-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfIdl3N3iRjD4ng0gSZvlhhYA86cCsIb3njwD5kVOOU1FAE9wEt7V7o2uQtdcSXa fcsH0mlfC+rioQ504rOtdA== 0000813775-97-000013.txt : 19971211 0000813775-97-000013.hdr.sgml : 19971211 ACCESSION NUMBER: 0000813775-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19971210 SROS: CSX SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY BARGAIN CORP CENTRAL INDEX KEY: 0000813775 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 510299573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10089 FILM NUMBER: 97735308 BUSINESS ADDRESS: STREET 1: 4000 RUFFIN ROAD STREET 2: 6TH FLR CITY: SAN DIEGO STATE: CA ZIP: 92123-1866 BUSINESS PHONE: 6196271800 MAIL ADDRESS: STREET 1: 4000 RUFFIN ROAD CITY: SAN DIEG STATE: CA ZIP: 92123-1866 FORMER COMPANY: FORMER CONFORMED NAME: DRS INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LONGWOOD GROUP LTD DATE OF NAME CHANGE: 19920527 10-Q 1 QUARTERLY REPORT FOR PERIOD END NOVEMBER 1, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 1O-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 1, 1997 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-10089 FAMILY BARGAIN CORPORATION (Exact name of registrant as specified in its charter) Delaware 51-0299573 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4000 Ruffin Road, San Diego, CA 92123 (Address of principal executive office) (Zip Code) (619) 627-1800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO The number of shares outstanding of the registrant's of common stock, as of December 8, 1997, was 4,929,822 shares. 2 FAMILY BARGAIN CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 1, 1997 INDEX
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Family Bargain Corporation and Subsidiaries Consolidated Balance Sheets as of November 1, 1997 (Unaudited) and February 1, 19........F-1 Family Bargain Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) for the 13 weeks ended November 1, 1997 and October 26, 1996...............................F-3 Family Bargain Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) for the 39 weeks ended November 1, 1997 and October 26, 1996...............................F-4 Family Bargain Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) for the 39 weeks ended November 1, 1997 and October 26, 1996...............................F-5 Family Bargain Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) ...................................F-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................3 PART II. OTHER INFORMATION Item 1. Legal Proceedings.....................................................8 Item 2. Changes in Securities.................................................8 Item 3. Defaults Upon Senior Securities.......................................8 Item 4. Submission of Matters to a Vote of Security Holders...................8 Item 5. Other Information.....................................................8 Item 6. Exhibits and Reports on Form 8-K .....................................8 Signatures ....................................................9 Exhibit Index ...................................................10
2 F-1 PART I Item 1. Financial Statements FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data)
November 1, February 1, 1997 1997 ---- ---- (Unaudited) Assets Current assets: Cash $ 3,319 $ 3,261 Merchandise inventories 43,413 29,118 Prepaid expenses 1,174 505 --------- --------- Total current assets 47,906 32,884 Leasehold improvements and equipment, net 14,229 10,714 Other assets, net 3,440 2,757 Excess of cost over net assets acquired, less accumulated amortization of $6,533 and $5,332 at November 1, 1997 and February 1, 1997, respectively 33,111 34,314 -------- -------- Total assets $ 98,686 $ 80,669 ======== ========
(continued) F-1 F-2 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) (Continued)
November 1, February 1, 1997 1997 ---- ---- (Unaudited) Liabilities and Stockholders' Equity Current liabilities: Current maturities of long-term debt and capital lease obligations $ 5,536 $ 5,748 Accounts payable 23,394 17,491 Accrued salaries, wages and bonuses 2,216 2,924 Other accrued expenses 7,629 6,907 --------- --------- Total current liabilities 38,775 33,070 Revolving credit notes 27,230 17,887 Long-term debt, less current maturities 12,855 14,422 Deferred rent 2,484 2,098 Capital lease and other long-term obligations 3,056 1,984 --------- --------- Total liabilities 84,400 69,461 Stockholders' equity: Series A convertible preferred stock, $.01 par value, 4,500,000 shares authorized, 3,638,690 and 3,727,415 shares issued and outstanding (aggregate liquidation preference of $36,387 and $37,274) at November 1, 1997 and February 1, 1997, respectively 36 37 Series B junior convertible, exchangeable preferred stock , $.01 par value, 40,000 shares authorized, 33,465 and 22,000 shares issued and outstanding (aggregate liquidation preference of $33,465 and $22,000) at November 1, 1997 and February 1, 1997, respectively - - Common stock, $.01 par value, 80,000,000 shares authorized, 4,929,822 and 4,693,337 shares issued and outstanding at November 1, 1997 and February 1, 1997, respectively 49 47 Additional paid-in capital 82,614 71,057 Accumulated deficit (68,413) (59,933) --------- --------- Total stockholders' equity 14,286 11,208 --------- --------- Total liabilities and stockholders' equity $ 98,686 $ 80,669 ====== ======
