SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement |_| Confidential, For Use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
- --------------------------------------------------------------------------------
Family Bargain Corporation
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
Family Bargain Corporation
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|_| No Fee Required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, Series A Preferred, Series B Preferred
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies: 8,678,172
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$10.43
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$11,760,378.081
- --------------------------------------------------------------------------------
(5) Total fee paid:
$23,530.76
- --------------------------------------------------------------------------------
|X| Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------
1 For purposes of calculating the fee only, the proposed maximum aggregate value
of the transaction is $11,760,378.08, which represents the value of the
post-merger common stock received as a result of the Merger, calculated as (a)
$10.43 (which represents $2.78125 (the closing market price of the common stock
on June 11, 1998) times 3.75 (to give effect to a proposed, post-Merger 3.75 to
1 stock split)) times (b) 11,275,530.88 (the number of shares of common stock to
be issued in the Merger). The total fee of $23,520.76 was paid by wire transfer
on June 18, 1998, to the federal lock box depository account at Mellon Bank. The
amount of the filing fee, calculated in accordance with Rule 0-11 promulgated
under the Securities Exchange Act of 1934, as amended, equals 1/50 of one
percent of the maximum aggregate value of the transaction.
<PAGE>
FAMILY BARGAIN CORPORATION
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 23, 1998
-----------------
TO OUR STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the stockholders of
Family Bargain Corporation (the "Company") will be held at the Sheraton San
Diego, 1380 Harbor Island Drive, San Diego, California, on Wednesday, September
23, 1998 at 10:00 a.m., local time, for the following purposes:
1. To elect four directors to hold office, as follows:
a. Three Class II directors to hold office until the
Annual Meeting of Stockholders in 2001 and their
successors are elected and qualified.
b. One Class III director to hold office until the
Annual Meeting of Stockholders in 1999 and his
successor is elected and qualified.
2. To consider a proposal to approve a merger (the "Merger") of
General Textiles, Inc. (a wholly-owned subsidiary of the Company) into the
Company.
3. To consider a proposal to approve the Amended and Restated
Family Bargain Corporation 1997 Stock Option Plan.
4. To consider a proposal to ratify the selection of the Company's
independent accountants.
5. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on August [ ], 1998
are entitled to notice of and to vote at the meeting and any adjournment or
postponement.
Holders of Common Stock and of Series B Preferred Stock, voting together
as though they were a single class, are entitled to vote upon all matters which
will come before the meeting. Holders of Common Stock are entitled to one vote
per share and holders of Series B Preferred Stock are entitled to 526.09 votes
per share. This will entitle holders of Common Stock to cast a total of
5,004,122 votes with regard to each matter presented to the meeting and will
entitle holders of Series B Preferred Stock to cast a total of 18,602,542 votes
with regard to each matter presented to the meeting. The only matter on which
holders of Series A Preferred Stock will be entitled to vote is the proposal to
approve the Merger. That proposal requires (i) the affirmative vote of a
majority of the votes which can be cast by holders of Common Stock and Series B
Preferred Stock, voting as though they were a single class, and (ii) the
affirmative vote of holders of a majority of the outstanding Series A Preferred
Stock. Election of a director requires a plurality of the votes cast, and
approval of each of the proposals other than that relating to the Merger
requires the vote of holders of a majority in voting power of the Common Stock
and Series B Preferred Stock which is voted with regard to the proposal.
Three entities advised by Three Cities Research, Inc., which together hold
15.5% of the outstanding Common Stock and 63.4% of the outstanding Series B
Preferred Stock, and therefore are entitled to cast by the holders of Common
Stock or Series B Preferred Stock 53.3% of the votes which may be cast with
<PAGE>
regard to the Merger, have agreed to vote in favor of the proposal to approve
the Merger. This ensures that the Merger will be approved by the holders of the
Common Stock and the Series B Preferred Stock, even if no other stockholders
vote to approve it. There is no similar agreement involving holders of Series A
Preferred Stock.
A Committee of the Company's Board of Directors, based in part on an
opinion of an investment banking firm retained by that Committee, informed the
Board of Directors that, subject to receipt of a tax opinion (which was
received), it was the Committee's view that the terms of the Recapitalization
which was being effected by the Merger were fair to the holders of the Company's
pre-Recapitalization Common Stock from a financial point of view. The Committee
has not made any recommendation relating to the fairness of the Merger to
holders of the Series A Preferred Stock or Series B Preferred Stock.
Because the holders of the Series A Preferred Stock are not
entitled to vote with regard to the election of directors (except if the Company
fails to pay required dividends), they would not be able to vote to replace the
directors if they were dissatisfied with the terms of the Merger (although they
do have the ability to vote against the Merger). In total, the directors of the
Company beneficially own only 3.8% of the outstanding Series A Preferred stock
(including 83,000 shares which a director has the right to acquire through
exercise of a warrant), compared with 19.9% of the outstanding Common Stock
(including shares which they have the right to acquire through exercise of
options or conversion of Series A Preferred Stock) and 54.8% of the outstanding
Series B Preferred Stock.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE
IN THE ENCLOSED ENVELOPE. ANY STOCKHOLDER WHO LATER FINDS THAT HE OR SHE CAN BE
PRESENT AT THE MEETING, OR FOR ANY OTHER REASON DESIRES TO REVOKE THE PROXY, MAY
DO SO AT ANY TIME BEFORE THE PROXY IS VOTED.
APPROVAL OF THE MERGER WITH GENERAL TEXTILES, INC. REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF 50% IN VOTING POWER OF THE COMMON STOCK AND THE SERIES B
PREFERRED STOCK, VOTING TOGETHER, AND OF THE HOLDERS OF 50% OF THE SERIES A
PREFERRED STOCK, VOTING SEPARATELY. THEREFORE, FAILURE TO VOTE WITH REGARD TO
THE MERGER WILL HAVE THE SAME EFFECT AS A NEGATIVE VOTE.
By Order of the Board of Directors,
Wm. Robert Wright II
San Diego, California Secretary
_______, 1998
1
<PAGE>
FAMILY BARGAIN CORPORATION
4000 Ruffin Road
San Diego, California 92123
(619) 627-1800
---------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 23, 1998
---------------
INFORMATION CONCERNING SOLICITATION AND VOTING
Proxies in the form enclosed are being solicited by the Board of Directors
of Family Bargain Corporation (the "Company") to be voted at the Annual Meeting
of Stockholders to be held on September 23, 1998 at 10:00 a.m., local time, at
the Sheraton San Diego, 1380 Harbor Island Drive, San Diego, California, or any
adjournment or postponement of that meeting (the "Annual Meeting"). The
accompanying Notice of Meeting, this Proxy Statement and the form of Proxy are
first being sent to stockholders on or about August , 1998.
Record Date and Shares Outstanding
Only stockholders of record at the close of business on [ ], 1998 (the
"Record Date") are entitled to vote at the Annual Meeting. With regard to all
matters other than the merger of General Textiles, Inc., ("General Textiles")
into the Company (the "Merger"), the Company's voting stock consists of the
Company's common stock, par value $.01 per share ("Common Stock"), and the
Company's Series B Junior Convertible Exchangeable Preferred Stock, par value
$.01 per share ("Series B Preferred"). Each share of Common Stock is entitled to
one vote and each share of Series B Preferred is entitled to 526.09 votes on
each proposal that comes before the Annual Meeting. On the Record Date, there
were 5,004,122 outstanding shares of Common Stock and 35,360 outstanding shares
of Series B Preferred. With regard to the Merger, the holders of the Company's
Series A 9.5% Cumulative Convertible Preferred Stock, par value $.01 per share
("Series A Preferred") will also be entitled to vote as a separate class. See
"Proposal Regarding Merger." On the Record Date, there were 3,638,690
outstanding shares of Series A Preferred.
Voting and Revocability of Proxies
Stockholders do not have cumulative voting rights in the election of
directors. The presence (in person or by proxy) of holders of shares of Common
Stock and Series B Preferred representing a majority of the votes that would be
cast if all shares were present and voted constitutes a quorum. Shares for which
proxies are marked "abstain" will be treated as present for purposes of
determining the presence of a quorum. Proxies that are voted on only some of the
proposals will be treated as present for purposes of determining the presence of
a quorum, but will be voted only as instructed in the proxy. The election of a
nominee as a director requires a plurality vote of the votes cast. Approval of
Proposal 2 (the Merger) requires (i) the affirmative vote of a majority of the
votes which can be cast by holders of Common Stock and Series B Preferred,
voting together as though they were a single class and (ii) the affirmative
vote of holders of a majority of the outstanding Series A Preferred. Approval of
Proposals 3 (the stock option plan) and 4 (ratification of the appointment of
auditors) each requires the vote of holders of a majority in voting power of the
Common Stock and Series B Preferred which is voted with regard to the Proposal.
If the enclosed proxy is properly executed and returned, the shares to
which it relates will be voted in accordance with the stockholder's
instructions. In the absence of voting instructions, the shares represented by a
proxy will be voted for the four nominees for director, for approval of the
Merger and of the Amended Stock Option Plan and for ratification of the
appointment of accountants. Any stockholder giving a proxy may revoke it at any
time prior to its being voted, by delivering to the Secretary of the Company at
the Company's principal executive office, 4000 Ruffin Road, San Diego,
California 92123, or at the meeting, an instrument of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person. Revocation of a proxy will not apply to any matter on which it has
already been voted.
2
<PAGE>
Solicitation
Solicitation of proxies may be made by directors, officers and other
employees of the Company by mail, telephone, telegram, facsimile or personal
contact. No additional compensation will be paid for any such services. In
addition, the Company has retained to assist in the solicitation of proxies with
regard to the Merger. The Company will pay the customary fees of that firm,
which it estimates will be $ . Costs of solicitation, including preparation,
assembly, printing and mailing of this proxy statement, the proxy and any other
information furnished to the stockholders, will be borne by the Company. The
Company will, upon request, reimburse the reasonable charges and expenses of
brokerage houses and other nominees or fiduciaries for forwarding proxy
materials to, and obtaining authority to execute proxies from, beneficial owners
for whose account they hold shares.
Stockholder Proposals for 1999 Annual Meeting
Stockholder proposals intended to be presented at the 1999 Annual Meeting
of Stockholders must be received by the Company no later than , 1999. Proposals
may be mailed to theCompany, to the attention of Wm. Robert Wright II,
Secretary, 4000 Ruffin Road, San Diego, California 92123.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Voting Stock as of January 31, 1998: (i)
by each person who is known by the Company to own beneficially more than 5% of
the outstanding shares of the Common Stock, the Series A Preferred or the Series
B Preferred; (ii) by each of the Company's directors; (iii) by each of the
Company's executive officers named in the Summary Compensation Table below (the
"Named Executive Officers"); and (iv) by all directors and executive officers as
a group. Except as otherwise indicated, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to the shares shown as being beneficially owned by them.
3
<PAGE>
(a) Security Ownership of Certain Beneficial Owners.
<TABLE>
<CAPTION>
Percent of
Aggregate
Voting Power
Common Stock Series B Preferred of Common Series A Preferred
-------------------------- --------------------------- Stock and -------------------
Name and Address of Beneficial Number Percent Number Percent Series B Number Percent
Owner(1) of Shares of Class(2) of Shares of Class(3) Preferred of Shares of Class
- -------------------------- --------- ----------- --------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Cities Fund II L.P.(4) 231,198 4.7% 6,665 19.8% 16.5%
Three 390,978 7.9% 11,272 33.4% 27.9%
Cities Offshore II C.V.(5)
Quilvest American 763,984 14.0% 4,484 13.3% 13.5% 210,000 5.7%
Equity, Ltd.(6)
Craigmuir Chambers
P.O. Box 71, Road Town
Tortola, British Virgin Islands
Kennedy Capital Management, 620,708 12.0% 2,580 7.6% 8.6% 97,000 2.7%
Inc.(7)
10829 Olive Blvd.
St. Louis, MO 63141
Wynnefield 278,000 5.64% 1.2%
Group(8)
c/o Mr. Nelson Obus
One Penn Plaza - Suite 4720
New York, NY 10119
Bank of New York(9) 2,243 6.7% 5.2%
as Trustee for
Employees Retirement Plan of
Brooklyn Union Gas Co.
</TABLE>
(1) Except as otherwise indicated, the address of the beneficial
owners is c/o Three Cities Research, Inc., 135 East 57 Street, New
York, NY 10022. For information concerning the beneficial ownership of
shares by Messrs. J. William Uhrig, H. Whitney Wagner and Thomas G. Weld,
see the table concerning Security Ownership of Directors, et al.
(2) The percent of the class is calculated based on 4,929,122 shares
outstanding on January 31, 1998.
(3) The percent of the class is calculated based on 33,714 shares outstanding
on January 31, 1998.
(4) TCR Associates, as general partner of Three Cities Fund II, and William
F.P. de Vogel, as general partner of TCR Associates, may also be deemed to
be beneficial owners of the shares held by Three Cities Fund II.
(5) Offshore Associates, as general partner of Three Cities Offshore II, may
be deemed to be a beneficial owner of the shares held by Three Cities
Offshore II. With regard to information concerning the beneficial
ownership of shares by Messrs. J. William Uhrig and H. Whitney Wagner, see
the following table concerning Security Ownership
of Directors, et al.
(6) The ownership of the Common Stock by Quilvest American Equity, Ltd.
includes 538,440 shares of Common Stock issuable upon conversion of
210,000 shares of Series A Preferred.
(7) The ownership of the Common Stock by Kennedy Capital Management, Inc.
includes 248,708 shares of Common Stock issuable upon conversion of 97,000
shares of Series A Preferred.
(8) Information obtained from Schedule 13D, filed with the SEC on
November 7, 1997 by Wynnefield Partners Small Cap Value, L.P. (the
"Partnership"), Wynnefield Small Cap Value Offshore Fund, Ltd. (the
"Fund") and Wynnefield Partners Small Cap Value, L.P. I (the
"Partnership I", and, collectively with the Partnership and the Fund,
the "Wynnefield Group"). Wynnefield Capital Management, LLC, a New
York limited liability company ("WCM"), is the general partner of the
Partnership and the Partnership I. Messrs. Nelson Obus, Joshua Landes
4
<PAGE>
and Robert Melnick are the managing members of WCM and the principal
executive officers of Wynnefield Capital, Inc., the investment manager
of the Fund. Messrs. Obus, Landes and Melnick disclaim beneficial
ownership of any shares owned by the Wynnefield Group and disclaim
membership in the Wynnefield Group with respect to the shares for the
purposes of Sections 13(d) and 13(g) of the Exchange Act.
(b) Security Ownership of Directors, Named Executive Officers and
Executive Officers and Directors as a Group.
<TABLE>
<CAPTION>
Percent of
Aggregate
Voting Power
Common Stock Series B Preferred of Common Series A Preferred
-------------------------- --------------------------- Stock and -------------------
Name of Beneficial Number Percent Number Percent Series B Number Percent
Owner(1) of Shares of Class(2) of Shares of Class(3) Preferred of Shares of Class
- -------------------------- --------- ----------- --------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Borer III ................. 255,569(3) 4.9% 90 * 1.3% 89,200(4) 2.3%
William F. Cass.................... 50 * * *
Peter V. Handal ................... 41,697(5) * 250 * * 14,800
Denis LeClair......................
Mary McNabb........................ 12,500 * 200 * *
William W. Mowbray(6) ............. 500 1.5% *
Ronald Rashkow .................... 101,900(7) 2.0% 350(8) 1.0% 1.3% 25,200 *
James D. Somerville ............... 19,000 * 750 2.2% *
Jonathan W. Spatz ................. 250 * *
Michael Searles(9).................
J. William Uhrig (10(11)........... 399,952 8.1% 11,272 33.4% 27.9% 3,500 *
H. Whitney Wagner (10)............. 390,978 7.9% 11,272 33.4% 27.9%
Thomas G. Weld(12) ................ 238,890 4.8% 6,665 19.9% 16.5% 3,000 *
All Officers and Directors as
a Group (13 persons)............... 1,069,508(13) 20.1% 20,377 60.4% 51.1% 140,200 3.8%
5
<PAGE>
- -----------
* Less than 1%.
(1) The percent of the class is calculated based on 4,929,122 shares
outstanding on January 31, 1998.
(2) The percent of the class is calculated based on 33,714 shares outstanding
on January 31, 1998.
(3) Includes 23,750 shares which Mr. Borer has a right to acquire within 60
days through the exercise of stock options; 15,896 shares of Common Stock
issuable upon conversion of 6,200 shares of Series A Preferred; and
212,812 shares issuable upon conversion of 83,000 shares of Series A
Preferred which Mr. Borer has the right to acquire within 60 days through
the exercise of a warrant.
(4) Includes 83,000 shares of Series A Preferred which Mr. Borer has
the right to acquire within 60 days through exercise of a warrant.
(5) Includes 3,750 shares which Mr. Handal has a right to acquire within 60
days through the exercise of stock options and 37,947 shares issuable upon
conversion of 14,800 shares of Series A P referred.
(6) Mr. Mowbray resigned from his position as President and Chief Executive
Officer of the Company in August 1, 1997.
(7) Includes 11,000 shares of Common Stock held by members of Mr.
Rashkow's family; 64,612 shares of Common Stock issuable upon
conversion of 25,200 shares of Series A Preferred held by Mr. Rashkow;
11,538 shares of Common Stock issuable upon conversion of 4,500 shares
of Series A Preferred held by members of Mr. Rashkow's family; and
3,750 shares which Mr. Rashkow may acquire within 60 days through the
exercise of stock options.
(8) Includes 250 shares of Series B Preferred held by members of Mr.
Rashkow's family.
(9) Mr. Searles was appointed Chief Executive Officer of General Textiles and
Factory 2-U in March 1998.
(10) All shares are held by Offshore II. Messrs. Uhrig and Wagner, in their
capacity as general partners of Offshore Associates, the general partner
of Offshore II, are deemed to have beneficial ownership of all shares held
by Offshore II. Messrs. Uhrig and Wagner both report shared voting power
and shared dispositive power with respect to such shares.
(11) Mr. Uhrig's beneficial ownership also includes 8,974 shares
issuable upon conversion of 3,500 shares of Series A Preferred
held directly by Mr. Uhrig.
(12) All shares are held by Fund II. Mr. Weld, in his capacity as
general partner of TCR Associates, the general partner of Fund
II, is deemed, to have beneficial ownership of all shares held
by Fund II. Mr. Weld's beneficial ownership also includes
7,692 shares issuable upon conversion of 3,000 shares of Series
A Preferred held directly by Mr. Weld.
(13) Includes 31,250 shares of Common Stock which Officers and
Directors of the Company have the right to acquire within 60
days through the exercise of stock options; 146,660 shares of
Common Stock issuable upon conversion of 57,200 shares of
Series A Preferred held by Officers and Directors of the
Company; and 212,812 shares of Common Stock issuable upon
conversion of 83,000 shares of Series A Preferred which
Mr. Borer has the right to acquire within 60 days through the
exercise of a warrant.
6
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors (the "Board") of the Company is divided into three
classes. Directors are elected, by class, for three-year terms. Successors to
the class of directors whose term expires at any annual meeting are elected for
a new three-year term. Each of Messrs. Peter V. Handal, Ronald Rashkow and J.
William Uhrig is nominated as a member of Class II, to serve for a three-year
term until the Annual Meeting of Stockholders in 2001 and until his successor is
elected and qualified. Mr. Michael Searles is nominated as a member of Class
III, to serve for a one-year term until the Annual Meeting of Stockholders in
1999 and until his successor is elected and qualified.
Unless a proxy contains a contrary instruction, all proxies submitted in
the accompanying form will be voted for the election of the four nominees. If
any nominee becomes unable or unwilling to serve, the accompanying proxy may be
voted for the election of such other person as may be designated by the Board.
The proxies being solicited will be voted for no more than four nominees at the
Annual Meeting. Each director will be elected by a plurality of the votes cast,
in person or by proxy, at the Annual Meeting, assuming a quorum is present.
Stockholders do not have cumulative voting rights in the election of d
irectors.
Directors
The following table sets forth certain information regarding each nominee
for election as a director and each director whose term of office will continue
after the Annual Meeting.
Expiration of
Name Age Position Term as Director
James D. Somerville.................. 56 Director, Chairman of the Board 2000
John J. Borer III.................... 40 Director 1999
Peter V. Handal...................... 55 Director 1998(1)
Ira Neimark.......................... Director 1999
Ronald Rashkow....................... 56 Director 1998(1)
Michael Searles...................... 48 Director, President and Chief Executive 1998(1)
Officer of General Textiles, Inc.
H. Whitney Wagner.................... 41 Director 2000
Thomas G. Weld....................... 34 Director 2000
Wm. Robert Wright II................. Director - (1)
(1) If they are re-elected at the 1998 Annual Meeting, the terms of Messrs.
Handal, Rashkow and Wright will expire in 2001 and Mr. Searles' term will
expire in 1999.
James D. Somerville has been a director and Chairman of the Board of the
Company since February 1997. He has more than 30 years of broad-based experience
in both consulting and general management. Since 1996, Mr. Somerville has headed
his own firm, Somerville & Associates, consulting to senior management and
boards of directors. He also serves as Chairman of the Board of American
Re-Manufacturers, Inc. From 1991 until 1996, he served as Executive Vice
President of BET, Inc. and as a director of BET plc, an international services
conglomerate.
John J. Borer III has been a director of the Company since August 1994.
From October 1991 to March 1998, Mr. Borer was a Managing Director of Rodman and
Renshaw, Inc., an investment banking firm. Since March 1998, Mr. Borer has been
a Senior Managing Director of R&R Capital Group. On March 18, 1998, Rodman &
Renshaw, Inc. and its parent holding company filed petitions for liquidation
under Chapter 7 of the U.S. Bankruptcy Code.
Peter V. Handal has been a director of the Company since February
7
<PAGE>
1997. Since 1990, he has been President of COWI International Group (a
management consulting firm). Mr. Handal is also a partner in Carlisle & Handal
International (consultants and advisors on matters relating to international
business), Chief Executive Officer of J4P Associates LP (a real estate
developer), and President of Fillmore Leasing Company, Inc. (which leases
automobiles, computers and warehouse equipment). He serves on the Board of
Directors of Cole National Corporation, Jos. A.
