As filed with the Securities and Exchange Commission on July 9, 1998
REGISTRATION NO. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
FAMILY BARGAIN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
5651 [50-0299573]
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYEE
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
4000 RUFFIN ROAD
SAN DIEGO, CALIFORNIA 92123
(619) 627-1800
(ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S EXECUTIVE OFFICES)
MICHAEL SEARLES
FAMILY BARGAIN CORPORATION
4000 RUFFIN ROAD
SAN DIEGO, CALIFORNIA 92123
(619) 627-1800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE OF AGENT FOR SERVICE)
-------------
COPIES TO:
DAVID W. BERNSTEIN
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
practicable after the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. <square>
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof pursuant to Item 11(a)(1)
of this form, check the following box. <square>
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. <square>
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <square>
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <square>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. <square>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Offering Proposed Maximum Amount of Registration
Securities to be Registered Amount to be Registered Price Per Share (a) Aggregate Offering Price(a) Fee
<S> <C> <C> <C> <C>
Common Stock, par value $.0375 800,000 shs $13.00 $10,400,000 $4,310
Common Stock, par value $.01 3,000,000 shs (b) $3.467(b) (b) (b)
Rights(c) 800,000 rts -- -- --
</TABLE>
[FN]
(a) Estimated solely for the purpose of calculating the registration fee.
(b) Under some circumstances, Rights will entitle holders to purchase 3,000,000
shares for $3.467 per share instead of entitling them to purchase 800,000
shares for $13 per share. This will not affect the Maximum Aggregate
offering Price or the Registration Fee.
(c) Rights, entitling holders to purchase Common Stock, are being issued
without consideration.
</FN>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-2 LOCATION OR HEADING IN PROSPECTUS
---------------------------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page
of Prospectus ........................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Inside Front Cover Page; Outside Back Cover
Pages of Prospectus .................. Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Outside Front Cover Page; Prospectus
Changes .............................. Summary; Risk Factors
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price ........ Outside Front Cover Page; Underwriting
6. Dilution ............................... Not Applicable
7. Selling Security Holders ............... Not Applicable
8. Plan of Distribution ................... Outside Front Cover Page
9. Description of Securities to be
Registered ........................... Inside Front Cover Page
10. Interests of Named Experts and
Counsel .............................. Not Applicable
11. Information with Respect to the Inside Front Cover Page; Prospectus Summary;
Registrant .......................... The Company; Selected Consolidated
Historical and Pro Forma Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operation;
Business; Operations; Management
12. Incorporation of Certain Information By
Reference ............................. Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ........................... Not Applicable
</TABLE>
<PAGE>
Subject to completion, dated July 9, 1998
PROSPECTUS
- ----------
800,000 SHARES
FAMILY BARGAIN CORPORATION
Common Stock, par value $.0375
We are offering to sell a total of 800,000 shares of our Common Stock,
after completion of a recapitalization, to holders of transferable rights
("Rights") which we distributed to our stockholders. Each Right entitles the
holder to purchase one share of post-Recapitalization Common Stock for $13.00.
If our stockholders do not approve a merger that will result in the
recapitalization, each Right will entitle the holder to purchase 3.75 shares of
pre-recapitalization Common Stock for $3.467 per share (a total of $13 per
Right). See "The Restructuring of Our Capitalization" on page 17. Holders who
exercise Rights will have the privilege to oversubscribe to purchase Common
Stock that is offered to holders of Rights, but not purchased because Rights
are not exercised. THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998, UNLESS WE EXTEND THE EXPIRATION TIME.
Our Common Stock is traded on the Nasdaq Small-Cap Market under the symbol
"FBAR". The last reported price at which our Common Stock was sold on June 30,
1998 was $2.875. We have applied to have the Rights quoted on the Nasdaq
Small-Cap Market under the symbol "_____."
SEE "RISK FACTORS" FOR A DISCUSSION OF SOME IMPORTANT FACTORS TO BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC COMMISSIONS COMPANY (1)
<S> <C> <C> <C>
Per Share. . . . . . . . . . . . . $13.00(2) Not applicable $13.00(2)
Total. . . . . . . . . . . . . . . $10,400,000 Not applicable $10,400,000
</TABLE>
[FN]
(1) Before deducting our expenses, estimated at approximately $300,000.
(2) If our stockholders do not approve a merger which will result in a
recapitalization, the per share price will be $3.467.
</FN>
The date of this Prospectus is , 1998.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which we have previously filed with the
Securities and Exchange Commission, are incorporated by reference into this
Prospectus:
1. Our annual report on Form 10-K for the fiscal year ended January 31,
1998 and an amendment on Form 10-K/A (copies of which accompany this
Prospectus).
2. Our quarterly report on Form 10-Q for the fiscal quarter ended May
2, 1998 (a copy of which accompanies this Prospectus).
In addition, each report or other document we file pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the
date of this Prospectus and termination of the offering will be incorporated
into this Prospectus and will be a part of it beginning on the date we file it
with the Securities and Exchange Commission. If anything in a subsequently
filed document which becomes a part of this Prospectus is different from
anything in this Prospectus, this Prospectus will be deemed to be modified by
that subsequently filed document.
We will provide, without charge, to any person to whom this Prospectus is
delivered, at the written request of that person, a copy of any or all of the
documents incorporated by reference into this Prospectus (but not exhibits to
those documents). Requests should be directed to: Michael Searles, Chief
Executive Officer and President, Family Bargain Corporation, 4000 Ruffin Road,
San Diego, California 92123; Telephone (619) 627-1800; Facsimile (619) 637-
4180.
If, before the offering to which this Prospectus relates terminates, we
file a Form 10-Q for a period ending after May 2, 1998, we will include a copy
of that Form 10-Q with each copy of this Prospectus which we deliver after we
file the Form 10-Q.
2
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. A PROSPECTIVE
PURCHASER OF COMMON STOCK SHOULD READ THE ENTIRE PROSPECTUS BEFORE REACHING AN
INVESTMENT DECISION.
THE COMPANY
Business. . . . . . . . . We operate chains of 124 Family Bargain
Center and 38 Factory 2-U off-price retail apparel
and housewares stores in Arizona, California, New
Mexico, Nevada, Oregon, Texas and Washington.
Recapitalization. . . . . We are offering shares to holders of Rights as part
of a restructuring of our capitalization. When this
restructuring of our capitalization is completed,
(1) we will have restructured much of our debt and
redeemed part of it, (2) we will have sold Common
Stock to holders of Rights for slightly more than
$10 million and either (3) we will have undergone a
recapitalization by which, among other things, all
of our Series A Preferred Stock and Series B
Preferred Stock will have been converted into Common
Stock or (4) at least a substantial portion of our
Common Stock and Series B Preferred Stock, and
possibly some of our Series A Preferred stock, will
have been exchanged for common stock of our
subsidiary, General Textiles, Inc., and instead of
owning all of General Textiles (which operates our
two store chains), our only significant assets will
be a minority shareholding in General Textiles and a
note from General Textiles. See "Recapitalization."
The recapitalization will be carried out by a merger
of General Textiles, Inc. into ourselves. As a
result of that merger, each share of Common Stock
will be converted into .30133 shares of post-
recapitalization Common Stock, each share of Series
A Preferred Stock will be converted into one share
of post-recapitalization Common Stock and each share
of Series B Preferred Stock will be converted into
173.33 shares of post-recapitalization Common Stock.
The merger must be approved by holders of a majority
of our outstanding Common Stock and Series B
Preferred Stock, voting as a single class, and by
the holders of a majority of our outstanding Series
A Preferred Stock, voting separately.
Three funds ("Three Cities Investors") advised by
Three Cities Research, Inc. ("Three Cities"), which
hold 15.5% of our Common Stock and 63.4% of our
Series B Preferred Stock, have committed to vote in
favor of the merger. This will assure that the
3
<PAGE>
merger will be approved by the holders of our Common
Stock and Series B Preferred Stock. However, there
is no similar assurance that the merger will be
approved by holders of a majority of our Series A
Preferred Stock. If the merger is not approved by
holders of a majority of the Series A Preferred
Stock, General Textiles will offer to issue its
common stock in exchange for any or all of our stock
in essentially the same ratios as those in the
proposed merger. In response to that exchange
offer, the three Three Cities Investors will
exchange all their Common Stock and Series B
Preferred Stock for General Textiles common stock.
That will reduce our ownership of General Textiles
to 64% or less of its common stock, even if none of
our stockholders other than the three Three Cities
Investors exchange our stock for General Textiles
common stock. We will then exchange General
Textiles stock that we own for our stock which
General Textiles acquires through the exchange
offer. This will reduce our ownership of General
Textiles to 48% or less.
THE OFFERING
Offering of Common
Stock . . . . . . . . . . We are offering 800,000 shares of our post-
recapitalization Common Stock (or 3,000,000 shares
of our pre-recapitalization Common Stock) to people
who exercise Rights, including the oversubscription
privilege in the Rights.
The Rights. . . . . . . . We issued the Rights to our stockholders. Each
Right entitles the holder to purchase one share of
post-recapitalization Common Stock for $13.00.
Rights are evidenced by Rights Certificates and are
transferable.
If our stockholders do not approve merger of General
Textiles, Inc. into us, each Right will entitle the
holder to purchase 3.75 shares of pre-
recapitalization Common Stock for $3.467 per share
(a total of $13 per Right).
Expiration of Rights. . . The Rights will expire at 5:00 P.M., New York City
time, on _____________, 1998, unless we extend the
period during which Rights may be exercised.
Oversubscription
Privilege . . . . . . . . A holder who exercises all the Rights evidenced by
a Rights Certificate will have the privilege to
oversubscribe for Common Stock which is offered to
holders of Rights but is not purchased through
exercise of Rights. There is no limit to the number
of shares as to which a holder may exercise the
oversubscription privilege. If the total number of
shares as to which holders exercise the
oversubscription privilege exceeds the total number
of shares which are not otherwise purchased through
exercise of Rights, the shares which are available
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<PAGE>
will be issued to people who exercise the
oversubscription privilege in proportion to the
respective numbers of shares as to which they
exercise the oversubscription privilege. Three of
the Three Cities Investors have committed to
exercise all the Rights issued to them (which will
result in their purchasing 305,490 shares of post-
recapitalization Common Stock (or 1,145,587 shares
of pre-recapitalization Common Stock) and to
exercise the oversubscription privilege as to all
494,510 shares of post-recapitalization Common Stock
(or 1,854,413 shares of pre-recapitalization Common
Stock) which are subject to Rights issued to people
other than the three Three Cities Investors.
Therefore, the entire 800,000 post-recapitalization,
or 3,000,000 pre-recapitalization, shares being
offered to holders of Rights will be sold, even if
no one other than the three Three Cities Investors
exercises Rights.
<TABLE>
<CAPTION>
Not Giving Effect Giving Effect
to the to the
RECAPITALIZATION RECAPITALIZATION
----------------- ----------------
<S> <C> <C>
Common Stock Outstanding.........Before the Offering 5,004,122 11,275,381
After the Offering N/A 12,075,381
After the Offering,
if the recapitalization
does not take place 8,004,122 N/A
</TABLE>
Use of Proceeds.................. $3,250,000 to redeem Subordinated Notes due
2003. The amount not used for these purposes
will be added to our working capital.
Nasdaq Small-Cap Market Symbols.. Common Stock Rights FBAR
RISK FACTORS
See "Risk Factors" for a discussion of some important factors to be
considered by prospective investors. Those factors include:
a) We have had net losses for most years in our history, and for the
first fiscal quarter of the current year.
b) We had significant write-offs during the year ended January 31, 1997
c) We cannot be sure an active market for the Rights will develop.
d) The exercise price of the Rights is higher than the highest price at
which our Common Stock has traded for almost four years, even taking
account of the fact that the recapitalization could be viewed as
effecting a 1-for-3.75 reverse split of our Common Stock.
5
<PAGE>
e) If holders of a majority of our Series A Preferred Stock do not
approve the merger which will result in the recapitalization, that
merger (and, therefore, the recapitalization) will not take place.
If the merger does not take place, our subsidiary, General Textiles,
Inc. will make an exchange offer, and General Textiles and we will
take other steps, which will reduce our holding of General Textiles
to 48% or less.
f) We compete with large retail discount chains which could, if they
wanted to do so, target merchandise at our typical customers.
g) Our business is seasonal. This makes it particularly difficult to
predict our full year results on the basis of interim results during
our first and second fiscal quarters.
h) We have a Shareholder Rights Plan and there are other factors about
us (including the fact that Three Cities Investors own a majority in
voting power of our stock) which could deter or substantially delay
possible takeover attempts, even if they were favored by a majority
of our stockholders.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following is a summary of financial information about us. It should
be read in conjunction with the financial statements and notes included in our
amended annual report on Form 10-K/A and quarterly report on Form 10-Q, which
accompany this Prospectus. The financial information as of and for the year
ended January 31, 1998 has been derived from financial statements audited by
Arthur Andersen LLP, and the financial information as of and for the years
ended February 1, 1997, and January 27, 1996 has been derived from the
financial statements audited by KPMG Peat Marwick LLP, independent auditors.
The financial information at and for the fiscal quarters ended May 2, 1998 and
May 3, 1997 has not been audited. However, we believe it contains all
adjustments (which are only normal recurring accruals) which are necessary so
that it presents fairly our financial conditions and results of operations.
Those interim results do not necessarily indicate what our full year results
will be. See "Risk Factors-Seasonality."
<TABLE>
<CAPTION>
13 WEEKS ENDED FISCAL YEAR ENDED
--------------------------- --------------------------------------------------
MAY 2, MAY 3, JANUARY 31, February 1, January 27,
1998 1997 1998 1997{1} 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $66,495 $60,436 $ 300,592 $ 252,165 $ 179,820
Operating income (loss) (1,437) (8) 5,097 (27,939) 5,153
Income (loss) from continuing (2,790) (1,361) (129) (36,564) 1,478
operations
Net income (loss) before (2,790) (1,360) (129) (37,390) 978
extraordinary item
Net income (loss) (5,540) (1,361) (129) (37,390) 978
Dividends on Series A preferred (864) (864) (3,456) (3,509) (3,040)
stock
Dividends on Series B preferred (703) - (2,661) - -
stock
Net loss applicable to common (7,107) (2,224) (6,246) (40,899) (2,062)
stock
Weighted average common shares 4,931 4,818 4,901 4,507 4,006
outstanding (basic and
diluted)
Net loss per common share from (.88) (.46) (1.27) (8.89) (0.39)
continuing operations before
extraordinary item
Net loss per common share before (.88) (.46) (1.27) (9.07) (0.51)
extraordinary item
Net loss per common share{2} (1.44) (.46) (1.27) (9.07) (0.51)
Diluted net loss per (1.44) (.46) (1.27) (9.07) (0.51)
common share{2}
BALANCE SHEET DATA
Working capital (deficit) 8,515 12,250 (2,749) 248 4,314
Total assets 92,787 94,603 84,817 80,669 87,152
Long-term debt and revolving 47,247 41,884 29,076 37,894 30,120
credit notes, including current
portion
Stockholders' equity 11,603 18,585 17,218 11,208 27,717
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
13 WEEKS ENDED FISCAL YEAR ENDED
--------------------------- --------------------------------------------------
MAY 2, MAY 3, JANUARY 31, February 1, January 27,
1998 1997 1998 1997{1} 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Number of stores 158 135 166 150 131
Total selling square footage 1,722,000 1,659,000 1,788,000 1,567,000 1,367,000
Sales per square foot 39 37 180 172 161
Comparable store sales growth 3.3% 2.8% 3.4% 5.3% 2.8%
</TABLE>
[FN]
{1} 53 weeks.
{2} In December 1997, adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." The statement specifies the
computation, presentation and disclosure requirements for earnings per
share (EPS) and diluted earnings per share (DEPS). The statement
requires retroactive adoption for all prior periods presented.
Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic
EPS, with the principal difference being that common stock equivalents
are not considered in computing basic EPS, (b) eliminating the modified
treasury stock method and the three percent materiality provision and
(c) revising the contingent share provisions and the supplemental EPS
data requirements.
The computation of diluted EPS is similar to the computation of basic
EPS except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. In addition, in
computing the dilutive effect of convertible securities, the numerator
is adjusted to add back (a) any convertible preferred dividends and (b)
the after-tax amount of interest recognized in the period associated
with any convertible debt.
</FN>
8
<PAGE>
THE OFFERING
We are offering 800,000 shares of our post-recapitalization Common Stock
(or, if our stockholders do not approve a merger which will result in the
recapitalization, 3,000,000 shares of our pre-recapitalization Common Stock) to
holders of Rights which we distributed to our stockholders. Our stockholders
received one Right for each 41.16 shares of Common Stock, one Right for each
16.07 shares of Series A Preferred Stock and 12.7823 Rights for each share of
Series B Preferred Stock, except that fractional Rights were not issued. The
Rights are evidenced by Rights Certificates, which were mailed to our
stockholders of record on , 1998 (except as discussed under "The
Offering-Foreign Restrictions and Restrictions in Certain States").
A HOLDER OF RIGHTS MAY PURCHASE ONE SHARE OF POST-RECAPITALIZATION COMMON
STOCK FOR EACH RIGHT AT A SUBSCRIPTION PRICE OF $13.00 PER SHARE. If our
stockholders do not approve the merger which will result in a recapitalization
of our stock, a holder of Rights may purchase 3.75 shares of pre-
recapitalization Common Stock for each Right at a subscription price of $3.476
per share (a total of $13 per Right). The Rights are transferable and may be
exercised at any time before 5:00 P.M., New York City time, on ,
1998, or on a later date if we extend the offer (the "Expiration Time"). At
the Expiration Time, all unexercised Rights will terminate and all Rights
Certificates will become void.
OVERSUBSCRIPTION PRIVILEGE
Any holder of Rights who exercises all the Rights evidenced by a Rights
Certificate will have the privilege to subscribe for additional shares which
are offered to holders of Rights but are not purchased through exercise of
Rights. There is no limit to the number of shares as to which a holder may
oversubscribe. If there are not sufficient shares to fill all
oversubscriptions, the shares which are available will be allocated among
people who elect to oversubscribe in proportion to the respective numbers of
shares for which they elect to oversubscribe. To exercise the oversubscription
privilege, a person must complete the appropriate block on the Rights
Certificate. People who exercise the oversubscription privilege will be
notified by mail (or, if they have provided facsimile numbers, by facsimile) of
the numbers of shares of Common Stock they have purchased through exercise of
the oversubscription privilege. Payments for those shares must be made within
10 days after the notice is mailed. If payment with regard to an
oversubscription is not received by the Subscription Agent by 5:00 P.M. New
York City time on the last day of that 10 day period, the oversubscription will
be canceled. Three funds ("Three Cities Investors") advised by Three Cities
Research, Inc. ("Three Cities") have agreed to purchase all shares which are
the subject of oversubscriptions which are canceled because payment is not made
within the 10 day period.
HOW TO EXERCISE RIGHTS
To exercise Rights, a person must mail or deliver to the Subscription
Agent a properly executed Rights Certificate, together with payment in full of
the exercise price of $13.00 per post-recapitalization share (or $13 per 3.75
pre-recapitalization shares) as to which Rights are exercised. Except as
described under "The Offering-Late Delivery of Rights," Rights Certificates
must arrive on or before the Expiration Date and we will not honor any
subscriptions received after the Expiration Date. A holder must pay the
exercise price in United States dollars in cash, by certified or bank cashier's
check, or by wire transfer of good funds, payable to the order of the
Subscription Agent. Once a holder has exercised a Right, the exercise is
irrevocable. We will deliver certificates representing the shares purchased
upon exercise of Rights as soon as practicable after the Expiration Date.
9
<PAGE>
The Subscription Agent is . The address to which Rights
Certificates and payments should be mailed or delivered is:
<TABLE>
<CAPTION>
IF BY MAIL: IF BY HAND:
<S> <C>
The Subscription Agent's telephone number is: (212) , Attention: .
</TABLE>
You should read the instructions in the Rights Certificate and follow them
carefully. Do not send Rights Certificates or payment to the Company. Except
as described under "The Offering-Late Delivery of Rights," no exercise of
Rights will be accepted until the Subscription Agent has received a duly
executed Rights Certificate and payment of the exercise price. You, not the
Company or the Subscription Agent, will bear the risk of delivery of Rights
Certificates and payments to the Subscription Agent. We recommend that, if you
use the mail to exercise Rights, you use insured, registered mail. You should
direct any questions or requests for assistance concerning the method of
subscribing for shares or for additional copies of this Prospectus to the
Subscription Agent.
We will resolve all questions as to the validity, form, eligibility and
acceptance of any exercise of Rights, and our determination will be final. We
may waive any defect or irregularity, permit a defect or irregularity to be
corrected within such time as we may determine, or reject any exercise of a
Right which we determine to have been made improperly.
LATE DELIVERY OF RIGHTS
If on or before the Expiration Date, the Subscription Agent receives the
full exercise price of Rights together with a letter or telegraphic guaranty
from a bank, broker, dealer, credit union, savings association or other entity
that is a member in good standing of the Securities Transfer Agents Medallion
Program that the Rights Certificate evidencing the Rights will be delivered to
the Subscription Agent within three New York Stock Exchange trading days after
the Expiration Date, the exercise of Rights will be accepted, subject to
receipt of the properly executed Rights Certificate within the three New York
Stock Exchange trading days.
PURCHASE AND SALE OF RIGHTS
The Rights are transferable and are expected to be traded on the Nasdaq
Small-Cap Market and in the over-the-counter market. If you want to sell
Rights, either you may sell them directly or you may deliver the Rights to the
Subscription Agent, who will sell them on your behalf at prevailing market
prices. Rights may be transferred at the office of the Subscription Agent.
Prior to this Offering, there has been no public market for the Rights.
FOREIGN RESTRICTIONS AND RESTRICTIONS IN CERTAIN STATES
Rights Certificates were not mailed to our stockholders whose record
addresses are outside the continental United States or Canada, or are APO or
FPO addresses. The Subscription Agent is holding the Rights to which those
Rights Certificates relate for those stockholders' accounts until the
Subscription Agent receives instructions to sell or transfer the Rights.
Unless the Subscription Agent receives instructions from holders by 12:00 Noon
New York City time on , 1998, the Subscription Agent will sell
those stockholders' Rights, together with the Rights of stockholders whose
addresses are not known by the Subscription Agent, and remit the net proceeds
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<PAGE>
to the stockholders (or hold them for stockholders whose addresses are not
known).
The Subscription Agent will also retain the Rights Certificates which
otherwise would have been mailed to our stockholders who have addresses of
record in the states of , , or , in
which the Offering is not permitted to be made, and will hold the Rights to
which those Rights Certificates relate for the accounts of those stockholders
until the Subscription Agent receives instructions to sell or transfer the
Rights. If the Subscription Agent does not receive instructions from a
stockholder by 12:00 Noon New York City time on , 1998, the
Subscription Agent will sell that stockholder's Rights and will remit the net
proceeds to the stockholder. If we are subsequently permitted to make the
Offering in any of those states, the Subscription Agent will promptly mail the
Rights Certificates to stockholders with addresses in the states in which the
Offering becomes permissible. The Company will not accept exercises of Rights
by people with addresses in any state in which the Offering is not permitted,
and if any of those people presents Rights Certificates for exercise, the
Subscription Agent will retain the Rights Certificates and apply to the
procedures set forth above to the Rights they represent.