See accompanying notes to consolidated financial statements. F-2 F-3 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share data) (Unaudited)
13 Weeks Ended ----------------------------- November 1, October 26, 1997 1996 ---- ---- Net sales $ 77,263 $ 65,557 Cost of sales 48,450 42,264 --------- --------- Gross profit 28,813 23,293 Selling and administrative expenses 25,450 21,609 Amortization of excess of cost over net assets acquired 400 467 --------- --------- Operating income 2,963 1,217 Interest expense (1,357) (1,297) --------- --------- Net income (loss) 1,606 (80) Preferred stock dividends - Series A (864) (885) Preferred stock dividends - Series B (672) - -------- --------- Net income (loss) applicable to common stock $ 70 $ (965) ========= ========= Net income (loss) per share applicable to common stock $ 0.01 $ (0.21) Weighted average common shares outstanding 4,930 4,693
See accompanying notes to consolidated financial statements. F-3 F-4 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share data) (Unaudited)
39 Weeks Ended ----------------------------- November 1, October 26, 1997 1996 ---- ---- Net sales $ 207,074 $ 172,891 Cost of sales 134,105 110,864 --------- --------- Gross profit 72,969 62,027 Selling and administrative expenses 71,728 58,023 Amortization of excess of cost over net assets acquired 1,201 1,406 --------- ---------- Operating income 40 2,598 Interest expense (3,964) (3,607) ---------- ---------- Net loss (3,924) (1,009) Preferred stock dividends - Series A (2,592) (2,624) Preferred stock dividends - Series B (1,963) - ---------- ---------- Net loss applicable to common stock $ (8,479) $ (3,633) ========== ========== Net loss per share applicable to common stock $ (1.73) $ (0.82) Weighted average common shares outstanding 4,893 4,441
See accompanying notes to consolidated financial statements. F-4 F-5 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) (Unaudited)
39 Weeks Ended ---------------------------- November 1, October 26, 1997 1996 Cash Flows from Operating Activities Net loss $ (3,924) $ (1,009) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,307 3,221 Debt discount amortization 1,596 785 Loss on disposal of equipment 94 - Deferred rent expense 386 (179) Gain on repurchase of subordinated notes (75) - Changes in operating assets and liabilities: Merchandise inventories (14,295) (17,683) Prepaid expenses (669) (777) Accounts payable and accrued expenses 5,805 2,540 Other (398) (1,895) ---------- ---------- Net cash used in operating activities (7,173) (14,997) ---------- ---------- Cash Flows from Investing Activities: Purchase of leasehold improvements and equipment (5,282) (3,496) Sale of real property - 4,500 ---------- ---------- Net cash provided by (used in) investing activities (5,282) 1,004 ---------- ---------- Cash Flows from Financing Activities: Borrowings on revolving credit notes 248,830 221,868 Payments on revolving credit notes (239,487) (208,115) Proceeds from the issuance of notes payable - 3,100 Payments on notes payable and capital lease obligations (3,636) (3,647) Payment of deferred debt issuance costs (196) (30) Net proceeds from issuance of preferred stock 9,594 2,856 Payment of dividends on Series A preferred stock (2,592) (2,624) ---------- --------- Net cash provided by financing activities 12,513 13,408 ---------- ---------
(continued) F-5 F-6 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) (Continued)
39 Weeks Ended --------------------------- November 1, October 26, 1997 1996 ---- ---- Net increase (decrease) in cash $ 58 $ (585) Cash at the beginning of the period 3,261 1,958 -------- --------- Cash at the end of the period $ 3,319 $ 1,373 ======== ========= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,991 $ 2,183 Cash paid during the period for income taxes $ 16 $ - Supplemental disclosure of non-cash investing activities: Capital lease purchases $ 793 $ -