Bank Clothiers and Perry Ellis International.
Ira Neimark is the former Chairman of the Board of Bergdorf Goodman & Co.
Since his retirement from that position in , Mr. Neimark has .
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.
H. Whitney Wagner has been director of the Company since January 1997. He
has been a Managing Director of TCR Associates since 1989. He joined TCR
Associates in 1983 and was elected a Vice President in 1986. Mr. Wagner also
serves on the boards of directors of Garden Ridge. From January 1993 to January
1998, Mr. Wagner served on the board of directors of MLX.
Thomas G. Weld has been a director of the Company since January 1997.
Mr. Weld has been a Managing Director of TCR Associates since 1993.
From 1988 until 1993, Mr. Weld was an associate with McKinsey and Company, a
management consulting firm.
Wm. Robert Wright II has been employed by Three Cities Research, Inc.
since 1992, except for a period from July 1993 to August 1995 when he
was in a graduate program at Harvard University. He has been a
Principal of Three Cities Research since 1996. Before joining Three
Cities Research, Mr. Wright worked for Marriott International in its
strategic planning department.
Messrs. Wagner, Weld and Wright are designees of Three Cities
Research, Inc., as was J. William Uhrig, who is not seeking re-election.
Three Cities Research, Inc. is owned by TCR Associates (of which
Messrs. Wagner, Weld and Uhrig are Managing Directors) and is an advisor
to holders of approximately 18% of the Common Stock and 63% of the
Series B Preferred Stock.
Executive Officers
The following table sets forth certain information concerning the
executive officers of the Company, in addition to Messrs. Searles and
Somerville (who are listed in the table above).
8
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Officer of the
Company and/or its
Name Position Age Subsidiaries since
------ -------------------------------------- ----- ------------------
<S> <C> <C> <C>
B. Mary McNabb.................. Executive Vice President - 49 1990
Merchandising for General Textiles (1)
William F. Cass................. Executive Vice President - 48 1996
Operations for General Textiles (2)
Jonathan W. Spatz............... Executive Vice President and 42 1997
Chief Financial Officer
Denis LeClair................... Vice President - General 48 1991
................................ Merchandise Manager
- ---------------
(1) General Textiles is a wholly owned operating subsidiary of the Company.
B. Mary McNabb is the Executive Vice President of Merchandising of
General Textiles . Ms. McNabb joined General Textiles and Factory 2-U
in 1990.
William F. Cass is the Executive Vice President of Operations of
General Textiles . Mr. Cass joined General Textiles and Factory 2-U in
March 1996. Prior to joining General Textiles and Factory 2-U, Mr. Cass
held positions as Managing Director, Director of New Business
Development and Senior Vice President of Merchandising at Clothestime.
Jonathan W. Spatz is the Executive Vice President and Chief Financial
Officer of the Company. Mr. Spatz joined the Company in June 1997.
Prior to joining the Company, from July 1994 to June 1997, Mr. Spatz was
the Chief Financial Officer of Strouds.
Denis LeClair is a Vice President and the Divisional Merchandise
Manager of General Textiles. Mr. LeClair has been employed by General
Textiles in merchandising capacities since 1991.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no Forms
5 were required, the Company believes that during the fiscal year ended January
31, 1998, the Section 16(a) filing requirements were complied with, except that
the following reports were filed late: five reports for eleven transactions by
Ronald Rashkow, one report for one transaction by Thomas A. Weld, three reports
for four transactions by William W. Mowbray, four reports for five transactions
by James D. Somerville, one report for one transaction by J. William Uhrig, one
report for two transactions by B. Mary McNabb, two reports for five transactions
by William F. Cass, three reports for four transactions by James M. Baker, four
reports for five transactions by John J. Borer III and one report for two
transactions by Jonathan W. Spatz.
Certain Relationships and Related Transactions
On March 20, 1997 and June 16, 1997, the Company sold 1,865 shares and 250
shares, respectively, of Series B Preferred to its senior employees and officers
(of which 1000 shares were sold to Named Executive Officers) at a purchase price
of $1,000 per share, which was paid in the form of full-recourse notes secured
by the issued stock. The notes accrue interest at 8% per annum and require
principal payments equivalent to 16.25% of the annual bonus of each purchaser
and a balloon payment of the unpaid principal and interest at maturity in March
2002.
Committees of the Board
The Board of Directors has established five committees. The committees,
their duties and their members are described below.
The Executive Committee is authorized to take such action as the Board of
Directors may from time to time direct. Its members are Messrs.
Searles, Somerville and Wagner.
The Compensation Committee reviews and approves compensation arrangements
for top management and employee compensation programs. The Company's Board of
9
<PAGE>
Directors determines the compensation of the Company's executive officers based
on recommendations from the Compensation Committee. The Compensation Committee
consists of Messrs. Borer, Rashkow, Somerville and Weld.
The Stock Option Committee has adopted, and if it is adopted by the
Company's stockholders at the Annual Meeting will administer, the Amended and
Restated Family Bargain Corporation 1997 Stock Option Plan. Its members are
Messrs. Weld and Rashkow.
The Audit Committee reviews and evaluates the results and scope of the
audit and other services provided by the Company's independent accountants, as
well as the Company's accounting principles and system of internal accounting
controls. The Company's By-Laws provide that affiliated transactions and
acquisitions by the Company of businesses not within certain SIC Codes
(including certain codes covering wholesale apparel trade, retail stores, and
apparel stores) must be unanimously approved by the Audit Committee; provided,
however, that (i) if any time there are fewer than two independent directors
designated or approved by the representative of the underwriters of the
Company's 1994 public offering on the Audit Committee, such transactions shall
require the unanimous consent of all independent directors on the Board and (ii)
if any time there are no remaining shares of Series A Preferred outstanding,
acquisition by the Company of businesses not within certain SIC Codes will
require approval by only a majority of the Audit Committee. The members of the
Audit Committee are Messrs. Borer, Handal and Wagner.
The Nominating Committee considers potential nominees for election to
the Board by either incumbent directors or stockholders. Its members
are Messrs. Handal, Somerville and Wagner.
Executive Compensation
The following tables and descriptive materials set forth information
concerning compensation of current and former Chief Executive Officers of the
Company, and the Company's four other most highly compensated executive officers
who were serving as executive officers of the Company at January 31, 1998, the
end of fiscal 1997.
Summary of Compensation
The following table summarizes the compensation of the Named Executive
Officers during fiscal 1997, 1996 and 1995.
</TABLE>
<TABLE>
<CAPTION>
Summary Compensation Table
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------------------------------------
Other Awards
-----------------------
Annual Restricted Securities Payouts All Other
-------
Fiscal Compen- Stock Underlying LTIP Compen-
Name and Principal Position Year(1) Salary Bonus sation Award(s) Options/SARs Payouts sation(2)
- --------------------------- ------- ------ ----- -------- --------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Somerville 1997 $137,308 $0 $-(3) $0 257,500 $0 $0
Chairman of the
Board
William F. Cass................ 1997 $199,038 $32,500 $-(3) $0 110,000 $0 $3,900
Executive Vice President - 1996 $110,769 $0 $-(3) $0 10,000 $0 $0
Operations for General
Textiles and Factory 2-U
B. Mary McNabb 1997 $197,596 $42,500 $-(3) $0 275,000 $0 $ 900
Executive Vice President - 1996 $168,846 $0 $-(3) $0 7,417 $0 $ 1042
Merchandising for General 1995 $154,372 $17,832 $-(3) $0 17,583 $0 $ 789
Textiles and Factory 2-U
Denis LeClair 1997 $145,000 $3,800 $-(3) $0 32,417 $0 $ 870
Vice President 1996 $138,692 $0 $-(3) $0 0 $0 $ 549
Divisional Merchandise 1995 $109,858 $25,328 $-(3) $0 17,583 $0 $ 723
Manager for General
Textiles and Factory 2-U
William W. Mowbray 1997 $388,328 $125,000 $-(3) $0 652,500 $0 $ 900
Former President and Chief 1996 $332,078 $0 $-(3) $0 10,000 $0 $ 900
Executive Officer(4) 1995 $260,345 $224,852 $-(3) $0 100,000 $0 $ 410
Michael Searles................ 1997 $0 $0 $0 $0 0 $0 $ 0
President and Chief Executive
Officer of General Textiles
and Factory 2-U(5)
Jonathan W. Spatz 1997 $139,423 $65,000 $-(3) $0 120,000 $0 $3,398
Executive Vice President
and Chief Financial Officer(6)
10
<PAGE>
- -------------------
(1) In previous years the Company referred to a fiscal year according to the
year in which the fiscal year ended (for example, the fiscal year ended
February 1, 1997 was previously referred to as Fiscal Year 1997). The
Company now refers to the fiscal year as the year in which most of the
activity occurred (for example, the fiscal year ended January 31, 1998
is referred to as Fiscal Year 1997).
(2) "All Other Compensation" for 1997 includes (i) contributions made
for the named Executive Officers under the Family Bargain Corporation
401(k) Savings Plan, a defined contribution plan meeting the
requirements of Section 401(k) of the Internal Revenue Code of 1986,
as amended, to match 1997 pre-tax elective deferral contributions
(included under "Salary") made to such plan by the named Executive
Officer, (ii) with regards to Mr. Cass an additional $3,000 paid for
moving expenses and (iii) with regards to Mr. Spatz $3,398 paid for
moving expenses.
(3) The aggregate amount of such compensation is less than the lesser of
either $50,000 or 10% of such person's total annual salary and bonus.
(4) Mr. Mowbray was President and Chief Executive Officer of the Company
until his resignation on August 1, 1997.
(5) Mr. Searles was appointed President and Chief Executive Officer of
General Textiles and Factory 2-U in March 1998.
(6) Mr. Spatz was appointed Executive Vice President and Chief Financial
Officer of the Company in June 1997.
Grants of Stock Options
The following table sets forth information concerning the award of stock
options to the Named Executive Officers during Fiscal 1997.
</TABLE>
<TABLE>
<CAPTION>
Individual Grants
-----------------
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of
Underlying Options/SARs Stock Price
Options/SARs Granted to Exercise of Appreciation for
Granted Employees in Base Price Option Term (1)
Name (#) Fiscal Year ($/sh) Expiration Date 5%($) 10%($)
- ------ -------------------------------------------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William F. Cass.................110,000 4.05% $ 2.25 4/3/2002 $ 68,200 $ 150,700
Denis LeClair................... 32,417 1.20% $ 2.25 4/3/2002 $ 20,099 $ 44,411
B. Mary McNabb..................275,000 10.13% $ 2.25 4/3/2002 $170,500 $ 376,750
William W. Mowbray..............652,500 24.08% $ 2.25 4/3/2002 $404,550 $ 893,925
Michael Searles................. 0 0% $ 0 - $ 0 $ 0
James D. Somerville.............257,500 9.48% $ 2.25 4/3/2002 $159,650 $ 352,775
Jonathan W. Spatz...............120,000 4.42% $ 2.25 6/24/2002 $ 55,200 $ 140,400
</TABLE>
- ---------------
(1) These amounts represent assumed rates of appreciation only. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock.
11
<PAGE>
Exercise of Stock Options
The following table sets forth information concerning the exercise of
stock options during Fiscal 1997 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
FY-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
at FY End(#) at FY End($)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise Value ($) Realized Unexercisable Unexercisable
- ------ ----------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
William F. Cass..................... 0 0 0/120,000 $0/1,560
Denis LeClair....................... 0 0 0/50,000 $0/2,374
B. Mary McNabb...................... 0 0 0/300,000 $0/3,900
William W. Mowbray.................. 0 0 0/762,500 $0/17,160
Michael Searles..................... 0 0 0/0 $0/0
James D. Somerville................. 0 0 0/257,500 $0/0
Jonathan W. Spatz................... 0 0 0/120,000 $0/0
- ---------------
</TABLE>
12
<PAGE>
Compensation of Directors
Directors who are not salaried employees of the Company or TCR receive a
$10,000 annual fee payable quarterly and a fee of $1,000 for each meeting of the
Board of Directors attended. In addition, commencing as of June 20, 1997, the
three independent directors of the Company, Messrs. Borer, Handal and Rashkow,
are granted at the end of each fiscal quarterly period, options to acquire 1,250
shares of Common Stock, exercisable immediately. The Chairman of the Board is a
salaried employee of the Company and consequently does not receive a director's
fee. All directors are reimbursed for any out-of-pocket travel expenses incurred
by them in attending meetings of the Board of Directors or committees of the
Board. There are no other arrangements or agreements pursuant to which any of
the directors are entitled to be compensated for serving as directors.
Employment Contracts with Named Executive Officers and Severance Arrangements
The Mowbray Separation Agreement. On August 1, 1997 the Company and Mr.
William W. Mowbray entered into a Separation Agreement (the "Separation
Agreement"), whereby Mr. Mowbray resigned from his positions as director and
officer of the Company and the Amended and Restated Employment Agreement, dated
February 24, 1997 (the "Employment Agreement"), between Mr. Mowbray and the
Company was terminated. Under the Separation Agreement, Mr. Mowbray agreed that
for the period ending December 31, 2000, he will not, directly or indirectly,
compete with the Company or any of its subsidiaries in any of the States in
which the Company is operating. In consideration therefor, the Company agreed to
pay Mr. Mowbray the following sums: (i) $970,000 to be paid in three
installments on March 30, 1998, March 30, 1999 and August 1, 2000 and (ii)
$341,536, $365,444, $391,025 and $418,396, to paid during the years 1997, 1998,
1999 and 2000, respectively, in addition to the bonus due for Fiscal 1997 under
the Company's existing bonus plan and payment for accrued and unused vacation
days. In the event of a change of control of the Company, all such amounts
mentioned in (ii) above shall become immediately due and payable.
The Company also agreed to continue to provide Mr. Mowbray with all of the
health, life insurance and automobile benefits set forth in the Employment
Agreement. In addition, the Company agreed to amend the Secured Promissory Note,
which Mr. Mowbray issued to the Company in connection with his purchase of
Series B Preferred, to forgive and waive all interest payable thereunder.
Mr. Mowbray's stock options were also amended to enable him to exercise
fifty percent of such options if the market price of the Common Stock exceeds $6
per share for sixty consecutive days and the remaining fifty percent of such
options if the market price of the Common Stock exceeds $7.50 per share for
sixty consecutive days.
The Searles Employment Agreement. Mr. Michael Searles, General Textiles'
President and Chief Executive Officer and a member of the Company's Board of
Directors, is employed pursuant to a five-year employment agreement, dated March
30, 1998, among the Company, General Textiles and Mr. Searles (the "Searles
Agreement"). Pursuant to the Searles Agreement, Mr. Searles is entitled to
receive an annual salary of not less than $600,000 and (b) an annual bonus
targeted at 50% of the base salary.
In connection with the execution of the Searles Agreement, Mr. Searles was
granted equity compensation in the form of (a) options under the Company's stock
option plan to acquire 300,000 shares of Common Stock at the closing market
price on March 10, 1998. Such options shall vest in equal increments on the
first five anniversaries of the Searles Agreement; (b) options to acquire
900,000 shares of Common Stock at a price of $2.00 per share of which options to
purchase 450,000 shares shall become exercisable when the closing market price
is equal to or exceeds $6.00 for 60 trading days during any twelve month period
and the options to purchase the remaining 450,000 shares shall become
exercisable when the closing market price is equal to or exceeds $7.50 for 60
trading days during any twelve month period; and (c) 1,400 shares of Series B
Preferred to be purchased by Mr. Searles, the cost of which shall be loaned
to Mr. Searles by the Company. With respect to such 1,400 shares, Mr. Searles
will grant the Company an option to acquire such shares in the event that Mr.
Searles' employment under the Searles Agreement shall be terminated, at the
prices and on the terms described in the Searles Agreement.
In connection with Mr. Searles employment, the Company purchased Mr.
Searles' home in Connecticut. The Company intends to sell that home at the
earliest opportunity.
13
<PAGE>
Compensation Committee Report on Executive Compensation 2
The Compensation Committee of the Board of Directors (the "Committee")
is composed entirely of outside directors. The Committee is responsible for
establishing and administering the compensation policies applicable to the
Company's executive officers. All decisions by the Committee are subject to
review and approval of the full Board of Directors.
The Company's executive compensation philosophy and specific compensation
plans tie a significant portion of executive compensation to the Company's
success in meeting specific profit, growth and performance goals.
The Company's compensation objectives include attracting and retaining the
best possible executive talent, motivating executive officers to achieve the
Company's performance objectives, rewarding individual performance and
contributions, and linking executives' and stockholders' interests through
equity based plans.
The Company's executive compensation consists of three key components:
base salary, annual incentive compensation and stock options, each of
which is intended to complement the others and, taken together, to satisfy the
Company's compensation objectives. The Compensation Committee's policies with
respect to each of the three components are discussed below.
Base Salary. In the early part of each fiscal year, the Compensation
Committee reviews the base salary of the Chief Executive Officer ("CEO") and the
recommendations of the CEO with regard to the base salary of all other executive
officers of the Company and approves, with any modifications it deems
appropriate, annual base salaries for each of the executive officers.
Recommended base salaries of the executive officers, other than the CEO, are
based on an evaluation of the individual performance of the executive officer,
including satisfaction of annual objectives. The recommended base salary of the
CEO is based on achievement of the Company's annual goals relating to financial
objectives, including earnings growth and return on capital employed, and an
evaluation of individual performance.
Recommended base salaries of the executive officers are also in part based
upon an evaluation of the salaries of those persons holding comparable positions
at comparable companies.
Annual Incentive Compensation. The Company's executive officers are
entitled to participate in a discretionary incentive bonus plan which provides
for the payment of annual bonuses to be paid in cash, stock, or a combination
- --------
2. Notwithstanding filings by the Company with the Securities and Exchange
Commission that may incorporate this proxy statement by reference, this
Compensation Committee Report will not be incorporated by reference into any
filings and will not be deemed to be "filed" with the SEC except as specifically
provided otherwise.
14
<PAGE>
thereof, based on the relative success of the Company in attaining certain
financial objectives and certain subjective factors as established from time to
time by the Committee and/or the Board of Directors. The Committee will consider
aggregate incentive cash and stock bonus payments to the executive officers, as
a group, of up to 50% of aggregate annual executive base salaries, and will
consider bonus payments to be paid in stock in excess of 50% of aggregate annual
executive base salaries. The Committee awarded cash bonuses of $280,000 to the
named executive officers for Fiscal 1997.
Stock Options. The primary objective of the stock option program is to
link the interests of the Company's stockholders to the executive officers and
other selected employees of the Company through the grant of significant annual
grants of stock options. The aggregate number of options recommended by the
Committee is based on practices of the same comparable companies utilized for
determining base salary, while actual grants of stock options reflect each
individual's expected long-term contribution to the success of the Company. The
Committee made grants of 1,415,000 stock options to the named executive officers
in Fiscal 1997.
Compensation of the Chief Executive Officer. As of March 30, 1998, the
Company entered into an employment agreement with Michael Searles, the new Chief
Executive Officer of the company's subsidiaries. In order to attract Mr.
Searles, the company paid Mr. Searles a signing bonus and assisted him with
certain relocation expenses. Mr. Searles base salary was set at $600,000 which
the committee believed was commensurate with the salaries paid to other
executives with similar experience in comparable companies. The Compensation
Committee and Mr. Searles have agreed that Mr. Searles' annual bonus will be
based on the achievement of corporate objectives set annually by the committee
in conjunction with Mr. Searles. Mr. Searles' annual bonus is targeted at 50% of
his base salary, but may vary depending on Company performance. Similarly,
options have been awarded to Mr. Searles on similar terms as the Corporation's
other executive management (including time vesting provisions and vesting
provisions tied to an increase in market value of the Corporation's common
stock), recognizing his senior position. Additionally, the company has financed
the purchase by Mr. Searles of Series B Preferred Stock of the Company with a
partial recourse loan in the amount of $1.4 million. The Committee believes that
the most significant portion of Mr. Searles potential compensation should be
tied to the appreciation of the share price of the Corporation's Common Stock.
Compensation Committee: John J. Borer III, Ronald Rashkow, James D.
Somerville and Thomas G. Weld. .
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. John J. Borer
III, Ronald Rashkow, James D. Somerville and Thomas G. Weld. Except for
Mr. Somerville, no member of the Compensation Committee of the Board of
Directors of the Company was, during fiscal 1997, an officer or employee
of the Company or any of its subsidiaries, or was formerly an officer of
the Company or any of its subsidiaries.
Performance Graph of the Company
The following graph compares the five-year cumulative total return (change
in stock price plus reinvested dividends) on the Common Stock with the total
returns of the Nasdaq Composite Index, a broad market index covering stocks
listed on the Nasdaq National Market, the Dow Jones Retailers Broadline Index
("Industry Index") which currently encompasses 32 companies, and the companies
in the Family Clothing Retail industry (SIC Code 5651), a group currently
encompassing 22 companies (the "SIC Index"). The Company has selected the SIC
Index because its composition reflects the closest peer group of the Company.
This information is provided through January 31, 1998, the end of Fiscal 1997.
[GRAPHIC OMITTED]
15
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ending January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Family Bargain Corporation $100 $ 63.80 $ 13.79 $ 18.39 $ 18.39 $ 14.08
- ------------------------------------------------------------------------------------------------------------------------------------
Nasdaq Composite Index 100 125.97 119.05 166.69 219.37 258.39
- ------------------------------------------------------------------------------------------------------------------------------------
Industry Index 100 94.93 82.77 87.15 102.28 148.30
- ------------------------------------------------------------------------------------------------------------------------------------
SIC Index 100 98.66 81.37 98.68 117.13 206.69
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Assumes $100 invested on February 1, 1993 and dividends are reinvested.