EXERCISE PROCEEDS
The Subscription Agent will retain all funds it receives from the exercise
of Rights until the Expiration Time. If the Offering is cancelled or
terminated for any reason, the Subscription Agent will return to each person
who exercised Rights all funds it is holding for that person's account. No
interest will be paid on funds returned due to cancellation of the Offering.
Funds the Subscription Agent receives from exercises of the oversubscription
privilege will be paid to the Company as they are received.
TAX CONSEQUENCES
Rogers & Wells LLP has advised the Company that under the Internal Revenue
Code of 1986, as amended, and the Regulations under it, as currently in effect,
and applicable court decisions, the Federal income tax consequences to holders
of our stock with respect to the Offering will be as follows:
1. NEITHER THE DISTRIBUTION OF RIGHTS TO OUR STOCKHOLDERS NOR THE
EXERCISE OF RIGHTS BY THEM WILL BE TAXABLE TO OUR STOCKHOLDERS.
2. The basis of a Right will be (a) to a holder of our stock to
whom the Right is issued, a portion of the stockholder's basis in the
shares with regard to which the Right was issued determined by allocating
that basis between the shares and the Rights on the basis of their
respective market values immediately after the Rights are issued (except
that, if the market value of the Rights immediately after they are issued
is less than 15% of the market value of the shares with respect to which
they are issued, none of the basis in the shares will be allocated to the
Rights and the basis in the Rights will be zero), and (b) to anyone who
purchases a Right in the market, the purchase price of the Right.
3. The holding period of a Right received by a holder of our stock
will include the period the stockholder held the stock with respect to
which the Right was issued. The holding period of a Right purchased in
the market will begin on the date of the purchase.
4. Any gain or loss on sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. A Right issued with regard to our stock will be a capital asset
in the hands of the person to whom it is issued if our stock is a capital
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<PAGE>
asset in the hands of that person. If a Right is allowed to expire, there
will be a loss equal to the basis of the Right in the hands of the holder
who allowed it to expire.
5. If a Right is exercised, the basis of the Common Stock issued
to the holder who exercises the Right will include the holder's basis in
the Right and the amount paid upon exercise of the Right.
6. If a Right is exercised, the holding period of the Common Stock
acquired by exercising the Right will begin on the day the Right is
exercised.
What is said above is only a summary of the applicable Federal
income tax law. It does not discuss any state or local tax consequences or any
consequences under the law of any jurisdiction outside the United States. It
also does not discuss special tax considerations which may apply to particular
taxpayers. People who receive Rights or are considering exercising, acquiring
or selling Rights should consult their own tax advisors concerning the tax
consequences of doing so.
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<PAGE>
RISK FACTORS
THERE ARE A NUMBER OF FACTORS ABOUT THE COMPANY OF WHICH A PERSON WHO IS
CONSIDERING EXERCISING RIGHTS SHOULD BE PARTICULARLY AWARE. THEY INCLUDE THE
FOLLOWING:
SIGNIFICANT NET LOSSES
We have incurred net losses most years since we were formed in 1994, and
General Textiles, our principal operating subsidiary, has incurred significant
losses, since its inception in 1987. Those losses led General Textiles to
commence a proceeding under Chapter 11 of the Bankruptcy Code in 1992. We had
net losses of $40.9 million, $6.2 million and $7.1 million, after payment of
preferred stock dividends, in fiscal 1996 and 1997 and the thirteen weeks ended
May 2, 1998. There is no assurance that we will have profits in any future
periods.
SIGNIFICANT WRITE-OFFS DURING YEAR ENDED FEBRUARY 1, 1997
During the year ended February 1, 1997 (our fiscal 1996), we had
significant write-offs and unusual charges. The largest of these was a $9.2
million charge relating to termination of employment of our former senior
management and principal stockholders and benefits they received as a result
of, or in connection with, that termination of employment. Another $8.4
million was a write-off of goodwill which had arisen when we acquired Factory
2-U, Inc., because we determined that goodwill was impaired. An additional
$4.8 million of charges related to inventory shrinkage, both because of missing
inventory and because of obsolescence and other factors which reduced the value
of the inventory on hand. Also, there were charges of $2.8 million to increase
the liability for future payment of notes issued under General Textiles' 1993
Plan of Reorganization (reflecting a reduction in what we believed to be the
appropriate discount rate to use in determining the current value of future
payments), $1.9 million to write-off capitalized costs of a public offering
which did not take place, $1.5 million as an allowance for store closings and
$.5 million to write-off of capitalized store pre-opening costs.
MARKET FOR THE RIGHTS
We expect that the Rights will be traded on the Nasdaq Small-Cap Market.
We cannot be sure an active market for Rights will develop.
EXERCISE PRICE OF THE RIGHTS EXCEEDS RECENT MARKET PRICE OF COMMON STOCK
The exercise price of the Rights was determined by our Board of Directors
based primarily upon its view of the value of our Common Stock. That price is
higher than the highest price at which our Common Stock has traded for almost
four years, even taking account of the fact that the recapitalization could be
viewed as effecting a 1-for-3.75 reverse split of our Common Stock. On June 1,
1998, which was the day before we announced the proposed merger with General
Textiles and resulting recapitalization, as well as the offering made by this
Prospectus, the last reported sale price of our Common Stock was $3.092 and
3.75 times that price would be $11.595. The last reported sale price of our
Common Stock on June 30, 1998 was $2.875, and 3.75 times that price would be
$10.781. Three of the seven members of our Board of Directors are (and were
when the exercise price of the Rights was determined) designees of Three
Cities, which advises investors ("Three Cities Investors") which own 18% of our
Common Stock and 88% of our Series B Preferred Stock. Three of these Three
Cities Investors, which own 15.5% of our Common Stock and 63.4% of our Series B
Preferred Stock, have committed to exercise all the Rights they will receive as
stockholders and to oversubscribe so they will acquire all the shares offered
to other holders of Rights, to the extent those shares are not purchased
through exercise of Rights or exercise by persons in addition to the three
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Three Cities Investors of the oversubscription privilege included in Rights.
While this indicates that Three Cities believes the exercise price of the
Rights represents at least a fair price to pay for our Common Stock, it is
nonetheless possible that the trading price of our Common Stock will continue
to be less than the exercise price of the Rights. If that is the case, it
would be less expensive for someone who wanted to acquire our Common Stock (or
increase the person's holding of our Common Stock) to buy our Common Stock in
the market than to obtain it by exercising Rights.
POSSIBILITY THAT THE GENERAL TEXTILES MERGER WILL NOT TAKE PLACE
Our merger with General Textiles must be approved both by holders of a
majority of our Common Stock and Series B Preferred Stock, voting together as a
single class, and by holders of a majority of our Series A Preferred Stock,
voting as a separate class. Because three Three Cities Investors have
committed to vote in favor of the merger, approval by the holders of our Common
Stock and Series B Preferred Stock is assured. However, approval by the
holders of our Series A Preferred Stock is not assured, and if holders of a
majority of the outstanding Series A Preferred Stock do not vote in favor of
the merger, the merger will not take place. In addition to owning all General
Textiles' outstanding stock, we own a General Textiles' Subordinated Note due
2003 with a current principal balance of $11.3 million. If we merge with
General Textiles, the Subordinated Note we own will, in effect, be eliminated.
If that merger does not take place, the General Textiles stock and Subordinated
Note we own will continue to be outstanding. See "Capitalization." However,
General Textiles will offer to exchange its common stock for any or all of our
outstanding stock and the three Three Cities Investors have said they will
exchange all their Common Stock and Series B Preferred Stock for General
Textiles common stock. The exchange by the three Three Cities Investors alone
will reduce our ownership of General Textiles to 64% or less of its
outstanding common stock. The percentage of the General Textiles common stock
we own will be even less than that to the extent stockholders in addition to
the three Three Cities Investors exchange our stock for General Textiles common
stock, or to the extent the three Three Cities Investors increase their
holdings of our Common Stock through exercise of the over-subscription
privilege. Also, if our merger with General Textiles does not take place, and
therefore General Textiles makes an exchange offer for our stock, we will
exchange some of our General Textiles stock for our stock which General
Textiles acquires through the exchange offer. That will reduce our holding of
General Textiles common stock to 48% or less.
COMPETITION
Our stores compete with large discount retail chains (such as Wal-Mart, K-
Mart, Mervyn's and Target) and regional off-price chains (such as MacFrugal's),
many of which are better known and have substantially greater resources than
our two chains. While our off-price marketing strategy differs from the
strategy of many of our competitors, many of our competitors could, if they
wanted to do so, compete directly with us in offering merchandise targeted at
the typical Family Bargain Center and Factory 2-U customers. See
"Business-Operations-Competition."
SEASONALITY
Our business is seasonal in nature, with its highest levels of sales in
the "Back-to-School" (August and September) and Christmas (November and
December) seasons. Because of this, our working capital requirements fluctuate
during the year and are highest between mid-summer and the beginning of the
Christmas season. The seasonality of our business makes it particularly
difficult to predict our full year results on the basis of interim results
during our first and second fiscal quarters.
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POTENTIAL ANTI-TAKEOVER EFFECTS OF RIGHTS PLAN AND CLASSIFIED BOARD OF
DIRECTORS; POSSIBLE ISSUANCES OF PREFERRED STOCK
We have a Shareholder Rights Plan which could substantially dilute the
holdings of anyone who acquires 15% or more of our Common Stock without
approval of our Board of Directors. This may deter or substantially delay
mergers, tender offers or other possible takeover attempts, even if they are
favored by a majority of our stockholders. See "Description of Capital
Stock-Shareholder Rights Plan." Also, our Board of Directors is "classified,"
with only one-third of the directors coming up for election each year. The
existence of a classified board may deter or delay mergers, tender offers or
other possible takeover attempts favored by holders of a majority of our stock.
Finally, Three Cities Investors own a majority in voting power of our stock,
and therefore it would be difficult or impossible for anyone to acquire the
Company if the Three Cities Investors (or most of them) did not favor the
acquisition. Anything which makes an acquisition of us more difficult could
reduce the price investors will be willing to pay for our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the Offering, the shares issued to holders of
Rights will be freely tradeable without restriction under the Securities Act of
1933, except for shares acquired by "affiliates," as that term is defined in
Rule 144 under the Securities Act. Under Rule 144, each affiliate will be
permitted to sell in ordinary brokerage transactions in any three month period
a number of shares of Common Stock equal to the greater of one percent of the
outstanding Common Stock or the average weekly trading volume in the Common
Stock during the four weeks preceding notice to the Securities and Exchange
Commission that the affiliate intends to sell some of our Common Stock, subject
to certain limitations and other requirements of Rule 144. Sales of
substantial amounts of our Common Stock, or the perception that such sales
could occur, could adversely affect the market price of our Common Stock and
could impair our ability to raise capital through the sale of additional equity
securities.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus, or in documents incorporated into
this Prospectus, are forward-looking statements. Those forward-looking
statements are subject to uncertainties that may cause the actual results to
differ from the results anticipated by the forward-looking statements. Factors
which may cause actual results to differ from those anticipated by forward
looking statements include, among others, general economic and business
conditions, both nationally and in the regions in which we operate; government
regulations (including regulations regarding temporary immigration of
agricultural workers and minimum wages of agricultural and other workers);
claims asserted against us; competition; changes in our business strategy or
development plans; difficulties attracting and retaining qualified personnel;
and the other factors described under the caption "Risk Factors," or in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections of our Annual Report on Form 10-K and our Quarterly Report
on Form 10-Q.
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THE COMPANY
We operate a chain of 124 Family Bargain off-price retail apparel and
housewares stores in California, Nevada, New Mexico, Oregon, and Washington and
a similar chain of 38 Factory 2-U off-price retail apparel and housewares
stores in Arizona, Nevada, New Mexico and Texas.
We acquired General Textiles (which is our principal operating subsidiary)
in 1993, while it was operating under Chapter 11 of the Bankruptcy Code. At
that time, General Textiles was operating only the Family Bargain Center chain.
Between December 31, 1992 and March 1, 1998, the Family Bargain Center chain
expanded from 108 stores in four states to 124 stores in six states. In
November 1995, we acquired Factory 2-U, Inc. and began to coordinate the
purchasing, warehousing and delivery operations for the Family Bargain Center
and Factory 2-U chains. Between November 1995 and March 1998, the Factory 2-U
chain increased from 33 stores in three states to 38 stores in three states.
Subsequently, several Family Bargain Center stores were converted into Factory
2-U stores. In July 1998, we merged General Textiles and Factory 2-U, Inc.
into a new General Textiles, Inc., which now operates both chains.
Family Bargain Center and Factory 2-U stores both sell primarily first
quality, in-season clothing for men, women and children and homegoods at prices
which generally are lower than the prices of competing discount and regional
off-price stores. The price of most items in our stores is below $35.00. The
two chains sell merchandise at bargain prices by purchasing in-season, excess
inventory and close-out merchandise at substantially discounted wholesale
prices and by setting retail prices which pass along the savings to its
customers.
Both Family Bargain Center stores, which average 12,000 square feet, and
Factory 2-U stores, which average 17,350 square feet, are designed in a self-
service format that affords easy access to merchandise displayed on bargain
tables, hanger racks and open shelves. Stores are stocked with new merchandise
at least weekly. Prices are clearly marked, often with a comparable retail
price. Most stores display signs in English and Spanish and are staffed with
bilingual personnel. Store atmosphere is enhanced by the playing of locally
popular music, the use of brightly colored pennants and occasional festive
outdoor promotions.
Our target market consists primarily of low-income families, including
agricultural, service and other blue collar workers, a significant portion of
whom are of Hispanic origin or members of other ethnic groups. The Company's
store merchandising selection, everyday low price strategy and store format are
designed to reinforce the concept of value and enhance the customers' shopping
experience while maximizing inventory turns.
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THE RESTRUCTURING OF OUR CAPITALIZATION
Our offer to sell Common Stock to holders of Rights is one step in a
restructuring of our capitalization, the results of which have been, or will
be, to (1) cause all our business activities to be conducted by an single
operating company, (2) exchange $22,235,098 of notes which had been issued in
1993 as part of General Textiles' reorganization plan, and which could absorb a
substantial portion of General Textiles' cash flow, for $20,585,098 of fixed
payment notes plus Common Stock and warrants, (3) provide approximately
$10,100,000 of net stock sale proceeds, which will be used to redeem $3,250,000
of the fixed payment notes before they begin to require substantial interest
payments, to pay the costs of the recapitalization and to increase our working
capital, and either (4) cause Series A Preferred Stock and Series B Preferred
Stock to be converted into Common Stock or (5) result in at least a substantial
portion of our Common Stock, Series A Preferred Stock and Series B Preferred
Stock being exchanged for General Textiles common stock. The steps in this
restructuring and recapitalization, some of which have already been completed
are as follows:
<circle> On April 30, 1998, General Textiles issued (i) $3,250,000 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 our Common Stock and warrants entitling the
holders to purchase 274,418 shares of our pre-recapitalization Common
Stock for $6.00 per share, in satisfaction of $17,335,097.65 principal
amount Junior Subordinated Reorganization Notes.
<circle> On August 1, 1998, we will be merging General Textiles and Factory 2-
U, Inc. into a new Delaware corporation, General Textiles, Inc., in a
transaction in which we, as the sole stockholder of both General Textiles
and Factory 2-U, Inc., received all the shares of General Textiles, Inc.
<circle> We have distributed to our stockholders transferrable Rights entitling
holders to purchase a total of 800,000 shares of our post-recapitalization
(i.e., post-merger with General Textiles, Inc.) Common Stock for $13.00
per share (or 3,000,000 shares of our pre-recapitalization Common Stock
for $3.75 per share if our stockholders do not approve a merger of General
Textiles, Inc. into us) on or before ____________, 1998, or a later date
if we extend the offer. This Prospectus relates to the offering of Common
Stock to holders of Rights. Our stockholders received one Right for each
41.16 shares of Common Stock, one Right for each 16.67 shares of Series A
Preferred Stock and 12.7823 Rights for each share of Series B Preferred
Stock. 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 people who exercise the oversubscription privilege on the basis of
the respective numbers of shares as to which they exercise the
oversubscription privilege. Three of the Three Cities Investors, which
have received Rights to purchase 305,490 post-recapitalization (or
1,145,587 pre-recapitalization) shares of Common Stock, have committed to
exercise the Rights they received, and to exercise their oversubscription
privilege as to 494,510 post-recapitalization (or 1,854,413 pre-
recapitalization) shares of Common Stock (the entire number of shares
subject to Rights which are being issued to our stockholders other than
the three Three Cities Investors). Therefore, all 800,000 post-
recapitalization (or 3,000,000 pre-recapitalization) shares of Common
Stock which are being offered to holders of Rights will be purchased, even
if no one but the three Three Cities Investors exercises Rights.
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<PAGE>
<circle> At a meeting to be held on ______________, 1998, our stockholders will
be asked to vote upon a merger of General Textiles, Inc. (the current
General Textiles) into us, in which, among other things, (i) each
outstanding share of our pre-recapitalization Common Stock will be
converted into .30133 shares of post-recapitalization Common Stock, (ii)
each outstanding share of our Series A Preferred Stock will be converted
into one share of post-recapitalization Common Stock, and (iii) each
outstanding share of our Series B Preferred Stock will be converted into
173.33 shares of post-recapitalization Common Stock. These conversion
ratios are essentially the same as though (a) each share of pre-
recapitalization Common Stock were converted into 1.13 shares of Common
Stock, (b) each share of Series A Preferred Stock were converted into 3.75
shares of Common Stock, (c) each share of Series B Preferred Stock were
converted into 650 shares of Common Stock and (d) there were a 1-for-3.75
reverse split of the Common Stock. The merger must be approved by the
holders of a majority in voting power of our Common Stock and Series B
Preferred Stock, voting as a single class, and by the holders of a
majority of the outstanding Series A Preferred Stock voting as a separate
class. If the merger is approved, it will take place on or shortly after
the meeting at which it is approved.
<circle> If the merger with General Textiles Inc. is not approved by our
stockholders:
<circle> Each Right will entitle the holder to purchase 3.75 shares of
pre-recapitalization Common Stock for $3.467 per share (a total of
$13 per Right).
<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
our stock will be given the opportunity to exchange their Family
Bargain stock for General Textiles common stock, at the rate of
.30133 shares of General Textiles common stock for each share of our
Common Stock, one share of General Textiles common stock for each
share of our Series A Preferred Stock and 173.33 shares of General
Textiles common stock for each share of our Series B Preferred
Stock. If this exchange offer is made, the three Three Cities
Investors will exchange all their Family Bargain Common Stock and
Series B Preferred Stock for a total of 5,268,217 shares of General
Textiles common stock (or a higher number of shares if the three
Three Cities Investors purchase additional shares of our Common
Stock by exercising the oversubscription privilege in their Rights).
If no shares of our stock owned by anyone other than the three Three
Cities Investors were exchanged, the issuance of General Textiles
common stock to the three Three Cities Investors as a result of the
exchange offer would reduce our ownership of General Textiles to 64%
or less of its common stock. Any exchanges of our stock by other
stockholders would further reduce our percentage ownership of
General Textiles. Our interest in General Textiles and an $16.4
million of Subordinated Notes from General Textiles would be our
only significant assets.
<circle> As promptly as practicable after the General Textiles exchange
offer terminates, we will hold a stockholders meeting at which our
stockholders will (x) elect new directors (who will not include
anyone affiliated with Three Cities) and (y) be asked to vote upon a
proposal to exchange shares of General Textiles which we own for the
shares of our stock which General Textiles acquired through the
exchange offer. At this meeting, General Textiles will vote its
Common Stock and Series B Preferred Stock pro rata with our other
stockholders with regard to the election of directors, but will vote
all our stock which it owns in favor of the proposal to exchange
some of our General Textiles common stock for our stock which
General Textiles owns. That exchange will eliminate the
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<PAGE>
interlocking relationship in which we may own as much as 64% of
General Textiles common stock and General Textiles will own at least
64% in voting power of our Common Stock and Series B Common Stock.
However, it will further reduce our ownership of General Textiles to
48% or less.
USE OF PROCEEDS
We will receive estimated net proceeds of $10,100,000 from the sale of
Common Stock to people who exercise Rights (including the oversubscription
privilege). We will use $3,250,000 of that amount to redeem our Subordinated
Notes due 2003. We will add the remainder of the net proceeds to our working
capital.
CAPITALIZATION
The following table sets forth our capitalization as of May 2, 1998, and
as adjusted to give effect to either (a) (i) the conversion of pre-
recapitalization Common Stock, Series A Preferred Stock and Series B Preferred
Stock, into post-recapitalization Common Stock, and the sale of 800,000 shares
of Common Stock on exercise of Rights, if the Merger with General Textiles is
approved or (ii) the sale of 3,000,000 shares of Common Stock on exercise of
Rights, if the Merger with General Textiles is not approved and (b) application
of a portion of the proceeds of sale of the Common Stock to redeem our
Subordinated Notes due 2003 as described under "Use of Proceeds."
<TABLE>
<CAPTION>
(UNAUDITED IN THOUSANDS)
----------------------------------------
AS ADJUSTED AS ADJUSTED
ACTUAL WITHOUT WITH
MAY 2, 1998 GT MERGER GT MERGER
----------- ----------- -----------
<S> <C> <C> <C>
DEBT:
Short term debt $1,117 $1,117 $1,117
Revolving credit notes 27,975 27,975 27,975
Long-term debt, including current maturities 16,978 13,728 13,728
Capital lease and other long-term obligations 3,434 3,434 3,434
----- ----- -----
Total debt 49,504 46,254 46,254
------ ------ ------
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock,$.01 par value,
4,500,000 shares authorized, 3,638,690 shares issued and
outstanding (aggregate liquidation preference of $36,387) 36 36
Series B junior convertible, exchangeable preferred stock,
$.01 par value 40,000 shares authorized, 35,360 shares
issued and outstanding (aggregate liquidation preferences of
$43,360) - -
Common Stock, $.01 or $.0375 par value, 80,000,000 shares
authorized, 5,004,122, 8,004,122 and 12,075,381 shares
issued and outstanding 50 80 453
Additional paid-in capital 88,597 98,737 98,400
Accumulated deficit (77,150) (77,150) (77,150)
-------- -------- --------
Total stockholders' equity 11,533 21,703 21,703
------ ------ ------
Total debt and stockholders' equity $61,037 $67,957 $67,957
======= ======= =======
</TABLE>
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STOCK PRICES
Our Common Stock and our Series A Preferred Stock are both quoted in the
Nasdaq Small-Cap Market. The following table sets forth information about the
high and low sale prices for our Common Stock and our Series A Preferred Stock
reported on the Nasdaq Small-Cap Market.
<TABLE>
<CAPTION>
SERIES A
COMMON PREFERRED
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1996
First Quarter $3.22 $1.56 $8.50 $5.63
Second Quarter $3.13 $1.75 $8.38 $6.88
Third Quarter $2.56 $1.38 $7.44 $6.75
Fourth Quarter $2.34 $1.31 $8.38 $6.13
FISCAL 1997
First Quarter $3.09 $2.00 $9.38 $7.75
Second Quarter $2.75 $1.63 $9.00 $8.00
Third Quarter $1.94 $0.50 $8.44 $6.69
Fourth Quarter $1.75 $1.00 $7.94 $6.25
FISCAL 1998
First Quarter $3.19 $1.28 $9.75 $7.13
Second Quarter (through June 30) $3.34 $2.31 $10.13 $8.13
</TABLE>
On June 30, 1998, the last reported sale price of our Common Stock
was $2.875 and of our Series A Preferred Stock was $9.313.
