwise than by will or the laws of
descent and distribution. In the event of the death of a participant, each
Stock Option theretofore granted to him or her shall be exercisable during such
period after his or her death as the Committee shall in its discretion set
forth in such option or right at the date of grant and then only by the
executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant's rights under the Stock
Option shall pass by will or the laws of descent and distribution.
9. FAIR MARKET VALUE.
For purposes of this Plan and any Stock Option granted hereunder, Fair
Market Value shall be (i) the closing price of the Common Stock on the date of
calculation (or on the last preceding trading date if Common Stock was not
traded on such date) if the Common Stock is readily tradeable on a national
securities exchange or other market system or (ii) if the Common Stock is not
readily tradeable, the amount determined in good faith by the Committee as the
fair market value of the Common Stock.
10. WITHHOLDING.
All payments or distributions made pursuant to the Plan shall be net of any
amounts required to be withheld pursuant to applicable federal, state and local
tax withholding requirements. If the Company proposes or is required to
distribute Common Stock pursuant to the Plan, it may require the recipient to
remit to it or to the corporation that employs such recipient an amount
sufficient to satisfy such tax withholding requirements prior to the delivery
of any certificates for such Common Stock. In lieu thereof, the Company or the
employing corporation shall have the right to withhold the amount of such taxes
from any other sums due or to become due from such corporation to the recipient
as the Committee shall prescribe. The Committee may, in its discretion and
subject to such rules as it may adopt (including any as may be required to
satisfy applicable tax and/or non-tax regulatory requirements), permit a
participant to pay all or a portion of the federal, state and local withholding
taxes arising in connection with any Stock Option consisting of shares of
Common Stock by electing to have the Company withhold shares of Common Stock
having a Fair Market Value equal to the amount of tax to be withheld, such tax
calculated at rates required by statute or regulation.
11. TENURE.
A participant's right, if any, to continue to serve the Company as a
director, officer, employee, or otherwise, shall not be enlarged or otherwise
affected by his or her designation as a participant under the Plan.
12. UNFUNDED PLAN.
Participants shall have no right, title, or interest whatsoever in or to
any investments which the Company may make to aid it in meeting its obligations
under the Plan. Nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind, or
a fiduciary relationship between the Company and any participant, beneficiary,
legal representative or any other person. To the extent that any person
acquires a right to receive payments from the Company under the Plan, such
right shall be no greater than the right of an unsecured general creditor of
the Company. All payments to be made hereunder shall be paid from the general
funds of the Company and no special or separate fund shall be established and
no segregation of assets shall be made to assure payment of such amounts except
as expressly set forth in the Plan. The Plan is not intended to be subject to
the Employee Retirement Income Security Act of 1974, as amended.
<PAGE>
13. NO FRACTIONAL SHARES.
No fractional shares of Common Stock shall be issued or delivered pursuant
to the Plan. The Committee shall determine whether cash or other property
shall be issued or paid in lieu of fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
14. DURATION, AMENDMENT AND TERMINATION.
No Stock Option shall be granted more than 10 years after the Effective
Date (as defined below). The Board may amend the Plan from time to time or
suspend or terminate the Plan at any time; PROVIDED, HOWEVER, that no action
authorized by this Section 14 shall reduce the amount of any existing Stock
Option or change the terms and conditions thereof without the participant's
consent. No amendment of the Plan shall, without approval of the stockholders
of the Company, (i) increase the total number of shares which may be issued
under the Plan, (ii) increase the maximum number of shares underlying all Stock
Options that may be granted to any individual during the term of the Plan,
(iii) modify the requirements as to eligibility for Stock Options grants under
the Plan, or (iv) disqualify any Incentive Stock Options granted hereunder.
15. GOVERNING LAW.
This Plan, Stock Options granted hereunder and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Delaware (regardless of the law that might otherwise govern under
applicable Delaware principles of conflict of laws).
16. EFFECTIVE DATE.
(a) The Plan shall be effective as of the date on which the Plan, having
been theretofore adopted by the Committee, shall be ratified by the Board (the
"Effective Date"); PROVIDED, HOWEVER, that the Plan shall thereafter be
approved by the stockholders of the Company at an annual meeting or any special
meeting of stockholders of the Company within 12 months after the Effective
Date, and such approval of stockholders shall be a condition to the right of
each participant to receive Stock Options hereunder. Any Stock Option granted
under the Plan prior to such approval of stockholders shall be effective as of
the date of grant (unless, with respect to any Stock Option, the Committee
specifies otherwise at the time of grant), but no such Stock Option may be
exercised or settled and no restrictions relating to any Stock Option may lapse
prior to such stockholder approval, and if stockholders fail to approve the
Plan as specified hereunder, any such Stock Option shall be cancelled.