See accompanying notes to consolidated financial statements. F-6 F-7 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Unaudited Interim Financial Statements The accompanying unaudited consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the financial statements for the fiscal year ended February 1, 1997 included in the Family Bargain Corporation and Subsidiaries' (the Company) Form 10-K as filed with the Securities and Exchange Commission. The unaudited consolidated financial statements include the accounts of Family Bargain Corporation and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated financial statements as of and for the 13 weeks and 39 weeks ended November 1, 1997 and October 26, 1996 reflect all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Due to the seasonal nature of the Company's business, the results of operations for the interim period may not necessarily be indicative of the results of operations for a full year. (2) Long-term Debt and Revolving Credit Notes Effective June 2, 1997, Factory 2-U, amended its agreement with its working capital lender to increase its revolving credit facility to $15.0 million from $10.0 million, with borrowings limited to 65% of eligible inventory (as defined), an interest rate of prime plus 3/4% per annum and an expiration date (subject to annual one year extensions) of November 1999. Effective June 2, 1997, General Textiles amended its agreement with its working capital lender to increase its revolving credit facility to $35.0 million from $25.0 million, with advances limited to 65% of eligible inventory (as defined), an interest rate of prime plus 3/4% per annum and an expiration date (subject to annual one year extensions) of November 1999. On September 24, 1997, the Company amended certain terms and conditions of its revolving credit facilities. Under the amended terms and conditions, the Company's debt covenants will be reset to be reflective of anticipated earnings, capital expenditures and cash flow over the remaining term of the revolving credit facilities. In addition, the borrowings may exceed the 65% limit of eligible inventory not to exceed $3.5 million, between October 1, 1997 and October 31, 1997 and $1.75 million commencing November 1, 1997 through and including December 15, 1997. Such excess borrowings will bear interest at an interest rate of prime plus 3% per annum. At November 1, 1997, the Company's estimation of cash flows that determine the timing and amounts of payments of certain subordinated debt were the same as estimated for F-7 F-8 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued February 1, 1997. Consequently, there were no adjustments to the carrying value of such debt during the 39 weeks ended November 1, 1997 except for recurring amortization of debt discount. (3) Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, Earnings per Share (SFAS No. 128), which the Company will adopt for interim and annual periods ending after December 15, 1997. This Statement sets forth the basis for the computation of "basic" earnings per share and "dilutive" earnings per share from the previous method of computing both "primary" and "fully diluted" earnings per share. Early implementation of SFAS No. 128 is not permitted. However, had the Company applied SFAS No. 128, there would have been no difference between the loss per share reported under SFAS No. 128 and the loss per share reported on the accompanying consolidated statement of operations for the 13 weeks and 39 weeks ended November 1, 1997. The preferred stock and other common stock equivalents were not considered as converted because the calculation was anti-dilutive. (4) Provision for Income Taxes No provision for income taxes has been reflected in the accompanying consolidated statements of operations for the 13 weeks and 39 weeks ended November 1, 1997 and October 26, 1996 since the Company generated tax losses during these periods. Although such losses would increase the Company's net operating loss carry forwards (NOLs), realization of such NOLs is less than likely due to limitations on utilization of NOLs and the Company's history of losses. As a result, a full valuation allowance has been recognized against the net deferred tax assets arising from the increased NOLs and no benefit for income taxes is reflected in the accompanying consolidated statements of operations. (5) Dividends The Series B Junior Convertible, Exchangeable Preferred Stock pays no dividend through December 31, 2001. Beginning in 2002, the Company is obligated to pay a dividend to holders of the Series B Preferred Stock in the amount of $60 per share subject to increases of $20 per share every year thereafter until 2005 up to a maximum of $120 per share. The Company imputes dividends on the Series B Preferred Stock utilizing the effective interest method to provide a level yield until the permanent dividend of $120 per share is payable. The Company expects conversion prior to any actual payment of dividends, therefore the liability is zeroed to additional paid in capital. The accreted dividends therefore increase the carrying value of that part of the additional paid in capital attributable to the Series B Preferred Stock. F-8 F-9 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued (6) Reclassifications Certain reclassifications have been made to the February 1, 1997 amounts to conform to the November 1, 1997 presentation. F-9 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Management's discussion of the results of operations provides analyses of the Company's operations during the 13 and 39 weeks ended November 1, 1997 and October 26, 1996. Results of Operations The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. As of November 1, 1997 there were 168 stores in operation compared to 147 stores as of October 26, 1996. 