The composition of the Industry Index is as follows: Ames Department
Stores, Bon-Ton Stores Inc., Buckle Inc., Carson Pirie Scott & Co., Coles Myer
Ltd., Controladora Comer Mex, Crowley, Milner & Co., Dai Ei Inc. ADR, Dayton
Hudson Corp., Dillard's Inc., Dollar General Corp., Duckwall-Alco Stores Inc.,
Family Dollar Stores Inc., Federated Dept. Stores, Fred Meyer Inc. Holding Co.,
Fred's Inc., Hills Stores Co., JG Industries Inc., K Mart Corp., Krantor
Corporation, May Department Stores, Pamida Holdings Corp., J.C. Penney Co.,
Inc., Proffitt's Inc., Saks Holdings Inc., Sears, Roebuck & Co., Shopko Stores
Inc., Stein Mart Inc., Value City Dept. Stores, Venture Stores Inc. and Wal Mart
Stores Inc.
The composition of the SIC Index is as follows: Abercrombie & Fitch Co.,
American Eagle Outfitter, Big Dog Holdings Inc., Buckle Inc., Burlington Coat
Factory Warehouse, Chico's FAS Inc., Children's Place Retail Stores, Designs
Inc., Family Bargain Corp., Filene's Basement Corp., Gadzooks Inc., Gap Inc.,
Goody's Family Clothing, Gymboree Corp., Harolds Stores Inc., K&G Men's Center
Inc., Nordstrom Inc., Ross Stores Inc., Stein Mart Inc. and Syms Corp.
Source: Media General Financial Services.
PROPOSAL 2
MERGER WITH GENERAL TEXTILES, INC.
General
The Company has agreed to a merger with General Textiles (the
"Merger") in a transaction in which (a) the Company will be the survivor of the
Merger, (b) the Company's name will be changed to "Factory 2-U Incorporated"
and (c) the Company will be recapitalized (the "Recapitalization") so that (i)
each share of the Company's Common Stock will be converted into 0.30133 shares
of post-Recapitalization Common Stock, (ii) each share of Series A Preferred
will be converted into one share of post-Recapitalization Common Stock and
(iii) each share of Series B Preferred will be converted into 173.33 shares of
post-Recapitalization Common Stock. A copy of the Plan and Agreement of Merger
dated June 18, 1998 (the "Merger Agreement") between the Company and General
Textiles is attached as Exhibit A.
The ratios at which pre-Recapitalization shares will be converted
into shares of the surviving corporation's Common Stock will result in the
holders of the pre-Recapitalization shares receiving the same number of shares
they would have received if (i) each share of pre-Recapitalization Common Stock
had been converted into 1.13 shares of the surviving corporation's Common Stock,
(ii) each share of Series A Preferred had been converted into 3.75 shares of the
surviving corporation's Common Stock, (iii) each share of Series B Preferred had
been converted into 650 shares of the surviving corporation's Common Stock, and
(iv) there had been a reverse split by which each 3.75 shares of the surviving
corporation's Common Stock had become one share of post-Recapitalization Common
Stock. The last reported sale prices of the Common Stock and the Series A
Preferred on June 1, 1998 (the day before the Company announced the Merger and
its intention to make a rights offering) were $3.094 and $9.75, respectively.
Assuming the Recapitalization would cause the market price of a share of
post-Recapitalization Common Stock to be 3.32 (i.e., 3.75 divided by 1.13) times
the market price of a share of Common Stock before the Recapitalization, based
upon the last reported sale price of the Common Stock on June 1, 1998, the value
of the post-Recapitalization Common Stock received as a result of the Merger
would be $3.095 per share of pre-Recapitalization Common Stock, $10.27 per share
of Series A Preferred and $1,779.70 per share of Series B Preferred. Based on
the $13 per share at which the Company expects to offer 800,000 shares of
post-Recapitalization Common Stock in a rights offering (and at which investors
advised by Three Cities Research, Inc. have agreed to exercise their rights and
to purchase all the shares which are available to them because other rights are
not exercised), the value of the post-Recapitalization Common Stock to be
received as a result of the Merger would be $3.92 per share of
pre-Recapitalization Common Stock, $13 per share of Series A Preferred and
$2,253 per share of Series B Preferred. However, the market price of a share of
post-Recapitalization Common Stock immediately after the Merger will not
necessarily be either 3.32 times the market price of a share of
pre-Recapitalization Common Stock immediately before the Recapitalization or
$13 per share. On August 14, 1998, the last reported sale prices of the Common
Stock and the Series A Preferred were $2.50 per share and $7.875 per share,
respectively.
16
<PAGE>
Reasons for the Merger
Because General Textiles is a wholly-owned subsidiary of the
Company, the Merger will not affect the Company's consolidated financial
condition or results of operations. It will, however, simplify the Company's
internal structure, by having the Company operate its businesses directly,
rather than having them operated by a subsidiary (or by two subsidiaries, as was
the case before the July 1998 merger of Factory 2-U, Inc., another
wholly-owned subsidiary of the Company, with General Textiles). More
importantly, the Recapitalization will significantly simplify the Company's
capital structure. Currently, the Company has outstanding 5,004,122 shares of
Common Stock, 3,638,690 shares of Series A Preferred and 35,360 shares of Series
B Preferred. The Series A Preferred has a preference over the Common Stock on
liquidation of the Company, has a cumulative preference with regard to dividends
(currently totalling almost $3.5 million per year), sometimes has no voting
powers and sometimes votes together with the Common Stock as though they were a
single class. Further, anything which will adversely affect the Series A
Preferred, increase the number of shares of Series A Preferred which may be
issued or result in issuance of stock which will be senior to, or on a parity
with, the Series A Preferred must be separately approved by holders of a
majority of the outstanding shares of Series A Preferred. The Series B Preferred
has a preference over the Common Stock on liquidation and with regard to
dividends, will be entitled to receive quarterly dividends beginning in 2002, or
possibly before that, may become convertible into approximately 526.093 shares
of Common Stock per share of Series B Preferred, and votes together with the
Common Stock, with each share of Series B Preferred having a number of votes
equal to the number of shares of Common Stock into which it is, or may become,
convertible. Although the Company will not be required actually to pay dividends
on the Series B Preferred until 2002, it is accruing approximately $2.6 million
per year for future dividends (which reduces earnings available to Common Stock
by that amount). After the Recapitalization, the Company no longer will have any
outstanding preferred stock. Its only outstanding stock will be Common Stock,
13.4% of which will be held by pre-Recapitalization holders of Common Stock,
32.3% of which will be issued to the pre-Recapitalization holders of Series A
Preferred and 54.3% of which will be issued to the pre-Recapitalization holders
of Series B Preferred.
Summary of Effects of the Merger on Common Stock, Series A Preferred and
Series B Preferred
The Merger will, among other things, have the following effects on
the holders of the Common Stock, the Series A Preferred and the Series B
Preferred:
Common Stock
Conversion into post-Recapitalization
Common Stock Each share of pre-
Recapitalization Common
Stock will become
.30133 shares of
post-Recapitalization
Common Stock.
Voting
Currently, holders of
Common Stock vote
together with the
holders of the Series B
Preferred, and are
entitled to cast 21.2%
of the votes cast by the
holders of the Common
Stock and the Series B
Preferred voting
together. Holders of
Series A Preferred do
not have the right to
vote with regard to most
matters. After the
Merger, all the
Company's stockholders
will have the same
voting rights and, based
on the shares which will
be outstanding
immediately after the
Merger, former holders
of pre-Recapitalization
Common Stock will be
entitled to cast 13.4%
of the votes cast on
matters presented to the
stockholders.
17
<PAGE>
Dividends
Currently, the Company
may not pay any
dividends with regard to
the Common Stock until
it has paid all required
dividends on the Series
A Preferred and the
Series B Preferred. At
this time, the only
required dividends are
$3.46 million per year
with regard to the
Series A Preferred.
However, beginning in
2002, the Company will
also be required to pay
dividends on the Series
B Preferred, which based
upon the currently
outstanding number of
shares, will total $2.12
million in 2002,
increasing gradually to
$4.24 million in 2005
and each year after
that. After the Merger,
former holders of
pre-Recapitalization
Common Stock will
receive the same
dividends per share
of post-Recapitalization
Common Stock, if any, as
former holders of Series
A Preferred and Series B
Preferred. Based upon
the shares which will be
outstanding immediately
after the Merger, former
holders of pre-
Recapitalization Common
Stock will be entitled
to 13.4% of any
amount which is paid as
dividends.
Liquidation If the Company were
liquidated prior to
the Recapitalization,
holders of Common Stock
would not receive any
distributions until
holders of the Series A
Preferred and Series B
Preferred had received
distributions totalling
approximately $71
million. However, the
holders of the Common
Stock would receive all
distributions in excess
of that amount. After
the Merger, former
holders of pre-
Recapitalization
Common Stock will be
entitled to the same
liquidating distribu-
tions per share of
post-Recapitalization
Common Stock as the
former holders of Series
A Preferred and the
Series B Preferred.
Based upon the shares
which will be
outstanding immediately
after the Merger, the
former holders of Common
Stock would be entitled
to 13.4% of all sums
distributed to stock-
holders on liquidation
of the Company.
18
<PAGE>
Series A Preferred
Conversion into Post-Recapitalization Each share of Series A
Common Stock Preferred will become
one share of post-
Recapitalization
Common Stock.
Voting Holders of Series A
Preferred do not have
the right to vote on
matters presented to the
stockholders, except
(i) if the Company
has failed to pay four
quarterly dividends on
the Series A
Preferred or (ii) with
regard to matters
directly affecting the
Series A Preferred
(including a sale of
the Company, issuance of
another class or series
of shares which ranks
prior to or on a
parity with the Series
A Preferred, an
adverse change in the
terms of the Series A
Preferred, or a trans-
action, such as the
Merger, in which the
Series A Preferred is
changed into another
type of security or
asset). After the
Recapitalization, all the
Company's stockholders
will hold post-
Recapitalization Common
Stock, and therefore
will have the same
voting rights. Based on
the shares which
will be outstanding
immediately after the
Merger, former holders
of Series A Preferred
will be entitled to
cast 32.3% of the
votes cast on matters
presented to the
stockholders.
19
<PAGE>
Dividends Holders of the Series A
Preferred are
entitled to receive
dividends of $.95 per
share per year, payable
quarterly, before the
Company may pay any
dividends on the Common
Stock or the Series B
Preferred. However,
holders of the Series A
Preferred are not
entitled to any dividends
in excess of $.95 per
share per year. After
the Merger, former
holders of Series A
Preferred will have no
dividend preference,
but will be entitled
to 32.3% of whatever
amount, if any, is
paid as dividends with
regard to the post-
Recapitalization Common
Stock.
Liquidation
Holders of the Series A
Preferred are entitled
to receive $10
per share (plus any
accumulated unpaid
dividends) upon
liquidation of the
Company, before the
Company may make any
liquidating distri-
butions to holders of
Common Stock or Series B
Preferred. However,
holders of Series A
Preferred are not
entitled to receive more
than $10 per share (plus
any accumulated
but unpaid dividends)
upon liquidation of the
Company. After the
Merger, former holders
of Series A Preferred
will be entitled to
the same liquidating
distributions per share
of post-Recapitalization
Common Stock as the
former holders of
pre-Recapitalization
Common Stock and Series B
Preferred. Based
upon the shares which
will be outstanding
immediately after the
Merger, the former
holders of Series A
Preferred would be
entitled to 32.3% of
all sums distributed
to stockholders on
liquidation of the
Company.
20
<PAGE>
Conversion The Series A Preferred
is convertible into
2.561 shares of
pre-Recapitalization
Common Stock per share
of Series A Preferred.
If the Company were to
take certain actions,
the number of shares of
Common Stock issuable on
conversion of the Series
A Preferred might
increase (or decrease)
to prevent
dilution of the
conversion right. The
shares of post-
Recapitalization
Common Stock into which
the Series A Preferred
will be converted by the
Merger will be the
equivalent of 3.0133
shares of pre
Recapitalization
Common Stock. That will
give the former holders
of Series A Preferred
32.3% of the
post-Recapitalization
Common Stock which will
be outstanding
immediately following
the Merger, compared
with 28.3% of the Common
Stock which they would
own if all the Series A
Preferred and Series B
Preferred were converted
into Common Stock in
accordance with their
terms.
Redemption at the Company's Option The Company has the
option to redeem all,
but not less than
all, the outstanding
Series A Preferred for
$10.70 per share,
declining gradually
to $10 per
share at and after July
21, 2004. Even before
July 21, 2004, the
Company has the option
to redeem the Series A
Preferred for $10 per
share at any time when
the price of the
Company's Common Stock
is at least 137.5% of
the conversion price
then in effect. The
Company will have no
right to redeem the
post-Recapitalization
Common Stock which would
be issued to holders of
Series A Preferred as a
result of the Merger.
Series B Preferred
Conversion into Post-Recapitalization Each share of Series B
Common Stock Preferred will become
173.33 shares of
post-Recapitalization
Common Stock.
21
<PAGE>
Voting Holders of Series B
Preferred vote together
with the holders
of the Common Stock,
and are entitled to
cast 78.8% of the
votes cast by
the holders of the
Series B Preferred
and the Common Stock,
voting together.
Holders of Series A
Preferred do not have
the right to vote with
regard to most matters.
After the Merger, all
the Company's stock-
holders will hold
post-Recapitalization
Common Stock, and there-
fore will have the same
voting rights. Based on
the shares which will
be outstanding im-
mediately after the
Merger, former holders
of Series B Preferred
will be entitled to
cast 54.3% of the votes
cast in matters
presented to the stock-
holders.
Dividends Until 2002, the Company
is not required to pay
any dividends with re-
gard to the Series B
Preferred unless the
Company defaults on
its revolving credit
facilities or declares
dividends on its
Common Stock. Beginning
in 2002, the Company
will be required to pay
dividends with regard to
Series B Preferred,
which will be $60 per
share in 2002, and
will increase by $20
per share each
year after that until
2005, during and after
which the dividend
will be $120 per share
per year. However, the
Company may not pay any
dividends with regard
to Series B Preferred
in a year unless it pays
dividends of $.95 per
share (a total of $3.46
million based on the
currently outstanding
shares) with regard to
the Series A Preferred,
plus any dividends
which should have been,
but were not, paid in
prior years with regard
to Series A Preferred.
On the other hand, the
Company may not pay any
dividends with regard to
the Common Stock until
it has paid all required
dividends on the Series
B Preferred. After the
Merger, former holders
of Series B Preferred
will receive the same
22
<PAGE>
dividends per share of
post-Recapitalization
Common Stock, if any, as
former holders of Series
A Preferred and
pre-Recapitalization
Common Stock. Based upon
the shares which will be
outstanding immediately
after the Merger, the
former holders of Series
B Preferred would be
entitled to 54.3% of any
amount which is paid as
dividends.
Liquidation Holders of Series B
Preferred are not
entitled to receive any
distributions upon
liquidation of the
Company until holders of
the Series A Preferred
have received
distributions of $10 per
share (totalling $36.4
million based on the
currently outstanding
shares of Series A
Preferred). After those
liquidating
distributions have been
made with regard to the
Series A Preferred,
holders of the Series B
Preferred are entitled
to receive distributions
of $1,000 per share
(plus any accumulated or
accrued but unpaid
dividends) before any
liquidating
distributions may be
made with regard to the
Common Stock. However,
holders of the Series B
Preferred are not
entitled to any
liquidating
distributions in excess
of $1,000 per share
(plus any accumulated or
accrued but unpaid
dividends). After the
Merger, former holders
of Series B Preferred
will be entitled to the
same liquidating
distributions per share
of post-Recapitalization
Common Stock as the
former holders of Series
A Preferred and
pre-Recapitalization
Common Stock. Based upon
the shares which will be
outstanding immediately
after the Merger, the
former holders of Series
B Preferred would be
entitled to 54.3% of all
sums distributed to
stockholders on
liquidation of the
Company.
23
<PAGE>
Conversion Beginning 30 days
after there is no
outstanding Series A
Preferred (or if there
is a change of control
of the Company), the
Series B Preferred is
convertible into 526.093
shares of
pre-Recapitalization
Common Stock per share
of Series B Preferred.
If the Company were to
take certain actions,
the number of shares of
Common Stock issuable on
conversion of the Series
B Preferred might
increase (or decrease)
to prevent dilution of
the conversion right.
The shares of
post-Recapitalization
Common Stock into which
a share of Series B
Preferred will be
converted by the Merger
will be the equivalent
of 575.46 shares of
pre-Recapitalization
Common Stock.
That will give the
former holders of Series
B Preferred 54.3% of the
post-Recapitalization
Common Stock which will
be outstanding
immediately following
the Merger, compared
with 56.5 percent of the
Common Stock if all the
Series A Preferred and
Series B Preferred were
converted into Common
Stock in accordance with
their terms.
24
<PAGE>
Redemption at the At any time when there
Company's Option no longer is any out-
standing Series A
Preferred, the Company
may redeem all, but
not less than all, the
outstanding Series B
Preferred for $1,000
per share. Also, if at
any time the holders of
the Series B Preferred
become entitled to
dividends because the
Company is in default
under a loan agreement,
the Company may redeem
all, but not less than
all, the Series B
Preferred by issuing
three year 8%
convertible subordinated
notes in a principal
amount equal to $1,000
per share of Series B
Preferred plus all
accumulated or accrued
but unpaid dividends.
The Company will have no
right to redeem the
post-Recapitalization
Common Stock which will
be issued to holders of
Series B Preferred as
a result of the Merger.
Vote Required
The Merger must be approved by the holders of a majority of the
outstanding Common Stock and Series B Preferred, voting together as though they
were a single class (with the holders of Series B Preferred being entitled to
cast 526.09 votes for each share of Series B Preferred held by them), and must
also be approved by the holders of a majority of the outstanding Series A
Preferred, voting as a separate class. Investors advised by Three Cities
research, Inc. ("Three Cities Research") own a total of 902,156 shares of
Common Stock and 30,910 shares of Series B Preferred. They included three
investors (the "Three Cities Investors") which own a total of 777,721 shares of
Common Stock and 22,421 shares of Series B Preferred (equal to approximately
15.5% of the outstanding Common Stock and 63.4% of the outstanding Series B
Preferred and entitled to cast approximately 53.3% of the total number of
votes which may be cast by the holders of the Common Stock and Series B
Preferred with regard to the Merger ) who have agreed with the Company that
they will vote all those shares in favor of the Merger. Therefore, the Merger
will be approved by the holders of the Common Stock and the Series B Preferred,
even if no other holders vote in favor of the Merger. However, the Merger also
must be approved by the holders of a majority of the outstanding shares of
Series A Preferred. No holders of Series A Preferred have made (or have been
asked to make) any commitments as to how they will vote with regard to the
Merger, except that Peter V. Handal and John J. Borer, III, the members of the
Independent Directors' Committee which evaluated the fairness of the Merger to
the Common Stockholders have said they will vote any shares of Common Stock,
Series B Preferred Stock or Series A Preferred Stock they own for and against
the Merger in the same proportions other stockholders vote for and against the
Merger.
25
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE THE MERGER OF GENERAL TEXTILES, INC. INTO THE COMPANY.
Background of the Merger
The Merger is part of a restructuring and recapitalization being
undertaken by the Company. The steps of this restructuring and recapitalization,
some of which have already been completed, are as follows:
o On April 30, 1998, General Textiles issued (i) $3,350,000 principal
amount of Subordinated Notes due 2003 in satisfaction of $4,900,000
principal amount of Subordinated Reorganization Notes, and (ii)
$17,335,097.65 principal amount of Junior Subordinated Notes due 2005,
as well as 75,000 shares of Common Stock and warrants entitling the
holders to purchase 274,418 shares of Common Stock for $6.00 per
share, in satisfaction of $17,335,097.65 principal amount of Junior
Subordinated Reorganization Notes.
o On July 31, 1998, Factory 2-U, Inc. and the corporation that was then
General Textiles were merged into a newly formed Delaware corporation, the
full name of which is "General Textiles, Inc." The Company, as the sole
stockholder of both Factory 2-U, Inc. and General Textiles, received all
the shares of the new General Textiles.
o The Company will shortly distribute to its stockholders (including its
preferred stockholders) transferable Rights entitling the holders to
purchase a total of 800,000 shares of post-Recapitalization Common
Stock for $13 per share (or, if the Merger is not approved, 3,000,000
shares of pre-Recapitalization Common Stock for $3.467 per share) on or
before September 30, 1998 (or a later date selected by the Company). The
Company's stockholders will receive one Right for each 41.46 shares of
Common Stock, one Right for each 16.07 shares of Series A Preferred and
12.78 Rights for each share of Series B Preferred. The Rights will provide
that any holder who exercises the Rights evidenced by a Subscription
Certificate may "oversubscribe" to purchase, in addition to the shares as
to which the Rights are exercised, up to any specified number of shares of
Common Stock which are offered to holders of Rights but are not purchased
through exercise of Rights, with the total number of shares as to which
Rights are not exercised to be allocated among holders who exercise the
oversubscription privilege on the basis of the numbers of shares as to
which they exercise the oversubscription privilege. The Three Cities
Investors, which will receive Rights to purchase 305,490 shares as holders
of Common Stock and Series B Preferred, have committed to exercise all the
Rights they will receive and to exercise their oversubscription privilege
as to 494,510 shares of Common Stock (the entire number of shares subject
to Rights which are being issued to stockholders other than the Three
Cities Investors). Therefore, all 800,000 shares of Common Stock which are
being offered to holders of Rights will be purchased, even if no one but
the Three Cities Investors exercises Rights.