(b) This Plan shall terminate on the tenth anniversary of the Effective
Date (unless sooner terminated by the Board).
<PAGE>
EXHIBIT C
June 18, 1998
Independent Committee of
the Board of Directors of
Family Bargain Corporation
400 Ruffin Road
San Diego, CA 92123
Members of the Committee:
You have requested our opinion as to the fairness, from a financial
point of view, to the pre-Recapitalization ("Recapitalization" as defined
herein) common stockholders of Family Bargain Corporation ("FBC" or the
"Company") of the consideration to be received by the holders of the Series A
Cumulative Convertible Preferred Stock of FBC (the "Series A Preferred Stock")
and the holders of the Series B Junior Convertible, Exchangeable Preferred
Stock of FBC (the "Series B Preferred Stock") pursuant to a Merger Agreement
(the "Merger Agreement") by and between FBC and General Textiles, Inc.
("General Textiles") pursuant to which General Textiles, a wholly-owned
subsidiary of FBC, proposes to merge (the "Merger") with and into FBC (the
"Merger") and effect a recapitalization of FBC (the "Recapitalization"). As is
more fully described in a draft of the Merger Agreement furnished to us by
representatives of FBC, in the Recapitalization, (i) holders of shares of
Series A Preferred Stock will receive one share of Common Stock, par value
$.0375 per share, of FBC (the "Common Stock") for each share of Series A
Preferred Stock (the "Series A Recapitalization Consideration"), (ii) holders
of shares of Series B Preferred Stock will receive 173.33 shares of Common
Stock for each share of Series B Preferred (the "Series B Recapitalization
Consideration" and, collectively with the Series A Recapitalization
Consideration, the "Preferred Stock Recapitalization Consideration"), and (iii)
and the holders of pre-Recapitalization common stock will receive 0.30133
shares of Common Stock for each share of pre-Recapitalization common stock (the
"Common Stock Recapitalization Consideration").
In arriving at our opinion, we reviewed and considered such
information as we deemed necessary or appropriate for the purposes of stating
our opinion including (i) drafts, in the forms furnished to us by
representatives of the Company, of the Merger Agreement, the proxy statement
with respect to the Merger and related transactions (the "Proxy Statement") and
the registration statement (the "Registration Statement") pursuant to which the
Company proposes to offer and sell to holders of Rights it will issue to its
stockholders, including Three Cities Fund II L.P., Three Cities Offshore II
C.V., and Quilvest American Equity, Ltd., 800,000 shares of post-
Recapitalization Common Stock at $13.00 per share (or 3,000,000 shares of pre-
Recapitalization Common Stock at $3.467 per share if the Merger is not
approved) (the "Rights Offering"), (ii) certain business and financial
information relating to the Company provided by the Company, including the
financial condition and results of operations of the Company, the historical
financial performance, certain projected financial information provided by the
Company and pro forma financial statements giving effect to the proposed
transactions of the Company as provided by the Company, and the historical
trading performance of the Common Stock and Series A Preferred Stock, (iii)
certain public filings made by the Company with the Securities and Exchange
Commission, (iv) the terms of the Series A Preferred Stock and the Series B
Preferred Stock, as set forth in the Certificates of Designations for the
Series A Preferred and the Series B Preferred Stock, furnished to us by the
Company, (v) the terms of the Rights Offering as described in the drafts of the
Proxy Statement and the Registration Statement furnished to us by
representatives of the Company, and (vi) to the extent publicly available,
certain market data for securities with terms which we considered relevant in
evaluating the Series A Preferred Stock and the Series B Preferred Stock. In
addition, we conducted such other analyses and examinations and reviewed and
considered such other financial, economic and market data as we deemed
appropriate in arriving at our opinion. We also met with members of senior
management of the Company to discuss, among other things, the historical and
prospective industry environment, financial conditions and operating results
for the Company and reasons for the Recapitalization.