13 Weeks Ended November 1, 1997 Compared to the 13 Weeks Ended October 26, 1996 Net sales were $77.3 million for the 13 weeks ended November 1, 1997 compared to $65.6 million for the 13 weeks ended October 26, 1996, an increase of $11.7 million, or 17.8%. Of the total increase, $13.0 million was attributable to the opening of new stores and expansion of existing stores offset by a $1.3 million, or 2.2%, decrease in comparable store sales. Gross profit was $28.8 million for the 13 weeks ended November 1, 1997 compared to $23.3 million for the 13 weeks ended October 26, 1996, an increase of approximately $5.5 million. As a percentage of sales, gross profit was 37.3% for the 13 weeks ended November 1, 1997 compared to 35.5% for the 13 weeks ended October 26, 1996. The increase in the gross profit margin is primarily attributable to a higher markup partially offset by a higher markdown and increased shrink. Selling and administrative expenses were $25.5 million for the 13 weeks ended November 1, 1997 compared to $21.6 million for the 13 weeks ended October 26, 1996, an increase of approximately $3.9 million. As a percentage of sales, selling and administrative expenses decreased to 32.9% for the 13 weeks ended November 1, 1997 from 33.0% for the 13 weeks ended October 26, 1996. The decrease as a percentage of sales is primarily due to closure of the Company's New York office partially offset by higher occupancy, store operating and preopening costs. Amortization of excess of cost over net assets acquired was $0.4 million for the 13 weeks ended November 1, 1997 compared to $0.5 million for the 13 weeks ended October 26, 1996. The decrease is a result of the write-down in the carrying value of excess of cost over net assets acquired disclosed in the consolidated financial statements for the fiscal year ended February 1, 1997. Interest expense was $1.4 million for the 13 weeks ended November 1, 1997 and $1.3 million for the 13 weeks ended October 26, 1996. The increase of $0.1 million was attributable primarily to increased debt discount amortization arising from changes in the projected timing and payment of the reorganization securities of General Textiles. -3- 4 The net income applicable to common stock was $0.1 million for the 13 weeks ended November 1, 1997 compared to a net loss of $1.0 million for the 13 weeks ended October 26, 1996. The increase in net income for the 13 weeks ended November 1, 1997 is a result of the operating factors cited above offset by accreted dividends of $0.7 million on the Series B Preferred Stock. 39 weeks Ended November 1, 1997 Compared to the 39 weeks Ended October 26, 1996 Net sales were $207.1 million for the 39 weeks ended November 1, 1997 compared to $172.9 million for the 39 weeks ended October 26, 1996, an increase of $34.2 million. This increase in sales was attributable to the opening of new stores and expansion of existing stores offset by a $0.5 million, or 0.3% decrease in comparable store sales. Gross profit was $73.0 million for the 39 weeks ended November 1, 1997 compared to $62.0 million for the 39 weeks ended October 26, 1996, an increase of $11.0 million, or 17.7%. As a percentage of sales, gross profit was 35.2% for the 39 weeks ended November 1, 1997 compared to 35.9% for the 39 weeks ended October 26, 1996. The decrease in the gross profit margin is primarily attributable to an increase in the markdown and shrink offset by a higher initial markup. Selling and administrative expenses were $71.7 million for the 39 weeks ended November 1, 1997 compared to $58.0 million for the 39 weeks ended October 26, 1996, an increase of $13.7 million. As a percentage of sales, selling and administrative expenses increased to 34.6% for the 39 weeks ended November 1, 1997 from 33.6% for the 39 weeks ended October 26, 1996. The increase in selling and administrative expenses as a percentage of sales was primarily attributable to a $1.8 million charge in the 2nd quarter for payments due under an employment contract related to the resignation of the Company's President and Chief Executive Officer and increased preopening costs. Savings from the closure of the Company's New York office has been offset by higher store labor costs (due to increases in the minimum wage) and