26
<PAGE>
o At the meeting to which this Proxy Statement relates, the Company's
stockholders are being asked to vote upon the Merger. If the Merger is
approved, (i) the Company will directly operate its business rather than
its being operated through a subsidiary, (ii) the Company's name will be
changed to "Family Bargain Stores, Inc." and (iii) the only outstanding
stock of the Company will be Common Stock (the Series A Preferred and
Series B Preferred will be converted into Common Stock).
o If the Merger is not approved by the Company's stockholders:
o As promptly as practicable after the stockholders meeting at which
the Merger is not approved, General Textiles will begin an exchange
offer in which holders of all three classes or series of the
Company's stock will be given the opportunity to exchange their
stock of the Company for General Textiles common stock at the rate
of 0.30133 shares of General Textiles common stock for each share
of the Company's Common Stock, one share of General Textiles common
stock for each share of the Company's Series A Preferred and 173.33
shares of General Textiles common stock for each share of the
Company's Series B Preferred. General Textiles will issue to the
Company the shares of General Textiles Common Stock which are not
issued to the Company's stockholders because they do not exchange
their Company stock for General Textiles stock. Therefore, General
Textiles will have the same number of shares of Common Stock
outstanding regardless of how many shares of the Company's stock
are tendered for exchange. The Three Cities Investors have
agreed that if this exchange offer is made, they will exchange all
their Family Bargain Common Stock and Series B Preferred for a
total of 5,488,210 shares of General Textiles common stock (or a
higher number of shares if the Three Cities Investors purchase
common stock by exercising the oversubscription privilege in the
Rights offering). If no shares of the Company's stock owned by
anyone other than the group of Three Cities Investors are
exchanged, the issuance of General Textiles common stock to the
Three Cities Investors as a result of the exchange offer would
reduce the Company's ownership of General Textiles to 64% or less
of its common stock. Any exchanges of the Company's stock by other
stockholders would further reduce the Company's percentage
ownership of General Textiles. The Company's interest in General
Textiles and $16.4 million of subordinated notes of General
Textiles by the Company would be the Company's only significant
assets.
27
<PAGE>
o As promptly as practicable after the General Textiles exchange
offer terminates, the Company will hold a stockholders meeting at
which its stockholders will (x) elect new directors (who, the
Company has been advised, will not include anyone affiliated with
Three Cities Research) and (y) be asked to vote upon a proposal to
exchange shares of General Textiles which the Company owns for
shares of the Company's stock which General Textiles acquired
through the exchange offer. At this meeting, General Textiles will
vote its Common Stock and Series B Preferred pro rata with the
Company's other stockholders with regard to the election of
directors, but will vote all the Company's stock which General
Textiles owns in favor of the proposal to exchange some of the
Company's General Textiles common stock for the Company's stock
which General Textiles owns. That exchange will eliminate the
interlocking relationship in which the Company may own as much as
64% of General Textiles' common stock and General Textiles will own
at least 64% in voting power of the Company's Common Stock and
Series B Common Stock. However, it will further reduce the
Company's ownership of General Textiles to 48%, or less, depending
on how many shares of the Company's stock are exchanged for General
Textiles common stock as a result of the exchange offer.
The purpose of the restructuring described above and the
Recapitalization which will result from the Merger is to simplify the Company's
internal structure and its capital structure. The Subordinated Reorganization
Notes and the Junior Subordinated Reorganization Notes, which had been issued in
1994 as part of General Textiles' Chapter 11 Plan of Reorganization, would for
several years have absorbed almost all General Textiles' annual cash flow in
excess of a specified amount. This would have prevented General Textiles from
reinvesting at least part of its cash flow in its business. It also made it
inadvisable for the Company to merge General Textiles and Factory 2-U, even
though most of their functions (including administration, purchasing and
distribution) had been combined. A merger of the two companies would have
required Factory 2-U's cash flow to be applied to pay the Subordinated
Reorganization Notes and the Junior Subordinated Reorganization Notes, rather
than being available for operations and growth. By exchanging the Subordinated
Reorganization Notes and Junior Subordinated Reorganization Notes for new, fixed
payment notes, the Company made it possible to reinvest its cash flows in excess
of the amounts it has to pay with regard to the new notes and made it feasible
to merge General Textiles and Factory 2-U, which was then done.
The Company's Board of Directors believes that the complicated
nature of the Company's capital structure, together with the fact that
the liquidation preference of the two classes of preferred stock exceeds $71
million and annual charges for dividends on the preferred stock (including
charges for future dividends on the Series B Preferred) exceed $6.1 million,
have adversely affected the market perception of the Common Stock. The Company
believes the most effective way to change this capital structure is through the
Merger, which will cause all the Series A Preferred and Series B Preferred
automatically to become Common Stock. If, however, the Company's stockholders
(and in particular, the holders of the Series A Preferred) do not approve the
Merger, the Company will cause General Textiles to offer to exchange its common
stock for Common Stock, Series A Preferred and Series B Preferred of the
Company. This offer will be registered under the Securities Act of 1933, as
amended, and will cause General Textiles' common stock to be publicly held.
Because General Textiles conducts all the Company's operations, and does not
have any outstanding preferred stock, the value of General Textiles' common
stock should approximate what the value of the Company's Common Stock would have
been if the Merger had been approved, except that it may reflect the fact that
the Company holds $16.4 million of General Textiles notes.
28
<PAGE>
Independent Directors' Committee
In connection with the Recapitalization, it was necessary to
determine the numbers of shares of post-Recapitalization Common Stock into which
a share of pre-Recapitalization Common Stock, a share of Series A Preferred and
a share of Series B Preferred would be converted. Although the
pre-Recapitalization Common Stock and the Series A Preferred are
traded on the Nasdaq Small-Cap Market, there is no market for the Series B
Preferred. Further, the rights and preferences of the Series A Preferred and
Series B Preferred are very different. Therefore, there was no simple formula
for determining the numbers of shares of post-Recapitalization Common Stock into
which the pre-Recapitalization common stock, the Series A Preferred and the
Series B Preferred would be converted. Because representatives of Three Cities
hold three of the six positions on the Company's Board of Directors, and
investors advised by Three Cities hold 87% of the Series B Preferred (as well
as holding 18% of the Common Stock), the Board of Directors felt that the
decision as to the numbers of shares of post-Recapitalization Common Stock into
which the pre-Recapitalization Common Stock, Series A Preferred and Series B
Preferred would be converted should be reviewed by a committee of directors who
had no relationship to Three Cities Research. Further, the Board of Directors
felt it was best that no employees of the Company be members of that Committee.
Accordingly, on March 6, 1998, the Board of Directors appointed John J. Borer,
III and Peter V. Handal as a Committee to negotiate the terms of the
Recapitalization on behalf of the holders of the pre-Recapitalization Common
Stock and to advise the Board as to whether the terms of the Recapitalization
are fair to the pre-Recapitalization common stockholders. Shortly thereafter,
the Committee retained Kramer, Levin, Naftalis & Frankel as its legal counsel.
On April 8, 1998 the Committee held its first meeting and discussed
the proposed settlement with holders of the Company's Subordinated
Reorganization Notes and Junior Subordinated Reorganization Notes, that had been
presented at a meeting of the Company's Board of Directors that had occurred
that morning. The Committee felt that implementation of this settlement
would affect whatever reorganization proposal Three Cities
presented. The Committee undertook to contact several investment bankers with
the intention of engaging a financial advisor to evaluate the fairness of any
proposed transaction to the pre-Recapitalization holders of Common Stock.
On April 21, 1998, Three Cities delivered a recapitalization
proposal to the Committee. This proposal assumed:
(i) that each share of Common Stock would continue to be one share
of Common Stock, each share of Series A Preferred would be
converted into 3.75 shares of Common Stock, and each share of
Series B Preferred would be converted into 650 shares of Common
Stock;
(ii) that the Company would issue to the Company's stockholders
rights to purchase the equivalent of up to 3 million
pre-Recapitalization shares of Common Stock for $3.25 per
pre-Recapitalization share and that Three Cities Investors would
agree to exercise their rights and also any other rights the
holders of which decline to exercise; and
(iii) that some of the proceeds from the exercise of the rights
would be used to prepay Subordinated Notes which the Company
proposed to issue in exchange for the Subordinated Reorganization
Notes.
29
<PAGE>
This proposal would have decreased the percentage ownership of the
pre-Recapitalization Common Stockholders from 15.4% to 12.1% and of the Series B
Preferred Stockholders from 55.0% to 53.5% (based upon the then outstanding
Common Stock and Series B Preferred), while increasing the percentage ownership
of the Series A Preferred stockholders from 29.7% to 34.4%.
On April 27, 1998, the Committee held its second meeting, at which
the proposal from Three Cities was discussed. The Committee felt that the
proposal attempted to strike a balance among the Company's stockholder
constituencies, but that it produced too great a dilution in the percentage of
the Company that the pre-Recapitalization Common Stockholders would own after
the Merger. The Committee discussed various changes to the Three Cities proposal
that might alleviate this problem.
Shortly thereafter, the members of the Committee met with
representatives of Three Cities to discuss various ways Three Cities' proposal
could be improved from the point of view of the Company's pre-Recapitalization
Common Stockholders. They discussed the possibility of having the Company issue
warrants to purchase additional shares of Common Stock to the
pre-Recapitalization Common Stockholders. Three Cities felt that any issuance of
new securities would undercut one of the primary goals of the reorganization,
i.e., to simplify the Company's capital structure.
After their meeting with Three Cities, the Committee members met
with the Company's Board of Directors. At that meeting they described their
meeting with the representatives of Three Cities, and told the Board of
Directors that they felt Three Cities' proposal was not unreasonable, but that
the pre-Recapitalization Common Stockholders' share needed to be improved.
On May 6, 1998, the Committee held its third meeting and discussed
the progress of the negotiations with Three Cities. At that meeting the
Committee formally decided to engage Ladenburg Thalmann & Co. Inc. ("Ladenburg")
as its financial advisor. Shortly thereafter Ladenburg began its analysis of
Three Cities' proposal.
On May 14, 1998, the Committee held its fourth meeting.
Representatives of Ladenburg and the Committee's legal counsel were present. At
the meeting, Ladenburg discussed its preliminary analysis of the proposal from
Three Cities.
On May 19, 1998, the Committee members had meetings with Ladenburg
and then with Ladenburg and Three Cities to discuss ways the proposal might be
improved for the pre-Recapitalization Common Stockholders. Three Cities
reiterated its objection to any plan that complicated the Company's
post-Recapitalization capital structure by creating a new class of securities.
The possibility of having the Company give a cash dividend to the Common
Stockholders was also rejected, inasmuch as it was felt that it would be more
advantageous for the Company to retain as much of its cash as possible. It was
decided that the best solution would be to have the Company issue more shares of
post-Recapitalization Common Stock to the pre-Recapitalization Common
Stockholders, although the exact method by which this would be accomplished was
still to be determined.
30
<PAGE>
On May 19, 1998 Three Cities delivered a revised proposal to the
Committee. This revised proposal reflected the negotiations that had occurred
between Three Cities and the Committee, and called for the issuance of 640,000
additional shares of Common Stock to the pre-Recapitalization Common
Stockholders. The revised proposal provided that each share of
pre-Recapitalization Common Stock would be converted into 0.30133 shares of
post-Recapitalization Common Stock, each share of Series A Preferred would be
converted into one share of post-Recapitalization Common Stock, and each share
of Series B Preferred would be converted into 173.33 shares of
post-Recapitalization Common Stock, assuming in each case an effective one for
3.75 reverse stock split simultaneous with the conversion. This revision
increased the percentage of the post-Recapitalization Company that would be
owned by the pre-Recapitalization Common Stockholders to 13.5%, from the 12.1%
they would have owned under the first proposal (based in each case on the then
outstanding Common Stock and Series B Preferred). Three Cities also said that if
the Recapitalization were on those terms, the Three Cities Investors would vote
in favor of the Recapitalization, and would commit to purchase for $13 per share
in cash all the post-Recapitalization Common Stock they could purchase by
exercising Rights issued to them in connection with the rights offering and
exercising the oversubscription privilege to purchase all shares which are not
purchased by other Rights holders.
On May 21, 1998, the Committee met again with Ladenburg and then
with Ladenburg and Three Cities to discuss Three Cities' revised proposal. At
that meeting, the Committee asked Three Cities to analyze the tax consequences
of various methods of issuing additional shares of Common Stock to the
pre-Recapitalization Common Stockholders. After these meetings, the Committee
met with its counsel and with Ladenburg. At that meeting, Ladenburg stated
to the Committee that, subject to the completion of its due diligence
investigation of the Company, and to the tax analysis, it expected to be
able to deliver its written opinion that the revised consideration to be
received by the holders of the Series A Preferred and Series B Preferred
was fair, from a financial point of view, to the
pre-Recapitalization Common Stockholders.
On May 27, 1998, the Committee held its seventh meeting. At this
meeting Ladenburg presented the Committee with a booklet that set forth in draft
form the methods Ladenburg had used in its analyses of the proposal. It was also
noted that a draft form of its fairness opinion was delivered to counsel to the
Committee for review. The Committee members analyzed the booklet carefully and
asked many questions of Ladenburg about its contents. Ladenburg stated to the
Committee that, subject to completion of its due diligence and tax analysis, it
remained of the preliminary view that the consideration to be received by the
holders of the Series A and Series B Preferred was fair, from a financial point
of view, to the pre-Recapitalization Common Stockholders. At the end of this
meeting, the Committee voted to inform the Board that, subject to receipt of
Ladenburg's final opinion and a suitable tax opinion from Rogers & Wells, the
Committee felt the terms of the Merger were fair to the Committee's
pre-Recapitalization Common Stockholders.
On June 16, 1998, Ladenburg delivered to the Committee copies of
its Family Bargain Corporation Presentation booklet, which described Ladenburg's
various analyses of the Recapitalization, and a revised draft of its fairness
opinion. The members of the Committee studied the booklet and draft opinion and
discussed their contents among themselves and with their legal counsel for the
next few days.
On June 18, 1998, the Committee held its eighth formal meeting.
Representatives of Ladenburg and of Kramer Levin were in attendance at this
meeting. At this meeting Ladenburg gave a presentation in which it described the
contents of the booklet and the fairness opinion. After this presentation the
Committee members asked Ladenburg numerous questions about Ladenburg's analysis.
At the end of this meeting the Committee voted to inform the Board that, subject
to receipt of a suitable tax opinion from Rogers & Wells, it was the Committee's
view that the terms of the Recapitalization were fair to the Company's
pre-Recapitalization Common Stockholders.
Reasons for the Committee's Conclusion
In reaching its conclusion, the Committee considered the factors
described below. In view of the wide variety of factors considered in connection
with its evaluation of the Merger, the Committee did not consider it practicable
to, and did not attempt to, quantify, rank or otherwise assign relative weights
to the specific factors it considered in reaching its conclusion.
31
<PAGE>
(i) Advantages to the Company. The Committee considered the
benefits that consummation of the Merger would provide to the
Company, including (A) savings of administrative expenses resulting
from the elimination of the holding company structure, and (B) the
greater flexibility and certainty that the simplified capital
structure will provide to the Company's management. The Committee
believes that these advantages should be of benefit to the
Company's pre-Recapitalization Common Stockholders.
(ii) Advantages to Common Stockholders. The Committee believes that
the Company's simplified capital structure, especially the
elimination of the special rights of the two series of the
Preferred Stock, after the Merger will make the Common Stock more
attractive to the financial markets.
(iii) Opinion of Ladenburg. The Committee considered the
preliminary view of its financial advisor, Ladenburg, on May 27,
1998 (which preliminary view was confirmed in a written opinion
dated June 18, 1998), to the effect that, as of such dates and
subject to the assumptions and limitations therein, the
consideration to be received by the holders of the Company's Series
A Preferred and Series B Preferred in the Merger was fair, from a
financial point of view, to the pre-Recapitalization holders of the
Common Stock. The Committee also considered the presentations made
by Ladenburg. See "Opinion of the Committee's Financial Advisor." A
copy of Ladenburg's opinion to the Committee, dated June 18, 1998,
is attached as Exhibit C to this Proxy Statement and is
incorporated herein by reference. That opinion should be read in
its entirety for a description of the opinion expressed, procedures
followed, assumptions made, matters considered and limitations of
review undertaken in connection with the opinion.
The Committee considered such opinion and such presentations
to support its recommendation. In light of its familiarity with the
Company and Ladenburg's responses to questions during such
presentations (including questions with respect to the valuation
methods used by Ladenburg in its valuation analyses), the Committee
found reasonable, and relied upon, Ladenburg's analyses and
opinion. In particular, the Committee found reasonable the
accretion/dilution analysis, equity valuation, and EPS valuation
analysis presented by Ladenburg. The Committee concluded that the
amount of dilution to earnings per pre- Recapitalization common
share that would occur as a result of the Merger was acceptable,
given the positive effects the Merger would have, including, (A)
the increase in common stock market capitalization, (B) the
simplification of the Company's capital structure, (C) the
elimination of the liquidation preferences of the senior securities
and (D) the elimination of cash dividends of Series A Preferred and
non-cash dividends of Series B Preferred. Moreover, the Committee
noted that part of this dilution in earnings per share would result
from the issuance of Common Stock pursuant to the Rights Offering,
for which issuance the Company would receive cash proceeds of $13
per post-Recapitalization share.
(iv) Independent Negotiations. The Committee considered as
supporting its recommendation the fact that the terms of the Merger
were determined through arm's-length discussions and negotiations
between members of the Committee and the Committee's advisors on
the one hand, and representatives of Three Cities and their
advisors on the other hand, and the fact that such negotiations
resulted in an increase in the percentage of the
post-Recapitalization Common Stock to be received by the
pre-Recapitalization Common Stockholders. The Committee was of the
view that, based on the history and nature of such discussions and
32
<PAGE>
negotiations it was unlikely that Three Cities would accept any
proposal that offered the Company's pre-Recapitalization Common
Stockholders a higher percentage of the post-Recapitalization
Company.
(v) Three Cities Investors' Willingness to Exercise Rights. The
Committee considered the fact that a group of Three Cities
Investors were willing to purchase at least 305,490, and possibly
as many as 800,000, shares of post-Recapitalization Common Stock
for $13.00 per share knowing the proposed terms of the Merger.
The Committee was aware that the percentage of the
post-Recapitalization Common Stock into which the Series A Preferred will be
converted as a result of the Merger will exceed the percentage of the Common
Stock into which it could be converted by exercising the conversion rights which
are part of its terms. The following table shows (without taking account of the
issuance of Common Stock as a result of the rights offering) the numbers of
shares and percentages of the Common Stock which would be held by the
pre-Recapitalization holders of the Common Stock, Series A Preferred and Series
B Preferred (i) if all the Series A Preferred and Series B Preferred were
converted into Common Stock in accordance with their terms, and (ii) as a result
of the Merger:
<TABLE>
<CAPTION>
Common Stock and
Preferred Stock Converted Preferred Stock
According to Its Terms Converted in the Merger
------------------------- ------------------------
Number of Number of
Pre-Recapitalization Shares Percentage of Shares Percentage of
Holders of: of Common Stock Common Stock of Common Stock Common Stock
- --------------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Common Stock 5,004,122 15.2% 1,507,742 13.4%
Series A Preferred Stock 9,319,704 28.3% 3,638,690 32.3%
Series B Preferred 18,601,648 56.5% 6,128,949 54.3%
----------- ----- --------- -----
Total 32,926,474 100.0% 11,275,381 100.0%
</TABLE>
The Committee also was aware, however, that the holders of the
Series A Preferred are not required to convert their preferred stock into Common
Stock, and that at the current price of the Common Stock it is unlikely they
would do so. On June 1, 1998, the day before the Company announced the terms of
the rights offering and of the proposed Merger, the last sale price of the
Series A Preferred reported on the Nasdaq Small-Cap Market was $9.75 and the
last reported sale price of the Common Stock was $3.094. Accordingly, the market
price of the 2.561 shares of Common Stock into which a share of Series A
Preferred is convertible was $7.92, which was 19% less than the last reported
sale price of the Series A Preferred. Even at the $13 per post-Recapitalization
share at which Common Stock is being offered in the rights offering (and at
which a group of Three Cities Investors have said they will exercise their
rights and will purchase any other shares which are available because rights are
not exercised), the pre-Recapitalization Common Stock into which the Series A
33
<PAGE>
Preferred can be converted was worth only $10.03, which is only slightly more
than the last reported sale price of the Series A Preferred. Because of that,
and because the Merger would eliminate the preferential dividend and liquidation
rights of the Series A Preferred, the Committee felt it was necessary for the
holders of the Series A Preferred to receive more Common Stock as a result of
the Merger than they would receive if they converted their Series A Preferred
into Common Stock in accordance with the terms of the Series A Preferred.
Accordingly, it accepted the merger ratio for the Series A Preferred, which,
based upon a $13 per share value of a share of post-Recapitalization Common
Stock, would represent a premium of approximately 33% over the June 1, 1998
last sale price of the Series A Preferred. The actual premium may be greater or
less than that, to the extent the market price of the Common Stock immediately
after the Merger is greater or less than $13 per share.
Opinion of the Committee's Financial Advisor
Ladenburg was engaged by the Committee to act as its financial
advisor. Ladenburg is an internationally recognized investment banking firm
which, as part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, merchant banking, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. The
Committee retained Ladenburg based on these qualifications and expertise.
On June 18, 1998, at a meeting of the Committee, Ladenburg
delivered a written opinion to the Committee to the effect that, as of the date
of such opinion and based upon and subject to certain matters therein, including
the number of shares of post-Recapitalization Common Stock to be issued with
regard to a share of pre-Recapitalization Common Stock (the "Common Stock
Recapitalization Consideration"), the number of shares of post-Recapitalization
Common Stock to be issued with regard to the Series A Preferred and Series B
Preferred (the "Preferred Stock Recapitalization Consideration") was fair, from
a financial point of view, to the pre-Recapitalization Common Stockholders of
the Company.
The full text of the written opinion of Ladenburg, which sets forth
assumptions made, matters considered and limitations on the review undertaken,
is attached as Exhibit C to this Proxy Statement and should be read carefully in
its entirety. Although each of the analyses employed by Ladenburg in rendering
its opinion is summarized below, the summary does not purport to be a complete
description of Ladenburg's analyses and contains those aspects of Ladenburg's
analyses deemed most relevant. Ladenburg did not determine or make any
recommendation with respect to the type or amount of consideration to be paid in
connection with the Recapitalization. The opinion of Ladenburg is directed to
the Committee and relates only to the fairness of the Preferred Stock
Recapitalization Consideration, from a financial point of view, to the
pre-Recapitalization Common Stockholders of the Company and does not constitute
a recommendation to any stockholder of the Company as to how such stockholder
should vote at the Annual Meeting. The opinion of Ladenburg is subject to
certain conditions and limitations set forth therein, and the summary of that
opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion.