DIVIDEND POLICY
We have never paid dividends with regard to our Common Stock. We have
been paying required dividends of $.95 per share per year with regard to our
Series A Preferred Stock. In fiscal 1997, those dividends totalled $3.5
million. Beginning in 2002, we will be required to pay dividends of $60 per
share per year with regard to our Series B Preferred Stock, increasing by $20
each year until 2005, after which the annual dividend will remain at $120 per
share. The need to pay dividends with regard to the Series A Preferred Stock
and the Series B Preferred stock will be eliminated if the merger with General
Textiles, Inc. takes place. We have no current plans to pay dividends with
regard to our Common Stock. Whether we will pay cash dividends with regard to
our Common Stock at any time in the future will be determined by our Board of
Directors on the basis of our earnings, financial condition and cash
requirements and any other factors the Board of Directors deems relevant.
BUSINESS
We operate chains of 124 Family Bargain Center and 38 Factory 2-U off-
price retail apparel and housewares stores in Arizona, California, Nevada, New
Mexico, Oregon, Texas and Washington.
We acquired General Textiles, which was operating the Family Bargain
Centers chain, in 1993, while it was the subject of a proceeding under Chapter
11 of the Bankruptcy Code. Between December 31, 1992 and March 1, 1998, the
Family Bargain Center chain expanded from 108 stores in four states to 124
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stores in six states. In November 1995, we acquired Factory 2-U, Inc., which
operated the Factory 2-U chain, and began to coordinate the purchasing,
warehousing and delivery operations for the Family Bargain Center and Factory
2-U chains. Between November 1995 and March 1998, the Factory 2-U chain
increased from 33 stores in three states to 38 stores in three states.
Subsequently, we converted several Family Bargain Center Stores to Factory 2-U
stores. In June 1998, we merged General Textiles and Factory 2-U into a new
General Textiles, Inc., so now both chains are operated by the same entity.
Family Bargain Center and Factory 2-U stores both sell primarily first
quality, in-season clothing for men, women and children and housewares at
prices which generally are lower than the prices of competing discount and
regional off-price stores. Our stores sell merchandise at bargain prices by
purchasing in-season, excess inventory and close-out merchandise at
substantially discounted wholesale prices and by setting retail prices which
pass along the savings to our customers.
Family Bargain Centers Stores, which average 12,000 square feet, and
Factory 2-U stores, which average 17,350 square feet, both are designed in a
self-service format that affords easy access to merchandise displayed on
bargain tables, hanger racks and open shelves. Stores are stocked with new
merchandise at least weekly. Prices are clearly marked, often with a comparable
retail price. Most stores display signs in English and Spanish and are staffed
with bilingual personnel. Store atmosphere is enhanced by the playing of
locally popular music, the use of brightly colored pennants and occasional
festive outdoor promotions.
OPERATING STRATEGY
We seek to be the leading off-price apparel and housewares retailer to
lower income customers in the markets we serve. The major elements of our
operating strategy include:
PROVIDE FIRST QUALITY MERCHANDISE AT BARGAIN PRICES: Our stores sell
first quality merchandise at bargain prices by purchasing in-season,
excess inventory and close-out merchandise at substantial discounts from
normal wholesale prices and by setting retail prices which pass along the
savings to our customers.
TARGET UNDER-SERVED MARKET SEGMENTS, INCLUDING THE HISPANIC MARKET: Our
stores target customers who are under-served in many markets. Typical
customers are low-income families, including agricultural, service and
other blue collar workers, a significant portion of whom are of Hispanic
origin or members of other minority groups. Our store merchandise
selection is a product of purchasing and marketing programs tailored to
the purchasing patterns of customers in each store.
MAXIMIZE INVENTORY TURNS: We emphasize inventory turn in our merchandise
and marketing strategies. Merchandise presentation, an everyday low price
strategy, frequent store deliveries, and advertising programs all target
rapid inventory turn, which management believes leads to increased profits
and efficient use of capital.
LOW OPERATING COSTS: Our stores maintain low operating costs primarily
through their self-service formats, use of part-time labor, selection of
suitable locations with low rental expenses and overall focus on cost
controls.
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EXPANSION PLANS
OPENING OF NEW STORES: We plan to increase our store count by 7 to 169
stores in the fiscal year ending January 30, 1999 (fiscal 1998). All the new
stores will be in markets in which we currently operate. During fiscal 1997,
we opened 23 new stores and closed 7 stores. Average store opening expenses
for equipment, fixtures, leasehold improvements and grand opening costs are
approximately $195,000. Average initial inventory for a new store is
approximately $275,000. Generally, during the two to three month grand opening
period, a new store achieves sales in excess of sales of an average comparable
mature store and, within six months, generates sales consistent with comparable
mature store levels.
RENOVATION AND RELOCATION PROGRAM: We plan to continue a program of
renovating stores and relocating stores as superior sites become available in
their markets. Store renovations generally include installing new fixtures,
redesigning layouts and refurbishing floors and walls. The cost to renovate or
relocate a store is approximately $50,000. During fiscal 1997, we renovated
twenty stores and relocated one store.
CUSTOMERS
Our primary customers are families with annual household incomes of under
$25,000, many of whom are employed in the agricultural sector or are blue
collar workers. A significant portion of the Company's customers are of
Hispanic origin or members of other minority ethnic groups, including African-
Americans, Asians and Native Americans. We estimate that approximately 50% to
55% of our customers are of Hispanic origin. Bureau of the Census projections
predict that through 2020 the Hispanic population in the seven states where our
stores are located (Arizona, California, Nevada, New Mexico, Oregon, Texas and
Washington) will grow at approximately twice the rate of the total population.
PURCHASING
We purchase merchandise from a large number of domestic manufacturers,
jobbers, importers and other vendors. Payment terms are typically net 30 days.
The 10 largest vendors supply approximately 12% of our merchandise. We
continually add new vendors and do not maintain long-term or exclusive purchase
commitments or agreements with any vendor. We have generally not had difficulty
locating and purchasing appropriate apparel for our stores. Our management
believes there are a substantial number of additional sources of supply of
first quality, off-price apparel goods and expects that we will be able to meet
our increased inventory needs as we grow. Our general merchandise manager, four
merchandise managers and eleven buyers, who average over 10 years of apparel
and housewares industries experience, seek to purchase in-season goods and
first-run and last-run merchandise at substantial discounts to normal wholesale
pricing.
IN-SEASON GOODS. Unlike traditional department stores and discount
retailers, which primarily purchase merchandise in advance of a selling season
(for example, back-to-school clothing is purchased by March), we purchase
approximately 70% of our merchandise in-season (i.e., during the applicable
selling season). In-season purchases generally represent close-outs of vendors'
inventories which remain after the traditional wholesale selling season,
sometimes due to retailers' order cancellations. This merchandise is typically
available at prices below normal wholesale. Our management believes our in-
season buying practices are well suited to our customers, who tend to make
purchases on an as-needed basis during a season. Our in-season buying practices
are facilitated by our ability to process and ship merchandise through our
distribution center to our stores, usually within two or three days after we
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receive it from the vendor, and to process a large number of relatively small
purchase orders. Our management believes we are a desirable customer for
vendors seeking to liquidate inventory, because we can take immediate delivery
of large quantities of in-season goods. Furthermore, we rarely request
markdown concessions, advertising allowances or special shipping and packing
procedures, insisting instead on the lowest possible price.
FIRST-RUN AND LAST-RUN MERCHANDISE. Approximately 10% of our purchases
consist of "first-run" and "last-run" merchandise. To ensure product
consistency, manufacturers typically produce a preliminary "first run" of an
item. Additionally, manufacturers will produce "last runs" of certain items to
fill out production schedules, maintain stock for potential customer reorders,
convert excess fabric to finished goods or keep machinery in use. Manufacturers
sometimes designate first and last runs as "irregulars" to differentiate the
goods from full price merchandise or to indicate that the merchandise may
contain minor imperfections (which do not affect the wear ability of the
items). Typically this merchandise can be purchased at prices below normal
wholesale.
Manufacturers ship goods directly to our San Diego warehouse and
distribution center or, in the case of East Coast vendors, to us through our
East Coast freight consolidator. We use independent trucking companies to ship
goods from our warehouse to our stores. We generally do not store goods at our
warehouse from season to season
MERCHANDISING AND MARKETING
Our merchandise selection, pricing practices and store formats are
designed to reinforce the concept of value and maximize customer enjoyment of
the shopping experience. Our stores offer their customers a diverse selection
of primarily first quality, in-season merchandise at prices which generally are
lower than those of competing discount and regional off-price stores in their
local markets. Nearly all the stores' merchandise carries brand name labels,
including nationally recognized brands. For the Family Bargain Center chain,
women's and children's apparel each account for approximately 30% of sales and
men's apparel accounts for approximately 25% of sales, with the remaining
approximately 15% consisting of footwear, domestic items, housewares and toys.
For the Factory 2-U chain, men's, women's and children's apparel each accounts
for approximately 20% of sales and domestic items account for approximately 22%
of sales, with the remaining approximately 18% of sales consisting of footwear,
home goods and toys.
We deliver new merchandise to our stores at least once each week to
encourage frequent shopping trips by our customers and to maximize the rate of
inventory turn. As a result of our purchasing practices, store inventory may
not always include a full range of colors, sizes and styles in a particular
item. Our management believes, however, that price, quality and product mix
are more important to our customers than the availability of a specific item at
a particular time.
We emphasize inventory turn in our merchandising and marketing strategy.
Merchandise presentation, everyday low prices, frequent store deliveries,
staggered vendor shipments, promotional advertising, store-tailored
distribution and prompt price reductions on slow moving items all target rapid
inventory turn. We believe the pace of our inventory turn leads to increased
profits, reduced inventory markdowns, efficient use of capital and customer
urgency to make purchase decisions.
Our administrative headquarters receives daily store sales and inventory
information from point-of-sale computers located at each of our stores. This
data is reported by stock keeping unit (or "SKU") and helps our management to
tailor purchasing and distribution decisions. A chain-wide computer network
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also facilitates communications between the administrative headquarters and
stores, enabling our central management to provide store management with
immediate pricing and distribution information.
Our stores are characterized by easily accessible merchandise displayed on
bargain tables, hanger racks and open shelves, brightly colored pennants and
signs and the playing of locally popular music. Prices are clearly marked,
usually displayed in whole dollars. A comparative retail selling price is often
noted on price tags. Many stores display signs in Spanish and English and are
staffed with bilingual store personnel. Stores have "gala" grand openings and,
on occasion, feature outdoor sidewalk promotions with live music and other
festive activities. Our major advertising vehicle is full-color print tabs
showing actual photos of our merchandise. Print advertising is delivered as
newspaper inserts and marriage-mail drops. Other advertising programs include
radio, television and outdoor promotional activities.
Our stores emphasize customer satisfaction to develop customer loyalty and
generate repeat sales. If a customer is not completely satisfied with any
purchase, our store will make a full refund or exchange. Most sales are for
cash, although checks and credit cards are accepted. We do not issue our own
credit card, but we do offer a layaway program. The layaway program is an
important means for our customers, many of whom do not possess credit cards, to
purchase goods over time.
Approximately 60% of our sales occur in our third and fourth fiscal
quarters, during the back-to-school (August and September) and Christmas
(November and December) seasons.
THE STORES
We currently operate 162 stores in seven western states. Stores are
primarily located in rural and lower income suburban communities and, to a
lesser extent, in metropolitan areas. Most stores are located in strip shopping
centers, where occupancy costs are most favorable. May 31, 1998 store
locations were as follows:
<TABLE>
<CAPTION>
STATE STRIP CENTER DOWNTOWN OTHER TOTAL
- ----- ------------ -------- ----- -----
<S> <C> <C> <C> <C>
California 70 14 6 90
Arizona 28 4 0 32
Washington 9 2 2 13
New Mexico 8 0 1 9
Nevada 7 0 0 7
Oregon 6 0 1 7
Texas 3 1 0 4
--- -- -- ---
131 21 10 162
=== == == ===
</TABLE>
Family Bargain Centers range in size from 5,000 square feet to 34,850
square feet, averaging 12,000 square feet. Factory 2-U stores range in size
from 8,065 square feet to 28,000 square feet, averaging 17,350 square feet.
Our management continually reviews the ability of stores to provide positive
contributions to our operating results and may elect to close stores which do
not meet performance criteria. Costs associated with closing a store,
consisting primarily of recognition of any remaining lease obligations and
provisions to re-value assets to net realizable value, are charged to
operations during the fiscal year in which the decision is made to close the
store.
Our stores typically employ one store manager, two assistant store
managers, and seven to ten sales associates, most of whom are part-time
employees. New store managers are trained in all aspects of store operations
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through a management training program. Other store personnel are trained on
site. We often promote experienced assistant store managers to fill open
manager positions.
Our store managers participate in a bonus plan under which they are
awarded bonuses upon achieving specified objectives. We believe the bonus
program is an important incentive for our key employees, helps reduce employee
turnover and lowers costs.
Our management believes store opening and operating costs are low compared
to those of similar retailers due to our use of low rent store locations, a
self-service format, use of basic fixtures and use of part-time employees
whenever possible. We generally lease previously occupied sites on terms which
we believe are more favorable than those available for newly constructed
facilities. After we sign a store lease, a store opening team prepares the
store for opening by installing fixtures, signs, bargain tables, racks,
dressing rooms, checkout counters, cash register systems and other items. The
district manager and store manager arrange the merchandise according to the
standard store layout and train new personnel before and after the store is
opened. We select store sites based on demographic analysis of the market area,
sales potential, local competition, occupancy expense, operational fit and
proximity to existing store locations. Store opening preparations generally
take up to two weeks.
We maintain commercial liability, fire, theft, business interruption and
other insurance policies.
COMPETITION
We operate in a highly competitive marketplace. Our stores compete with
large discount retail chains such as Wal-Mart, K-Mart, Target and Mervyn's, and
with regional off-price chains, such as MacFrugal's, some of which have
substantially greater resources than we do. Our stores also compete with
independent and small chain retailers and flea markets (also known as "swap
meets") which serve the same low and low-middle income market as we do. Our
management believes the principal competitive factors in our markets are price,
quality and site location and that we are well positioned to compete on the
basis of these factors.
EMPLOYEES
At June 22, 1998 we were employing 3,049 people, of whom 2,772 were store
employees and store field management (1,785 of whom were part-time), 197 were
executives and administrative employees and 80 were warehouse employees. None
of our employees is subject to collective bargaining agreements and our
management considers our relations with our employees to be good.
TRADEMARKS
Except for the trade names "Family Bargain Center" and "Factory 2-U,"
which are federally registered trademarks, we do not use any material
trademarks. We are not aware of any infringing uses which could materially
impair the use of our trademarks.
GOVERNMENT REGULATION
Our operations are subject to various federal, state and local laws,
regulations and administrative requirements, including laws and regulations
regarding equal employment and minimum wages. We believe we are in substantial
compliance with all material federal, state and local laws and regulations
governing our operations and that we have all material licenses and permits
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<PAGE>
required for the operation of our business. We do not believe the burdens of
complying with applicable laws and regulations, or risks imposed by them, have
had a material adverse effect on us or our business.
LEGAL PROCEEDINGS
We are involved in various legal proceedings in the normal course of our
business, most of which are covered in whole or in part by insurance. We do
not believe the ultimate disposition of these legal proceedings will have a
material adverse effect on our financial position or the results of our
operations.
MANAGEMENT
DIRECTORS
The following table contains information regarding our directors.
<TABLE>
<CAPTION>
EXPIRATION OF
NAME AGE POSITION TERM AS DIRECTOR
---- --- -------- ----------------
<S> <C> <C> <C>
James D. Somerville 56 Chairman of the Board 2000
John J. Borer III 41 Director 1999
Peter V. Handal 55 Director 1998
Ronald Rashkow 56 Director 1998
Michael Searles 48 Director, President and 1998
Chief Executive 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 Rodman and Renshaw, Inc.
terminated its operations in March 1998, Mr. Borer has been a Senior Managing
Director of R&R Capital Group, an investment banking firm. Rodman & Renshaw,
Inc. and its parent commenced proceedings under Chapter 7 of the Bankruptcy
Code on March 18, 1998.
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
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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 Boards 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.
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.
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. Mr. Uhrig also serves on the board of directors
of MLX Corp., a holding company ("MLX").
H. WHITNEY WAGNER has been a director of the Company since January 1997.
He has been a Managing Director of TCR Associates since 1989. He joined TCR in
1983 and was elected a Vice President in 1986. Mr. Wagner also serves on the
board 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.
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<PAGE>
EXECUTIVE OFFICERS
The following table contains information about our executive officers who
are not directors.
<TABLE>
<CAPTION>
NAME POSITION AGE AN OFFICER SINCE
- ---- -------- --- ----------------
<S> <C> <C> <C>
B. Mary McNabb Executive Vice President -- 49 1990
Merchandising for
General Textiles
William F. Cass Executive Vice President -- 48 1996
Operations for
General Textiles
Jonathan W. Spatz Executive Vice President 42 1997
and Chief Financial
Officer
</TABLE>
B. MARY MCNABB has been the Executive Vice President - Merchandising of
the Company since 1990.
WILLIAM F. CASS has been the Executive Vice President of Operations for
the Company since March 1996. He held the same position with Factory 2-U, Inc.
until it was merged with General Textiles in June 1998. Prior to joining the
Company, 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.
COMMITTEES OF THE BOARD
The Board of Directors has five committees. The committees, their
functions 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 Board of Directors
determines the compensation of our executive officers based on recommendations
from the Compensation Committee. The Compensation Committee consists of Messrs.
Borer, Rashkow, Somerville and Weld.
The Stock Option Committee administers our Employee 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 our independent accountants, as well as
our accounting principles and system of internal accounting controls. Our By-
laws provide that transactions with affiliates and acquisitions of businesses
not within certain SIC Codes (primarily covering wholesale apparel trade,
retail stores, and apparel stores) must be unanimously approved by the Audit
Committee; except that if at any time there are no remaining shares of Series A
Preferred Stock outstanding, acquisitions of businesses not within the SIC
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<PAGE>
Codes will require approval only by a majority of the Audit Committee. The
members of the Audit Committee are Messrs. Borer, Handal and Wagner.
The Nominating Committee considers potential nominees for election to the
Board of Directors by either incumbent directors or stockholders. Its members
are Messrs. Handal, Somerville and Wagner.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 80 million shares of Common Stock and 7,500,000
shares of preferred stock, of which our Board has authorized us to issue
4,500,000 shares of Series A Preferred Stock and 40,000 shares of Series B
Preferred Stock. On May 31, 1998, we had 5,004,122 outstanding shares of
Common Stock and 3,674,050 shares of preferred stock, of which 3,638,690 shares
were Series A Preferred Stock and the remaining 35,360 shares were Series B
Preferred Stock.
COMMON STOCK
Each share of Common Stock is entitled to one vote on all matters to be
voted upon by the common stockholders. All shares of Common Stock will share
equally and rateably in dividends and in distributions if we are liquidated.
Holders of Common Stock do not have preemptive rights and are not entitled to
cumulative voting in the election of directors. Because of that, the holders
of a majority in voting power of the shares of Common Stock and Series B
Preferred Stock present at a meeting can elect all the directors, and the
holders of the remaining shares will not be able to elect any directors.
PREFERRED STOCK
The Board of Directors may authorize the issuance of preferred stock in
series, each of which will have whatever rights and preferences, and will be
subject to whatever limitations, the Board of Directors may determine when it
authorizes creation of a series of preferred stock. Currently, the only series
of preferred stock which the Board of Directors has authorized and of which
there are outstanding shares are the Series A Preferred Stock and the Series B
Preferred Stock.
SERIES A PREFERRED STOCK
The Board of Directors has authorized us to issue 4,500,000 shares of
Series A Preferred Stock. At May 31, 1998, there were 3,638,690 outstanding
shares of Series A Preferred Stock.
The Series A Preferred Stock ranks senior to the Series B Preferred Stock
and to the Common Stock with respect to the payment of dividends and
distribution of assets if we are liquidated. Holders of Series A Preferred
Stock will be entitled to receive $10 per share if we are liquidated. They are
entitled to receive dividends at the rate of $.95 per share per year, payable
quarterly on the last Friday of each January, and on each April 30, July 31 and
October 31, when and if the dividends are declared by our Board of Directors.
The right to dividends is cumulative.
Series A Preferred Stock may be converted into Common Stock at the rate
which, on May 31, 1998, was $3.905 liquidation preference of Series A Preferred
Stock per share of Common Stock, subject to adjustment to prevent dilution. We
have the option to redeem all, but not less than all, the outstanding Series A
Preferred Stock on 30 days' notice for $10 per share, plus any accumulated and
unpaid dividends, at any time (but only at a time) when the last reported price
of our Common Stock has, for 20 consecutive trading days ending no more than 10
days before we notify the holders that the Series A Preferred Stock has been
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<PAGE>
called for redemption, is at least 137.5% of the conversion price then in
effect. In addition, beginning July 21, 1998 we may redeem all or any of the
Series A Preferred Stock at the following per share prices:
YEAR ENDING JULY 20, REDEMPTION PRICE
1999................................. $10.70
2000, 2001........................... $10.50
2002, 2003........................... $10.30
2004 and subsequent.................. $10.00
Holders of Series A Preferred Stock do not have voting rights, other than
as required by Delaware law, except that (a) at any time when dividends have
not been paid on four divided payment dates (whether or not consecutive), the
holders of the Series A Preferred Stock will vote together with the holders of
the Common Stock on all matters, with the holders of the Series A Preferred
Stock being entitled to one vote per share, (b) if there is a vote upon a
proposal for us to consolidate into or merge with another corporation, or to
sell all or substantially all of our assets, the holders of the Series A
Preferred Stock will be entitled to vote together with the holders of the
Common Stock, with the holders of the Series A Preferred Stock being entitled
to one vote per share and (c) if we propose to take any action, directly or
indirectly, or through a merger or consolidation with another corporation,
which would (i) create, or increase the authorized number of shares of, a class
or series of our stock which ranks prior to or on a parity with the Series A
Preferred Stock as to dividends or upon liquidation, (ii) change any provision
of our Certificate of Incorporation or By-laws, or of the resolutions which
authorized the issuance of the Series A Preferred Stock, in a manner which
would adversely affect the Series A Preferred Stock, (iii) authorize a
reclassification of the Series A Preferred Stock, (iv) require the exchange of
Series A Preferred Stock for other securities or assets or (v) increase the
number of shares of Series A Preferred Stock which we may issue, that action
will have to be approved by the affirmative vote of holders of a majority of
the outstanding shares of Series A Preferred Stock.
SERIES B PREFERRED STOCK
The Board of Directors has authorized us to issue 40,000 shares of Series
B Preferred Stock. On May 31, 1998, there were 35,360 outstanding shares of
Series B Preferred Stock.
The Series B Preferred Stock ranks junior to the Series A Preferred Stock,
but senior to the Common Stock, with respect to dividends and to distributions
of assets if we are liquidated. Holders of Series B Preferred Stock will be
entitled to $1,000 per share if we are liquidated. Under most circumstances,
they are not entitled to dividends until January 2002. Beginning then, holders
of Series B Preferred Stock will be entitled to dividends totalling $60 per
share in 2002, increasing by $20 per share every year after that until (and
including) 2005, during and after which the dividend will be $120 per share per
year. Dividends will be paid when and if declared by the Board of Directors.