store operating costs. Amortization of excess of cost over net assets acquired was $1.2 million for the 39 weeks ended November 1, 1997 compared to $1.4 million for the 39 weeks ended October 26, 1996. The decrease is a result of the write-down in the carrying value of excess of cost over net assets acquired disclosed in the consolidated financial statements for the fiscal year ended February 1, 1997. Interest expense was $4.0 million for the 39 weeks ended November 1, 1997 compared to $3.6 million for the 39 weeks ended October 26, 1996. The increase of $0.4 million was attributable primarily to increased debt discount amortization arising from changes in the projected timing and payment of the reorganization securities of General Textiles. For loss periods, such as those presented in this Form 10-Q, the Company's preferred stock is assumed not converted and the related dividends are added to the loss for purposes of loss per share calculation. The increased loss for the 39 weeks ended November 1, 1997 is a result of the operating factors cited above and by accreted dividends of $2.0 million on the Series B Preferred Stock. -4- 5 Liquidity and Capital Resources Family Bargain Corporation As of November 1, 1997, Family Bargain Corporation (the "Parent") had outstanding indebtedness in the principal amount of $2.6 million, no material change from its debt obligations at February 1, 1997. The entire $2.6 million outstanding principal amount is due during the next twelve months. Distributions of cash from General Textiles and Factory 2-U, (the "Operating Subsidiaries") to the Parent company to pay Parent company debt service obligations and preferred stock dividends for the Series A 9 1/2% Convertible Preferred Stock (the "Series A Preferred Stock") (if declared) and certain administrative expenses are limited under a plan of reorganization and certain debt agreements of the Operating Subsidiaries. Permitted cash payments from General Textiles include payments pursuant to a tax sharing agreement, certain subordinated debt of General Textiles (which the Parent holds), and a management agreement. Permitted cash payments by Factory 2-U to the Parent are limited to payments pursuant to a management agreement and a guaranty fee agreement. Management believes that permitted cash flows to the Parent company will be adequate to finance its administrative expenses and meet the obligations under its existing indebtedness as they become due for at least the next twelve months. The ability of the Company to make dividend payments on its Series A Preferred Stock as they become due will be dependent on the results of operations of the Company. To date the Company has used its borrowing facilities to fund dividend payments. General Textiles General Textiles finances its operations through credit provided by suppliers, amounts borrowed under its $35.0 million revolving credit facility and internally generated cash flow. At November 1, 1997, General Textiles was obligated to non-affiliate holders of its subordinated notes and reorganization securities in the face amount of $22.9 million with a carrying value of $12.5 million, of which management estimates principal payments in the amount of approximately $1.3 million will be paid in the next twelve months. As of November 1, 1997, General Textiles had $19.2 million outstanding and $7.8 million available to borrow under its revolving credit facility. Effective September 24, 1997, the Company amended certain terms and conditions of its revolving credit facility. Under the amended terms and conditions, the covenants will be reset to be reflective of anticipated earnings, capital expenditures and cash flow over the remaining term of the revolving credit facility. In addition, the borrowings may exceed the 65% of eligible inventory not to exceed $3.5 million, between October 1, 1997 and October 31, 1997 and $1.75 million commencing November 1, 1997 through and including December 15, 1997. Such excess borrowings will bear interest at an interest rate of prime plus 3% per annum. -5- 6 Factory 2-U Factory 2-U finances its operations through credit provided by suppliers, amounts borrowed under its revolving credit facility and internally generated cash flow. Effective June 2, 1997, Factory 2-U, amended its agreement with its working capital lender to increase its revolving credit facility to $15.0 million from $10.0 million, with advances limited to 65% of eligible inventory (as defined), an interest rate of prime plus 3/4% per annum and an expiration date (subject to annual one year extensions) of November 1999. As of November 1, 1997, Factory 2-U had $8.0 million outstanding and $2.0 million available to borrow under its revolving credit facility. Effective September 24, 1997, Factory 2-U amended certain terms and conditions of its revolving credit facility. Under