34
<PAGE>
In arriving at its opinion, Ladenburg reviewed and considered such
information as it deemed necessary or appropriate for the purposes of stating
its opinion including (i) drafts, in the forms furnished to it by
representatives of the Company, of the Merger Agreement, this Proxy Statement
and the registration statement (the "Registration Statement") pursuant to which
the Company proposes to offer and sell to holders of Rights it will issue to its
stockholders, including the Three Cities Investors, 800,000 shares of
post-Recapitalization Common Stock at $13.00 per share (or 3,000,000 shares of
pre-Recapitalization Common Stock at $3.467 per share if the Merger is not
approved) (the "Rights Offering"), (ii) certain business and financial
information relating to the Company provided by the Company, including the
financial condition and results of operations of the Company, the historical
financial performance, certain projected financial information provided by the
Company and pro forma financial statements giving effect to the proposed
transactions of the Company as provided by the Company, and the historical
trading performance of the Common Stock and Series A Preferred, (iii) certain
public filings made by the Company with the Securities and Exchange Commission,
(iv) the terms of the Series A Preferred and Series B Preferred, as set forth in
the Certificates of Designations for the Series A Preferred and the Series B
Preferred, furnished to Ladenburg by the Company, (v) to the extent publicly
available, certain market criteria for securities with terms which Ladenburg
considered relevant in evaluating the Series A Preferred and the Series B
Preferred. In addition, Ladenburg conducted such other analyses and examinations
and reviewed and considered such other financial, economic and market criteria
as it deemed appropriate in arriving at its opinion. Ladenburg also met with
members of senior management of the Company to discuss, among other things, the
historical and prospective industry environment, financial conditions and
operating results for the Company and reasons for the Recapitalization.
In rendering its opinion, Ladenburg assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or discussed
with it by the Company, the Committee, Three Cities (with the approval of the
Company) or their respective advisors. With respect to the information provided
by Three Cities utilized in its analyses, Ladenburg stated that it was not aware
of any reason why it could not reasonably rely on such information. With respect
to financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with Ladenburg, the management of the Company advised
Ladenburg that such forecasts and other information and data were reasonably
prepared on bases reflecting reasonable currently available estimates and
judgments of management with respect to the future financial performance of the
Company. Ladenburg also assumed, with the Company's consent, that the final
terms of the Merger Agreement and Registration Statement reviewed by it in draft
form will not vary materially from the drafts of such documents provided to it,
and that the Recapitalization (if the Merger is approved by the Company's
stockholders) and the Rights Offering will be consummated in all material
respects as described in the drafts of this Proxy Statement and the Registration
Statement provided to it. Ladenburg was not requested to and did not analyze or
give any effect to the impact of any federal, state or local income taxes to the
Company's stockholders arising out of the Merger. In this regard, Ladenburg
35
<PAGE>
assumed, with the Company's consent, that, as set forth in the Proxy Statement,
the Merger would be treated as a tax free liquidation and recapitalization
pursuant to the Internal Revenue Code of 1986, as amended, and would be
consummated pursuant to the Merger Agreement. See " - Federal Income Tax
Consequences of the Merger." Ladenburg did not express any opinion as to
the value of the Common Stock or the prices at which the Common Stock
will be transferable, in each case, subsequent to the Recapitalization.
Ladenburg did not make an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company, nor has
Ladenburg made any physical inspection of the properties or assets of the
Company. Ladenburg expressed no opinion as to the relative merits of the
Recapitalization as compared to any alternative business strategies that might
exist for the Company or the effect of any other transaction in which the
Company might engage. Although Ladenburg evaluated the Preferred Stock
Recapitalization Consideration from a financial point of view, Ladenburg was not
requested to, and did not, participate in the negotiation of the Merger
Agreement or related transactions described in this Proxy Statement and was not
requested to, and did not, recommend the specific consideration payable in the
Recapitalization.
In its analyses, Ladenburg made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, based on, among other things, information provided
to Ladenburg by the Company, many of which are beyond the control of the
Company. Any estimates contained in Ladenburg's analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein.
The opinion of Ladenburg is necessarily based upon information
available to Ladenburg, and financial, stock market and other conditions and
circumstances existing and disclosed to Ladenburg, as of the date of the
opinion. Ladenburg's analyses do not reflect, among other things, changes in the
Company's business or prospects, changes in general business and economic
conditions or any other transactions or events that have occurred since the date
of its opinion or that may occur and that were not anticipated at the time such
materials were prepared.
The preparation of a fairness opinion is a complex analytical
process that involves various determinations as to the most appropriate and
relevant qualitative and quantitative methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analyses or summary
description. Accordingly, Ladenburg believes that its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
The estimates contained in such analyses and the valuation ranges resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be more or less favorable than
those suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities may be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. Ladenburg's
36
<PAGE>
opinion and analyses were only one of many factors considered by the Committee
in its evaluation of the Recapitalization and should not be viewed as
determinative of the views of the Committee or the Company's Board of
Directors with respect to the Preferred Stock Recapitalization Consideration
or the proposed Recapitalization.
Overview of Analyses
Ladenburg used both qualitative and quantitative assessments to
evaluate the Preferred Stock Recapitalization Consideration. Inherent in such
assessments by Ladenburg was the view that the proposed transaction is a
recapitalization of the Company in which each of the existing common and
preferred stockholder classes are exchanging their existing securities for a new
security in a simplified capital structure with one class of stock outstanding.
In addition, compared with the existing capital structure, there would be fewer
shares outstanding (having the effect of increasing the value of each new
share).
Ladenburg's determination that the Preferred Stock Recapitalization
Consideration was fair, from a financial point of view, to the
pre-Recapitalization Common Stockholders of the Company is based on all the
qualitative and quantitative analyses described below. Such opinion takes into
consideration the fact that the Company could not compel the holders of the
Series A Preferred or Series B Preferred to approve a recapitalization on terms
similar to the proposed Recapitalization, and that, as a result, the
Recapitalization, in the manner desired by the Company, could not occur without
the approval of the holders of at least a majority of the Series A Preferred and
of nearly a majority of the Series B Preferred.
Qualitative Considerations
In addition to the quantitative analyses discussed below, Ladenburg
considered a number of qualitative factors related to the Company. Ladenburg did
not apply valuation weightings to any of these qualitative analyses. Among the
positive qualitative factors relating to the Company, Ladenburg noted:
(i) the significantly increased Common Stock market capitalization
resulting from the Recapitalization is contemplated to have effects
of (a) increasing trading volume and market liquidity for Common
Stockholders, (b) eliminating the valuation discount associated
with an illiquid security, (c) creating potential interest from
institutional investors and portfolio managers, (d) increasing the
likelihood of securities analyst coverage to increase the flow of
information about the Company, (e) simplifying the capital
structure for potential investors to evaluate and (f) increasing
the likelihood of the common stock being listed on the Nasdaq
National Market or becoming a marginable security;
(ii) the significant accretion to operating earnings per common
share based on pro forma prior year and current year earnings
(fiscal year 1997 and 1998) in the near term;
(iii) the ability to recapitalize the Company without using working
capital or requiring additional financing which would require
significant cash and financing risk and which might not achieve the
desired simplification of the capital structure and the elimination
of in excess of $70.0 million of liquidation preference;
(iv) the elimination of the right of the holders of the Series B
Preferred to convert such securities into 8% Convertible
Subordinated Notes with accompanying cash interest payments;
(v) the reduction in the downside risk to the pre-Recapitalization
Common Stockholders;
(vi) the improvement of the Company's cash flow through the
elimination of cash dividends payable on the Series A Preferred;
37
<PAGE>
(vii) that the improvement in cash flow and simpler capital
structure increases the Company's ability to raise equity capital
to fund future investments or the redemption of debt securities;
(viii) the elimination of cash dividends on the Series A Preferred
and dividend accruals on the Series B Preferred increases the
probability of demonstrating positive earnings on the Common Stock;
and
(ix) the elimination of the burden, liquidation preference, and
other rights of the senior securities.
Among the negative qualitative factors relating to the Company,
Ladenburg noted: (i) the dilution associated with the holders of the Series A
Preferred and the holders of the Series B Preferred receiving more shares of
Common Stock than they would have received if they had converted their shares to
Common Stock under their respective Certificates of Designations; and (ii) the
potential earnings dilution to the holders of the post-Recapitalization Common
Stock in the 1999 and 2000 fiscal years.
Quantitative Analyses
Ladenburg evaluated the Preferred Stock Recapitalization
Consideration through various methods described below. For presentation
purposes, all share values and per share calculations for pre-Recapitalization
data have been adjusted for the 1-for-3.75 share reverse stock split implicit in
the Recapitalization exchange ratios.
See "--General."
Accretion/Dilution Analysis. The Accretion/Dilution Analysis was used to
determine the impact of exchanging the Series A Preferred and the Series B
Preferred for the Common Stock on the earnings per common share of the Company.
In deriving its analysis, Ladenburg examined the fiscal year 1997 actual
earnings per common share for the Company as well as projected earnings per
common share for the fiscal years of 1998, 1999 and 2000 under the
pre-Recapitalization capital structure. Ladenburg compared those results to pro
forma earnings per common share calculated based on the completion of the
proposed Recapitalization. Pro forma common shares used in such analysis
included the shares of Common Stock to be issued to the holders of the Series A
Preferred, Series B Preferred and the pre-Recapitalization Common Stock in the
proposed Recapitalization, and the elimination of associated dividends on the
Series A Preferred and Series B Preferred. Based on the above, pro forma
earnings per common share for 1997 would have been $0.23 as compared to
actual results of a loss of $3.44 for the period. For 1998, based on the
Company's projected results, earnings per share would have increased from a loss
of $2.38 to a gain of $0.34 if the Recapitalization and the Rights Offering
would have occurred as of February 1, 1998. For 1999 and 2000, consummation of
the Recapitalization would result in an anticipated decline in projected
earnings per share from $0.97 and $1.23 (assuming conversion of the Series A
Preferred and Series B Preferred at their contractual rates and assuming that
the Rights Offering is not consummated) to $0.81 and $1.04. As a result of the
Common Stock Recapitalization Consideration (in which the pre-Recapitalization
Common Stockholders effectively receive approximately 1.13 shares per each
pre-Recapitalization common share prior to the reverse split), the earnings per
common share attributable to the pre-Recapitalization Common Stockholders, based
upon the Company's projected results and assuming that the Recapitalization and
the Rights Offering would have occurred as of February 1, 1998, would, in
effect, be $0.38 in 1998, $0.92 in 1999 and $1.18 in 2000.
38
<PAGE>
Equity Valuation. The Equity Valuation derives the relative value
of the ownership stake in the Company of the holders of the Common Stock of the
Company on a pre- and post-Recapitalization basis, based on the current market
price of a share of the Common Stock of $9.83 (assumed to be the 30-day average
of the market closing prices of the Common Stock for the period ending one day
prior to the announcement of the Recapitalization, May 5, 1998) and an implied
equity value per share for the Company based on the projected EBITDA (defined as
earnings before interest, taxes, depreciation and amortization) for the fiscal
year ending January 31, 1999. Based on the current market price calculated
above, on a pre-Recapitalization and pre-Rights Offering basis, the value of the
pre-Recapitalization Common Stockholders' ownership of the Common Stock is $13.1
million, derived by multiplying the 1.3 million shares outstanding by $9.83.
Post-Recapitalization, the value of the pre-Recapitalization Common
Stockholders' ownership of the Common Stock would be $14.8 million, derived by
multiplying the 1.5 million shares to be held by such Common Stockholders after
the Recapitalization by $9.83. The increase in value to the pre-Recapitali-
zation Common Stockholders, based on the above, is $1.7 million. Additionally,
Ladenburg performed a similar analysis using a per share equity valuation based
on the Company's projected 1998 EBITDA, deriving an implied per share equity
value for the Common Stock of $10.57 on a pre-Recapitalization basis and $10.05
on a post-Recapitalization basis. Based on the EBITDA valuation implied per
share values, and the additional shares to be outstanding, the increase in
value to the existing Common Stockholders is $1.0 million.
In calculating the implied per share equity value based on EBITDA,
Ladenburg multiplied the Company's projected EBITDA by the median comparable
company trading multiple of EBITDA of 9.0x derived from a comparable company
analysis, discounted by 14.5% to account for application to a projected EBITDA.
From this product, Ladenburg subtracted the total debt (including, for this
purpose, the preferred stock) and added cash and cash equivalents, if any, to
derive an implied equity value which Ladenburg subsequently divided by the
appropriate number of shares of Common Stock. Ladenburg selected the following
companies for use in the comparable company analysis: Ames Department Stores,
Consolidated Stores Corp., Dollar General Corp., Duckwall Alco Stores Corp.,
Family Dollar, Kmart Corp., Mazel Stores, Inc. and Wal-Mart Stores,Inc.
In calculating the implied per share equity value based on EBITDA
for the pre-Recapitalization Common Stock, Ladenburg multiplied the calculated
EBITDA per share valuation described in the preceding paragraph by a liquidity
discount of 18.2%. The liquidity discount is based upon an analysis of
restricted stock issues between January 1993 and May 1998. The liquidity
discount reflects the estimated discount to the relative trading value of the
Common Stock resulting from the pre-Recapitalization capital structure.
EPS Valuation Analysis. The EPS Valuation derives implied per share
values for the post-Recapitalization Common Stock based on market trading
multiples and the earnings per share ("EPS") for the projected fiscal years 1998
and 1999, pro forma for the Recapitalization. Ladenburg derived an implied per
share equity value for the Common Stock of $11.71 and $13.34 for the fiscal
years 1998 and 1999, respectively, on a pre-Rights Offering basis, and $12.15
and $14.23, respectively, for the same periods on a post-Rights Offering basis.
As compared to the current market price of $9.83, on a pre-Rights Offering
basis, the current per share value based on 1998 and 1999 projections would be
$1.89 and $3.52 greater than the current market price. As compared to the
current market price of $9.83, on a post-Rights Offering basis, the current per
share value based on 1998 and 1999 projections would be $2.32 and $4.41 greater
than the current market price.
In calculating the implied per share equity value based on EPS,
Ladenburg multiplied the Company's EPS by the median comparable company
price-to-earnings per share ratio (P/E) multiple derived from a comparable
company analysis. Ladenburg then divided this product by the appropriate number
of shares of Common Stock. Ladenburg used the median comparable company P/E+1
and P/E+2 multiples of 17.6x and 17.5x, respectively.
Comparison of the Recapitalization Consideration to the Values of the
Company
Ladenburg used the qualitative analysis of the Recapitalization as
well as the values derived from each of the analyses discussed above to analyze
the consideration to be paid for the Series A Preferred and the Series B
Preferred as implied by the Preferred Stock Recapitalization Consideration and
the consideration to be paid to the pre-Recapitalization holders of Common Stock
and concluded, based upon and subject to certain matters, that the Preferred
Stock Recapitalization Consideration was fair, from a financial point of view,
to the pre-Recapitalization Common Stockholders of the Company.
Ladenburg's Compensation
39
<PAGE>
Ladenburg was engaged by the Committee in connection with the
Recapitalization and to render the Ladenburg Opinion and will receive fees in
connection therewith of $125,000. In addition, the Company has agreed to
reimburse Ladenburg for its related expenses. The Company has also agreed, in a
separate letter agreement, to indemnify Ladenburg, its affiliates and each of
their respective directors, officers, agents, consultants and employees and each
person, if any, controlling Ladenburg or any of its affiliates against certain
liabilities, including liabilities under federal securities laws. In the
ordinary course of its business, Ladenburg may trade the securities of the
Company for its own account and for the account of its customers, and may at
any time hold a long or short position in such securities. Ladenburg has not
rendered financial advisory services in the past to the Company.
Effects of the Merger on Holders of Series A Preferred
The Merger will have a number of effects upon holders of the Series
A Preferred, some of which may be beneficial and some of which may be
detrimental. Among the effects of the Merger upon holders of Series A Preferred
are the following:
o The Series A Preferred is the senior-most equity security of the Company,
with a preference over both the Common Stock and the Series B Preferred as
to dividends and as to distributions upon liquidation of the Company. As a
result of the Merger, holders of Series A Preferred, like all the
Company's other stockholders, will hold Common Stock, with no preferential
rights.
o Although the holders of the Series A Preferred have preferential
rights with regard to dividends and with regard to distributions on
liquidation, they are limited in the amount of dividends and
distributions on liquidation which they can receive (dividends are
fixed at $.95 per share per year and the amount which can be received
upon liquidation is $10 per share plus any accumulated but unpaid
dividends). After the Merger, there will be no limit on the amount of
dividends, or the distributions on liquidation of the Company, which
former holders of Series A Preferred can receive with regard to the
post-Recapitalization Common Stock into which their Series A Preferred
is converted by the Merger. On the other hand, there is no
requirement that the Board of Directors declare any dividends with
regard to the post-Recapitalization Common Stock, and the Company has
no plans to liquidate.
o The percentage of the Common Stock which holders of Series A Preferred
will receive as a result of the Merger (32.3%) will be significantly
higher than the percentage of the Common Stock they would own if all the
Series A Preferred and Series B Preferred were converted into Common Stock
in accordance with their terms (28.3%).
o The holders of Series A Preferred do not have the right to vote with
regard to most matters. As holders of post-Recapitalization Common Stock,
former holders of Series A Preferred will have the same right to vote as
all other Common Stockholders.
o The Company has the right to redeem the Series A Preferred for $10.70
per share, declining gradually to $10 per share beginning July 21,
2004. Based upon the last reported sale price of the Common Stock on
June 1, 1998 (the day before the Company announced the proposed Merger
and the terms of the rights offering), and the terms upon which
pre-Recapitalization Common Stock will be converted into
post-Recapitalization Common Stock, the post-Recapitalization Common
Stock issued with regard to a share of Series A Preferred would be
worth $10.27 per share. Based upon the price at which
post-Recapitalization Common Stock is being offered in the rights
offering, the post-Recapitalization Common Stock issued with regard to a
share of Series A Preferred would be worth $13 per share. If the
post-Recapitalization Common Stock trades for more than $10.70 per share,
the value of the post-Recapitalization Common Stock into which the Series
A Preferred will be converted will exceed the amount for which the Company
has the right to redeem the Series A Preferred.
See "Independent Directors' Committee -- Reasons for the
Committee's Conclusion" for information about the Independent Directors'
Committee's analysis of the terms on which Series A Preferred will be converted
as a result of the Merger, as well as for information about the Committee's
overall evaluation of the Merger. See also, "Opinion of the Committee's
Financial Advisor" for a discussion of factors which may affect the value of the
post-Recapitalization Common Stock.
40
<PAGE>
The Terms of the Merger
If the Merger is approved by the stockholders, the Merger will
become effective at 11:59 p.m. on the day a Certificate of Merger is filed with
the Secretary of State of Delaware (the "Effective Time"). The Effective Time is
expected to be on the day of the stockholders meeting at which the Merger is
approved. At the Effective Time, General Textiles, Inc. will be merged into the
Company. The Company's Certificate of Incorporation, By-laws, officers and
directors will continue to be the Certificate of Incorporation, By-laws,
officers and directors of the Surviving Corporation. However, the Company's
Certificate of Incorporation will be amended by the Merger to change the
Company's name to "Factory 2-U Incorporated" As a result of the Merger, each
share of pre-Recapitalization Common Stock will become 0.30133 shares of
post-Recapitalization Common Stock, each share of Series A Preferred will become
one share of post-Recapitalization Common Stock and each share of Series B
Preferred will become 173.33 shares of post-Recapitalization Common Stock.
The Company will have the right to terminate the Merger Agreement
without completing the Merger if, among other things, holders of more
than 72,000 shares of Common Stock, 19,000 shares of Series A Preferred
or 110 shares of Series B Preferred demand appraisal under Section 262
of the Delaware General Corporation Law ("DGCL"). See "Appraisal
Rights."
At the Effective Time, a certificate which represented Common
Stock, Series A Preferred or Series B Preferred will automatically become a
certificate representing the number of shares of post-Recapitalization Common
Stock into which the shares of Common Stock, Series A Preferred or Series B
Preferred it had represented were converted as a result of the Merger. However,
the Company will promptly send the persons who held pre-Recapitalization Common
Stock, Series A Preferred or Series B Preferred immediately before the Merger
materials with which they can exchange their stock certificates for
post-Recapitalization Common Stock certificates.
Federal Income Tax Consequences of the Merger
The Company has received an opinion of Rogers & Wells to the effect
that (i) the Merger will constitute a liquidation of General Textiles into the
Company within the meaning of Section 332 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) the Merger will constitute a re-
capitalization of the Company within the meaning of Section 368(a)(1)(E) of
the Code and (iii) neither the Company nor its stockholders will recognize any
income, gain or loss as a result of the Merger. The opinion of Rogers & Wells
also states that the aggregate tax basis of the shares of post-Recapitalization
Common Stock received by a stockholder in accordance with the terms of the
Merger Agreement will be the same as the aggregate tax basis of the shares of
pre-Recapitalization Common Stock, Series A Preferred or Series B Preferred with
regard to which the post-Recapitalization Common Stock is issued. The holding
period of the post-Recapitalization Common Stock will include the period during
which the shares of pre-Recapitalization Common Stock, Series A Preferred or
Series B Preferred were held, providing they were held as capital assets at the
time of the Merger.
APPRAISAL RIGHTS
If the Merger is consummated, a holder of record of Common Stock,
Series A Preferred or Series B Preferred who (i) makes a demand for appraisal,
as described below, (ii) continues to hold those shares through the effective
time of the Merger (the "Effective Time"), (iii) strictly complies with the
procedures set forth under Section 262 of the DGCL, and (iv) has not voted in
favor of the Merger, will be entitled to have the shares appraised by the
Delaware Court of Chancery under Section 262 and to receive payment for the
"fair value" of these shares in lieu of the consideration provided for in the
Merger Agreement. This Proxy Statement constitutes notice of the appraisal
rights available to those holders under Section 262. THE STATUTORY RIGHT OF
APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES
SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF THOSE PROCEDURES MAY RESULT
IN A TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER SECTION 262. The
following is a summary of certain of the provisions of Section 262 and is
qualified in its entirety by reference to the full text of Section 262, a copy
of which is attached to this Proxy Statement as Exhibit D.