Holders' rights to dividends are cumulative. Dividends may be required prior
to 2002, or may be greater than otherwise would have been required after 2002,
if we default on our revolving credit facilities or declare dividends on our
Common Stock.
The Series B Preferred Stock may be converted into Common Stock at the
rate of $1.900804 liquidation preference of Series B Preferred Stock per share
of Common Stock, beginning (a) on the 30th day after there is no outstanding
Series A Preferred Stock, or (b) when there is a change of control of us (which
occurs if (i) anyone acquires 30% or more of our Common Stock, (ii) we are a
party to a merger or consolidation, unless holders of our Common Stock or
preferred stock which is convertible into Common Stock at the time of the
merger or consolidation own at least 66 2/3% of the outstanding Common Stock
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<PAGE>
after the transaction, or (iii) a majority of the members of our Board are
persons who are not elected, or nominated for election, to the Board for the
first time by a majority of the directors who had served on the Board at the
time of the election or nomination for at least 12 months).
The shares of Series B Preferred Stock vote together with our Common Stock
on all matters, with the holders of Series B Preferred Stock receiving a number
of votes equal to the number of shares of Common Stock into which their shares
can be converted (or could have been converted if the Series B Preferred Stock
were convertible at the time).
We may redeem all, but not less than all, the outstanding Series B
Preferred Stock for $1,000 per share at any time when there no longer is any
outstanding Series A Preferred Stock. Also, if at any time the holders of
Series B Preferred Stock become entitled to dividends because we are in default
under a loan agreement, we may redeem all, but not less than all, the Series B
Preferred Stock by issuing to the holders three year 8% convertible
subordinated notes in the principal amount per share of Series B Preferred
Stock equal to $1,000 plus all accumulated or accrued but unpaid dividends.
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<PAGE>
LEGAL MATTERS
Rogers & Wells LLP, New York, New York, has passed upon legal matters
relating to the validity of the shares offered by this Prospectus and certain
legal matters with respect to United States federal income tax considerations.
EXPERTS
The consolidated financial statements, as of and for the year ended
January 31, 1998, incorporated by reference in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm or, as experts in accounting and
auditing in giving said report.
The consolidated finaicial statements of the Company and its subsidiaries
as of Feruary 1, 1997 and for the years ended February 1, 1997 and January
27, 1996, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
32
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee . . . . . . . . . . . . . . . . . . $ 4,310
Printing and Engraving Expenses. . . . . . . . . . . 100,000
Legal Fees and Expenses. . . . . . . . . . . . . . . 100,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . 10,000
Accountant's Fees and Expenses . . . . . . . . . . . 30,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . 55,690
----------
Total. . . . . . . . . . . . . . . . . . . . . $ 300,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-laws provide for indemnification of directors, officers,
employees and agents, among other things, in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are directors, officers,
employees or agents of the Company, if they acted in good faith and in a manner
they believed to be in or not opposed to the best interests of the Company and,
with respect to a criminal action or proceedings, if they had no reasonable
cause to believe the action or proceedings, if they had no reasonable cause to
believe the action was unlawful.
Family Bargain Company carries directors' and officers' liability
insurance that covers certain liabilities and expenses of the Company's
directors and officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
(b) Exhibits
2.1 Plan and Agreement of Merger dated June 18, 1998 between Family
Bargain Corporation and General Textiles, Inc.
5. Opinion of Rogers & Wells LLP*
8 Opinion of Rogers & Wells LLP with respect to tax matters*
10.1 Stock Purchase Agreement, dated as of August 29, 1995, among the
Registrant, certain shareholders of Capin Mercantile Corporation and
Sellers Agent ("F2U Sellers") (1-Exhibit 10.1)
10.2 Amendment to Stock Purchase Agreement, dated November 10, 1995,
between the Registrant and F2U Sellers (3-Exhibit 10.2)
II-1
<PAGE>
10.3(a) Loan and Security Agreement dated as of October 14, 1993,between
General Textiles and Greyhound Financial Capital Corporation
(1-Exhibit 10.15)
10.3(b) Amendment No. 1 to Loan and Security Agreement, dated as of July
14, between General Textiles and Greyhound Financial Capital
Corporation (2-10.15(3))
10.3(c) Amendment No. 5 to Loan and Security Agreement, dated April 18,
between General Textiles and Finova Capital Corporation (4-10.15(b))
10.3(d) Amendment No. 6 to Loan and Security Agreement, dated July 10,
1996, between General Textiles and Finova Capital Corporation
(5-Exhibit 10.15(c))
10.3(e) Amendment No. 7 to Loan and Security Agreement, dated December 31,
1996, between General Textiles and Finova Capital Corporation
(5-Exhibit 10.15(d))
10.3(f) Amendment No. 8 to Loan and Security Agreement, dated April 23,
1997, between General Textiles and Finova Capital Corporation
(6-Exhibit 10.2(b))
10.3(g) Amendment No. 9 to Loan and Security Agreement, dated May 30,
1997, between General Textiles and Finova Capital Corporation
(6-Exhibit 10.1(b))
10.3(h) Amendment No. 10 to Loan and Security Agreement, dated September
24, 1997, between General Textiles and Finova Capital Corporation
(7-Exhibit 10.2)
10.4(a) Loan and Security Agreement dated November 13, 1995 between
Factory 2-U and Finova Capital Corporation (4-Exhibit 10.30(a))
10.4(b) Amendment No. 1 to Loan and Security Agreement, dated April 18,
1996, between Factory 2-U, Inc. and Finova Capital Corporation
(4-Exhibit 10.30(b))
10.4(c) Amendment No. 2 to Loan and Security Agreement, dated April 22,
1996, between Factory 2-U, Inc. and Finova Capital Corporation
(5-Exhibit 10.30(c))
10.4(d) Amendment No. 3 to Loan and Security Agreement, dated July 10,
1996, between Factory 2-U, Inc. and Finova Capital Corporation
(5-Exhibit 10.30(d))
10.4(e) Amendment No. 4 to Loan and Security Agreement, dated December 31,
1996, between Factory 2-U, Inc. and Finova Capital Corporation
(5-Exhibit 10.30(e))
10.4(f) Amendment No. 5 to Loan and Security Agreement, dated April 23,
1997, between Factory 2-U, Inc. and Finova Capital Corporation
(6-Exhibit 10.1(a))
10.4(g) Amendment No. 6 to Loan and Security Agreement, dated May 30,
1997, between Factory 2-U, Inc. and Finova Capital Corporation
(6-Exhibit 10.1(b))
10.4(h) Amendment No. 7 to Loan and Security Agreement, dated May 30,
1997, between Factory 2-U, Inc. and Finova Capital Corporation
(7-Exhibit 10.1)
10.4(i) Modifications to Loan and Security Agreement, dated August 28,
1997 between Finova Capital Corporation and both General Textiles
and Factory 2-U (6-Exhibit 10.6)
II-2
<PAGE>
10.5(a) Acknowledgement and Reaffirmation (Re: Affiliate Debt, Management
Fees, Intercreditor Agreement) dated as of April 23, 1997, between
Family Bargain Corporation and Finova Capital Corporation (6-Exhibit
10.3(a))
10.5(b) Acknowledgement and Reaffirmation (Re: Affiliate Debt, Management
Fees, Intercreditor Agreement) dated as of September 24, 1997,
between Family Bargain Corporation and Finova Capital Corporation
(6-Exhibit 10.3(b))
10.6 Subordinated Promissory Note ($6.35 MM), dated as of April 30, 1997
between General Textiles and Family Bargain Corporation (6-Exhibit
10.5)
10.7 Subordination and Standstill Agreement (RE: $6.35 MM Debt), dated as
of May 30, 1997, between Family Bargain Corporation and Finova
Capital Corporation (6-Exhibit 10.4)
10.8 Securities Purchase Agreement dated December 30, 1996 among Family
Bargain Corporation, Three Cities Fund II, L.P., Three Cities
Offshore II, C.V. and Terfin International Ltd. (5-Exhibit 2.4)
10.9 Note Exchange Agreement dated April 27, 1998 among General Textiles,
Family Bargain Corporation, American Endeavour Fund Limited and
London Pacific Life & Annuity Company.
10.10 Junior Subordinated Note Agreement dated April 30, 1998 among
General Textiles, American Endeavour Fund Limited and London Pacific
Life & Annuity Company.
10.11 Subordinated Note Agreement dated April 30, 1998 among General
Textiles, American Endeavour Fund Limited and London Pacific Life &
Annuity Company.
10.12 Form of Warrant dated April 30, 1998
10.13 Registration Rights Agreement dated April 30, 1998 among Family
Bargain Corporation, American Endeavour Fund Ltd. and London Pacific
Life Annuity Company.
10.14 Agreement dated July , 1998 of Three Cities Fund II L.P., Three
Cities Offshore II C.V. and Quilvest American Equity Ltd. to
exercise Rights and vote for merger.*
11.1 Computation of per share earnings.
13.1 Form 10-K for the year ended January 31, 1998.
13.2 Form 10-K/A amending Form 10-K for the year ended January 31, 1998.
13.3 Form 10-Q for the period ended May 2, 1998.
23. Consents
(a) Rogers & Wells LLP (counsel) -- included in Exhibit 5
(b) Arthur Andersen (accountants)
(c) KPMG Peat Marwick (accountants)
II-3
<PAGE>
24 Powers of Attorney -- on signature page.
_____
* To be filed by amendment.
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, No. 33-77488 filed with the Commission on April 7,
1994.
(2) Incorporated by reference to General Textiles' Registration
Statement on Form S-4, No. 33-92176 filed with the Commission on May
11, 1995.
(3) Incorporated by reference to the Registrant's Form 8-K and 8-K/A
dated November 28, 1995.
(4) Incorporated by reference to the Registrant's Form 10-K/A for fiscal
year ended January 27, 1996.
(5) Incorporated by reference to the Registrant's Form 10-K for fiscal
year ended February 1, 1997.
(6) Incorporated by reference to the Registrant's Form 10-Q for the 13
weeks ended August 2, 1997.
(7) Incorporated by reference to the Registrant's Form 10-Q for the 13
weeks ended November 1, 1997.
ITEM 17. UNDERTAKINGS
(a) As to documents subsequently filed that are incorporated by
reference:
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 20, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by a director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
be governed by the final adjudication of such issue.
II-4
<PAGE>
(c) As to the Rights offering:
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer, any transactions by underwriters during the
subscription period, the amount of unsubscribed securities to be purchased by
underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Dieo, State of California, on this day of
July, 1998.
FAMILY BARGAIN CORPORATION
By: JAMES D. SOMERVILLE
---------------------------------------
James D. Somerville
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Searles, Jonathan W. Spatz and
J. William Uhrig and each of them, as his or her true and lawful
attorney-in-fact and agent, with sole power of substitution, to sign for him
and in his or her name, in any and all capacities, all amendments (including
post-effective amendments) to the Registration Statement to which this power
of attorney is attached, and to file all such amendments and all exhibits to
them and other documents to be filed in connection with them, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by or on behalf of the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
JAMES D. SOMERVILLE Chairman of the Board July 7, 1998
_____________________________ (Principal Executive Officer)
James D. Somerville
JONATHAN W. SPATZ Executive Vice President July 7, 1998
_____________________________ (Principal Financial and
Jonathan W. Spatz Accounting Officer)
_____________________________ Director July , 1998
John J. Borer III
PETER V. HANDAL Director July 7, 1998
____________________________
Peter V. Handal
RONALD RASHKOW Director July 3, 1998
____________________________
Ronald Rashkow
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
MICHAEL SEARLES Director July 7, 1998
_____________________________
Michael Searles
J. WILLIAM UHRIG Director July 7, 1998
_____________________________
J. William Uhrig
H. WHITNEY WAGNER Director July 6, 1998
_____________________________
H. Whitney Wagner
THOMAS G. WELD Director July 7, 1998
_____________________________
Thomas G. Weld
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
<S> <C> <C>
2.1 Plan and Agreement of Merger dated June 18, 1998 between Family Bargain
Corporation and General Textiles, Inc.
5. Opinion of Rogers & Wells LLP*
8 Opinion of Rogers & Wells LLP with respect to tax matters*
10.1 Stock Purchase Agreement, dated as of August 29, 1995, among the
Registrant, certain shareholders of Capin Mercantile Corporation and Sellers
Agent ("F2U Sellers") (1-Exhibit 10.1)
10.2 Amendment to Stock Purchase Agreement, dated November 10, 1995, between
the Registrant and F2U Sellers (3-Exhibit 10.2)
10.3(a) Loan and Security Agreement dated as of October 14, 1993, between General
Textiles and Greyhound Financial Capital Corporation (1-Exhibit 10.15)
10.3(b) Amendment No. 1 to Loan and Security Agreement, dated as of July 14,
between General Textiles and Greyhound Financial Capital Corporation (2-
10.15(3))
10.3(c) Amendment No. 5 to Loan and Security Agreement, dated April 18, between
General Textiles and Finova Capital Corporation (4-10.15(b))
10.3(d) Amendment No. 6 to Loan and Security Agreement, dated July 10, 1996,
between General Textiles and Finova Capital Corporation (5-Exhibit 10.15(c))
10.3(e) Amendment No. 7 to Loan and Security Agreement, dated December 31,
1996, between General Textiles and Finova Capital Corporation (5-Exhibit
10.15(d))
10.3(f) Amendment No. 8 to Loan and Security Agreement, dated April 23, 1997,
between General Textiles and Finova Capital Corporation (6-Exhibit 10.2(b))
10.3(g) Amendment No. 9 to Loan and Security Agreement, dated May 30, 1997,
between General Textiles and Finova Capital Corporation (6-Exhibit 10.1(b))
10.3(h) Amendment No. 10 to Loan and Security Agreement, dated September 24,
1997, between General Textiles and Finova Capital Corporation (7-Exhibit
10.2)
10.4(a) Loan and Security Agreement dated November 13, 1995 between Factory 2-U
and Finova Capital Corporation (10-Exhibit 10.30(a))
10.4(b) Amendment No. 1 to Loan and Security Agreement, dated April 18, 1996,
between Factory 2-U, Inc. and Finova Capital Corporation (10-Exhibit
10.30(b))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.4(c) Amendment No. 2 to Loan and Security Agreement, dated April 22, 1996,
between Factory 2-U, Inc. and Finova Capital Corporation (5-Exhibit
10.30(c))
10.4(d) Amendment No. 3 to Loan and Security Agreement, dated July 10, 1996,
between Factory 2-U, Inc. and Finova Capital Corporation (5-Exhibit
10.30(d))
10.4(e) Amendment No. 4 to Loan and Security Agreement, dated December 31,
1996, between Factory 2-U, Inc. and Finova Capital Corporation (5-Exhibit
10.30(e))
10.4(f) Amendment No. 5 to Loan and Security Agreement, dated April 23, 1997,
between Factory 2-U, Inc. and Finova Capital Corporation (6-Exhibit 10.1(a))
10.4(g) Amendment No. 6 to Loan and Security Agreement, dated May 30, 1997,
between Factory 2-U, Inc. and Finova Capital Corporation (6-Exhibit 10.1(b))
10.4(h) Amendment No. 7 to Loan and Security Agreement, dated May 30, 1997,
between Factory 2-U, Inc. and Finova Capital Corporation (7-Exhibit 10.1)
10.4(i) Modifications to Loan and Security Agreement, dated August 28, 1997
between Finova Capital Corporation and both General Textiles and Factory 2-
U (6-Exhibit 10.6)
10.5(a) Acknowledgement and Reaffirmation (Re: Affiliate Debt, Management Fees,
Intercreditor Agreement) dated as of April 23, 1997, between Family Bargain
Corporation and Finova Capital Corporation (6-Exhibit 10.3(a))
10.5(b) Acknowledgement and Reaffirmation (Re: Affiliate Debt, Management Fees,
Intercreditor Agreement) dated as of September 24, 1997, between Family
Bargain Corporation and Finova Capital Corporation (6-Exhibit 10.3(b))
10.5 Subordination and Standstill Agreement (RE: $6.35 MM Debt), dated as of
May 30, 1997, between Family Bargain Corporation and Finova Capital
Corporation (6-Exhibit 10.4)
10.6 Subordinated Promissory Note ($6.35 MM), dated as of April 30, 1997
between General Textiles and Family Bargain Corporation (6-Exhibit 10.5)
10.7 Subordination and Standstill Agreement (Re: $6.35 million debt) dated as of
May 30, 1997, between Family Bargain Corporation and Finova Capital
Corporation (6-Exhibit 10.4)
10.8 Securities Purchase Agreement dated December 30, 1996 among Family
Bargain Corporation, Three Cities Fund II, L.P., Three Cities Offshore II,
C.V. and Terfin International Ltd. (5-Exhibit 2.4)
10.9 Note Exchange Agreement dated April 27, 1998 among General Textiles,
Family Bargain Corporation, American Endeavour Fund Limited and London
Pacific Life & Annuity Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.10 Junior Subordinated Note Agreement dated April 30, 1998 among General
Textiles, American Endeavour Fund Limited and London Pacific Life &
Annuity Company.
10.11 Subordinated Note Agreement dated April 30, 1998 among General Textiles,
American Endeavour Fund Limited and London Pacific Life & Annuity
Company.
10.12 Form of Warrant dated April 30, 1998
10.13 Agreement dated July , 1998 of Three Cities Fund II L.P., Three Cities
Offshore II C.V. and Quilvest American Equity Ltd. to exercise Rights and
vote for merger.*
11.1 Computation of per share earnings.
13.1 Form 10-K for the year ended January 31, 1998.
13.2 Form 10-K/A amending Form 10-K for the year ended January 31, 1998.
13.3 Form 10-Q for the period ended May 2, 1998.
23. Consents
(a) Rogers & Wells LLP (counsel) -- included in Exhibit 5
(b) Arthur Andersen (accountants)
(c) KPMG Peat Marwick (accountants)
24 Powers of Attorney -- on signature page.
- ---------
* To be filed by amendment.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, No. 33-77488 filed with the Commission on April 7, 1994.
(9) Incorporated by reference to General Textiles' Registration Statement
on Form S-4, No. 33-92176 filed with the Commission on May 11,
1995.
(10) Incorporated by reference to the Registrant's Form 8-K and 8-K/A
dated November 28, 1995.
(11) Incorporated by reference to the Registrant's Form 10-K/A for fiscal year
ended January 27, 1996.
(12) Incorporated by reference to the Registrant's Form 10-K for fiscal year
ended February 1, 1997.
(13) Incorporated by reference to the Registrant's Form 10-Q for the 13
weeks ended August 2, 1997 (2nd Quarter).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(14) Incorporated by reference to the Registrant's Form 10-Q for the 13
weeks ended November 1, 1997 (3rd Quarter).
</TABLE>
<PAGE>
EXHIBIT 10.9
NOTE EXCHANGE AGREEMENT
This is an agreement dated April 27, 1998 among General Textiles (the
"Company"), a California corporation, Family Bargain Corporation ("Family
Bargain") American Endeavour Fund Ltd., a Jersey corporation ("Endeavour") and
London Pacific Life Annuity Company ("London Pacific," and together with
Endeavour, the "Noteholders"), a North Carolina joint stock life insurer,
regarding the exchange by the Noteholders (a) of $4,900,000 principal amount of
Subordinated Reorganization Notes (the "Old Subordinated Notes") for $3,250,000
principal amount of Subordinated Notes due 2003 ("New Subordinated Notes"), and
(b) a total of $17,335,097.65 principal amount of Junior Subordinate
Reorganization Notes (the "Old Junior Notes") for (i) $17,335,097.65 principal
amount of Junior Subordinated Notes due 2005 ("New Junior Notes"), warrants
("Warrants") entitling the holders to purchase a total of 274,418 shares of
common stock, par value $.01 per share, of the Company ("Common Stock") and
75,000 shares of Common Stock (the "Shares"). The agreement of the parties is
as follows:
ARTICLE I
EXCHANGE OF NOTES
SECTION 1.01 EXCHANGE OF NOTES. At the Closing described in Paragraph
2.01, each of the Noteholders will Exchange the principal amount of Old
Subordinated Notes and Old Junior Notes listed next to the name of that
Noteholder on Exhibit 1.01 for the principal amounts of New Subordinated Notes,
Junior Notes and Warrants or shares Common Stock shown opposite that
Noteholder's name on Exhibit 1.01.
ARTICLE II
THE CLOSING
SECTION 2.01 PLACE AND TIME OF THE CLOSING. The closing of the exchange of
Old Subordinated Notes and Old Junior Notes for New Subordinated Notes, New
Junior Notes, Warrants and Shares (the "Closing") will take place at the
offices of Rogers & Wells, 200 Park Avenue, New York, New York at 11:00 A.M.,
New York City time, on April 30, 1998 (the "Closing Date").
SECTION 2.02 OCCURRENCES AT THE CLOSING.
(a) At the Closing, the Company will deliver to each Noteholder the
following:
(i) A copy, executed by the Company, of a Subordinated Note
Agreement (the "Subordinated Note Agreement") substantially in the form of
Exhibit 2.02-A(1).
(ii) A New Subordinated Note, in the principal amount shown on
Exhibit 1.01.
(iii) A copy, executed by the Company, of a Junior Subordinated
Note Agreement (the "Junior Note Agreement') substantially in the form of
Exhibit 2.02-A(3).
<PAGE>
(iv) A New Junior Subordinated Note in the principal amount
shown on Exhibit 1.01.
The New Subordinated Notes will be in the form of Exhibit A to
the Subordinated Note Agreement and the New Junior Notes will be in the form of
Exhibit A to the Junior Note Agreement. The New Subordinated Note and the New
Junior Note issued to a Noteholder each will be registered in the name of that
Noteholder, and each may bear a legend to the effect that it was issued in a
transaction which was not registered under the Securities Act of 1933, as
amended, and it may not be sold or transferred except in a transaction which is
registered under that Act or is exempt from the registration requirements of
that Act.
(b) At the Closing, Family Bargain will deliver to the Noteholders
the following:
(i) To Endeavour, a certificate, registered in the name of
Endeavour, representing the Shares.
(ii) To London Pacific, a Warrant, substantially in the form
of Exhibit 2.02-B(2), registered in the name of London Pacific, relating to
274,418 shares of Common Stock.
(iii) To each of the Noteholders, a copy, executed by Family
Bargain, of a Registration Rights Agreement (the "Registration Rights
Agreement") substantially in the form of Exhibit 2.02-B(3).
The certificates representing the Shares and the Warrant delivered
at the Closing each may bear a legend to the effect that the Shares were, or
the Warrant was, issued in a transaction which was not registered under the
Securities Act of 1933, as amended, and may not be sold or transferred except
in a transaction which is registered under that Act or is exempt from the
registration requirements of that Act.
(c) At the Closing, each Noteholder will deliver to the Company the
following:
(i) Old Subordinated Notes and Old Junior Notes in the
aggregate principal amount shown on Exhibit 1.01, in proper form for transfer
to the Company in accordance with Article 8 of the Uniform Commercial Code as
in effect in New York (or, if Old Subordinated Notes or Old Junior Notes have
been lost, an affidavit of lost notes in the form of Exhibit 2.02-C relating to
the lost Old Subordinated Notes or Old Junior Notes, accompanied by a document
assigning the lost Old Subordinated Notes or Old Junior Notes to the Company).
(ii) A copy, executed by the Noteholder, of the Subordinated
Note Agreement.
(iii) A copy, executed by the Noteholder, of the Junior Note
Agreement.