the amended terms and conditions, the covenants will be reset to be reflective of anticipated earnings, capital expenditures and cash flow over the remaining term of the revolving credit facility. Capital Expenditures The Company's planned future capital expenditures include costs to open new Family Bargain Center and Factory 2-U stores, to renovate and/or relocate existing stores, to expand its central administrative and distribution facilities and to upgrade its information systems. Management believes that future expenditures will be financed from internal cash flow and the General Textiles and Factory 2-U revolving credit facilities. Through November 1, 1997 the Company has spent approximately $6.1 million on capital expenditures. The Company anticipates spending approximately $1.9 million during the remainder of the current fiscal year. Inflation In general, the Company believes that it will be able to offset the effects of inflation by increasing operating efficiency, monitoring and controlling expenses and increasing prices to the extent permitted by competitive factors. Seasonality and Quarterly Fluctuations The Company historically has realized its highest level of sales and income during the third and fourth quarters of the fiscal year (the quarters ending in fiscal October and January) as a result of the "Back to School" (August and September) and Christmas (November and December) seasons. If the Company's sales are substantially below seasonal expectations during the third and fourth quarters, the Company's annual operating results will be adversely affected. The Company historically has realized lower sales in its first two quarters, which often has resulted in the Company incurring losses during those quarters. Deferred Tax Assets The Company has net operating loss ("NOL") carryforwards for Federal and California income tax purposes. The utilization of these NOLs will be partially limited due to restrictions imposed under the Federal and State laws upon a change in ownership. -6- 7 At November 1, 1997, the Company's total net deferred income tax assets, a significant portion of which relates to NOLs discussed above, have been subjected to a 100% valuation allowance since realization of such assets is not more likely than not in light of the Company's recurring losses from operations. Cautionary Statement Regarding Forward-Looking Information Statements, other than those based on historical facts, which address activities, events or developments that the Company expects or anticipates may occur in the future are forward-looking statements which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in such statements. The Company's ability to achieve such results is subject to certain risks and uncertainties, including, but not limited to, economic and weather conditions that affect buying patterns of the Company's customers, changes in consumer spending and the Company's ability to anticipate buying patterns and implement appropriate inventory strategies, continued availability of capital and financing, competitive factors and other factors affecting the Company's business beyond the Company's control. Consequently, all of the forward-looking statements are qualified by these cautionary statements and there can be no assurance that the results or developments anticipated by the Company will be realized or that they will have the expected effects on the Company or its business or operations. -7- 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is at all times subject to pending and threatened legal actions, which arise out of the normal course of business. In the opinion of management, based in part on the advice of legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment No. 7 to Loan and Security Agreement, dated as of September 24, 1997, between Factory 2-U and Finova Capital Corporation (7 pages) 10.2 Amendment No. 10 to Loan and Security Agreement, dated as of September 24, 1997, between General Textiles and Finova Capital Corporation (10 pages) 10.3 Acknowledgment and Reaffirmation (Re: Affiliate Debt, Management Fees, Intercreditor Agreement), dated as of September 24, 1997, between Family Bargain Corporation and Finova Capital Corporation (2 pages) 10.4 Separation Agreement, dated August 1, 1997, between Family Bargain Corporation and William W. Mowbray (9 pages) 11.1 Computation of per share loss (1 page) 27 Financial Data Schedule (1 page) (b) Reports on Form 8-K None. -8- 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FAMILY BARGAIN CORPORATION Date: November 24, 1997 By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) -9- 10 EXHIBIT INDEX