A stockholder who elects to exercise appraisal rights under Section 262
must deliver a written demand for appraisal of the stockholder's shares to the
Company prior to the vote on the Merger. The written demand must identify the
stockholder of record and state the stockholder's intention to demand appraisal
of the stockholder's shares. All demands should be delivered to Family Bargain
Corporation, 4000 Ruffin Road, San Diego, California 92123, Attention: Jonathan
Spatz, Chief Financial Officer.
41
<PAGE>
Only a holder of shares on the date of making a written demand for
appraisal who continuously holds those shares through the Effective Time is
entitled to seek appraisal. Demand for appraisal must be executed by or for the
holder of record, fully and correctly, as that holder's name appears on the
holder's stock certificates. If stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand should be made
in that capacity, and if stock is owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be made by or for all
owners of record. An authorized agent, including one or more joint owners, may
execute the demand for appraisal for a holder of record. That agent, however,
must identify the record owner or owners and expressly disclose in the demand
that the agent is acting as agent for the record owner or owners of the
shares.
A record holder such as a broker who holds shares of stock as a nominee
for beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of those beneficial owners with respect to the shares
held for those beneficial owners. In that case, the written demand for appraisal
should set forth the number of shares of each class or series of stock covered
by it. Unless a demand for appraisal specifies a number of shares, the demand
will be presumed to cover all shares of the Company's stock held in the name of
the record owner.
Beneficial owners who are not record owners and who intend to exercise
appraisal rights should instruct the record owner to comply with the statutory
requirements with respect to the exercise of appraisal rights before the date of
the Stockholders Meeting.
Within 10 days after the Effective Time, the surviving corporation is
required to send notice of the effectiveness of the Merger to each stockholder
who prior to the Effective Time complies with the requirements of Section 262.
Within 120 days after the Effective Time, the surviving corporation or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the shares of the surviving corporation Stock held by all stockholders
seeking appraisal. A dissenting stockholder must serve a copy of the petition on
the surviving corporation. If no petition is filed by either the surviving
corporation or any dissenting stockholder within the 120-day period, the rights
of all dissenting stockholders to appraisal will cease. Stockholders seeking to
exercise appraisal rights should not assume that the surviving corporation will
file a petition with respect to the appraisal of the fair value of their shares
or that the surviving corporation will initiate any negotiations with respect to
the fair value of those shares. The surviving corporation is under no
obligation, and has no present intention, to take any action in this regard.
Accordingly, stockholders who wish to seek appraisal of their shares should
initiate all necessary action with respect to the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262.
Failure to file the petition on a timely basis will cause the stockholder's
right to an appraisal to cease.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from the surviving corporation a statement setting forth the
aggregate number of shares of stock not voted in favor of the Merger with
respect to which demands for appraisal have been received and the number of
holders of those shares. The statement must be mailed within 10 days after the
written request has been received by the Company or within 10 days after
expiration of the time for delivery of demands for appraisal under subsection
(d) of Section 262, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
stock owned by those stockholders, determining the fair value of those shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, to be paid, if any, upon
the amount determined to be the fair value. In determining fair value, the court
is to take into account all relevant factors. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. The Delaware Supreme
Court has stated that, in making this determination of fair value, the court
must consider market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts that were known or that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. The Delaware Supreme Court also held that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." In addition, Delaware courts have decided
that the statutory appraisal remedy, depending on factual circumstances, may or
may not be a dissenter's exclusive remedy.
42
<PAGE>
The fair value of shares determined in an appraisal proceeding under
Section 262 could be less than, the same as, or more than, the value of the
consideration provided for the Merger Agreement.
The cost of the appraisal proceeding may be determined by the Court of
Chancery and assessed against the parties as the Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding (including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts) be charged pro
rata against the value of all shares of stock entitled to appraisal. In the
absence of such a determination or assessment, each party bears its own
expenses.
A stockholder who has demanded appraisal in compliance with Section 262
will not, after the Effective Time, be entitled to receive of dividends or other
distributions on the stock, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
A stockholder may withdraw a demand for appraisal and accept the surviving
corporation stock at any time within 60 days after the Effective Time. After
that, a stockholder may withdraw a demand only with the written approval of the
Company. If an appraisal proceeding is properly instituted, the proceeding may
not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned on the Court of
Chancery's deeming the terms of a settlement to be just. If, after the Effective
Time, a stockholder who demanded appraisal fails to perfect or loses the right
to appraisal, the stockholder's shares will be treated as if they had been
converted into Common Stock as provided in the Merger Agreement at the Effective
Time.
In view of the complexity of these provisions of Delaware law, any
stockholder who is considering exercising appraisal rights should
consult a legal advisor.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Until May 1997, KPMG Peat Marwick LLP ("KPMG") was the principal firm of
accountants for the Company. On May 8, 1997, KPMG was dismissed and Arthur
Andersen LLP ("Arthur Andersen") was engaged as principal firm of accountants.
The change of accountants was recommended by the Audit Committee and approved
unanimously by the Board of Directors on May 1, 1997.
In connection with the audits of the fiscal year ended February 1, 1997,
and the subsequent interim period to May 8, 1997, there were no disagreements
with KPMG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
The audit reports of KPMG on the consolidated financial statements of the
Company and subsidiaries as of and for the fiscal year ended February 1, 1997
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Arthur Andersen as the Company's independent accountant for the fiscal
year ending January 31, 1999. The stockholders are being asked to ratify that
appointment.
Representatives of Arthur Andersen are expected to be present at the
Annual Meeting, to have the opportunity to make statements, if they desire to do
so, and to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast on this proposal will
constitute ratification of the appointment of Arthur Andersen. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR ADOPTION OF THIS
PROPOSAL.
43
<PAGE>
PROPOSAL 4
APPROVAL OF THE AMENDED AND RESTATED FAMILY BARGAIN
CORPORATION 1997 STOCK OPTION PLAN
On May 1, 1997, the Stock Option Committee adopted, and the Board of
Directors ratified, The Family Bargain 1997 Stock Option Plan (the "Plan"). The
Plan was adopted by the Company's stockholders at the 1997 Annual meeting, on
June 25, 1997. The Plan is designed to provide incentives to attract, retain and
motivate highly competent persons as key employees of the Company and its
subsidiaries by providing them opportunities to acquire shares of Common Stock
and to assist in aligning the interests of the Company's key employees with
those of its stockholders.
During Fiscal 1997, the Company granted options under the Plan entitling
holders to purchase a total of 2,715,617 shares of Common Stock. In order to
enable the Company to continue providing incentives to attract, retain and
motivate highly competent persons as key employees of the Company and its
subsidiaries, the Stock Option Committee and the Board of Directors decided to
amend and restate the Plan and increase the total number of shares of Common
Stock that may be subject to stock options under the Plan. On April 29, 1998
(the "Effective Date"), the Stock Option Committee adopted, and the Board of
Directors ratified, the Amended and Restated Family Bargain 1997 Stock Option
Plan (the "Amended and Restated Plan") thereby increasing the total number of
shares of Common Stock that may be subject to stock options from 3,500,000
shares to 6,000,000 shares. All grants of stock options to officers and other
key employees for the issuance of shares of Common Stock under the Amended and
Restated Plan, beyond the original 3,500,000 shares, are subject to stockholder
approval of the Amended and Restated Plan at the Annual Meeting.
In general, the Amended and Restated Plan provides for the grant of
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
stock options which do not constitute Incentive Stock Options ("Nonqualified
Stock Options" and, together with Incentive Stock Options, "Stock Options") to
key employees, directors, consultants and suppliers of the Company and its
subsidiaries ("participants"). The Amended and Restated Plan is designed to meet
the requirements for tax deductibility under Section 162(m) of the Code with
respect to certain compensation. The following summary of provisions of the
Amended and Restated Plan is qualified by reference to the text of the Amended
and Restated Plan which is attached as Exhibit B.
Plan Administration
The Amended and Restated Plan will be administered by the Stock Option
Committee of the Board of Directors, which is comprised of non-employee
directors who meet the applicable requirements of "non-employee director" under
Rule 16b-3 of the Rules and Regulations of the SEC and of an "outside director"
under Section 162(m) of the Code. Messrs. Weld and Rashkow currently serve on
the Stock Option Committee.
The Amended and Restated Plan gives the Stock Option Committee sole
discretion to determine the key employees who will receive Stock Options under
the Amended and Restated Plan, the number of shares of Common Stock underlying
each Stock Option, and (consistent with the Amended and Restated Plan) the terms
and conditions to which such Stock Options will be subject from time to time.
Pursuant to the Amended and Restated Plan, the Stock Option Committee will have
the authority to grant to any key employee one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options, and to grant to any
other participant one or more Nonqualified Stock Options. The Stock Option
Committee will also be authorized to establish such rules and regulations as it
deems necessary for the proper administration of the Amended and Restated Plan
and to make such determinations and interpretations and to take such action in
connection with the Amended and Restated Plan and any Stock Options granted
thereunder as it deems necessary or advisable. All determinations and interpre-
tations made by the Stock Option Committee are made binding and conclusive on
all participants and their legal representatives.
44
<PAGE>
Shares Reserved for Issuance and Limitations on Number of Stock Options
To Be Granted
The aggregate number of shares of Common Stock that may be subject to
Stock Options granted under the Amended and Restated Plan is 6,000,000 shares
(which may be authorized and unissued or treasury shares), and the maximum
number of shares of Common Stock with respect to which Stock Options may be
granted to any individual participant under the Amended and Restated Plan during
its term may not exceed 1,200,000 shares. The Amended and Restated Plan permits
equitable adjustments to those numbers upon a change in the Common Stock
resulting from a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Company. In addition, the aggregate market value (determined as of the time
the Stock Option is granted) of the Common Stock with respect to which Incentive
Stock Options (under all option plans of the Company) are exercisable for the
first time by a participant during any calendar year may not exceed $100,000.
For purposes of the preceding sentence, Incentive Stock Options will be taken
into account in the order in which they are granted. The Amended and Restated
Plan also permits any shares of Common Stock subject to a Stock Option which for
any reason is cancelled, terminated without having been exercised, forfeited, or
delivered to the Company as part of full payment for the exercise of a Stock
Option, to again become available for Stock Options under the Amended and
Restated Plan.
Exercise Price of Stock Options
The exercise price of each Stock Option granted under the Amended and
Restated Plan will be determined by the Stock Option Committee on the date of
grant, provided, however, that with respect to Incentive Stock Options the
exercise price may not be less than 100% of the Fair Market Value of the Common
Stock on the date such Incentive Stock Option is granted, and provided, further,
that the exercise price of any Incentive Stock Options granted to any
participant who, at the time of grant, owns stock possessing (after the
application of the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting power of all outstanding classes of stock of
the Company or any of its subsidiaries, may not be less than 110% of the Fair
Market Value of the Common Stock on the date of grant.
The Amended and Restated Plan defines "Fair Market Value" as (i) the
closing price of the Common Stock on the date of calculation (or on the last
preceding trading date if Common Stock was not traded on such date) if the
Common Stock is readily tradeable on a national securities exchange or other
market system or (ii) if the Common Stock is not readily tradeable, the amount
determined in good faith by the Stock Option Committee as the fair market value
of the Common Stock.
The Stock Option exercise price may be paid in cash or, in the discretion
of the Stock Option Committee, by the delivery of shares of Common Stock
then owned by the participant, by the withholding of shares of Common
Stock for which a Stock Option is exercisable, or by a combination of
these methods. In the discretion of the Stock Option Committee, payment may also
be made by delivering a properly executed exercise notice to the Company
together with a copy of irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds to pay the exercise price.
The Stock Option Committee may also prescribe any other method of paying the
exercise price that it determines to be consistent with applicable law and the
purpose of the Amended and Restated Plan.
Exercise Period
The exercise period of Stock Options granted under the Amended and
Restated Plan will be determined by the Stock Option Committee, provided,
however, that no Stock Option may be exercisable later than 10 years after it is
granted and provided, further, that no Incentive Stock Options granted to any
participant who, at the time of the grant, owns stock possessing (after the
application of the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting power of all outstanding classes of stock of
the Company or any of its subsidiaries, may be exercisable later than 5 years
after it is granted.
Transferability of Stock Option
Each Stock Option granted under the Amended and Restated Plan to a
participant will be exercisable, during the participant's lifetime, only by the
participant, and no such Stock Option will be transferable other than by will or
the laws of descent and distribution.
45
<PAGE>
Change of Control of the Company
In the event of a change of control of the Company, all then outstanding
Stock Options will immediately become exercisable. A change of control occurs
if: (i) any person or group within the meaning of Section 13(d)(3) of the
Exchange Act (other than the persons who do so on the Effective Date) shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) more
than 50% of the total voting power of all classes of capital stock of the
Company entitled to vote generally in the election of directors of the Company;
(ii) the Company consolidates with, merges into, or sells, leases or conveys all
or substantially all of its assets to, any other person; or (iii) the Company
enters into or approves any agreement, transaction or proposal that would result
in the occurrence of any event described in clauses (i) or (ii) (including
without limitation any agreement, transaction or proposal that would have such
result with the passage of time, upon the payment of money or other
consideration, or upon the occurrence of any contingency or contingencies).
The Amended and Restated Plan grants discretion to the Stock Option
Committee to terminate, upon the occurrence of a change of control, each Stock
Option then outstanding within a specified number of days after notice is given
to the holder thereof. Such holder will receive, with respect to each share of
Common Stock subject to such Stock Option, an amount equal to the excess of the
Fair Market Value of such share of Common Stock immediately prior to the
occurrence of such Change in Control over the exercise price per share of such
Stock Option; such amount is payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or in a
combination thereof, as the Stock Option Committee, in its discretion,
may determine.
Plan Amendment
The Board may amend the Amended and Restated Plan from time to time or
suspend or terminate the Amended and Restated Plan at any time but may not
reduce the amount of any existing Stock Option or change the terms and
conditions thereof without the participant's consent. In addition, no amendment
of the Amended and Restated Plan may, without approval of the stockholders of
the Company, (i) increase the total number of shares which may be issued under
the Amended and Restated Plan, (ii) increase the maximum number of shares
underlying all Stock Options that may be granted to any individual participant
during the term of the Amended and Restated Plan, (iii) modify the requirements
as to eligibility for Stock Options grants under the Amended and Restated Plan,
or (iv) disqualify any Incentive Stock Options granted thereunder.
Plan Termination
No Stock Option may be granted more than 10 years after the Effective
Date. Unless sooner terminated by the Board, the Amended and Restated Plan will
terminate on the tenth anniversary of the Effective Date.
Certain Federal Income Tax Consequences
The statements in the following paragraphs of the principal federal income
tax consequences of Stock Options under the Amended and Restated Plan are based
on statutory authority and judicial and administrative interpretations, as of
the date of this Proxy Statement, which are subject to change at any time
(possibly with retroactive effect). The law is technical and complex and the
discussion below represents only a general summary.
Incentive Stock Options. Incentive Stock Options granted under the
Amended and Restated Plan are intended to meet the definitional
requirements of Section 422(b) of the Code for "incentive stock
options."
An employee who receives an Incentive Stock Option does not recognize any
taxable income upon the grant of such Incentive Stock Option. Similarly, the
exercise of an Incentive Stock Option generally does not give rise to federal
income tax to the employee, provided that (i) the federal "alternative minimum
tax", which depends on the employee's particular tax situation, does not apply
and (ii) the employee is employed by the Company from the date of grant of the
option until 3 months prior to the exercise thereof, except where such
employment terminates by reason of disability (where the 3 month period is
extended to 1 year) or death (where this requirement does not apply). If an
employee exercises an Incentive Stock Option after these requisite periods, the
Incentive Stock Option will be treated as a Nonqualified Stock Option (as
defined below) and will be subject to the rules set forth below under the
caption "Nonqualified Stock Options."
47
<PAGE>
Further, if after exercising an Incentive Stock Option, an employee
disposes of the Common Stock so acquired more than two years from the date of
grant and more than one year from the date of transfer of the Common Stock
pursuant to the exercise of such Incentive Stock Option (the "applicable holding
period"), the employee will normally recognize capital gain or loss equal to the
difference, if any, between the amount received for the shares and the exercise
price. If, however, an employee does not hold the shares so acquired for the
applicable holding period - thereby making a "disqualifying disposition" - the
employee would realize ordinary income on the excess of the fair market value of
the shares at the time the Incentive Stock Option was exercised (or, under
certain circumstances, the selling price, if lower) over the exercise price and
the balance, if any, would be capital gain (provided the employee held such
shares as a capital asset at such time).
An employee who exercises an Incentive Stock Option by delivering Common
Stock previously acquired pursuant to the exercise of another Incentive Stock
Option is treated as making a "disqualifying disposition" of such Common Stock
if such shares are delivered before the expiration of their applicable holding
period. Upon the exercise of an Incentive Stock Option with previously acquired
shares as to which no disqualifying disposition occurs, despite some
uncertainty, it appears that the employee would not recognize gain or loss with
respect to such previously acquired shares.
The Company will not be allowed a federal income tax deduction upon the
grant or exercise of an Incentive Stock Option or the disposition, after the
applicable holding period, of the Common Stock acquired upon exercise of an
Incentive Stock Option. In the event of a disqualifying disposition, the Company
generally will be entitled to a deduction in an amount equal to the ordinary
income included by the employee, provided that such amount constitutes an
ordinary and necessary business expense to the Company and is reasonable and the
limitations of Section 162(m) of the Code (discussed below under "Certain
Limitations on Deductibility of Executive Compensation") do not apply.
Nonqualified Options. Nonqualified Stock Options granted under the Amended
and Restated Plan are options that do not qualify as Incentive Stock Options. An
employee who receives a Nonqualified Stock Option will not recognize any taxable
income upon the grant of such Nonqualified Stock Option. However, the employee
generally will recognize ordinary income upon exercise of a Nonqualified Stock
Option in an amount equal to the excess of (i) the fair market value of the
shares of Common Stock at the time of exercise over (ii) the exercise price.
An employee should consult his or her tax advisor as to whether, as a
result of Section 16(b) of the Exchange Act, the timing of income recognition is
deferred following the exercise of a Nonqualified Stock Option (i.e., the
"Deferral Period"). If there is a Deferral Period, absent a written election
(pursuant to Section 83(b) of the Code) filed with the Internal Revenue Service
to include in income, as of the date of transfer, the excess (on such date) of
the fair market value of such shares over their exercise price, recognition of
income by the individual will be deferred until the expiration of the Deferral
Period.
The ordinary income recognized with respect to the receipt of shares or
cash upon exercise of a Nonqualified Stock Option will be subject to
both wage withholding and employment taxes. In addition to the customary methods
of satisfying the withholding tax liabilities that arise upon the exercise of a
Nonqualified Stock Option, the Company may satisfy the liability in whole or in
part by withholding shares of Common Stock from those that otherwise would be
issuable to the individual or by the employee tendering other shares owned by
him or her, valued at their fair market value as of the date that the tax
withholding obligation arises.
A federal income tax deduction generally will be allowed to the Company in
an amount equal to the ordinary income included by the individual with respect
to his or her Nonqualified Stock Option, provided that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable and
the limitations of Section 162(m) of the Code do not apply.
If an individual exercises a Nonqualified Stock Option by delivering
shares of Common Stock to the Company, other than shares previously acquired
pursuant to the exercise of an Incentive Stock Option which is treated as a
"disqualifying disposition" as described above, the individual will not
recognize gain or loss with respect to the exchange of such shares, even if
their then fair market value is different from the individual's tax basis. The
individual, however, will be taxed as described above with respect to the
exercise of the Nonqualified Stock Option as if he or she had paid the exercise
price in cash, and the Company likewise generally will be entitled to an
equivalent tax deduction.
48
<PAGE>
Change in Control. As described above, upon a "change in control" of the
Company, all the then outstanding Stock Options will immediately become
exercisable. In general, if the total amount of payments to an individual that
are contingent upon a "change of control" of the Company as defined in Section
280G of the Code), including payments under the Amended and Restated Plan that
vest upon a "change in control," equals or exceeds three times the individual's
"base amount" (generally, such individual's average annual compensation for the
five complete years preceding the change in control), then, subject to certain
exceptions, the payments may be treated as "parachute payments" under the Code,
in which case a portion of such payments would be nondeductible to the Company
and the individual would be subject to a 20% excise tax on such portion of the
payments.
Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) of the Code denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year (including any deduction with
respect to the exercise of a Nonqualified Stock Option or the disqualifying
disposition of stock purchased pursuant to an Incentive Stock Option). One such
exception applies to certain performance-based compensation provided that such
compensation has been approved by stockholders in a separate vote and certain
other requirements are met. The Company intends that Stock Options granted under
the Amended and Restated Plan will qualify for the performance-based
compensation exception to Section 162(m).
Approval
As of the date of this Proxy Statement, no Stock Options had been
granted with respect to shares of Common Stock beyond the 3,500,000 shares
previously approved at the 1997 Annual Meeting.
Approval of the Amended and Restated Plan requires the affirmative vote of
a majority of the outstanding shares of stock eligible to vote at the Annual
Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
FOR ADOPTION OF THIS PROPOSAL.
OTHER MATTERS
Neither the Board of Directors nor management intends to bring before the
meeting any business other than the matters referred to in the Notice of Meeting
and this Proxy Statement. If any other business should properly come before the
meeting, or any adjournment thereof, the persons named in the proxy will vote on
such matters according to their best judgment.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which the Company has previously filed with the
Securities and Exchange Commission, are incorporated by reference into this
Proxy Statement:
1. The Company's amended annual report on Form 10-K/A-2 for the fiscal year
ended January 31, 1998 (a copy of which accompanies this prospectus).
2. The Company's amended quarterly report on Form 10-Q/A for the fiscal
quarter ended May 2, 1998 (a copy of which accompanies this Proxy
Statement).