(iv) A document, executed by the Noteholder, in which the
Noteholder states that the New Subordinated Notes, New Junior Notes and
Warrants or Shares the Noteholder receives at the Closing are in full
satisfaction of all obligations of the Company with regard to the Old
Subordinated Notes and the Old Junior Notes being delivered, or which are the
subject of the affidavit of lost notes being delivered, by the Noteholder at
the Closing, and with regard to the indebtedness which resulted in the issuance
of the Old Subordinated Notes and the Old Junior Notes to the Noteholder or its
predecessor in interest.
2
<PAGE>
(v) A letter stating that the Noteholder will be acquiring
New Subordinated Note, the New Junior Note and the Warrant or Shares which are
being issued to it at the Closing for investment, and not with a view to the
resale or distribution of any of them.
(vi) A letter in which the Noteholder consents to any and all
of (i) a merger of the Company for the sole purpose of reincorporating in
Delaware, (ii) a merger of the Company with Factory 2-U and (iii) a merger of
the Company with Family Bargain.
(vii) A copy, executed by the Noteholder of the Registration
Rights Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FAMILY
BARGAIN. The Company and Family Bargain jointly and severally represent and
warrant to each Noteholder as follows:
(a) The Company and Family Bargain each is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
in which it was incorporated.
(b) The Company and Family Bargain each 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 each of the Company and Family Bargain to enter into this
Agreement and carry out the transactions contemplated by it have been taken.
This Agreement has been duly executed by the Company and by Family Bargain and
is a valid and binding agreement of each of them, enforceable against each of
them in accordance with its terms.
(c) 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 Articles or
Certificate of Incorporation or by-laws of the Company or Family Bargain, any
agreement or instrument to which the Company or Family Bargain or any of their
respective subsidiaries 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 any
other regulatory organization having jurisdiction over the Company, Family
Bargain or any of their respective subsidiaries.
(d) When executed and delivered at the Closing, (i) the Subordinate
Note Agreement and the Junior Note Agreement each will be a valid and binding
agreement of the Company, enforceable against the Company in accordance with
its terms, (ii) each of the New Subordinated Notes and New Junior Notes which
the Company is required to deliver at the Closing will be a valid and binding
debt instrument of the Company, enforceable against the Company in accordance
with its terms and (iii) the Warrant issued at the Closing and the Registration
Rights Agreement each will be a valid and binding agreement of Family Bargain,
enforceable against Family Bargain in accordance with its terms.
(e) When issued at the Closing, the Shares will be, and when shares
of Common Stock are issued upon exercise of Warrants, those shares will be,
validly authorized, duly issued, fully paid and non-assessable.
3
<PAGE>
(f) No governmental filings, authorizations, approvals or consents,
or other governmental actions, are required to permit the Company or Family
Bargain to fulfill all its obligations under this Agreement.
(g) When it is filed with the Securities and Exchange Commission,
Family Bargain's Annual Report on Form 10-K for the fiscal period ended January
31, 1998 (the "Family Bargain 10-K") will (i) comply in all material respects
with the requirements for a report on Form 10-K, (ii) not contain a
misstatement of a material fact or omit to state any material fact necessary to
make the statements in it not misleading, and (iii) not differ materially from
the draft which is Exhibit 3.01-G to this Agreement. Since the dates as of
which information is provided in the Family Bargain 10-K, there has been no
material adverse change (other than as a result of normal seasonal factors) in
the business, financial condition or results of operations of Family Bargain
and its subsidiaries taken as a whole.
SECTION 3.02 NOTEHOLDERS' REPRESENTATIONS AND WARRANTIES. Each
Noteholder, for itself but not for any other Noteholder, represents and
warrants to the Company and to Family Bargain as follows:
(a) The Noteholder is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction in which it
was incorporated.
(b) The Noteholder 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
the Noteholder to enter into this Agreement and carry out the transactions
contemplated by it and have been taken. This Agreement has been duly executed
by the Noteholder and is a valid and binding agreement of the Noteholder,
enforceable against the Noteholder in accordance with its terms.
(c) Neither the execution of this Agreement or 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 or Articles of Incorporation
or by-laws (or comparable organic documents) of the Noteholder, any agreement
or instrument to which the Noteholder is a party or by which it is bound, any
law or any order, rule or regulation of any court or governmental agency or
other regulatory organization having jurisdiction over the Noteholder.
(d) When executed and delivered at the Closing, the Subordinated
Note Agreement, the Junior Note Agreement and the Registration Rights Agreement
each will be a valid and binding agreement of the Noteholder, enforceable
against the Noteholder in accordance with its terms.
(e) The Noteholder owns the Old Subordinated Notes and the Old
Junior Notes listed opposite the Noteholder's name on Exhibit 1.01, free and
clear of any liens, encumbrances or claims by anyone else, the Noteholder has
not transferred to anyone else any interest in those Old Subordinated Notes or
Old Junior Notes, the Noteholder has full power and authority to transfer those
Old Subordinated Notes and the Old Junior Notes to the Company, and when the
Noteholder transfers those Old Subordinated Notes and Old Junior Notes to the
Company, the Noteholder will have no further interest in those Old Subordinated
Notes and Old Junior Notes, and neither the Noteholder nor anyone else will be
entitled to receive any sum (including any sum which may be due at the time of
the transfer) with regard to them.
4
<PAGE>
(f) No governmental filings, authorizations, approvals or consents,
or other governmental actions, are required to permit the Noteholder to fulfill
all its obligations under this Agreement.
ARTICLE IV
COVENANT
SECTION 4.01 EFFORT TO PREPAY NEW SUBORDINATED NOTES. Family Bargain and
General Textiles will use their best efforts to complete by June 30, 1998, or
as soon as practicable after that, a sale of equity securities of Family
Bargain or General Textiles which will provide funds sufficient to enable
General Textiles to prepay the principal of the New Subordinated Notes in full,
and promptly after completion of that sale of equity securities, General
Textiles will prepay the principal of the New Subordinated Notes in full.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01 CONDITIONS TO COMPANY'S OBLIGATIONS. The obligations of the
Company and Family Bargain at the Closing are subject to satisfaction of the
following conditions (any or all of which may be waived by Family Bargain):
(a) The representations and warranties of each of the Noteholders
contained in this Agreement will, except as contemplated by this Agreement, be
true and correct in all material respects at the Closing Date with the same
effect as through made on that date.
(b) Each of the Noteholders will have fulfilled in all materials
respects all its obligations under this Agreement required to have been
fulfilled prior to or at the Closing.
(c) No order will have been entered by any court or governmental
authority and be in force which invalidates this Agreement or restrains the
Company or Family Bargain from completing the transactions which are the
subject of this Agreement.
SECTION 5.02 CONDITIONS TO NOTEHOLDERS' OBLIGATIONS. The obligations of
each of the Noteholders at the Closing are subject to the following conditions
(any or all of which may be waived by any Noteholder as to itself):
(a) The representations and warranties of the Company and Family
Bargain contained in this Agreement will, except as contemplated by this
agreement, be true and correct in all material respects at the Closing Date,
with the same effect as though made on that date.
(b) The Company and Family Bargain each will have fulfilled in all
material respects all its obligations to that Noteholder under this Agreement
required to have been fulfilled prior to or at the Closing.
5
<PAGE>
(c) No order will have been entered by any court or governmental
authority and be in force which invalidates this Agreement or restrains that
Noteholder from completing the transactions which are the subject of this
Agreement.
ARTICLE VI
ABSENCE OF BROKERS
SECTION 6.01 REPRESENTATIONS AND WARRANTIES REGARDING BROKERS AND OTHERS.
The Company and Family Bargain jointly and severally represent to each of the
Noteholders, and each Noteholder represents to the Company and Family
Bargain,as to that Noteholder but not as to any other Noteholder, that nobody
acted as a broker, a finder or in any similar capacity on its behalf in
connection with the transactions which are the subject of this Agreement. The
Company and Family Bargain jointly and severally indemnify each of the
Noteholders against and agree to hold each of the Noteholders harmless from,
and each of the Noteholders indemnifies each of the Company and Family Bargain
against and agrees to hold each of the Company and Family Bargain harmless
from, all losses, liabilities and expenses, including, but not limited to,
reasonable fees and expenses of counsel and costs of investigation) incurred
because of any claim by anyone for compensation as a broker, a finder or in any
similar capacity by reason of services allegedly rendered to the indemnifying
party in connection with the transactions which are the subject of this
Agreement.
ARTICLE VII
GENERAL
SECTION 7.01 EXPENSES. The Company, Family Bargain and each of the
Noteholders will pay its own expenses in connection with transactions which are
the subject of this Agreement, except that the Company will reimburse Endeavour
for fees and expenses of legal counsel up to a maximum of $15,000.
SECTION 7.02 ENTIRE AGREEMENT. This Agreement and the documents to be
delivered in accordance with this Agreement contain the entire agreement among
the Company, Family Bargain and the respective Noteholders relating to the
transactions which are the subject of this Agreement and those other documents,
all prior negotiations, understandings and agreements among the Company, Family
Bargain and the respective Noteholders are superseded by this Agreement and
those other 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.
SECTION 7.03 CAPTIONS. The captions of the articles and sections of this
Agreement are for reference only, and do not affect the meaning or
interpretation of this Agreement.
SECTION 7.04 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 mail by first class mail from within the United States of
America, addressed if to the Company or Family Bargain, at 4000 Ruffin Road,
San Diego, CA 92123, Facsimile No. (619) 637-4180, and if to any Noteholder, at
the address or facsimile number shown under that Noteholder's name on the
signature page of this Agreement or as otherwise shown on the Company's
register of Noteholders. The address or facsimile number to which
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<PAGE>
communications should be sent to the Company or to a Noteholder may be changed
by a notice given as provided in this Section.
SECTION 7.05 GOVERNING LAW. This Agreement will be governed by, and
construed under, the substantive laws of the State of New York.
SECTION 7.06 AMENDMENTS. This Agreement may be amended only by a document
in writing signed by the Company and, if an amendment affects any Noteholder,
signed by that Noteholder.
SECTION 7.07 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, some of which may be signed by fewer than all the parties and may
be delivered by facsimile transmission, each of which will be deemed an
original, but all of which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the Company, Family Bargain and the Noteholders have
executed this Agreement, intending to be legally bound by it, on the date shown
on the first page of this Agreement.
THE COMPANY: GENERAL TEXTILES
By: /s/ Jonathan W. Spatz
_______________________________________________
Title: Executive Vice President
FAMILY BARGAIN: FAMILY BARGAIN CORPORATION
By:/s/ Jonathan W. Spatz
_________________________________________________
Title: Executive Vice President
NOTEHOLDERS: AMERICAN ENDEAVOUR FUND LIMITED
By:_________________________________________________
Title: Liquidator
c/o Kleinwort Benson (US) Asset Managers LLC
75 Wall Street, 24th Floor
New York, New York 10005
Attention: Richard H. Wolf
Facsimile No.: (212) 429-3099
LONDON PACIFIC LIFE & ANNUITY COMPANY
By:/s/ Susan Y. Gressel
________________________________________________
Title: Treasurer
3109 Poplarwood Court, Suite 1800
Raleigh, North Carolina 27604
Attention: Susan Y. Gressel
Facsimile No.: (919) 981-2797
7
<PAGE>
EXHIBIT 1.01
<TABLE>
<CAPTION>
NOTEHOLDER ENDEAVOUR LONDON PACIFIC
<S> <C> <C>
Old Subordinated Notes 2,338,978.56 2,561,021.44
Old Junior Notes 8,274,779.95 9,060,317.70
New Subordinated Notes 1,551,363.33 1,698,636.67
New Junior Notes 8,274,779.94 9,060,317.71
Shares 75,000 0
Warrants 0 274,418
</TABLE>
<PAGE>
EXHIBIT 10.10
JUNIOR SUBORDINATED NOTE AGREEMENT
THIS JUNIOR SUBORDINATED NOTE AGREEMENT (the "Agreement") is made and
entered into as of this 30th day of April, 1998 by and among GENERAL
TEXTILES, a California corporation (the "Company"), AMERICAN ENDEAVOUR FUND
LIMITED, a Jersey corporation ("Endeavour"), and LONDON PACIFIC LIFE &
ANNUITY COMPANY, a North Carolina joint stock life insurer ("London
Pacific"). Endeavour and London Pacific shall sometimes be referred to
herein collectively as the "Noteholders."
RECITAL
The Company and the Noteholders have entered into a Note Exchange
Agreement in which they have agreed that the Company will issue, among
other things, a total of $17,335,097.65 principal amount of Notes to the
Noteholders in exchange for a total of $17,335,097.65 principal amount of
the Company's Junior Subordinated Reorganization Notes.
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extension of credit by the Noteholders to or on behalf
of the Company heretofore, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
"ACTUAL KNOWLEDGE" means the actual knowledge of any executive officer
of the Company; PROVIDED, HOWEVER, that each executive officer of the
Company shall be deemed to have actual knowledge of any fact that would
have come to such officer's attention if he or she had exercised reasonable
care in performing his or her duties, given the nature of his or her duties
and the Company's business and organization.
"AFFILIATE" means (i) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
(ii) any spouse, immediate family member or other relative, provided such
individual has the same principal residence, of any Person described in
clause (i) above, (iii) any trust in which any Person described in clauses
(i) or (ii) above has a beneficial interest, and (iv) any corporation or
other organization of which the Persons described in clauses (i) or (ii)
above individually or collectively own a general partnership interest or
equity securities or trust certificates with more than five percent (5%) of
the total voting power for the election of directors or persons exercising
<PAGE>
similar authority of such corporation or other organization; PROVIDED,
HOWEVER, that the term Affiliate shall not include any wholly owned
subsidiary of the Company. For this purpose, "control" means possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any committee of the Board authorized to act for it.
"BUSINESS DAY" means any day other than a Legal Holiday.
"COMPANY" means General Textiles, a California corporation, and its
successors and assigns.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Debtors' Laws.
"DEBTORS' LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, fraudulent conveyance, arrangement, receivership,
insolvency, reorganization or similar laws or general equitable principles
from time to time in effect affecting the rights of creditors generally.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"ENDEAVOUR" means American Endeavour Fund Limited, a Jersey
corporation.
"EVENT OF DEFAULT" has the meaning assigned to such term in Section
5.01 hereof.
"FACTORY 2-U" means Factory 2-U, Inc., a Delaware corporation which,
at the date of this Agreement, is wholly owned by Family Bargain.
"FAMILY BARGAIN" means Family Bargain Corporation, a Delaware
corporation which, at the date of this Agreement, is the sole stockholder
of the Company.
"INDEBTEDNESS" means, with respect to any Person and without
duplication, all: (i) liabilities or obligations, direct and contingent,
matured or unmatured, liquidated or unliquidated, including, without
limitation, trade debt; (ii) liabilities or obligations of others for which
such Person is directly or indirectly liable, by way of guaranty (whether
by direct guaranty, suretyship, discount, endorsement, take-or-pay
agreement, agreement to purchase or advance or keep in funds or other
agreement having the effect of a guaranty) or otherwise; (iii) liabilities
or obligations secured by liens on any assets of such Person, whether or
not such liabilities or obligations shall have been assumed by it; and (iv)
liabilities or obligations of such Person, direct or contingent, with
respect to letters of credit issued for the account of such Person and
bankers' acceptances created for such Person, whether now in existence or
hereafter incurred; and (v) the Notes and the Subordinated Notes.
2
<PAGE>
"IRS" means the United States Internal Revenue Service.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in New York, New York or San
Diego, California.
"LONDON PACIFIC" means London Pacific Life & Annuity Company, a North
Carolina joint stock life insurer.
"MATURITY DATE" means May 28, 2005.
"NOTEHOLDERS" has the meaning assigned to such term in the preamble to
this Agreement.
"NOTES" means the Company's Junior Subordinated Notes, which Notes
shall be substantially in the form set forth in EXHIBIT A attached hereto
and made a part hereof, and "Note" shall mean any one of the Notes.
"OFFICER" means the Chairman of the Board, the President, any Vice-
President, the Treasurer or the Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or an Assistant Secretary of the
Company.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, or government or any agency or political subdivision thereof.
"SENIOR INDEBTEDNESS" means the principal of and premium, if any, on
all Indebtedness of the Company, whether outstanding on the date hereof or
hereafter incurred or created, for money borrowed from banks, insurance
companies or other companies engaged in lending money as a regular part of
their business, other than (i) the Notes, and (ii) any indebtedness of
Family Bargain which becomes Indebtedness of the Company solely because of
a merger of Family Bargain and the Company.
"SUBORDINATED NOTES" means the Subordinated Notes due 2003 in the
aggregate principal amount of $3,250,000 issued by the Company in exchange
for $4,900,000 principal amount of its Subordinated Reorganization Notes.
ARTICLE 2.
THE NOTES
SECTION 2.01 THE JUNIOR SUBORDINATED NOTES. The Company is authorized
to execute and deliver Junior Subordinated Notes (each a "Note" and
collectively the "Notes"), substantially in the form of EXHIBIT A attached
hereto and made a part hereof. The Notes shall have an aggregate principal
amount of not more than Seventeen Million Three Hundred Thirty-Five
Thousand Ninety-Seven Dollars and Sixty-Five Cents ($17,335,097.65).
3
<PAGE>
SECTION 2.02 INTEREST. The Notes shall not bear interest, except as
provided in Section 2.05.
SECTION 2.03 PAYMENTS OF PRINCIPAL. The Company will be required to
pay the principal of each Note in installments as follows:
<TABLE>
<CAPTION>
Principal Payment Percentage of Original
DATE PRINCIPAL AMOUNT TO BE PAID
- ----------------- ---------------------------
<S> <C>
December 31, 1999 5.768644%
December 31, 2000 5.768644%
December 31, 2001 11.537287%
December 31, 2002 11.537287%
December 31, 2003 17.305931%
December 31, 2004 17.305931%
Maturity Date 30.776276%
----------
100.000000%
</TABLE>
The Notes will mature on the Maturity Date and all principal and interest
(if any) which has not been paid prior to the Maturity Date will be due and
payable on the Maturity Date.
SECTION 2.04 PREPAYMENT. The Company may prepay all or any portion of
the principal of the Notes at any time without prepayment penalty or
premium. If fewer than all of the Notes are to be prepaid, the Company
shall allocate the total principal amount to be prepaid pro rata as nearly
as practicable among the Notes based on the outstanding principal balances
thereof. Any Note which is to be prepaid only in part shall be surrendered
to the Company (with, if the Company so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company duly
executed by, the holder of such Note or its attorney duly authorized in
writing), and the Company shall execute for the holder of such Note a new
Note equal in principal amount to the unprepaid portion of the Note
surrendered and identical to the Note surrendered in all other respects.
SECTION 2.05 OVERDUE PAYMENTS; BUSINESS DAYS. If any principal amount
of any of the Notes is not paid when due, then interest shall accrue on the
entire Note outstanding from the date such sum is due until paid at the
rate of ten percent (10%) per annum, compounded quarterly, or at the
maximum rate permitted by law, whichever is less. Interest shall be
calculated on the basis of the actual number of days elapsed in a year of
360 days from the last day on which interest was paid (or if no interest
has been paid, from the day on which interest began to accrue). Whenever
any payment of principal or interest on any of the Notes shall be stated to
be due, or whenever any date specified in this Agreement or in any of the
Notes would otherwise occur on a Legal Holiday, such payment shall be made,
and such other date shall occur, on the next succeeding Business Day. Any
such extension of time shall be included in the computation of interest
payable.
4
<PAGE>
ARTICLE 3.
SUBORDINATION OF NOTES
SECTION 3.01 AGREEMENT TO SUBORDINATE. The Company agrees, and each
holder of Notes, by accepting Notes, agrees, that all Notes shall be issued
subject to the provisions of this Article 3 and each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, accepts
and agrees to and shall be bound by such provisions.
All Notes, to the extent and in the manner set forth in this Article
3, shall be subordinated and subject in right of payment to the prior
payment in full of the principal of, premium, if any, on and interest on
all Senior Indebtedness.
SECTION 3.02 NO PAYMENT ON NOTES IF SENIOR INDEBTEDNESS IN DEFAULT. In
addition to the restrictions set forth in Section 2.03 hereof, no payment
on account of the principal of, or interest on, the Notes shall be made if,
at the time of such payment or immediately after giving effect thereto, (a)
there shall exist a default in the payment of principal, premium, if any,
sinking funds, or interest with respect to any Senior Indebtedness, or (b)
there shall have occurred any other event of default (of which the Company
shall have received notice from any holder or trustee with respect to any
Senior Indebtedness) relating to any Senior Indebtedness, as defined
therein or in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, and such
event of default shall not have been cured or waived or shall not have
ceased to exist. In the event that the Notes are declared due and payable
before their expressed maturity because of the occurrence of an Event of
Default, the holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal (and premium, if any) and interest with
respect to such indebtedness before the holders of the Notes shall be
entitled to receive any payment on account of principal or otherwise.
SECTION 3.03 PRIORITY OF SENIOR INDEBTEDNESS UPON DISTRIBUTION OF
ASSETS. Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors in
the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its property, or upon
any such payment in the event of proceedings for voluntary or involuntary
liquidation, dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy, all principal, premium, if any, and
interest due or to become due upon all Senior Indebtedness shall first be
paid in full, or payment thereof duly provided for, before any payment is
made on account of the Indebtedness evidenced by the Notes. Upon any such
proceedings (but subject to the power of a court of competent jurisdiction
to make other equitable provision with respect to the rights of the holders
of any Senior Indebtedness and the holders of the Notes pursuant to a
lawful plan of reorganization under applicable Debtors' Laws) any payment
or distribution of assets of the Company of any kind or character, whether
in cash, property or securities, to which the holders of the Notes would be
entitled, except for the provisions of this Article 3, shall be paid or
delivered by the Company or by any Custodian or other Person making such
payment or distribution, or by the holders of the Notes if received by them
or it, directly to the holders of Senior Indebtedness (pro rata to each
such holder on the basis of the respective amounts of Senior Indebtedness
5
<PAGE>
held by such holder) or their representatives to the extent necessary to
pay all Senior Indebtedness in full after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the holders of the Notes.
In the event that, notwithstanding the foregoing provisions of this
Section 3.03, any such payment or distribution of property or securities,
shall be received by the holders of the Notes before all Senior
Indebtedness is paid in full, or provision made for such payment, in
accordance with its terms, such payment or distribution shall be held for
the benefit of, and shall be paid over or delivered to, the holders of such
Senior Indebtedness or their representatives, as their respective interests
may require, ratably as aforesaid, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all
such Senior Indebtedness in full in accordance with its terms, after giving
effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
SECTION 3.04 NOTICE TO HOLDERS OF NOTES OF SPECIFIED EVENTS; RELIANCE
ON CERTIFICATE OF LIQUIDATING AGENT. The Company shall give prompt written
notice to the registered holders of the Notes of any proceedings of the
type specified in Section 3.03. The holders of the Notes shall be entitled
to assume that no such event has occurred unless the Company or any one or
more holders of Senior Indebtedness or any trustee therefor or any other
Person has given such notice to the registered holders of the Notes. Upon
any payment or distribution of assets of the Company referred to in this
Article 3, the registered holders of the Notes shall be entitled to rely
upon a certificate of the Custodian or other Person making such payment or
distribution, delivered to such holders, for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of
the Senior Indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 3. In the
event that any holder of the Notes determines, in good faith, that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payments or distribution pursuant
to this Article 3, such holder may request such Person to furnish evidence
to the reasonable satisfaction of such holder as to the amount of Senior
Indebtedness held by such Person, as to the extent to which such Person is
entitled to participate in such payment or distribution, and as to other
facts pertinent to the rights of such Person under this Article 3, and if
such evidence is not furnished, such holder may defer any payment to such
Person pending judicial determination as to the right of such person to
receive such payment.