<PAGE>
Independent Committee of
the Board of Directors of
Family Bargain Corporation
June 18, 1998
Page 2
In rendering our opinion, we assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or discussed
with us by the Company, the Committee, Three Cities Research, Inc. (with the
approval of the Company) or their respective advisors. With respect to the
information provided by Three Cities Research, Inc. utilized in our analysis,
we are not aware of any reason why we could not reasonably rely on such
information. With respect to financial forecasts and other information and
data provided to or otherwise reviewed by or discussed with us, the management
of the Company advised us that such forecasts and other information and data
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of management as to the future financial performance of
the Company. We also assumed, with the Company's consent, that the final terms
of the Merger Agreement and Registration Statement reviewed by us in draft form
will not vary materially from the drafts of such documents provided to us, and
that the Recapitalization (if the Merger is approved by the Company's
stockholders) and the Rights Offering will be consummated in all material
respects as described in the drafts of the Proxy Statement and the Registration
Statement provided to us. We were not requested to and did not analyze or give
any effect to the impact of any federal, state or local income taxes to the
Company's stockholders arising out of the Merger. In this regard, we assumed,
with your consent, that, as set forth in the Proxy Statement, the Merger would
be treated as a tax-free liquidation and recapitalization under the Internal
Revenue Code of 1986, as amended, and would be consummated pursuant to the
Merger Agreement. We did not express any opinion as to the value of the Common
Stock or the prices at which the Common Stock will be transferable, in each
case, subsequent to the Recapitalization. We did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor have we made any physical inspection of the properties or
assets of the Company. We express no opinion as to the relative merits of the
Recapitalization as compared to any alternative business strategies that might
exist for the Company or the effect of any other transaction in which the
Company might engage. Although we evaluated the Preferred Stock
Recapitalization Consideration from a financial point of view, we were not
requested to, and did not, participate in the negotiation of the Merger
Agreement or related transactions described in the Proxy Statement and were not
requested to, and did not recommend, the specific consideration payable in the
Recapitalization.
For purposes of our opinion, we used both qualitative and quantitative
assessments to evaluate the Preferred Stock Recapitalization Consideration.
Inherent in such assessments by us was the view that the proposed transaction a
recapitalization of the Company in which the existing common and preferred
stockholder classes are exchanging their existing securities for a new security
in a simplified capital structure with one class of stock outstanding. In
addition, compared with the existing capital structure, there will be fewer
shares outstanding (having the effect of increasing the value of each new
share). Our opinion is based on all of such qualitative and quantitative
analyses and takes into consideration the fact that the Company could not
compel the holders of the Series A Preferred Stock or Series B Preferred Stock
to approve a recapitalization on terms similar to the proposed Recapitalization
and that, as a result, the recapitalization in the manner desired by the
Company, could not occur without the approval of the holders of at least a
majority of each of the Series A Preferred Stock and Series B Preferred Stock.
In connection with certain of our assessments and analyses, we noted that
the Proxy Statement states as follows: "The ratios at which pre-
Recapitalization shares will be converted into shares of the surviving
corporation's Common Stock will result in the holders of the pre-
Recapitalization shares receiving the same number of shares they would have
received if (i) each share of pre-Recapitalization Common Stock had been
converted into 1.13 shares of the surviving corporation's Common Stock, (ii)
each share of Series A Preferred [Stock] had been converted into 3.75 shares of
the surviving corporation's Common Stock, (iii) each share of Series B
Preferred [Stock] had been converted into 650 shares of the surviving
corporation's Common Stock, and (iv) there had been a reverse split by which
each 3.75 shares of the surviving corporation's Common Stock had become one
share of post-Recapitalization Common Stock."
Ladenburg Thalmann & Co. Inc. has been engaged to render financial
advisory services to the Independent Committee of the Board of Directors of FBC
with respect to this opinion and will receive a fee for such services upon the
delivery of this opinion. In the ordinary course of our business, we may
actively trade or hold the securities of FBC for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. We have disclosed to the Independent Committee
any such position we hold, beneficially or of record, as of June 10, 1998.
<PAGE>
Independent Committee of
the Board of Directors of
Family Bargain Corporation
June 18, 1998
Page 3
Our advisory services and the opinion expressed herein are provided for
the information of the Independent Committee of the Board of Directors of FBC
in its evaluation of the proposed Recapitalization. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Ladenburg Thalmann & Co. Inc. be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant,
including but not limited to the Common Stock Recapitalization Consideration,
we are of the opinion that, as of the date hereof, the Preferred Stock
Recapitalization Consideration is fair, from a financial point of view, to the
pre-Recapitalization common stockholders of FBC.
Very truly yours,
<PAGE>
EXHIBIT D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. - (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to <section>228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to <section>251 (other than a merger effected pursuant to
<section>251(g) of this title), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock
(or depositary receipts in respect thereof), which stock, or depository
receipts in respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record
by more than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the holders of the surviving corporation as provided in
subsection (f) of <section>251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to <section><section>251, 252, 254, 257, 258, 263 and 264 of
this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts
in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will
be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
<PAGE>
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under <section>253 of this tide is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at
a meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented
to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
<section>228 or 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice a
copy of this section; provided that, if the notice is given on or after
the effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders or
any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and if given on or after
the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days after
the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date: provided, however, that if such
second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who is demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the record date
<PAGE>
shall be such effective date. If no record date is fixed and the notice
is given prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the Surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
<PAGE>
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal of an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by
Ch. 120, L. '97, eff. 7-1-97.)
<PAGE>