In addition, each report or other document which the Company files
pursuant to Section 13(a), 13(c), 14 or 15(d), of the Securities Exchange Act of
1934, as amended, between the date of this Proxy Statement and the date of the
meeting will be incorporated into this Proxy Statement and will be a part of it
beginning on the date the Company files it with the Securities and Exchange
Commission. If anything in a subsequently filed document which becomes a part of
this Proxy Statement is different from anything in this Proxy Statement, this
Proxy Statement will be deemed to be modified by that subsequently filed
document.
The Company will provide, without charge, to any person to whom this Proxy
Statement is delivered, at the written request of that person, a copy of any or
all of the documents (but not exhibits to those documents) incorporated by
reference into this Proxy Statement, other than the amended annual report on
Form 10-K/A-2 and the amended quarterly report on Form 10-Q/A which accompany
this Proxy Statement. Requests for documents should be directed to: Michael
Searles, Chief Executive Officer and President, Family Bargain Corporation, 4000
Ruffin Road, San Deigo, California, 92123; Telephone: (619) 627-1800; Facsimile
(619) 637-4180.
49
<PAGE>
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
DATED
JUNE 18, 1998
BETWEEN
GENERAL TEXTILES, INC.
AND
FAMILY BARGAIN CORPORATION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
MERGER OF FBC AND GT
<S> <C> <C>
1.1 The Merger.....................................................................................................A-1
ARTICLE II
TERMS AND CONDITIONS OF THE MERGER
2.1 Certificate of Incorporation...................................................................................A-1
2.2 By-Laws........................................................................................................A-1
2.3 Directors......................................................................................................A-1
2.4 Officers.......................................................................................................A-1
2.5 Stock of FBC...................................................................................................A-1
2.6 Stock of GT....................................................................................................A-2
2.7 Exchange of Certificates.......................................................................................A-2
2.8 Dissenting Shares..............................................................................................A-2
ARTICLE III
EFFECTIVE TIME
3.1 Date of the Merger.............................................................................................A-2
3.2 Execution of Certificate of Merger.............................................................................A-2
3.3 Effective Time of the Merger...................................................................................A-2
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of GT...........................................................................A-2
4.2 Representations and Warranties of FBC..........................................................................A-3
ARTICLE V
ACTIONS PRIOR TO THE MERGER
5.1 FBC's Efforts to Fulfill Conditions............................................................................A-3
5.2 Surviving Efforts to Fulfill Conditions........................................................................A-4
ARTICLE VI
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions to GT's Obligations.................................................................................A-4
6.2 Conditions to FBC's Obligations................................................................................A-4
ARTICLE VII
TERMINATION
7.1 Right to Terminate.............................................................................................A-5
7.2 Effect of Termination..........................................................................................A-5
<PAGE>
ARTICLE VIII
FURTHER BROKERS
8.1 Representations and Warranties Regarding Brokers and Others....................................................A-5
ARTICLE IX
GENERAL
9.1 Expenses.......................................................................................................A-5
9.2 Plan of Reorganization.........................................................................................A-5
9.3 Entire Agreement...............................................................................................A-5
9.4 Effect of Disclosures........................................................................................A- 6
9.5 Captions.......................................................................................................A-6
9.6 Prohibition Against Assignment.................................................................................A-6
9.7 Benefit of Agreement...........................................................................................A-6
9.8 Notices and Other Communications...............................................................................A-6
9.9 Governing Law................................................................................................A- 7
9.10 Amendments...................................................................................................A- 7
9.11 Counterparts...................................................................................................A-7
</TABLE>
<PAGE>
PLAN AND AGREEMENT OF MERGER
This is a Plan and Agreement of Merger dated as of June 18, 1998
between GENERAL TEXTILES, INC. ("GT"), a Delaware corporation, and FAMILY
BARGAIN CORPORATION ("FBC"), a Delaware corporation.
ARTICLE I
MERGER OF FBC AND GT
1.1 The Merger. At the Effective Time described in Article III, GT
will be merged into FBC (the "Merger"), which will be the surviving corporation
of the Merger (the "Surviving Corporation"). Except as specifically provided in
this Agreement, the real and personal property, other assets, rights,
privileges, immunities, powers, purposes and franchises of FBC will continue
unaffected and unimpaired by the Merger.
When the Merger becomes effective, the separate existence of GT will terminate,
and its real and personal property, other assets, rights, privileges,
immunities, powers, purposes and franchises will be merged into the Surviving
Corporation.
ARTICLE II
TERMS AND CONDITIONS OF THE MERGER
The terms and conditions of the Merger will be as follows:
2.1 Certificate of Incorporation. From the Effective Time until
subsequently amended, the Certificate of Incorporation of the Surviving
Corporation will be in the form of Exhibit 2.1, and that Certificate of
Incorporation, separate and apart from this Agreement, may be certified as the
Certificate of Incorporation of the Surviving Corporation.
2.2 By-Laws. At the Effective Time, the By-Laws of FBC in effect at
the Effective Time will be the By-Laws of the Surviving Corporation, until they
are altered, amended or repealed.
2.3 Directors. The persons who are the directors of FBC immediately
before the Effective Time will be the directors of the Surviving Corporation
after the Effective Time and will hold office in accordance with the By-Laws of
the Surviving Corporation.
2.4 Officers. The persons who are the officers of FBC immediately
before the Effective Time will be the officers of the Surviving Corporation
after the Effective Time and will hold office at the pleasure of the Board of
Directors of the Surviving Corporation.
2.5 Stock of FBC. (a) Each share of common stock, par value $.01
per share, of FBC ("FBC Common Stock") which is outstanding immediately prior to
the Effective Time will be converted into and become 0.30133 shares of common
stock, par value $.0375 per share, of the Surviving Corporation ("Common
Stock"), (b) each share of Series A 9-1/2% Cumulative Convertible Preferred
Stock, par value $.01 per share ("Series A Preferred") of FBC which is
outstanding immediately prior to the Effective Time will be converted into and
become one share of Common Stock, and (c) each share of Series B Junior
Convertible Exchangeable Preferred Stock, par value $.01 per share ("Series B
Preferred") of FBC which is outstanding immediately prior to the Effective Time
will be converted into and become 173.33 shares of Common Stock. Any record or
beneficial owner of FBC Common Stock, Series A Preferred or Series B Preferred
who would be entitled to receive a fraction of a share of Common Stock will
receive cash in lieu of the fraction of a share at the rate of $13.00 per full
share of Common Stock. At the Effective Time, all the FBC Common Stock, Series A
Preferred and Series B Preferred outstanding immediately before the Merger will
automatically be canceled and after the Effective Time a certificate which
represented FBC Common Stock, Series A Preferred or Series B Preferred prior to
the Effective Time will automatically become and be a certificate representing
the number of shares of Common Stock into which the FBC Common Stock, Series
A Preferred or Series B Preferred represented by the certificate was converted.
<PAGE>
2.6 Stock of GT. At the Effective Time, each share of common stock
of GT which is outstanding at the Effective Time will be cancelled.
2.7 Exchange of Certificates. At any time after the Effective Time,
any holder of a certificate which had represented FBC Common Stock, Series A
Preferred or Series B Preferred prior to the Effective Time may submit that
certificate to FBC or its agent, accompanied by such document of transmittal as
FBC may reasonably require, and receive a new certificate representing the
number of shares of Common Stock into which the number of shares of FBC Common
Stock, Series A Preferred or Series B Preferred represented by the submitted
certificate were converted, as well as any cash in lieu of a fractional share to
which the holder of that certificate is entitled to under Paragraph 2.5.
2.8 Dissenting Shares. Notwithstanding what is stated in Paragraphs
2.5 and 2.7, if a holder of FBC Common Stock, Series A Preferred and Series B
Preferred perfects the right to an appraisal of the fair value of the holder's
shares in accordance with Section 262 of the Delaware General Corporation Law
("DGCL"), unless and until the holder withdraws the demand for appraisal or
otherwise loses the right to an appraisal of the fair value of the shares, the
shares as to which the right to appraisal was perfected will not be converted
into and become shares of Common Stock, but instead will represent only the
right to receive the fair value of the shares as provided in Section 262 of the
DGCL.
ARTICLE III
EFFECTIVE TIME
3.1 Date of the Merger. The day on which the Merger is to take
place (the "Merger Date") will be the later of (i) the day on which the Merger
is approved by the shareholders of FBC or (ii) the third business day after the
day on which all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1974 (the "HSR Act"), if any, expire or are terminated. The
Merger Date may be changed by GT and FBC. For the purposes of this Paragraph, a
"business day" is a day on which certificates of merger may be filed with the
Secretary of State of Delaware.
3.2 Execution of Certificate of Merger. Not later than 3:00 P.M. on
the day before the Merger Date, FBC and GT will each execute a certificate of
merger (the "Certificate of Merger") substantially in the form of Exhibit 3.2-A
and deliver it to Rogers & Wells LLP for filing with the Secretary of State of
Delaware. Rogers & Wells LLP will be instructed that, if it is notified on the
Merger Date that all the conditions in Article VI have been fulfilled or waived,
it is to cause the Certificate of Merger to be filed with the Secretary of State
of Delaware on the Merger Date or as soon after that date as is practicable.
3.3 Effective Time of the Merger. The Merger will become effective
at 11:59 P.M. on the day when the Certificate of Merger is filed with Secretary
of State of Delaware (that being the "Effective Time").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of GT. GT represents and
warrants to FBC as follows:
(a) GT is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) GT has all corporate power and authority necessary to
enable it to enter into this Agreement and carry out the transactions
contemplated by this Agreement. All corporate actions necessary to authorize FBC
to enter into this Agreement and carry out the transactions contemplated by it
have been taken. This Agreement has been duly executed by GT and is a valid and
binding agreement of GT, enforceable against GT in accordance with its terms.
(c) If the consents described on Exhibit 4.1-C are obtained,
neither the execution or delivery of this Agreement or of any document to be
delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be delivered
in accordance with this Agreement will violate, result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or both
would constitute a default) under, the Certificate of Incorporation or by-laws
of GT, any agreement or instrument to which GT or any subsidiary of GT is a
party or by which any of them is bound, any law, or any order, rule or
regulation of any court or governmental agency or other regulatory organization
having jurisdiction over FBC or any of its subsidiaries.
<PAGE>
(d) The only authorized stock GT is 1,000 shares of common
stock, par value $.01 per share. The only outstanding stock of GT is 100 shares
of common stock. Except as shown on Exhibit 4.1-D, GT has not issued any
options, warrants or convertible or exchangeable securities, and is not a party
to any other agreements, which require, or upon the passage of time, the payment
of money or the occurrence of any other event may require, GT to sell or issue
any of its stock.
(e) Except as shown on Exhibit 4.1-E, no governmental
filings, authorizations, approvals, or consents, or other governmental action,
other than the termination or expiration of waiting periods under the HSR Act,
if any, are required to permit GT to fulfill all its obligations under this
Agreement.
4.2 Representations and Warranties of FBC. FBC represents and
warrants to GT as follows:
(a) FBC is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) FBC has all corporate power and authority necessary to
enable it to enter into this Agreement and carry out the transactions
contemplated by this Agreement. All corporate actions necessary to authorize FBC
to enter into this Agreement and carry out the transactions contemplated by it,
other than approval of the Merger by the stockholders of FBC, have been taken.
This Agreement has been duly executed by FBC and is a valid and binding
agreement of FBC, enforceable against FBC in accordance with its terms.
(c) If the consents described on Exhibit 4.2-C are obtained,
neither the execution and delivery of this Agreement or of any document to be
delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be delivered
in accordance with this Agreement will violate, result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, the Certificate of Incorporation or by-laws
of FBC, any agreement or instrument to which FBC or any subsidiary of FBC is a
party or by which any of them is bound, any law, or any order, rule or
regulation of any court or governmental agency or other regulatory organization
having jurisdiction over FBC or any of its subsidiaries.
(d) The only authorized stock of FBC is 80,000,000 shares of
FBC Common Stock and 7,500,000 shares of preferred stock, par value $.01 per
share, of which 4,500,000 shares are designated as Series A Preferred and 40,000
shares are designated as Services B Preferred. The only outstanding stock of GT
is 5,004,122 shares of FBC Common Stock, 3,638,690 shares of Series A Preferred
and 35,360 shares of Series B Preferred. Except as shown on Exhibit 4.2-D, FBC
has not issued any options, warrants or convertible or exchangeable securities,
and is not a party to any other agreements, which require, or upon the passage
of time, the payment of money or the occurrence of any other event may require,
FBC to sell or issue any of its stock.
(e) Except as shown on Exhibit 4.2-E, no governmental
filings, authorizations, approvals, or consents, or other governmental action,
other than (i) the termination or expiration of waiting periods under the HSR
Act, if any, and (ii) the filing of proxy materials relating to the Merger with
the Securities and Exchange Commission, are required to permit FBC to fulfill
all its obligations under this Agreement.
ARTICLE V
ACTIONS PRIOR TO THE MERGER
5.1 FBC's Efforts to Fulfill Conditions. FBC will use its best
efforts to cause all the conditions set forth in Paragraph 6.1 to be fulfilled
<PAGE>
prior to or at the Closing and will not take, or permit any of its subsidiaries
to take, any action, which could reasonably be expected to make fulfillment of
any of those conditions more difficult.
5.2 Surviving Efforts to Fulfill Conditions. GT will use its best
efforts to cause all the conditions contained in Paragraph 6.2 to be fulfilled
prior to or at the Closing and will not take, or permit any of its subsidiaries
to take, any action, which could reasonably be expected to make fulfillment of
any of those conditions more difficult.
ARTICLE VI
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions to GT's Obligations. The obligations of GT to
complete the Merger are subject to satisfaction of the following conditions (any
or all of which may be waived by GT):
(a) The representations and warranties of FBC contained in
this Agreement will, except as contemplated by this Agreement, be true and
correct in all material respects on the Merger Date with the same effect as
though made on that date, and FBC will have delivered to GT a certificate dated
that date and signed by the President or a Vice President of FBC to that effect.
(b) FBC will have fulfilled in all material respects all its
obligations under this Agreement required to have been fulfilled prior to or on
the Merger Date.
(c) No order will have been entered by any court or
governmental authority and be in force which invalidates this Agreement or
restrains GT from completing the transactions which are the subject of this
Agreement. Surviving Corporation and its subsidiaries taken as a whole.
(d) The consents described on Exhibit 4.1-C will have been
obtained.
(e) The Merger will have been approved by the holders of a
majority in voting power of the of the outstanding shares of FBC Common Stock
and Series B Preferred voting as a single class, and by the holders of a
majority of the outstanding shares of Series A Preferred.
(f) Demands for appraisal under Section 262 of the Delaware
General Corporation Law are received from holders of more than 72,000 shares of
Common Stock, 19,000 shares of Series A Preferred or 110 shares of series B
Preferred.
(g) The Effective Time will occur on or before December 31,
1998.
6.2 Conditions to FBC's Obligations. The obligations of FBC to
complete the Merger are subject to the following conditions (any or all of which
may be waived by FBC):
(a) The representations and warranties of GT contained in
this Agreement will, except as contemplated by this Agreement, be true and
correct in all material respects on the Merger Date with the same effect as
though made on that date, and GT will have delivered to FBC a certificate dated
that date and signed by the President or a Vice President of GT to that effect.
(b) GT will have fulfilled in all material respects all its
obligations under this Agreement required to have been fulfilled prior to or on
the Merger Date.
(c) No order will have been entered by any court or
governmental authority and be in force which invalidates this Agreement or
restrains FBC from completing the transactions which are the subject of this
Agreement and no action will be pending against GT or FBC relating to the
transactions which are the subject of this Agreement which presents a
reasonable likelihood of resulting in an award of damages against the Surviving
Corporation which would be material to the Surviving Corporation and its
subsidiaries taken as a whole.
(d) The consents described on Exhibit 4.2-C will have been
obtained.
<PAGE>
(e) The Merger will have been approved by the holders of a
majority in voting power of the outstanding shares of FBC Common Stock and
Series B Preferred, voting as a single class, and by the holders of a majority
of the outstanding shares of Series A Preferred.
(f) The Effective Time will occur on or before December 31,
1998.
ARTICLE VII
TERMINATION
7.1 Right to Terminate. This Agreement may be terminated at any
time prior to the Effective Time (whether or not the stockholders of one or both
of GT and FBC have approved the Merger):
(a) By mutual consent of GT and FBC.
(b) By either GT or FBC if, without fault of the terminating
party, the Effective Time is not on or before December 31, 1998.
(c) By GT if (i) it is determined that any of the
representations or warranties of FBC contained in this Agreement was not
complete and accurate in all material respects on the date of this Agreement or
(ii) any of the conditions in Paragraph 6.1 is not satisfied or waived by GT
prior to or on the Merger Date.
(d) By FBC if (i) it is determined that any of the
representations or warranties of GT contained in this Agreement was not complete
and accurate in all material respects on the date of this Agreement or (ii) any
of the conditions in Paragraph 6.2 is not satisfied or waived by FBC prior to or
on the Merger Date.
7.2 Effect of Termination. If this Agreement is terminated pursuant
to Paragraph 7.1, after this Agreement is terminated, neither party will have
any further rights or obligations under this Agreement. Nothing contained in
this Paragraph will, however, relieve either party of liability for any breach
of this Agreement which occurs before this Agreement is terminated.
ARTICLE VIII
FURTHER BROKERS
8.1 Representations and Warranties Regarding Brokers and Others. GT
and FBC each represents and warrants to the other of them that nobody acted as a
broker, a finder or in any similar capacity in connection with the transactions
which are the subject of this Agreement.
ARTICLE IX
GENERAL
9.1 Expenses. GT and FBC will each pay its own expenses in
connection with the transactions which are the subject of this Agreement,
including legal fees, to the extent those expenses are payable before the
Effective Time, if any. If the Merger takes place, the Surviving Corporation
will pay all the expenses in connection with the transactions which are the
subject of this Agreement, including legal fees, to the extent expenses are not
paid by the Effective Time.
9.2 Plan of Reorganization. This Agreement is intended to be a plan
of liquidation for the purposes of Section 332 plan of liquidation and
recapitalization for the purposes of Sections 332 and 368(A)(E) of the Internal
Revenue Code of 1986, as amended.
9.3 Entire Agreement. This Agreement and the documents to be
delivered in accordance with this Agreement contain the entire agreement between
GT and FBC relating to the transactions which are the subject of this Agreement
<PAGE>
and those other documents, all prior negotiations, understandings and agreements
between GT and FBC 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.
9.4 Effect of Disclosures. Any information disclosed by a party in
connection with any representation or warranty contained in this Agreement
(including exhibits to this Agreement) will be treated as having been disclosed
in connection with each representation and warranty made by that party in this
Agreement.
9.5 Captions. The captions of the articles and paragraphs of this
Agreement are for reference only, and do not affect the meaning or
interpretation of this Agreement.
9.6 Prohibition Against Assignment. Neither this Agreement nor
any right of any party under it may be assigned.
9.7 Benefit of Agreement. This Agreement is solely for the benefit
of FBC and GT, and may not be enforced, or be the basis for recovery of damages
by, anyone other than FBC and GT.
9.8 Notices and Other Communications. Any notice or other
communication under this Agreement must be in writing and will be deemed given
when delivered in person or sent by facsimile (with proof of receipt at the
number to which it is required to be sent), or on the third business day after
the day on which mailed by first class mail from within the United States of
America, to the following addresses (or such other address as may be specified
after the date of this Agreement by the party to which the notice or
communication is sent):
If to FBC:
Family Bargain Corporation
4000 Ruffin Road
San Diego, California 92123-1866
Attention: Michael Searles
Facsimile: (617) 637-4180
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: David W. Bernstein or
Bonnie A. Barsamian
Facsimile No.: 212-878-8375
If to GT:
General Textiles
4000 Ruffin Road
San Diego, California 92123-1866
Attention: Michael Searles
Facsimile: (617) 637-4180
<PAGE>
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: David W. Bernstein or
Bonnie A. Barsamian
Facsimile No.: 212-878-8375
9.9 Governing Law. This Agreement will be governed by, and
construed under, the substantive laws of the State of Delaware.
9.10 Amendments. This Agreement may be amended only by a document
in writing signed by both GT and FBC.
9.11 Counterparts. This Agreement may be executed in two or more
counterparts, some of which may be executed by fewer than all the parties. Each
of these counterparts will be deemed an original, but all of them together will
constitute one and the same agreement.
IN WITNESS WHEREOF, GT and FBC have executed this Agreement,
intending to be legally bound by it, on the day shown on the first page of this
Agreement.
GENERAL TEXTILES, INC.
By:___________________
Title:
FAMILY BARGAIN CORPORATION
By:___________________
Title:
<PAGE>
EXHIBIT B
THE AMENDED AND RESTATED
FAMILY BARGAIN CORPORATION
1997 STOCK OPTION PLAN
1. Purpose.
This Amended and Restated Family Bargain Corporation 1997 Stock Option
Plan (the "Plan") is intended to provide incentives which will attract, retain
and motivate highly competent persons as key employees of Family Bargain
Corporation (the "Company") and of any subsidiary now existing or hereafter
formed or acquired, by providing them opportunities to acquire shares of the
common stock, par value $0.01 per share, of the Company ("Common Stock").
Furthermore, the Plan is intended to assist in aligning the interests of the
Company's key employees with those of its stockholders.
2. Administration.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") from
among its members. The Committee shall be comprised of not less than two
members. Each member of the Committee shall at all times be (i) a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) (or any
successor rule) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and (ii) an "outside director" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations promulgated thereunder. Subject to the
provisions of the Plan, the Committee is authorized to establish such
rules and regulations as it deems necessary for the proper administration
of the Plan and to make such determinations and interpretations and to
take such action in connection with the Plan and any Stock Options (as
described in Section 5 below) granted hereunder as it deems necessary or
advisable. All determinations and interpretations made by the Committee
shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act
hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any act or failure to act
hereunder by any other member or employee or by any agent to whom duties
in connection with the administration of this Plan have been delegated.
The Company shall indemnify members of the Committee and any agent of the
Committee who is an employee of the Company, against any and all
liabilities or expenses to which they may be subjected by reason of any
act or failure to act with respect to their duties on behalf of the Plan,
except in circumstances involving such person's bad faith, gross
negligence or willful misconduct.