SECTION 3.05 SUBROGATION OF NOTES. Subject to the payment in full of
the principal of, premium, if any, on and interest on all Senior
Indebtedness, the holders of the Notes shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
assets of the Company made on the Senior Indebtedness paid in full. For
the purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property, or securities to
which the holders of the Notes would be entitled except for the provisions
of this Article 3 shall, as between the Company and the holders of the
Notes, be deemed to be a payment by the Company to or on account of Senior
Indebtedness, it being understood that the provisions of this Article 3 are
and are intended solely for the purpose of defining the relative rights of
6
<PAGE>
the holders of the Notes, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
SECTION 3.06 OBLIGATION TO PAY NOT IMPAIRED. Except as provided in
Section 2.03 hereof, nothing contained in this Article 3 or elsewhere in
this Agreement, or in the Notes, is intended to or shall impair as among
the Company and the holders of the Notes, the obligation of the Company,
which is absolute and unconditional, to pay to the holders of the Notes the
outstanding principal amount of the Notes, as and when the same shall
become due and payable in accordance with their terms, or to affect the
relative rights of the holders of the Notes nor shall anything herein or
therein prevent the holders of the Notes from exercising, subject to the
terms hereof, all remedies otherwise permitted by applicable law upon the
occurrence of an Event of Default under this Agreement, subject to the
rights, if any, under this Article 3 of the holders of the Senior
Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
ARTICLE 4.
COVENANTS
SECTION 4.01 CORPORATE EXISTENCE. The Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any right or privilege if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the holders of the Notes.
SECTION 4.02 PAYMENT OF TAXES. The Company will pay or discharge or
cause to be paid or discharged, (i) all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such
tax, assessment or charge which is being contested in good faith by
appropriate proceedings.
SECTION 4.03 LIMITATION ON DIVIDENDS. Until the Notes are paid in
full, the Company will not pay dividends or make other distributions with
regard to its outstanding stock of any class, unless the holders of two-
thirds in aggregate principal amount of the Notes outstanding consent,
except that if all or a portion of the principal of the Subordinated Notes
due 2003, issued under an Indenture between General Textiles and IBJ
Schroeder Bank & Trust Company, held by Family Bargain on April 30, 1998
("FB 2003 Notes") are eliminated or satisfied without payment by the
Company (whether because that principal is contributed to the Company,
because of a merger of the Company and Family Bargain or otherwise), the
Company may at any time when (i) all the Subordinated Notes have been paid
in full and (ii) no Event of Default has occurred and is continuing,
without the consent of any holders of Notes, declare dividends or make
other distributions to stockholders in an amount not exceeding (a) in any
year, $4 million and (b) in total, the amount of the principal of FB 2003
Notes which is eliminated or satisfied without payment by the Company.
This Section 4.03 will not prevent the Company from making payments to a
7
<PAGE>
parent which files a consolidated Federal or state income tax return for an
affiliated group which includes the Company equal to the Federal or state
income taxes the Company would have had to pay if it had filed a separate
return, and those payments will not be treated as dividends or other
distributions to stockholders.
SECTION 4.04 COMPLIANCE CERTIFICATE. The Company shall deliver to the
holders of the Notes within 105 days after the end of each fiscal year of
the Company an Officers' Certificate stating that, after a review of the
activities of the Company during such period and of the Company's
performance under this Agreement, whether or not, to the best knowledge of
the signers thereof based on such review, there has been any Default or
Event of Default by the Company in performing any of its obligations under
this Agreement or the Notes. If they do know of any such Default or Event
of Default, the certificate shall describe the Default or Event of Default
and its status.
SECTION 4.05 NOTICE OF DEFAULT. In the event that any Default under
this Agreement shall occur, the Company will give prompt written notice of
such Default to each registered holder of the Notes, specifying the nature
and status of such default and the steps which the Company has taken or
proposes to take in order to cure such Default.
SECTION 4.06 REPORTS. The Company shall (i) within forty-five (45)
days of the close of each fiscal quarter of the Company cause to be
furnished to each registered holder of the Notes a copy of its consolidated
balance sheet, income statement and cash flow statement for the preceding
fiscal quarter, each prepared in accordance with generally accepted
accounting principles applied on a consistent basis and (ii) if the Company
becomes required to file reports with the Securities and Exchange
Commission, within ten (10) days after the Company files a report with the
Securities and Exchange Commission, the Company will furnish a copy of that
report to each registered holder of Notes.
ARTICLE 5.
DEFAULTS AND REMEDIES
SECTION 5.01 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment of any installment of
the principal or interest of any Note when the same becomes due and
payable;
(b) the Company fails to observe or perform in any material
respect any of its covenants or agreements in the Notes or this
Agreement, which failure continues for a period of 60 days after the
earlier of (i) the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the holders of at least twenty-five percent (25%) in
aggregate principal amount of the Notes at the time outstanding or
(ii) the date on which the Company had Actual Knowledge of such
failure;
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<PAGE>
(c) the Company commits a default under any Senior
Indebtedness and as a result the obligation of the Company to pay
principal or interest with regard to any of that Senior Indebtedness
is accelerated so that it becomes due and payable prior to the date on
which it would otherwise have been due and payable, and that
acceleration is not rescinded or annulled within 30 days after the
date on which the Company had Actual Knowledge of the acceleration;
PROVIDED that if an event of default under Senior Indebtedness is
cured or waived, any Event of Default under this Section 5.01(c)
relating to the event of default under the Senior Indebtedness, and
any Event of Default under Section 5.01(a) because of failure to make
an accelerated payment of principal or a payment of interest which
becomes due solely because of the Event of Default under this Section
5.01(c), will be deemed to have been cured at the same time the event
of default under the Senior Indebtedness is cured or waived, without
any action by any holders of Notes.
(d) the entry of an order for relief under any Debtors' Laws
against the Company by any bankruptcy court of competent jurisdiction
which shall
(i) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition;
(ii) appoint a Custodian for any part of its property; or
(iii) order the dissolution of the Company or the winding up
or liquidation of its affairs and such order remains unstayed and
in effect for a period of thirty (30) consecutive days;
(e) the appointment of a Custodian for all or any substantial
part of the property of the Company, and such appointment shall
continue unstayed and in effect for a period of thirty (30)
consecutive days; and
(f) the entry of judgment by a court of competent jurisdiction
against the Company and the scheduling of a sale of any substantial
part of the Company's property which is not stayed prior to the
scheduled date of such sale.
SECTION 5.02 ACCELERATION. If an Event of Default occurs and is
continuing or has occurred and has continued for a period of not less than
three (3) months without having been waived, remedied or cured, the holders
of not less than two-thirds in principal amount of the Notes, or, in the
case of an Event of Default specified in Section 5.01(a) hereof, the holder
of any of the Notes, by notice to the Company, may declare the principal of
the Notes to be due and payable, and upon such declaration, the principal
of the Notes shall be due and payable immediately, provided that with
regard to an Event of Default of the type described in Section 5.01(c) or
(d), the principal of the Notes will become immediately due and payable
when the Event of Default occurs, without the passage of three (3) months
time and, as to an Event of Default of the type described in Section
5.01(d), without notice from, or any other action on the part of, the
holders of the Notes. The holders of not less than two-thirds of the
principal amount of the Notes may rescind an acceleration and its
consequences by notice to the Company if the rescission would not conflict
9
<PAGE>
with any judgment or decree and if each outstanding Event of Default has
been cured or waived except, unless theretofore cured, nonpayment of
principal that has become due solely because of the acceleration. No such
rescission shall affect any subsequent Default or impair any right or
remedy with respect thereto.
SECTION 5.03 OTHER REMEDIES. Notwithstanding any other provision of
this Agreement, if an Event of Default occurs and is continuing and the
Notes have been accelerated in accordance with Section 5.02 above, the
holder of any of the Notes may pursue any available remedy by proceeding at
law or in equity to collect the payment of the principal of the Notes or to
enforce the performance of any provision of the Notes or this Agreement.
The holder of any of the Notes may maintain a proceeding even if it
does not possess any of the Notes or does not produce any of them in the
proceeding. A delay or omission by any or all of the holders of the Notes
in exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver of or acquiescence in
the Event of Default. No remedy is exclusive of any other remedy. All
remedies are cumulative.
In case any or all of the holders of the Notes shall have proceeded to
enforce any rights under this Agreement and such proceedings shall have
been discontinued or abandoned because of rescission or annulment or for
any other reason or shall have been determined adversely to the holders who
participated in such proceedings, then in every such case the Company and
the holders of the Notes shall, subject to any determination in such
proceeding, be restored respectively to their former positions and rights
hereunder, and all rights, remedies and powers of the Company and the
holders of the Notes shall continue as though no such proceeding had been
taken.
ARTICLE 6.
MISCELLANEOUS
SECTION 6.01 SUCCESSORS AND ASSIGNS IN GENERAL. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign
or transfer its rights hereunder or any interest herein or delegate its
duties hereunder (other than in a merger or other combination of the type
described in Section 4.01) without the prior written consent of the holders
of the Notes. Each holder of the Notes may assign, pledge or transfer all
or any portion of its Notes or its rights hereunder to the extent permitted
by law, including state and federal securities laws. In the event of any
such assignment, pledge or transfer, such assignee shall, to the extent
provided in such assignment, pledge or transfer, be entitled to exercise
the rights of the holder of a Note making such assignment, pledge or
transfer and shall be deemed a holder of a Note under this Agreement.
SECTION 6.02 FURTHER ASSURANCE. The Company shall, from time to time
at the request of any holder of a Note, execute and deliver to such holder
or to such Person or Persons as such holder may designate, any and all
further instruments as may in the reasonable opinion of such holder be
necessary to give full force and effect to any transfer or assignment
10
<PAGE>
contemplated by Section 6.01, and shall provide to such holder or to such
Person or Persons as such holder may designate, all such information as
such holder may reasonably request.
SECTION 6.03 NO WAIVER. No delay, failure or discontinuance of any
holder of any of the Notes, in exercising any right, power or remedy under
this Agreement or any of the Notes shall affect or operate as a waiver of
such right, power or remedy; nor shall any single or partial exercise of
any such right, power or remedy preclude, waive or otherwise affect any
other or further exercise thereof or the exercise of any other right, power
or remedy. Any waiver, permit, consent or approval of any kind by any
holder of any of the Notes, of any breach of or default under this
Agreement or any of the Notes must be in writing and shall be effective
only to the extent set forth in such writing.
SECTION 6.04 SET-OFF. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such
rights, upon the first occurrence and during the continuance of any Event
of Default (after the giving of any notice and the expiration of any grace
period contained in the definition thereof), any holder of any of the Notes
is hereby authorized by the Company at any time or from time to time,
without notice to the Company, or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply
to any and all Indebtedness at any time held or owing by such holder to or
for the credit or the account of the Company, against and on account of the
obligations and liabilities of the Company to such holder under this
Agreement and the Notes, including, but not limited to, all claims of any
nature or description arising out of or connected with this Agreement or
the Notes irrespective of whether or not (a) such holder shall have made
any demand hereunder, or (b) such holder shall have declared the principal
of and interest on the Notes and other amounts due hereunder to be due and
payable, and although said obligations and liabilities, or any of them, may
be contingent or unmatured.
SECTION 6.05 NOTICES. Any notice or other communication provided for
or permitted hereunder, in order to be effective, shall, unless otherwise
stated herein, be in writing or by telex, telegram, telecopy or cable and
mailed or sent or delivered, as to each party hereto, at its address set
forth in this Section 6.05 or at such other address as shall be designated
by such party in a written notice to the other parties hereto as provided
hereunder. All notices and communications shall be effective, in the case
of written notice, (i) when delivered by hand, (ii) five days after having
been given by certified mail, return receipt requested, (iii) when
delivered to the telegraph company in the case of telegraphic notice, (iv)
when sent in the case of telex or telecopied notice, or (v) three Business
Days after deposit with a recognized overnight delivery service. The
addresses of the parties hereto are as follows:
THE COMPANY:
GENERAL TEXTILES
4000 Ruffin Road
San Diego, CA 92123
Attention: President
Telecopier (619) 637-4180
11
<PAGE>
NOTEHOLDERS: AMERICAN ENDEAVOUR FUND LIMITED
c/o Kleinwort Benson (US) Asset Managers LLC
75 Wall Street, 24th Floor
New York, New York 10005
Attention: Richard H. Wolf
Telecopier: (212) 429-3099
WITH A COPY TO:
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
MetLife Building
200 Park Avenue, 15th Floor
New York, New York 10166
Attn: Spencer G. Feldman, Esq.
Facsimile: (212) 801-6400
LONDON PACIFIC LIFE & ANNUITY COMPANY
3109 Poplarwood Court, Suite 108
Raleigh, North Carolina 27604
Attention: Susan Y. Gressel
Telecopier: (919) 981-2797
WITH COPIES TO:
BERKELEY INTERNATIONAL CAPITAL CORPORATION
650 California Street
Suite 2800
San Francisco, California 94108
Attn: John W. Quarterman, Esq.
Telecopier: (415) 249-0553
Any notice delivered to an address outside the United States of America
shall be duplicated by counterpart telex or telecopy.
SECTION 6.06 COST, EXPENSES AND ATTORNEY'S FEES. The Company shall
promptly reimburse each holder of the Notes for all out-of-pocket costs and
expenses, including, without limitation, reasonable attorneys' fees
expended or incurred by such holder in the enforcement of this Agreement or
any of the Notes, actions for declaratory relief in any way related to this
Agreement or any holder of the Notes or the collection of any sum which
becomes due to such holder on any of the Notes or pursuant to this
Agreement.
SECTION 6.07 ENTIRE AGREEMENT, AMENDMENT. The Notes and this Agreement
constitute the entire agreement between the Company and the persons who
from time to time are holders of Notes with respect to the subject matter
hereof and thereof; supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof and
thereof; and may be amended or modified, or any provision hereof may be
waived, or any acceleration rescinded, only with the written consent of the
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<PAGE>
holders of two-thirds of the principal amount of the Notes then
outstanding, except that no such amendment or modification shall become
effective if it extends the maturity or reduces the rate of interest
payable with respect to the Notes, alters the terms of payment of the
principal or interest under the Notes, or reduces the percentage of holders
of principal amount of the Notes necessary to approve modifications or
amendments to this Agreement without the consent of each holder of the
Notes affected thereby.
SECTION 6.08 TIME. Time is of the essence of each and every provision
of this Agreement and the Notes.
SECTION 6.09 GOOD FAITH AND FAIR DEALING. The Company agrees to
perform its obligations under this agreement and the Notes in good faith
and in the spirit of fair dealing.
SECTION 6.10 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 6.11 GOVERNING LAW. This Agreement and the Notes shall be
governed by and construed in accordance with the substantive laws of the
State of New York.
SECTION 6.12 COUNTERPARTS. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures to each
counterpart were upon a single instrument. All counterparts shall be
considered an original of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Junior Subordinated
Note Agreement to be executed as of the date first above written.
THE COMPANY: GENERAL TEXTILES, a California
corporation
By: Jonathan W. Spatz
Its: EXECUTIVE VICE PRESIDENT
ENDEAVOUR: AMERICAN ENDEAVOUR FUND
LIMITED, a Jersey corporation
By:_________________________________________
Its: LIQUIDATOR
LONDON PACIFIC: LONDON PACIFIC LIFE & ANNUITY COMPANY,
a North Carolina joint stock life
insurer
By: Susan Y. Gressel
Its: VICE PRESIDENT'S TREASURER
14
<PAGE>
EXHIBIT 10.11
SUBORDINATED NOTE AGREEMENT
THIS SUBORDINATED NOTE AGREEMENT (the "Agreement") is made and entered
into as of this 30th day of April, 1998 by and among GENERAL TEXTILES, a
California corporation (the "Company"), AMERICAN ENDEAVOUR FUND LIMITED, a
Jersey corporation ("Endeavour"), and LONDON PACIFIC LIFE & ANNUITY
COMPANY, a North Carolina joint stock life insurer ("London Pacific").
Endeavour and London Pacific shall sometimes be referred to herein
collectively as the "Noteholders."
RECITAL
The Company and the Noteholders have entered into a Note Exchange
Agreement in which they have agreed that the Company will issue $3,250,000
principal amount of Notes to the Noteholders in exchange for $4,900,000
principal amount of the Company's Subordinated Reorganization Notes.
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extension of credit by the Noteholders to or on behalf
of the Company heretofore, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
"ACTUAL KNOWLEDGE" means the actual knowledge of any executive officer
of the Company; PROVIDED, HOWEVER, that each executive officer of the
Company shall be deemed to have actual knowledge of any fact that would
have come to such officer's attention if he or she had exercised reasonable
care in performing his or her duties, given the nature of his or her duties
and the Company's business and organization.
"AFFILIATE" means (i) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
(ii) any spouse, immediate family member or other relative, provided such
individual has the same principal residence, of any Person described in
clause (i) above, (iii) any trust in which any Person described in clauses
(i) or (ii) above has a beneficial interest, and (iv) any corporation or
other organization of which the Persons described in clauses (i) or (ii)
above individually or collectively own a general partnership interest or
equity securities or trust certificates with more than five percent (5%) of
the total voting power for the election of directors or persons exercising
similar authority of such corporation or other organization; PROVIDED,
HOWEVER, that the term Affiliate shall not include any wholly owned
subsidiary of the Company. For this purpose, "control" means possession,
<PAGE>
directly or indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any committee of the Board authorized to act for it.
"BUSINESS DAY" means any day other than a Legal Holiday.
"COMPANY" means General Textiles, a California corporation, and its
successors and assigns.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Debtors' Laws.
"DEBTORS' LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, fraudulent conveyance, arrangement, receivership,
insolvency, reorganization or similar laws or general equitable principles
from time to time in effect affecting the rights of creditors generally.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"ENDEAVOUR" means American Endeavour Fund Limited, a Jersey
Corporation.
"EVENT OF DEFAULT" has the meaning assigned to such term in Section
5.01 hereof.
"FACTORY 2-U" means Factory 2-U, Inc., a Delaware corporation which,
at the date of this Agreement, is wholly owned by Family Bargain.
"FAMILY BARGAIN" means Family Bargain Corporation, a Delaware
corporation which, at the date of this Agreement, is the sole stockholder
of the Company.
"INDEBTEDNESS" means, with respect to any Person and without
duplication, all: (i) liabilities or obligations, direct and contingent,
matured or unmatured, liquidated or unliquidated, including, without
limitation, trade debt; (ii) liabilities or obligations of others for which
such Person is directly or indirectly liable, by way of guaranty (whether
by direct guaranty, suretyship, discount, endorsement, take-or-pay
agreement, agreement to purchase or advance or keep in funds or other
agreement having the effect of a guaranty) or otherwise; (iii) liabilities
or obligations secured by liens on any assets of such Person, whether or
not such liabilities or obligations shall have been assumed by it; and (iv)
liabilities or obligations of such Person, direct or contingent, with
respect to letters of credit issued for the account of such Person and
bankers' acceptances created for such Person, whether now in existence or
hereafter incurred; and (v) the Notes and the Junior Subordinated Notes.
"IRS" means the United States Internal Revenue Service.
2
<PAGE>
"JUNIOR SUBORDINATED NOTES" means the Company's Junior Subordinated
Notes in the aggregate principal amount of $17,335,097.65.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in New York, New York or San
Diego, California.
"LONDON PACIFIC" means London Pacific Life & Annuity Company, a North
Carolina joint stock life insurer.
"MATURITY DATE" means May 28, 2003.
"NOTEHOLDERS" has the meaning assigned to such term in the preamble to
this Agreement.
"NOTES" means the Company's Subordinated Notes due 2003, which Notes
shall be substantially in the form set forth in EXHIBIT A attached hereto
and made a part hereof, and "Note" shall mean any one of the Notes.
"OFFICER" means the Chairman of the Board, the President, any Vice-
President, the Treasurer or the Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or an Assistant Secretary of the
Company.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, or government or any agency or political subdivision thereof.
"SENIOR INDEBTEDNESS" means the principal of and premium, if any, on
all Indebtedness of the Company, whether outstanding on the date hereof or
hereafter incurred or created, for money borrowed from banks, insurance
companies or other companies engaged in lending money as a regular part of
their business, other than (i) the Notes, (ii) the Junior Subordinated
Notes, and (iii) any indebtedness of Family Bargain which becomes
Indebtedness of the Company solely because of a merger of Family Bargain
and the Company.
ARTICLE 2.
THE NOTES
SECTION 2.01 THE SUBORDINATED NOTES DUE 2005. The Company is
authorized to execute and deliver Subordinated Notes due 2005 (each a
"Note" and collectively the "Notes"), substantially in the form of EXHIBIT
A attached hereto and made a part hereof. The Notes shall have an
aggregate principal amount of not more than Three Million Two Hundred Fifty
Thousand Dollars ($3,250,000).
SECTION 2.02 INTEREST. If the entire principal of the Notes is paid by
May 28, 1998, the Notes will not bear interest. After May 28, 1998, the
Notes will bear interest, payable quarterly in arrears not later than the
3
<PAGE>
fifteenth (15th) day after the end of each calendar quarter. Between May
29, 1998 and March 31, 1999, the Note shall bear interest at the rate of
nine and two-tenths percent (9.2%) per annum from May 28, 1998. If any
principal balance remains outstanding on April 1, 1999, the interest rate
on the Note will increase on such date, and on the first day of each
successive calendar quarter thereafter (i.e., April 1, July 1, October 1
and so forth) by one hundred (100) basis pints (i.e., so that the per annum
interest rate on the Notes shall increase by one full percent (1%) of the
principal of the Notes as of the first day of each calendar quarter
commencing April 1, 1999); PROVIDED, HOWEVER, that the interest rate on the
Notes shall not exceed thirteen and two-tenths percent (13.2%) per annum.
Interest on the principal amounts of the Notes outstanding shall be
computed on the basis of the actual days elapsed in a year of 360 days from
the last day on which interest has been paid (or, if no interest has been
paid from the day on which interest began to accrue) a 360 day year, actual
days elapsed, from the date accrued until paid. The Company shall allocate
all payments on the Notes (including payments of interest) pro rata as
nearly as practicable among the Notes based on the outstanding principal
balances thereof. Payments on the Notes shall be applied first to accrued
but unpaid interest and then to principal.
SECTION 2.03 PAYMENTS OF PRINCIPAL. The Company will be required to
pay the principal of each Note in installments as follows:
<TABLE>
<CAPTION>
Principal Payment Percentage of Original
DATE PRINCIPAL AMOUNT TO BE PAID
- ----------------- ---------------------------
<S> <C>
December 31, 1999 5.768644%
December 31, 2000 5.768644%
December 31, 2001 11.537287%
December 31, 2002 11.537287%
Maturity Date 65.388138%
-----------
100.000000%
</TABLE>
The Notes will mature on the Maturity Date and all principal and interest
which has not been paid prior to the Maturity Date will be due and payable
on the Maturity Date.
SECTION 2.04 PREPAYMENT. The Company may prepay all or any portion of
the principal of the Notes at any time without prepayment penalty or
premium. Each prepayment will be accompanied by all accrued but unpaid
interest on the principal amount being prepaid to the date of the
prepayment. If fewer than all of the Notes are to be prepaid, the Company
shall allocate the total principal amount to be prepaid pro rata as nearly
as practicable among the Notes based on the outstanding principal balances
thereof. Any Note which is to be prepaid only in part shall be surrendered
to the Company (with, if the Company so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company duly
executed by, the holder of such Note or its attorney duly authorized in
writing), and the Company shall execute for the holder of such Note a new
Note equal in principal amount to the unprepaid portion of the Note
surrendered and identical to the Note surrendered in all other respects.
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<PAGE>
SECTION 2.05 OVERDUE PAYMENTS; BUSINESS DAYS. If any principal or
interest of any of the Notes is not paid when due, then interest shall
accrue on the entire principal amount of the Notes outstanding from the
date such overdue principal or interest is due until it is paid at the rate
which is 300 basis points higher than the interest rate which would
otherwise apply to the Notes under Section 2.02, compounded quarterly, or
at the maximum rate permitted by law, whichever is less. Whenever any
payment of principal or interest on any of the Notes shall be stated to be
due, or whenever any date specified in this Agreement or in any of the
Notes would otherwise occur on a Legal Holiday, such payment shall be made,
and such other date shall occur, on the next succeeding Business Day. Any
such extension of time shall be included in the computation of interest
payable.
ARTICLE 3.
SUBORDINATION OF NOTES
SECTION 3.01 AGREEMENT TO SUBORDINATE. The Company agrees, and each
holder of Notes, by accepting Notes, agrees, that all Notes shall be issued
subject to the provisions of this Article 3 and each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, accepts
and agrees to and shall be bound by such provisions.
All Notes, to the extent and in the manner set forth in this Article
3, shall be subordinated and subject in right of payment to the prior
payment in full of the principal of, premium, if any, on and interest on
all Senior Indebtedness.
SECTION 3.02 NO PAYMENT ON NOTES IF SENIOR INDEBTEDNESS IN DEFAULT. In
addition to the restrictions set forth in Section 2.03 hereof, no payment
on account of the principal of, or interest on, the Notes shall be made if,
at the time of such payment or immediately after giving effect thereto, (a)
there shall exist a default in the payment of principal, premium, if any,
sinking funds, or interest with respect to any Senior Indebtedness, or (b)
there shall have occurred any other event of default (of which the Company
shall have received notice from any holder or trustee with respect to any
Senior Indebtedness) relating to any Senior Indebtedness, as defined
therein or in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, and such
event of default shall not have been cured or waived or shall not have
ceased to exist. In the event that the Notes are declared due and payable
before their expressed maturity because of the occurrence of an Event of
Default, the holders of Senior Indebtedness shall be entitled to receive
payment in full of all principal (and premium, if any) and interest with
respect to such indebtedness before the holders of the Notes shall be
entitled to receive any payment on account of principal or otherwise.
SECTION 3.03 PRIORITY OF SENIOR INDEBTEDNESS UPON DISTRIBUTION OF
ASSETS. Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors in
the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its property, or upon
any such payment in the event of proceedings for voluntary or involuntary
liquidation, dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy, all principal, premium, if any, and
5
<PAGE>
interest due or to become due upon all Senior Indebtedness shall first be
paid in full, or payment thereof duly provided for, before any payment is
made on account of the Indebtedness evidenced by the Notes. Upon any such
proceedings (but subject to the power of a court of competent jurisdiction
to make other equitable provision with respect to the rights of the holders
of any Senior Indebtedness and the holders of the Notes pursuant to a
lawful plan of reorganization under applicable Debtors' Laws) any payment
or distribution of assets of the Company of any kind or character, whether
in cash, property or securities, to which the holders of the Notes would be
entitled, except for the provisions of this Article 3, shall be paid or
delivered by the Company or by any Custodian or other Person making such
payment or distribution, or by the holders of the Notes if received by them
or it, directly to the holders of Senior Indebtedness (pro rata to each
such holder on the basis of the respective amounts of Senior Indebtedness
held by such holder) or their representatives to the extent necessary to
pay all Senior Indebtedness in full after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the holders of the Notes.
In the event that, notwithstanding the foregoing provisions of this
Section 3.03, any such payment or distribution of property or securities,
shall be received by the holders of the Notes before all Senior
Indebtedness is paid in full, or provision made for such payment, in
accordance with its terms, such payment or distribution shall be held for
the benefit of, and shall be paid over or delivered to, the holders of such
Senior Indebtedness or their representatives, as their respective interests
may require, ratably as aforesaid, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all
such Senior Indebtedness in full in accordance with its terms, after giving
effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
SECTION 3.04 NOTICE TO HOLDERS OF NOTES OF SPECIFIED EVENTS; RELIANCE
ON CERTIFICATE OF LIQUIDATING AGENT. The Company shall give prompt written
notice to the registered holders of the Notes of any proceedings of the
type specified in Section 3.03. The holders of the Notes shall be entitled
to assume that no such event has occurred unless the Company or any one or
more holders of Senior Indebtedness or any trustee therefor or any other
Person has given such notice to the registered holders of the Notes. Upon
any payment or distribution of assets of the Company referred to in this
Article 3, the registered holders of the Notes shall be entitled to rely
upon a certificate of the Custodian or other Person making such payment or
distribution, delivered to such holders, for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of
the Senior Indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 3. In the
event that any holder of the Notes determines, in good faith, that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payments or distribution pursuant
to this Article 3, such holder may request such Person to furnish evidence
to the reasonable satisfaction of such holder as to the amount of Senior
Indebtedness held by such Person, as to the extent to which such Person is
entitled to participate in such payment or distribution, and as to other
facts pertinent to the rights of such Person under this Article 3, and if
such evidence is not furnished, such holder may defer any payment to such
Person pending judicial determination as to the right of such person to
receive such payment.
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SECTION 3.05 SUBROGATION OF NOTES. Subject to the payment in full of
the principal of, premium, if any, on and interest on all Senior
Indebtedness, the holders of the Notes shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
assets of the Company made on the Senior Indebtedness paid in full. For
the purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property, or securities to
which the holders of the Notes would be entitled except for the provisions
of this Article 3 shall, as between the Company and the holders of the
Notes or of the Junior Subordinated Notes be deemed to be a payment by the
Company to or on account of Senior Indebtedness, it being understood that
the provisions of this Article 3 are and are intended solely for the
purpose of defining the relative rights of the holders of the Notes, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
SECTION 3.06 OBLIGATION TO PAY NOT IMPAIRED. Except as provided in
Section 2.03 hereof, nothing contained in this Article 3 or elsewhere in
this Agreement, or in the Notes, is intended to or shall impair as among
the Company and the holders of the Notes, the obligation of the Company,
which is absolute and unconditional, to pay to the holders of the Notes the
outstanding principal amount of the Notes, as and when the same shall
become due and payable in accordance with their terms, or to affect the
relative rights of the holders of the Notes nor shall anything herein or
therein prevent the holders of the Notes from exercising, subject to the
terms hereof, all remedies otherwise permitted by applicable law upon the
occurrence of an Event of Default under this Agreement, subject to the
rights, if any, under this Article 3 of the holders of the Senior
Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
ARTICLE 4.
COVENANTS
SECTION 4.01 CORPORATE EXISTENCE. The Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any right or privilege if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the holders of the Notes.
SECTION 4.02 PAYMENT OF TAXES. The Company will pay or discharge or
cause to be paid or discharged, (i) all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such
tax, assessment or charge which is being contested in good faith by
appropriate proceedings.
SECTION 4.03 LIMITATION ON DIVIDENDS. Until the Notes are paid in
full, the Company will not pay dividends or make other distributions with
regard to its outstanding stock of any class, unless the holders of two-
thirds in aggregate principal amount of the Notes outstanding consent.
This Section 4.03 will not prevent the Company from making payments to a
parent which files a consolidated Federal or state income tax return for an
7
<PAGE>
affiliated group which includes the Company equal to the Federal or state
income taxes the Company would have had to pay if it had filed a separate
return, and those payments will not be treated as dividends or other
distributions to stockholders.
SECTION 4.04 COMPLIANCE CERTIFICATE. The Company shall deliver to the
holders of the Notes within 105 days after the end of each fiscal year of
the Company an Officers' Certificate stating that, after a review of the
activities of the Company during such period and of the Company's
performance under this Agreement, whether or not, to the best knowledge of
the signers thereof based on such review, there has been any Default or
Event of Default by the Company in performing any of its obligations under
this Agreement or the Notes. If they do know of any such Default or Event
of Default, the certificate shall describe the Default or Event of Default
and its status.
SECTION 4.05 NOTICE OF DEFAULT. In the event that any Default under
this Agreement shall occur, the Company will give prompt written notice of
such Default to each registered holder of the Notes, specifying the nature
and status of such default and the steps which the Company has taken or
proposes to take in order to cure such Default.
SECTION 4.06 REPORTS. The Company shall (i) within forty-five (45)
days of the close of each fiscal quarter of the Company cause to be
furnished to each registered holder of the Notes a copy of its consolidated
balance sheet, income statement and cash flow statement for the preceding
fiscal quarter, each prepared in accordance with generally accepted
accounting principles applied on a consistent basis and (ii) if the Company
becomes required to file reports with the Securities and Exchange
Commission, within ten (10) days after the Company files a report with the
Securities and Exchange Commission, the Company will furnish a copy of that
report to each registered holder of Notes.
ARTICLE 5.
DEFAULTS AND REMEDIES
SECTION 5.01 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment of any installment of
the principal or interest of any Note when the same becomes due and
payable;
(b) the Company fails to observe or perform in any material
respect any of its covenants or agreements in the Notes or this
Agreement, which failure continues for a period of 60 days after the
earlier of (i) the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the holders of at least twenty-five percent (25%) in
aggregate principal amount of the Notes at the time outstanding or
(ii) the date on which the Company had Actual Knowledge of such
failure;
8
<PAGE>
(c) the Company commits a default under any Senior
Indebtedness and as a result the obligation of the Company to pay
principal or interest with regard to any of that Senior Indebtedness
is accelerated so that it becomes due and payable prior to the date on
which it would otherwise have been due and payable, and that
acceleration is not rescinded or annulled within 30 days after the
date on which the Company had Actual Knowledge of the acceleration;
PROVIDED that if an event of default under Senior Indebtedness is
cured or waived, any Event of Default under this Section 5.01(c)
relating to the event of default under the Senior Indebtedness, and
any Event of Default under Section 5.01(a) because of failure to make
an accelerated payment of principal or a payment of interest which
becomes due solely because of the Event of Default under this Section
5.01(c), will be deemed to have been cured at the same time the event
of default under the Senior Indebtedness is cured or waived, without
any action by any holders of Notes.
(d) the entry of an order for relief under any Debtors' Laws
against the Company by any bankruptcy court of competent jurisdiction
which shall
(i) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition;
(ii) appoint a Custodian for any part of its property;
or
(iii) order the dissolution of the Company or the
winding up or liquidation of its affairs and such order remains
unstayed and in effect for a period of thirty (30) consecutive
days;
(e) the appointment of a Custodian for all or any substantial
part of the property of the Company, and such appointment shall
continue unstayed and in effect for a period of thirty (30)
consecutive days; and
(f) the entry of judgment by a court of competent jurisdiction
against the Company and the scheduling of a sale of any substantial
part of the Company's property which is not stayed prior to the
scheduled date of such sale.
SECTION 5.02 ACCELERATION. If an Event of Default occurs and is
continuing or has occurred and has continued for a period of not less than
three (3) months without having been waived, remedied or cured, the holders
of not less than two-thirds in principal amount of the Notes, or, in the
case of an Event of Default specified in Section 5.01(a) hereof, the holder
of any of the Notes, by notice to the Company, may declare the principal of
the Notes to be due and payable, and upon such declaration, the principal
of the Notes shall be due and payable immediately; PROVIDED that with
regard to an Event of Default of the type described in Section 5.01(c) or
(d) the principal of the Notes will become immediately due and payable when
the Event of Default occurs, without the passage of three (3) months' time
and, as to an Event of Default of the type described in Section 5.01(d),
without notice from, or any other action on the part of, the holders of the
Notes. The holders of not less than two-thirds of the principal amount of
the Notes may rescind an acceleration and its consequences by notice to the
Company if the rescission would not conflict with any judgment or decree
9
<PAGE>
and if each outstanding Event of Default has been cured or waived except,
unless theretofore cured, nonpayment of principal that has become due
solely because of the acceleration. No such rescission shall affect any
subsequent Default or impair any right or remedy with respect thereto.
SECTION 5.03 OTHER REMEDIES. Notwithstanding any other provision of
this Agreement, if an Event of Default occurs and is continuing and the
Notes have been accelerated in accordance with Section 5.02 above, the
holder of any of the Notes may pursue any available remedy by proceeding at
law or in equity to collect the payment of the principal of the Notes or to
enforce the performance of any provision of the Notes or this Agreement.
The holder of any of the Notes may maintain a proceeding even if it
does not possess any of the Notes or does not produce any of them in the
proceeding. A delay or omission by any or all of the holders of the Notes
in exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver of or acquiescence in
the Event of Default. No remedy is exclusive of any other remedy. All
remedies are cumulative.
In case any or all of the holders of the Notes shall have proceeded to
enforce any rights under this Agreement and such proceedings shall have
been discontinued or abandoned because of rescission or annulment or for
any other reason or shall have been determined adversely to the holders who
participated in such proceedings, then in every such case the Company and
the holders of the Notes shall, subject to any determination in such
proceeding, be restored respectively to their former positions and rights
hereunder, and all rights, remedies and powers of the Company and the
holders of the Notes shall continue as though no such proceeding had been
taken.
ARTICLE 6.
MISCELLANEOUS
SECTION 6.01 SUCCESSORS AND ASSIGNS IN GENERAL. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign
or transfer its rights hereunder or any interest herein or delegate its
duties hereunder (other than in a merger or other combination of the type
described in Section 4.01) without the prior written consent of the holders
of the Notes. Each holder of the Notes may assign, pledge or transfer all
or any portion of its Notes or its rights hereunder to the extent permitted
by law, including state and federal securities laws. In the event of any
such assignment, pledge or transfer, such assignee shall, to the extent
provided in such assignment, pledge or transfer, be entitled to exercise
the rights of the holder of a Note making such assignment, pledge or
transfer and shall be deemed a holder of a Note under this Agreement.
SECTION 6.02 FURTHER ASSURANCE. The Company shall, from time to time
at the request of any holder of a Note, execute and deliver to such holder
or to such Person or Persons as such holder may designate, any and all
further instruments as may in the reasonable opinion of such holder be
necessary to give full force and effect to any transfer or assignment
10
<PAGE>
contemplated by Section 6.01, and shall provide to such holder or to such
Person or Persons as such holder may designate, all such information as
such holder may reasonably request.
SECTION 6.03 NO WAIVER. No delay, failure or discontinuance of any
holder of any of the Notes, in exercising any right, power or remedy under
this Agreement or any of the Notes shall affect or operate as a waiver of
such right, power or remedy; nor shall any single or partial exercise of
any such right, power or remedy preclude, waive or otherwise affect any
other or further exercise thereof or the exercise of any other right, power
or remedy. Any waiver, permit, consent or approval of any kind by any
holder of any of the Notes, of any breach of or default under this
Agreement or any of the Notes must be in writing and shall be effective
only to the extent set forth in such writing.
SECTION 6.04 SET-OFF. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such
rights, upon the first occurrence and during the continuance of any Event
of Default (after the giving of any notice and the expiration of any grace
period contained in the definition thereof), any holder of any of the Notes
is hereby authorized by the Company at any time or from time to time,
without notice to the Company, or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply
to any and all Indebtedness at any time held or owing by such holder to or
for the credit or the account of the Company, against and on account of the
obligations and liabilities of the Company to such holder under this
Agreement and the Notes, including, but not limited to, all claims of any
nature or description arising out of or connected with this Agreement or
the Notes irrespective of whether or not (a) such holder shall have made
any demand hereunder, or (b) such holder shall have declared the principal
of and interest on the Notes and other amounts due hereunder to be due and
payable, and although said obligations and liabilities, or any of them, may
be contingent or unmatured.
SECTION 6.05 NOTICES. Any notice or other communication provided for
or permitted hereunder, in order to be effective, shall, unless otherwise
stated herein, be in writing or by telex, telegram, telecopy or cable and
mailed or sent or delivered, as to each party hereto, at its address set
forth in this Section 6.05 or at such other address as shall be designated
by such party in a written notice to the other parties hereto as provided
hereunder. All notices and communications shall be effective, in the case
of written notice, (i) when delivered by hand, (ii) five days after having
been given by certified mail, return receipt requested, (iii) when
delivered to the telegraph company in the case of telegraphic notice, (iv)
when sent in the case of telex or telecopied notice, or (v) three Business
Days after deposit with a recognized overnight delivery service. The
addresses of the parties hereto are as follows:
THE COMPANY: GENERAL TEXTILES
4000 Ruffin Road
San Diego, California 92123
Attention: President
Telecopier: (619) 637-4180
11
<PAGE>
NOTEHOLDERS: AMERICAN ENDEAVOUR FUND LIMITED
c/o Kleinwort Benson (US) Asset Managers LLC
75 Wall Street, 24th Floor
New York, New York 10005
Attention: Richard H. Wolf
Telecopier: (212) 429-3099
With a copy to:
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
MetLife Building
200 Park Avenue, 15th Floor
New York, New York 10166
Attn: Spencer G. Feldman, Esq.
Facsimile: (212) 801-6400
LONDON PACIFIC LIFE & ANNUITY COMPANY
3109 Poplarwood Court, Suite 108
Raleigh, North Carolina 27604
Attention: Susan Y. Gressel
Telecopier: (919) 981-2797
WITH COPIES TO:
BERKELEY INTERNATIONAL CAPITAL CORPORATION
650 California Street
Suite 2800
San Francisco, California 94108
Attention: John W. Quarterman, Esq.
Telecopier: (415) 249-0553
Any notice delivered to an address outside the United States of America
shall be duplicated by counterpart telex or telecopy.
SECTION 6.06 COST, EXPENSES AND ATTORNEY'S FEES. The Company shall
promptly reimburse each holder of the Notes for all out-of-pocket costs and
expenses, including, without limitation, reasonable attorneys' fees
expended or incurred by such holder in the enforcement of this Agreement or
any of the Notes, actions for declaratory relief in any way related to this
Agreement or any holder of the Notes or the collection of any sum which
becomes due to such holder on any of the Notes or pursuant to this
Agreement.
SECTION 6.07 ENTIRE AGREEMENT, AMENDMENT. The Notes and this Agreement
constitute the entire agreement between the Company and the persons who
from time to time are holders of Notes with respect to the subject matter
hereof and thereof; supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof and
thereof; and may be amended or modified, or any provision hereof may be
waived, or any acceleration rescinded, only with the written consent of the
holders of two-thirds of the principal amount of the Notes then
outstanding, except that no such amendment or modification shall become
effective if it extends the maturity or reduces the rate of interest
payable with respect to the Notes, alters the terms of payment of the
principal or interest under the Notes, or reduces the percentage of holders
of principal amount of the Notes necessary to approve modifications or
amendments to this Agreement without the consent of each holder of the
Notes affected thereby.
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<PAGE>
SECTION 6.08 TIME. Time is of the essence of each and every provision
of this Agreement and the Notes.
SECTION 6.09 GOOD FAITH AND FAIR DEALING. The Company agrees to
perform its obligations under this agreement and the Notes in good faith
and in the spirit of fair dealing.
SECTION 6.10 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 6.11 GOVERNING LAW. This Agreement and the Notes shall be
governed by and construed in accordance with the substantive laws of the
State of New York.
SECTION 6.12 COUNTERPARTS. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures to each
counterpart were upon a single instrument. All counterparts shall be
considered an original of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Subordinated Note
Agreement to be executed as of the date first above written.
THE COMPANY: GENERAL TEXTILES, a California
corporation
By:/s/ Jonathan W. Spatz
_____________________________________
Its: Executive Vice President
ENDEAVOUR: AMERICAN ENDEAVOUR FUND
LIMITED, a Jersey corporation
By:_____________________________________
Its: Liquidator
LONDON PACIFIC: LONDON PACIFIC LIFE & ANNUITY
COMPANY, a North Carolina joint
stock life insurer
By:/s/ Susan Y. Gressel
_____________________________________
Its: Treasurer
14
<PAGE>
EXHIBIT 10.12
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
ISSUABLE ON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED
EXCEPT IN A TRANSACTION REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR WHICH IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THAT ACT.
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON MAY 28, 2005.
No. W-1 274,418 SHARES
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
OF FAMILY BARGAIN CORPORATION
TRANSFER RESTRICTED -- SEE SECTION 5.01
This certifies that London Pacific Life & Annuity Company, or
registered assigns, (the "Warrant Holder") is entitled to purchase from
FAMILY BARGAIN CORPORATION (the "Company"), a Delaware corporation, at any
time before 5:00 P.M., New York City time, on the Expiration Date described
in Section 1.01(c), the number of fully paid and nonassessable shares of
Common Stock, par value $.01 per share, of the Company ("Common Stock")
stated above at the Exercise Price described in Section 1.01(b). The
Exercise Price and the number and nature of the Warrant Shares which may be
purchased on exercise of this Warrant are subject to adjustment as provided
in Article III.
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01. (a) The term "Business Day" means a day other than a
Saturday, Sunday or other day on which banks in the State of New York are
authorized by law to remain closed.
(b) The term "Exercise Price" means, $6.00 per share, as that
price may be adjusted from time to time as provided in Article III.
(c) The term "Expiration Date" means May 28, 2005.
(d) The term "Warrant Holder" means the person or entity named
above or any other person or entity in whose name this Warrant is
registered on the books of the Company.
<PAGE>
(e) The term "Warrants" means this Warrant and all warrants of
like tenor (together evidencing the right to purchase a total of 274,418
shares of Common Stock) originally issued under a Note Exchange Agreement
dated April 30, 1998 between the Company and the persons referred to in
that Note Exchange Agreement as the Noteholders.
(f) The term "Warrant Shares" means the shares of Common Stock
or other securities deliverable upon exercise of the Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
--------------------------------
SECTION 2.01. This Warrant may be exercised at any time before 5:00
P.M., New York City time, on the Expiration Date. If this Warrant is not
exercised at or before 5:00 P.M., New York City time, on the Expiration
Date, it will become void and neither the Warrant Holder nor any other
person will have any rights under this Warrant.
SECTION 2.02. (a) To exercise this Warrant in whole or in part, the
Warrant Holder must surrender this Warrant, with the Subscription Form on
it duly executed, to the Company at its principal office accompanied by a
certified or official bank check payable to the order of the Company in an
amount equal to the Exercise Price for the Warrant Shares as to which this
Warrant is being exercised.
(b) When the Company receives this Warrant with the Subscription
Form duly executed and accompanied by payment of the full Exercise Price
for the Warrant Shares as to which this Warrant is being exercised, the
Company will issue certificates, registered in the name of the Warrant
Holder or such other names as are designated by the Warrant Holder,
representing the total number of shares of Common Stock (and other
securities, if any) as to which this Warrant is being exercised, in such
denominations as are requested by the Warrant Holder, and the Company will
deliver those certificates to the Warrant Holder.