(b) The Committee may delegate to one or more of its members, or to
one or more agents, such administrative duties as it may deem
advisable, and the Committee, or any person to whom it has delegated
duties as aforesaid, may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under
the Plan. The Committee may employ such legal or other counsel,
consultants and agents as it may deem desirable for the administration of
the Plan and may rely upon any opinion or computation received from any
such counsel, consultant or agent. Expenses incurred by the Committee in
the engagement of such counsel, consultant or agent shall be paid by the
Company, or the subsidiary or affiliate whose employees have benefitted
from the Plan, as determined by the Committee.
3. Participants.
Participants shall consist of such key employees, directors, consultants
and suppliers of the Company and any of its subsidiaries, as the Committee in
its sole discretion determines to be significantly responsible for the success
and future growth and profitability of the Company and whom the Committee may
designate from time to time to receive Stock Options under the Plan. Designation
of a participant in any year shall not require the Committee to designate such
person to receive a Stock Option in any other year or, once designated, to
receive the same type or amount of Stock Option as granted to the participant in
any other year. The Committee shall consider such factors as it deems pertinent
in selecting participants and in determining the type and amount of their
respective Stock Options.
<PAGE>
4. Common Stock Available under the Plan.
The aggregate number of shares of Common Stock that may be subject to
Stock Options granted under this Plan shall be 6,000,000 shares of Common Stock,
which may be authorized and unissued or treasury shares, subject to any
adjustments made in accordance with Section 6 hereof. The maximum number of
shares of Common Stock with respect to which Stock Options may be granted to any
individual participant under the Plan during the term of the Plan shall not
exceed 1,200,000 shares, subject to any adjustments made in accordance with
Section 6 hereof. Any shares of Common Stock subject to a Stock Option which for
any reason is cancelled, terminated without having been exercised, forfeited, or
delivered to the Company as pan of full payment for the exercise of a Stock
Option shall again be available for Stock Options under the Plan. The preceding
sentence shall apply only for purposes of determining the aggregate number of
shares of Common Stock subject to Stock Options and shall not apply for purposes
of determining the maximum number of shares of Common Stock subject to Stock
Options that any individual participant may receive.
5. Stock Options.
(a) In General. The Committee is authorized to grant Stock Options
to key employees, directors, consultants and suppliers of the Company and
any of its subsidiaries, and shall, in its sole discretion, determine the
key employees, directors, consultants and suppliers who will receive Stock
Options and the number of shares of Common Stock underlying each Stock
Option. Stock Options may be (i) "incentive stock options" ("Incentive
Stock Options"), within the meaning of Section 422 of the Code, or (ii)
Stock Options which do not constitute Incentive Stock Options
("Nonqualified Stock Options"). The Committee shall have the authority
to grant to any key employee one or more Incentive Stock
Options, Nonqualified Stock Options, or both types of
Stock Options, and to grant to any other participant one or more
Nonqualified Stock Options. Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose
from time to time. In addition, each Stock Option shall be subject to the
following limitations set forth in this Section 5.
(b) Stock Option Agreements. Stock Options shall be evidenced by
agreements (which need not be identical) in such forms as the Committee
may from time to time approve; provided, however, that in the event of any
conflict between the provisions of the Plan and any such agreements, the
provisions of the Plan shall prevail.
(c) Exercise Price. Subject to the provisions of Section 5(f)
hereof, each Stock Option granted hereunder shall have such exercise price
as the Committee may determine at the date of grant; provided, however,
that the exercise price of any Incentive Stock Option shall not be less
than 100 percent of the Fair Market Value (as defined in Section 9 below)
of the Common Stock on the date such Incentive Stock Option is granted.
(d) Payment of Exercise Price. The Stock Option exercise price may
be paid in cash or, in the discretion of the Committee, by the delivery of
shares of Common Stock then owned by the participant, by the withholding
of shares of Common Stock for which a Stock Option is exercisable, or by a
combination of these methods. In the discretion of the Committee, payment
may also be made by delivering a properly executed exercise notice to the
Company together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay
the exercise price.To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage
firms. The Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and
the purpose of the Plan, including, without limitation, in lieu of
the exercise of a Stock Option by delivery of shares of Common Stock
then owned by a participant, providing the Company with a notarized
statement attesting to the number of shares owned, where upon verifica-
tion by the Company, the Company would issue to the participant only the
number of incremental shares to which the participant is entitled
upon exercise of the Stock Option. In determining which methods a
participant may utilize to pay the exercise price, the Committee may
consider such factors as it determines are appropriate; provided,
however, that with respect to Incentive Stock Options, all such
discretionary determinations by the Committee shall be made at the time
of grant and specified in the Stock Option agreement.
(e) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions
<PAGE>
as shall be determined by the Committee; provided, however, that no Stock
Option shall be exercisable later than 10 years after the date it is
granted. All Stock Options shall terminate at such earlier times and upon
such conditions or circumstances as the Committee shall in its discretion
set forth in such Stock Option agreement at the date of grant.
(f) Limitations on Incentive Stock Options. Incentive Stock Options
may be granted only to participants who are key employees of the Company
or any of its subsidiaries at the date of grant. The aggregate market
value (determined as of the time the Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options (under all
option plans of the Company) are exercisable for the first time by a
participant during any calendar year shall not exceed $100,000. For
purposes of the preceding sentence, (i) Incentive Stock Options shall be
taken into account in the order in which they are granted and (ii)
Incentive Stock Options granted before 1987 shall not be taken into
account. Incentive Stock Options may not be granted to any participant
who, at the time of grant, owns stock possessing (after the application of
the attribution rules of Section 424(d) of the Code) more than 10 percent
of the total combined voting power of all outstanding classes of stock of
the Company or any of its subsidiaries, unless the option price is fixed
at not less than 110 percent of the Fair Market Value of the Common Stock
on the date of grant and the exercise of such option is prohibited by its
terms after the expiration of 5 years from the date of grant of such
option. In addition, no Incentive Stock Option shall be issued to a
participant in tandem with a Nonqualified Stock Option.
6. Adjustment Provisions.
If there shall be any change in the Common Stock, through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
reverse stock split, split up, spinoff, combination of shares, exchange of
shares, dividend in kind or other like change in capital structure or
distribution (other than normal cash dividends) to stockholders of the Company,
an adjustment shall be made to each outstanding Stock Option such that each such
Stock Option shall thereafter be exercisable for such securities, cash and/or
other property as would have been received in respect of the Common Stock
subject to such Stock Option had such Stock Option been exercised in full
immediately prior to such change or distribution, and such an adjustment shall
be made successively each time any such change shall occur. In addition, in the
event of any such change or distribution, in order to prevent dilution or
enlargement of participants' rights under the Plan, the Committee shall have
authority to adjust, in an equitable manner, the number and kind of shares that
may be issued under the Plan, the number and kind of shares subject to
outstanding Stock Options, the exercise price applicable to outstanding Stock
Options, and the Fair Market Value of the Common Stock and other value
determinations applicable to outstanding Stock Options. Appropriate adjustments
may also be made by the Committee in the terms of any Stock Options under the
Plan to reflect such changes or distributions and to modify any other terms of
outstanding Stock Options on an equitable basis, including modifications of
performance targets and changes in the length of performance periods.
Notwithstanding the foregoing, (i) any adjustment with respect to an Incentive
Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii)
in no event shall any adjustment be made which would render any Incentive Stock
Option granted hereunder other than an incentive stock option for purposes of
Section 422 of the Code.
7. Change in Control.
(a) Notwithstanding any other provision of this Plan, if there is a
Change in Control of the Company, all then outstanding Stock Options shall
immediately become exercisable. For purposes of this Section 7, a "Change
in Control" of the Company shall be deemed to have occurred upon any of
the following events:
(i) any person or group within the meaning of Section
13(d)(3) of the Exchange Act (other than the persons who do so on
the Effective Date) shall beneficially own (within the meaning of
Rule 13d-3 under the Exchange Act) more than 50% of the total
voting power of all classes of capital stock of the Company
entitled to vote generally in the election of directors of the
Company;
(ii) the Company consolidates with, merges into, or sells,
leases or conveys all or substantially all of its assets to, any
other person; or
(iii) the Company enters into or approves any agreement,
transaction or proposal that would result in the occurrence of any
event described in clauses (i) or (ii) (including without
limitation any agreement, transaction or proposal that would have
such result with the passage of time, upon the payment of money or
other consideration, or upon the occurrence of any contingency or
contingencies).
<PAGE>
(b) The Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Stock Option
outstanding hereunder shall terminate within a specified number of days
after notice to the holder, and such holder shall receive, with respect to
each share of Common Stock subject to such Stock Option, an amount equal
to the excess of the Fair Market Value of such shares of Common Stock
immediately prior to the occurrence of such Change in Control over the
exercise price per share of such Stock Option; such amount shall be
payable in cash, in one or more kinds of property (including the property,
if any, payable in the transaction) or in a combination thereof, as the
Committee, in its discretion, shall determine.
8. Transferability.
Each Stock Option granted under the Plan to a participant shall be
exercisable, during the participant's lifetime, only by the participant and no
such Stock Option shall be transferable otherwise than by will or the laws of
descent and distribution. In the event of the death of a participant, each Stock
Option theretofore granted to him or her shall be exercisable during such period
after his or her death as the Committee shall in its discretion set forth in
such option or right at the date of grant and then only by the executor or
administrator of the estate of the deceased participant or the person or persons
to whom the deceased participant's rights under the Stock Option shall pass by
will or the laws of descent and distribution.
9. Fair Market Value.
For purposes of this Plan and any Stock Option granted hereunder, Fair
Market Value shall be (i) the closing price of the Common Stock on the
date of calculation (or on the last preceding trading date if Common Stock was
not traded on such date) if the Common Stock is readily tradeable on a national
securities exchange or other market system or (ii) if the Common Stock is not
readily tradeable, the amount determined in good faith by the Committee as the
fair market value of the Common Stock.
10. Withholding.
All payments or distributions made pursuant to the Plan shall be net of
any amounts required to be withheld pursuant to applicable federal, state and
local tax withholding requirements. If the Company proposes or is required to
distribute Common Stock pursuant to the Plan, it may require the recipient to
remit to it or to the corporation that employs such recipient an amount
sufficient to satisfy such tax withholding requirements prior to the delivery of
any certificates for such Common Stock. In lieu thereof, the Company or the
employing corporation shall have the right to withhold the amount of such taxes
from any other sums due or to become due from such corporation to the recipient
as the Committee shall prescribe. The Committee may, in its discretion and
subject to such rules as it may adopt (including any as may be required to
satisfy applicable tax and/or non-tax regulatory requirements), permit a
participant to pay all or a portion of the federal, state and local withholding
taxes arising in connection with any Stock Option consisting of shares of Common
Stock by electing to have the Company withhold shares of Common Stock having a
Fair Market Value equal to the amount of tax to be withheld, such tax calculated
at rates required by statute or regulation.
11. Tenure.
A participant's right, if any, to continue to serve the Company as a
director, officer, employee, or otherwise, shall not be enlarged or otherwise
affected by his or her designation as a participant under the Plan.
12. Unfunded Plan.
Participants shall have no right, title, or interest whatsoever in or to
any investments which the Company may make to aid it in meeting its obligations
under the Plan. Nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and any participant, beneficiary,
legal representative or any other person. To the extent that any person acquires
a right to receive payments from the Company under the Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as expressly
set forth in the Plan. The Plan is not intended to be subject to the Employee
Retirement Income Security Act of 1974, as amended.
<PAGE>
13. No Fractional Shares.
No fractional shares of Common Stock shall be issued or delivered
pursuant to the Plan. The Committee shall determine whether cash or other
property shall be issued or paid in lieu of fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
14. Duration, Amendment and Termination.
No Stock Option shall be granted more than 10 years after the Effective
Date (as defined below). The Board may amend the Plan from time to time or
suspend or terminate the Plan at any time; provided, however, that no action
authorized by this Section 14 shall reduce the amount of any existing Stock
Option or change the terms and conditions thereof without the participant's
consent. No amendment of the Plan shall, without approval of the stockholders of
the Company, (i) increase the total number of shares which may be issued under
the Plan, (ii) increase the maximum number of shares underlying all Stock
Options that may be granted to any individual during the term of the Plan, (iii)
modify the requirements as to eligibility for Stock Options grants under the
Plan, or (iv) disqualify any Incentive Stock Options granted hereunder.
15. Governing Law.
This Plan, Stock Options granted hereunder and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Delaware (regardless of the law that might otherwise govern under
applicable Delaware principles of conflict of laws).
16. Effective Date.
(a) The Plan shall be effective as of the date on which the Plan, having
been theretofore adopted by the Committee, shall be ratified by the Board (the
"Effective Date"); provided, however, that the Plan shall thereafter be approved
by the stockholders of the Company at an annual meeting or any special meeting
of stockholders of the Company within 12 months after the Effective Date, and
such approval of stockholders shall be a condition to the right of each
participant to receive Stock Options hereunder. Any Stock Option granted under
the Plan prior to such approval of stockholders shall be effective as of the
date of grant (unless, with respect to any Stock Option, the Committee specifies
otherwise at the time of grant), but no such Stock Option may be exercised or
settled and no restrictions relating to any Stock Option may lapse prior to such
stockholder approval, and if stockholders fail to approve the Plan as specified
hereunder, any such Stock Option shall be cancelled.
(b) This Plan shall terminate on the tenth anniversary of the Effective
Date (unless sooner terminated by the Board).
<PAGE>
EXHIBIT C
June 18, 1998
Independent Committee of
the Board of Directors of
Family Bargain Corporation
400 Ruffin Road
San Diego, CA 92123
Members of the Committee:
You have requested our opinion as to the fairness, from a
financial point of view, to the pre-Recapitalization ("Recapitalization" as
defined herein) common stockholders of Family Bargain Corporation ("FBC" or the
"Company") of the consideration to be received by the holders of the Series A
Cumulative Convertible Preferred Stock of FBC (the "Series A Preferred Stock")
and the holders of the Series B Junior Convertible, Exchangeable Preferred Stock
of FBC (the "Series B Preferred Stock") pursuant to a Merger Agreement (the
"Merger Agreement") by and between FBC and General Textiles, Inc. ("General
Textiles") pursuant to which General Textiles, a wholly-owned subsidiary of FBC,
proposes to merge (the "Merger") with and into FBC (the "Merger") and effect a
recapitalization of FBC (the "Recapitalization"). As is more fully described in
a draft of the Merger Agreement furnished to us by representatives of FBC,
in the Recapitalization, (i) holders of shares of Series A Preferred
Stock will receive one share of Common Stock, par value $.0375 per
share, of FBC (the "Common Stock") for each share of Series A
Preferred Stock (the "Series A Recapitalization Consideration"), (ii) holders of
shares of Series B Preferred Stock will receive 173.33 shares of Common Stock
for each share of Series B Preferred (the "Series B Recapitalization
Consideration" and, collectively with the Series A Recapitalization
Consideration, the "Preferred Stock Recapitalization Consideration"), and (iii)
and the holders of pre-Recapitalization common stock will receive 0.30133 shares
of Common Stock for each share of pre-Recapitalization common stock (the "Common
Stock Recapitalization Consideration").
In arriving at our opinion, we reviewed and considered such
information as we deemed necessary or appropriate for the purposes of stating
our opinion including (i) drafts, in the forms furnished to us by
representatives of the Company, of the Merger Agreement, the proxy statement
with respect to the Merger and related transactions (the "Proxy Statement") and
the registration statement (the "Registration Statement") pursuant to which the
Company proposes to offer and sell to holders of Rights it will issue to its
stockholders, including Three Cities Fund II L.P., Three Cities Offshore II
C.V., and Quilvest American Equity, Ltd., 800,000 shares of
post-Recapitalization Common Stock at $13.00 per share (or 3,000,000 shares of
pre-Recapitalization Common Stock at $3.467 per share if the Merger is not
approved) (the "Rights Offering"), (ii) certain business and financial
information relating to the Company provided by the Company, including the
financial condition and results of operations of the Company, the historical
financial performance, certain projected financial information provided by the
Company and pro forma financial statements giving effect to the proposed
transactions of the Company as provided by the Company, and the historical
trading performance of the Common Stock and Series A Preferred Stock, (iii)
certain public filings made by the Company with the Securities and Exchange
<PAGE>
Independent Committee of
the Board of Directors of
Family Bargain Corporation
June 18, 1998
Page 2
Commission, (iv) the terms of the Series A Preferred Stock and the Series B
Preferred Stock, as set forth in the Certificates of Designations for
the Series A Preferred and the Series B Preferred Stock, furnished to
us by the Company, (v) the terms of the Rights Offering as described in
the drafts of the Proxy Statement and the Registration Statement furnished
to us by representatives of the Company, and (vi) to the extent publicly
available, certain market data for securities with terms which we considered
relevant in evaluating the Series A Preferred Stock and the Series B
Preferred Stock. In addition, we conducted such other analyses and
examinations and reviewed and considered such other financial, economic and
market data as we deemed appropriate in arriving at our opinion. We also met
with members of senior management of the Company to discuss, among other things,
the historical and prospective industry environment, financial conditions and
operating results for the Company and reasons for the Recapitalization.
In rendering our opinion, we assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or discussed
with us by the Company, the Committee, Three Cities Research, Inc. (with the
approval of the Company) or their respective advisors. With respect to the
information provided by Three Cities Research, Inc. utilized in our analysis, we
are not aware of any reason why we could not reasonably rely on such
information. With respect to financial forecasts and other information and data
provided to or otherwise reviewed by or discussed with us, the management of the
Company advised us that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of management as to the future financial performance of the
Company. We also assumed, with the Company's consent, that the final terms of
the Merger Agreement and Registration Statement reviewed by us in draft form
will not vary materially from the drafts of such documents provided to us, and
that the Recapitalization (if the Merger is approved by the Company's
stockholders) and the Rights Offering will be consummated in all material
respects as described in the drafts of the Proxy Statement and the Registration
Statement provided to us. We were not requested to and did not analyze or give
any effect to the impact of any federal, state or local income taxes to the
Company's stockholders arising out of the Merger. In this regard, we assumed,
with your consent, that, as set forth in the Proxy Statement, the Merger would
be treated as a tax-free liquidation and recapitalization under the Internal
Revenue Code of 1986, as amended, and would be consummated pursuant to the
Merger Agreement. We did not express any opinion as to the value of the Common
Stock or the prices at which the Common Stock will be transferable, in each
case, subsequent to the Recapitalization. We did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor have we made any physical inspection of the properties or
assets of the Company. We express no opinion as to the relative merits of the
Recapitalization as compared to any alternative business strategies that might
exist for the Company or the effect of any other transaction in which the
Company might engage. Although we evaluated the Preferred Stock Recapitalization
Consideration from a financial point of view, we were not requested to, and did
not, participate in the negotiation of the Merger Agreement or related
transactions described in the Proxy Statement and were not requested to, and did
not recommend, the specific consideration payable in the Recapitalization.
<PAGE>
Independent Committee of
the Board of Directors of
Family Bargain Corporation
June 18, 1998
Page 3
For purposes of our opinion, we used both qualitative and quantitative
assessments to evaluate the Preferred Stock Recapitalization Consideration.
Inherent in such assessments by us was the view that the proposed transaction a
recapitalization of the Company in which the existing common and preferred
stockholder classes are exchanging their existing securities for a new security
in a simplified capital structure with one class of stock outstanding. In
addition, compared with the existing capital structure, there will be fewer
shares outstanding (having the effect of increasing the value of each new
share). Our opinion is based on all of such qualitative and quantitative
analyses and takes into consideration the fact that the Company could not compel
the holders of the Series A Preferred Stock or Series B Preferred Stock to
approve a recapitalization on terms similar to the proposed Recapitalization and
that, as a result, the recapitalization in the manner desired by the Company,
could not occur without the approval of the holders of at least a majority of
each of the Series A Preferred Stock and Series B Preferred Stock.
In connection with certain of our assessments and analyses, we noted
that the Proxy Statement states as follows: "The ratios at which
pre-Recapitalization shares will be converted into shares of the surviving
corporation's Common Stock will result in the holders of the
pre-Recapitalization shares receiving the same number of shares they would have
received if (i) each share of pre-Recapitalization Common Stock had been
converted into 1.13 shares of the surviving corporation's Common Stock, (ii)
each share of Series A Preferred [Stock] had been converted into 3.75 shares of
the surviving corporation's Common Stock, (iii) each share of Series B Preferred
[Stock] had been converted into 650 shares of the surviving corporation's Common
Stock, and (iv) there had been a reverse split by which each 3.75 shares of the
surviving corporation's Common Stock had become one share of
post-Recapitalization Common Stock."
Ladenburg Thalmann & Co. Inc. has been engaged to render financial
advisory services to the Independent Committee of the Board of Directors of FBC
with respect to this opinion and will receive a fee for such services upon the
delivery of this opinion. In the ordinary course of our business, we may
actively trade or hold the securities of FBC for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. We have disclosed to the Independent Committee any
such position we hold, beneficially or of record, as of June 10, 1998.
Our advisory services and the opinion expressed herein are provided for
the information of the Independent Committee of the Board of Directors of FBC in
its evaluation of the proposed Recapitalization. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Ladenburg Thalmann & Co. Inc. be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant,
including but not limited to the Common Stock Recapitalization Consideration, we
are of the opinion that, as of the date hereof, the Preferred Stock
Recapitalization Consideration is fair, from a financial point of view, to the
pre-Recapitalization common stockholders of FBC.
Very truly yours,
<PAGE>
EXHIBIT D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock (or depositary receipts in respect thereof), which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange
or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the holders of the
surviving corporation as provided in subsection (f) of ss.251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to ss.ss.251, 252, 254, 257, 258, 263 and 264 of
this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this tide is not
owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss.228 or 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include
in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders or any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and
if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation
or (ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date: provided, however, that if such second notice is sent more than
20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal
rights and who is demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on
or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall
be the close of business on the day next preceding the day on which
the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
<PAGE>
Notwithstanding the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate number
of shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the Surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
<PAGE>
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal of an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)
<PAGE>