(c) If the Warrant Holder exercises this Warrant with respect to
fewer than all the Warrant Shares to which it relates, the Company will
execute a new Warrant for the balance of the Warrant Shares that may be
purchased upon exercise of this Warrant and deliver that new Warrant to the
Warrant Holder.
(d) The Company will pay any taxes which may be payable in
respect of the issuance of Warrant Shares or in respect of the issuance of
a new Warrant if this Warrant is exercised as to fewer than all the Warrant
Shares to which it relates. The Company will not, however, be required to
pay any transfer tax which becomes payable because Warrant Shares or a new
Warrant are to be registered in a name other than that of the Warrant
Holder, and the Company will not be required to issue any Warrant Shares or
to issue a new Warrant registered in a name other than that of the Warrant
Holder until the Company receives either evidence that any applicable
transfer taxes have been paid or funds with which to pay those taxes.
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<PAGE>
ARTICLE III
Adjustment of Shares of Common Stock
PURCHASABLE AND OF WARRANT PRICE
--------------------------------
SECTION 3.01. The Exercise Price and the shares of Common Stock or
other securities issuable on exercise of this Warrant are subject to
adjustment as follows:
(a) If, after April 15, 1998, the Company (i) makes a
distribution on its Common Stock in shares of its capital stock, (ii)
subdivides the outstanding Common Stock into a greater number of shares, or
(iii) combines the outstanding Common Stock into a lesser number of shares,
in each such case, the Exercise Price in effect at the record date for the
distribution or the effective date of the subdivision or combination will
be adjusted so that upon exercise of this Warrant after the record date or
effective date with respect to a specified number of Warrant Shares, the
Warrant Holder will receive the number and kind of shares which the Warrant
Holder would have owned if the Warrant Holder had exercised this Warrant
with respect to that number of Warrant Shares immediately before the first
of those events and retained all the shares and other securities which the
Warrant Holder received as a result of each of those events.
(b) If, after April 15, 1998, the Company fixes a record date
for the issuance (or issues without fixing a record date) to the holders of
the Common Stock of rights, options (other than options granted to
employees or directors of the Company or its subsidiaries under Plans
approved by the Company's stockholders) or warrants to subscribe for or
purchase Common Stock, or securities which are convertible into or
exchangeable for Common Stock, at an exercise, conversion or exchange price
per share less than the lesser of (i) the Exercise Price in effect, or (ii)
the mean of the high and low sale prices of the Common Stock reported in
the principal market on which the Common Stock is traded (which, on April
15, 1998 is the Nasdaq Small-Cap market) on the record date (or on the date
of issuance, if there is no record date), the Exercise Price will be
adjusted by multiplying the Exercise Price in effect immediately prior to
that record date (or issuance date) by a fraction, the numerator of which
is the number of shares of Common Stock outstanding on that record date
plus the number of shares of Common Stock which the aggregate exercise,
conversion or exchange price would purchase at that Exercise Price and the
denominator of which is the number of shares of Common Stock outstanding on
that record date (or issuance date) plus the number of additional shares of
Common Stock which the Company would be required to issue upon exercise,
conversion or exchange of all the rights, options, warrants or convertible
or exchangeable securities. Each adjustment will become effective at the
close of business on the record date for issuance of the rights, options,
warrants or convertible or exchangeable securities (or the date of
issuance, if there is no record date). For the purposes of this Section
3.01(b), the exercise, conversion or exchange price of rights, options,
warrants or convertible or exchangeable securities will include any
consideration the holders of the Common Stock are required to pay in order
to receive the rights, options, warrants or convertible or exchangeable
securities, as well as any consideration the holders are required to pay
upon exercise, conversion or exchange (other than surrender of the
securities being exercised, converted or exchanged). If the right to
exercise any rights, options or warrants, or to convert or exchange any
convertible or exchangeable securities, the issuance of which results in an
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<PAGE>
adjustment under this Section 3.01(b), expires in whole or in part without
that right's being exercised, when that occurs, the Exercise Price will be
readjusted as though the rights, options, warrants or convertible or
exchangeable securities which were not exercised, converted or exchanged
had not been issued. However, no readjustment will affect any exercise of
this Warrant which takes place before the readjustment.
(c) If, after April 15, 1998, the Company distributes to the
holders of its Common Stock any cash (other than a cash dividend which,
together with all other cash dividends paid within 12 months before the
record date for the cash dividend, does not exceed five percent of the
Exercise Price in effect on the record date for the cash dividend),
evidences of indebtedness or other assets (other than distributions to
which Section 3.01(a) or (b) applies), in each such case, the Exercise
Price will be adjusted by subtracting from the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive the distribution, the value of the cash, evidences of
indebtedness or other assets to be distributed with respect to a share of
Common Stock. Each adjustment under this Section will be effective at the
close of business on the record date for the determination of stockholders
entitled to receive the distribution which results in the adjustment. The
value of evidences of indebtedness or other assets will be their fair
market value as determined in good faith by the Board of Directors of the
Company.
(d) If, after April 15, 1998, the Company sells or otherwise
issues any Common Stock (other than in a transaction to which Section
3.01(a) applies or upon exercise of rights, options or warrants, or
conversion or exchange of convertible or exchangeable securities) at a
price per share which is less than the lesser of (i) the Exercise Price in
effect immediately before the sale or other issuance, or (ii) the Market
Price on the day before the sale or other issuance, in each such case, the
Exercise Price will be adjusted, effective at the close of business on the
day of the sale or other issuance, by multiplying the Exercise Price in
effect immediately before the sale or other issuance by a fraction (i) the
numerator of which will be equal to the sum of (A) the number of shares of
Common Stock outstanding immediately before the sale or other issuance plus
(B) the number of shares of Common Stock which could be purchased at the
Exercise Price in effect immediately before the sale or other the issuance
for the consideration received by the Company upon the sale or other
issuance, and (ii) the denominator of which will be the total number of
shares of Common Stock outstanding immediately after the sale or other
issuance. If, after April 15, 1998, the Company sells or otherwise issues
any rights, options, warrants or convertible or exchangeable securities
(other than in a distribution to which Section 3.01(b) applies and other
than options granted to employees or directors of the Company or its
subsidiaries under plans approved by the Company's stockholders), when it
does so it will, for the purpose of this Section 3.01(d), be treated as
having sold the Common Stock it would be required to issue upon exercise of
all the rights, options or warrants, or upon conversion or exchange of all
the convertible or exchangeable securities, for a price per share equal to
(i) (A) the total price paid for the rights, options or warrants or
convertible or exchangeable securities, divided by (B) the number of shares
of Common Stock issuable on exercise, conversion or exchange of the rights,
options, warrants or convertible or exchangeable securities, plus (ii) any
additional consideration per share of Common Stock which must be paid upon
exercise of the rights, options or warrants or conversion or exchange of
the convertible or exchangeable securities (other than surrender of the
4
<PAGE>
securities being exercised, converted or exchanged). If the right to
exercise any rights, options or warrants, or to convert or exchange any
convertible or exchangeable securities, the issuance of which results in an
adjustment under this Section 3.01(d), expires in whole or in part without
that right's being exercised, when that occurs, the Exercise Price will be
readjusted as though the rights, options, warrants or convertible or
exchangeable securities which were not exercised, converted or exchanged
had not been issued. However, no readjustment will affect any exercise of
this Warrant which takes place before the readjustment.
(e) If, after the April 15, 1998, there is a reclassification or
change of outstanding shares of Common Stock (other than a change in par
value or a change as a result of a subdivision or combination to which
Section 3.01(a) applies) or a merger or consolidation of the Company with
any other entity that results in a reclassification, change, conversion,
exchange or cancellation of outstanding shares of Common Stock, or a sale
or transfer of all or substantially all the assets of the Company and
distribution of all or a portion of the proceeds of that sale or transfer,
upon any subsequent exercise of this Warrant as to a specified number of
Warrant Shares, the Warrant Holder will be entitled to receive the kind and
amount of securities, cash and other property which the Warrant Holder
would have received if the Warrant Holder had exercised this Warrant as to
that number Warrant Shares immediately before the first of those events and
had retained all the securities, cash and other assets received as a result
of these events.
(f) If all or part of the consideration for, or payable on
exercise, conversion or exchange of, any shares of Common Stock, rights,
options, warrants or convertible or exchangeable securities is other than
cash, for the purposes of this Section 3.01, the non-cash consideration
will be valued at its fair market value as determined in good faith by the
Board of Directors of the Company. If in connection with any sale or other
issuance of Common Stock or other securities or assets, the Company is
required to pay underwriting discounts or other fees or commissions, for
the purposes of this Section 3.01, the consideration the Company receives
will be the amount it receives net of the underwriting discounts, fees or
commissions.
(g) If the exercise price of any rights, options or warrants, or
the conversion or exchange price of any convertible or exchangeable
securities, is changed, on the day the change becomes effective, the
Company will be treated for the purposes of the Warrants as having (i)
cancelled the outstanding rights, options, warrants or convertible or
exchangeable securities which were exercisable, convertible or exchangeable
at the prior price and (ii) issued new rights, options, warrants or
convertible or exchangeable securities which are exercisable, convertible
or exchangeable at the new price.
(h) No adjustment in the Exercise Price will be required if the
adjustment is less than $.10 per Warrant Share. However, any adjustments
which are not made because of this Section 3.01(h) will be carried forward
and taken into account in any subsequent adjustments. All calculations
under this Section 3.01 will be made to the nearest cent or to the nearest
whole share, as the case may be.
(i) Upon each adjustment of the Exercise Price under this
Section 3.01, the number of Warrant Shares which will be issued upon
exercise of this Warrant will be adjusted so that (i) if this Warrant is
5
<PAGE>
exercised in full, the Warrant Holder will receive (A) the number of
Warrant Shares the Warrant Holder would receive by exercising this Warrant
in full immediately before the adjustment, times (B) the Exercise Price in
effect immediately before the adjustment, divided by (C) the Exercise Price
in effect after the adjustment, and (ii) if this Warrant is exercised only
in part, the Warrant Holder will receive the fraction of the number of
Warrant Shares the Warrant Holder would have received if it had exercised
this Warrant in full of which the numerator is the number of Warrant Shares
as to which this Warrant is exercised and the denominator is the total
number of Warrant Shares issuable on exercise of this Warrant.
(j) If any adjustment in the Exercise Price or in the number of
shares or type of securities to be issued upon exercise of this Warrant
becomes effective as of a record date for a specified event, and this
Warrant is exercised between that record date and the date the event
occurs, the Company may elect to defer, until the event occurs, issuing to
the Warrant Holder the shares of Common Stock or other securities to which
the Warrant Holder is entitled solely by reason of that event. However, if
the Company does that, when this Warrant is exercised, the Company will
deliver to the Warrant Holder a due bill or other instrument evidencing the
Warrant Holder's right to receive the additional shares or other securities
upon occurrence of the event.
SECTION 3.02. Whenever the Exercise Price or the number of Warrant
Shares are adjusted as provided in this Section, the Company will send to
the Warrant Holder a certificate signed by its principal accounting officer
setting forth the adjusted Exercise Price, the adjusted number of Warrant
Shares and the date the adjustment became effective, and containing a brief
description of the events which caused the adjustment.
SECTION 3.03. If at any time after April 15, 1998:
(a) the Company declares a dividend or other distribution on its
Common Stock, other than a dividend payable in cash out of its
undistributed net income in an amount per share which, together with all
other cash dividends paid within 12 months before the record date for the
dividend, does not exceed five percent of the Exercise Price in effect on
that record date; or
(b) the Company authorizes the granting or issuance to the
holders of its Common Stock as a class of rights, warrants or options to
subscribe for or purchase any shares of any class or any other securities;
or
(c) there is any reclassification of the Common Stock (other
than a subdivision or combination of its outstanding Common Stock), or any
consolidation or merger to which the Company is a party and for which
approval of the holders of the Common Stock is required, or a sale or
transfer of all or substantially all the assets of the Company; or
(d) there is a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
6
<PAGE>
in each case, the Company will mail to the Warrant Holder at least 20 days
before the applicable record date a notice stating (i) the record date for
the dividend, distribution or rights, or, if there will not be a record
date, the date as of which the holders of record of Common Stock who will
be entitled to the dividend, distribution or rights will be determined, or
(ii) the date on which the reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected the holders of record of
Common Stock who will be entitled to receive securities or other property
with respect to their Common Stock as a result of the reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding
up will be determined. Failure to give any notice or any defect in the
notice will not affect the validity of the action which should have been
the subject of the notice.
SECTION 3.04. The form of Warrant need not be changed because of any
change in the Exercise Price or in the number of Warrant Shares which may
be purchased by exercising Warrants and Warrants issued after the change
may state the same Exercise Price and the same number of Warrant Shares as
are stated in Warrants issued before the change. However, the Company may
at any time make any change in the form of Warrant that it deems
appropriate to reflect a change in the Exercise Price or in the Warrant
Shares which may be purchased by exercising Warrants (provided the change
in the form of Warrant does not otherwise affect the substance of the
Warrant), and any Warrant issued after the form of Warrant is changed may
be in the changed form.
ARTICLE IV
Other Provisions Relating to
RIGHTS OF WARRANT HOLDER
------------------------
SECTION 4.01. The Warrant Holder will not, as such, be entitled to
vote, to receive dividends or to have any other of the rights of a
shareholder of the Company, except that after this Warrant is exercised in
accordance with the terms of this Warrant, the persons in whose names the
Warrant Shares purchased through exercise of this Warrant are to be issued
will be deemed to become the holders of record of those Warrant Shares for
all purposes even if certificates representing those Warrant Shares are not
issued.
SECTION 4.02. (a) The Company will at all times reserve and keep
available for issuance upon exercise of this Warrant the number of
authorized and unissued shares of Common Stock equal to the maximum number
of shares of Common Stock the Company may be required to issue upon
exercise of this Warrant.
(b) The Company will take all steps which are necessary so that
all the shares of Common Stock (or other securities) which the Company may
be required to issue on exercise of this Warrant will, upon issuance, be
listed on each securities exchange and quoted on each automated quotation
system on which the Common Stock is (or those other securities are) listed
or quoted.
7
<PAGE>
(c) All shares of Common Stock issued on exercise of this
Warrant will, when they are issued, be validly issued, fully paid,
nonassessable and free of preemptive rights.
SECTION 4.03. The Company will not be required to issue any fraction
of a share upon exercise of this Warrant. In any case in which the Warrant
Holder would, except for the provisions of this Section 4.03, be entitled
to receive a fraction of a share upon exercise of this Warrant, the Company
will, upon exercise of this Warrant, issue the maximum number of whole
shares it is required to issue, but the Company will not be required to
make any payment or give any other consideration with respect to a fraction
of a share to which the Warrant Holder would be entitled except for this
Section 4.03.
SECTION 4.04. The Company will maintain a Warrant Register in which
the name and address of each registered holder of Warrants will be
recorded.
SECTION 4.05. Notices or other communications to the Warrant Holder
will be deemed given by the Company on the third Business Day after the day
on which they are sent by first class mail addressed to the Warrant Holder
at the Warrant Holder's last known address shown on the Warrant Register
maintained by the Company.
SECTION 4.06. Until this Warrant is properly presented for
registration of transfer of this Warrant, the Company may treat the Warrant
Holder as the absolute owner of this Warrant for all purposes, including
for the purpose of determining the persons entitled to exercise this
Warrant, despite any notice to the contrary.
ARTICLE V
TRANSFER OF WARRANTS
--------------------
SECTION 5.01. This Warrant may not be sold, transferred, assigned, or
hypothecated, except in a transaction registered under the Securities Act
of 1933, as amended, (the "Securities Act") or which is exempt from the
registration requirements of that Act.
SECTION 5.02. Upon surrender of this Warrant to the Company at its
principal office with the Form of Assignment (or another instrument of
assignment) duly executed and accompanied by (i) evidence that any transfer
tax has been paid, or funds sufficient to pay any transfer tax, and (ii)
evidence reasonably satisfactory to the Company that the proposed
assignment will not violate Section 5.01, the Company will, without charge,
execute and deliver a new Warrant registered in the name of the assignee
named in the Form of Assignment (or other instrument of assignment) and
will promptly cancel this Warrant. This Warrant may be divided or combined
with other Warrants by surrender of this Warrant and any other Warrants
with which it is to be combined at the principal office of the Company
together with a written notice, signed by the Warrant Holder, specifying
the names and denominations in which new Warrants are to be issued.
8
<PAGE>
SECTION 5.03. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, or (in the case of mutilation) upon surrender
of this Warrant, the Company will execute and deliver a new Warrant
relating to the same number of Warrant Shares as this Warrant and the lost,
stolen, destroyed or mutilated Warrant will become void. Any new Warrant
executed and delivered in accordance with this Section 5.03 will constitute
an additional contractual obligation of the Company, and will be valid and
enforceable whether or not the Warrant which was believed to have been
lost, stolen or destroyed is subsequently presented for exercise.
ARTICLE VI
REGISTRATION UNDER THE SECURITIES ACT OF 1933
---------------------------------------------
SECTION 6.01. The holders of the Warrants will be entitled to the
benefits of a Registration Rights Agreement dated April 30, 1998 among the
Company, American Endeavour Fund Limited and London Pacific Life & Annuity
Company.
SECTION 6.02. Unless the resale of Warrant Shares is the subject of a
registration statement which has become effective under the Securities Act,
the certificates representing Warrant Shares issued on exercise of this
Warrant may bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THOSE SHARES MAY NOT BE OFFERED, SOLD OR
TRANSFERRED, EXCEPT IN A TRANSACTION WHICH (i) IS
REGISTERED UNDER THAT ACT OR (ii) IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THAT ACT."
ARTICLE VII
OTHER MATTERS
-------------
SECTION 7.01. The provisions of this Warrant will bind, and inure to
the benefit of, the Company and its successors and assigns.
SECTION 7.02. (a) Any notice or other communication to the Company
relating to this Warrant will be deemed given on the day when it is
delivered or sent by facsimile transmission (with a confirmation copy sent
by mail), or on the third Business Day after the day on which it is sent by
first-class mail, to the Company at the following address (or such other
address as may be specified by the Company after the date of this Warrant):
9
<PAGE>
Family Bargain Corporation
4000 Ruffin Road
San Diego, CA 92123
Attention: President
Facsimile No.: (619) 637-4180
(b) Any notice or other communication to the Warrant Holder will
be deemed given when and as provided in Section 4.05.
SECTION 7.03. This Warrant will be governed by, and construed under,
the laws of the State of New York relating to contracts made and to be
performed in that state.
SECTION 7.04. The Article headings in this Warrant are for
convenience only, are not part of this Warrant and are not intended to
affect the meaning or interpretation of any of the terms of this Warrant.
IN WITNESS WHEREOF, this Warrant has been executed by the Company on
April 30, 1998.
FAMILY BARGAIN CORPORATION
By /s/ Jonathan W. Spatz
___________________________________________
Name: Jonathan W. Spatz
Title: Executive Vice President
10
<PAGE>
FORM OF ASSIGNMENT
------------------
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers the attached Warrant to __________________________________ to the
extent of the right to purchase _________________ Warrant Shares, and the
undersigned appoints ___________________________, with full power of
substitution, to transfer that Warrant, with respect to the right to
purchase that number of Warrant Shares, on the books of Family Bargain
Corporation.
Dated: ___________, ____
______________________________________________
(Signature must conform to the name of the
Warrant Holder specified on the face of the
Warrant)
11
<PAGE>
SUBSCRIPTION FORM
-----------------
To: FAMILY BARGAIN CORPORATION
The undersigned irrevocably elects to purchase ________ Warrant Shares
by exercising the Warrant to which this form is attached and tenders
payment of the full Exercise Price with respect to those Warrant Shares.
The undersigned requests that the certificates representing the Warrant
Shares as to which the Warrant is being exercised be registered as follows:
Name: _________________________________________________________
Social Security or Employer Identification Number:_____________
Address: ______________________________________________________
Deliver to: ___________________________________________________
Address: ______________________________________________________
______________________________________________________
If the Warrant Shares as to which the Warrant is being exercised
are fewer than all the Warrant Shares to which the Warrant relates, please
issue a new Warrant for the balance of those Warrant Shares registered in
the name of the undersigned and deliver it to the undersigned at the
following address:
Address: ______________________________________________________
______________________________________________________
Date:_______________ Signature____________________________________
(Signature must conform to the name
of the Warrant Holder specified on
the face of the Warrant)
12
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 18, 1998
included in Family Bargain Corporation and Subsidiaries Form 10-K for the year
ended January 31, 1998 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
July 7, 1998
<PAGE>
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Family Bargain Corporation:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the headings "Summary Financial Information"
and "Experts" in the prospectus.
KMPG Peat Marwick LLP
San Diego, California
July 7, 1998
<PAGE>
EXHIBIT 11.1
FAMILY BARGAIN CORPORATION
DETAILED COMPUTATIONS OF NET LOSS PER COMMON SHARE
BASIC AND DILUTED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------
JANUARY 31, 1998 FEBRUARY 1, 1997 JANUARY 27, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
The computation of net (loss) available &
adjusted shares outstanding follows:
Income (loss) from continuing operations $ (129) $ (36,564) $ 1,478
Discontinued operations $ - $ (826) $ (500)
Loss on disposal, net of income tax benefit -------------- -------------- --------------
Net income (loss) $ (129) $ (37,390) $ 978
Less: Preferred stock dividends $ (6,117) $ (3,509) $ (3,040)
-------------- -------------- --------------
Net (loss) used for basic and $ (6,246) $ (40,899) $ (2,062)
diluted computation ============== ============== ==============
Weighted average number of common shares 4,901,268 4,507,340 4,006,420
outstanding
Add:
Assumed exercise of those options that
are common stock equivalents - - -
Assumed exercise of convertible
preferred stock - - -
------------- ------------ ------------
Adjusted shares outstanding, used for
basis & diluted computation 4,901,268 4,507,340 4,006,420
============== ============== ==============
Loss from continuing operations $ (1.27) $ (8.89) $ (0.39)
Net loss applicable to common stock per $ (1.27) $ (9.07) $ (0.51)
=============== =============== ===============
</TABLE>
<PAGE>
EXHIBIT 11.1
FAMILY BARGAIN CORPORATION
DETAILED COMPUTATIONS OF NET LOSS PER COMMON SHARE
BASIC AND DILUTED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
The computation of net (loss) available &
adjusted shares outstanding follows:
Net (loss) $ (2,790) $ (1,361)
Less:
Series A preferred stock dividends (864) (864)
Series B preferred stock dividends (703) (656)
-------------- --------------
A) Net (loss) used for basic computation $ (4,357) $ (2,881)
-------------- --------------
Add (where dilutive):
Series A preferred stock dividends - -
Series B preferred stock dividends - -
-------------- --------------
B) Net (loss) used for diluted computation $ (4,357) $ (2,881)
============== ==============
C) Weighted average number of common shares
outstanding, used for basic calculation 4,930,770 4,817,707
Add (where dilutive) assumed conversion of:
Series A preferred stock - -
Series B preferred stock - -
Stock options - -
Warrants for series A preferred stock - -
Warrants for common stock - -
-------------- --------------
D) Adjusted shares outstanding, used for
fully diluted computation 4,930,770 4,817,707
============== ==============
Earnings per share:
Basic (A divided by C) $ (0.88) $ (0.60)
Diluted (B divided by D) $ (0.88) $ (0.60)
E) Extraordinary item $ (2,750) $ -
Extraordinary item per share (E divided by C) $ (0.56) $ -
</TABLE>
<PAGE>