Exhibit Number Description Page 10.1 Amendment No. 7 to Loan and Security Agreement, dated as 11 - 17 of September 24, 1997, between Factory 2-U and Finova Capital Corporation (7 pages) 10.2 Amendment No. 10 to Loan and Security Agreement, dated as 18 - 27 of September 24, 1997, between General Textiles and Finova Capital Corporation (10 pages) 10.3 Acknowledgment and Reaffirmation (Re: Affiliate Debt, 28 - 29 Management Fees, Intercreditor Agreement), dated as of September 24, 1997, between Family Bargain Corporation and Finova Capital Corporation (2 pages) 10.4 Separation Agreement, dated August 1, 1997, between 30 - 38 Family Bargain Corporation and William W. Mowbray (9 pages) 11.1 Computation of per share loss (1 page) 39 27 Financial Data Schedule (1 page) 40
-10- EX-10 2 EXHIBIT 10.1 AMENDMENT NO. 7 TO LOAN AND SECURITY AGREEMENT AND WAIVER This Amendment No. 7 to Loan and Security Agreement and Waiver (this "Amendment") is entered into as of this 24th day of September, 1997, by and between FACTORY 2-U, INC., an Arizona corporation ("Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"). W I T N E S S E T H : WHEREAS, Borrower and Lender are parties to that certain Loan and Security Agreement dated as of November 10, 1995, as amended by (i) an Amendment No. 1 to Loan and Security Agreement and Waiver dated as of April 18, 1996, (ii) an Amendment No. 2 to Loan and Security Agreement and Waiver dated as of April 22, 1996, (iii) an Amendment No. 3 to Loan and Security Agreement and Waiver dated July 10, 1996, (iv) an Amendment No. 4 to Loan and Security Agreement and Waiver dated December 31, 1996, (v) an Amendment No. 5 to Loan and Security Agreement and Waiver dated April 23, 1997 and (vi) an Amendment No. 6 to Loan and Security Agreement dated as of May 30, 1997 (as so amended, the "Loan Agreement") that evidences a loan from Lender to Borrower; and WHEREAS, Borrower has asked Lender to modify the Loan Agreement in accordance with the terms of, and subject to the conditions contained in, this Amendment and Lender is willing so to amend the Loan Agreement, upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of these recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. Unless otherwise defined in this Amendment, all capitalized terms used herein, which are defined in the Loan Agreement, have the same meaning as set forth in the Loan Agreement. 2. Amendments to Loan Agreement. The Loan Agreement is amended as follows: 2.1 That subsection of that Section of the Schedule to the Loan Agreement entitled "NEGATIVE COVENANTS (Section 14)", which subsection is entitled "Capital Expenditures", is hereby amended in its entirety to read as follows: -11- 12 "Capital Expenditures. Borrower shall not make or incur any Capital Expenditure if, after giving effect thereto, the aggregate amount of all Capital Expenditures by Borrower during any fiscal year would exceed One Million Six Hundred Thousand Dollars ($1,600,000); provided, however, that before the aggregate amount of Capital Expenditures incurred by Borrower and by General Textiles during any fiscal year of Borrower exceeds the amount of Three Million Dollars ($3,000,000), Borrower shall establish Availability of notless than Three Hundred Thousand Dollars ($300,000) and shall maintain such Availability for remaining portion of such fiscal year. The Availability required to be maintained by Borrower pursuant to this subsection shall be in addition to any required Availability which Borrower must establish and maintain pursuant to other provisions of the Loan Documents." 2.2. All references to the "Loan Documents" shall be deemed to refer to any such Loan Documents as the same may be amended as of the date the conditions precedent to the effectiveness of this Amendment described in Section 4 have been fulfilled as set forth therein, or as the same may be subsequently modified, amended, renewed or restated. 3. Waivers. Provided that the conditions precedent described in Section 4 hereof are met to the satisfaction of Lender, and subject to the terms of this Amendment, Lender hereby waives Borrower's non-compliance with (i) the covenant with respect to Borrower's Capital Expenditures, described in that subsection of that Section of the Schedule to the Loan Agreement entitled "NEGATIVE COVENANTS (Section 14)", which subsection is entitled "Capital Expenditures", for Borrower's fiscal year-to-date period ended July 31, 1997, and (ii) the covenant with respect to Borrower's consolidated-basis ratio of Operating Cash Flow to Total Contractual Debt Service, described in that subsection of that Section of the Schedule to the Loan Agreement entitled "FINANCIAL COVENANTS (Section 13.14)", which subsection is entitled "Debt Service Coverage Ratio", for the calendar month ended August 31, 1997. The waivers set forth in this Section 3 shall be effective only in this specific instance and for the specific purpose for which given, and Lender's granting of such waivers shall not entitle Borrower to any further or other waiver in any similar or other circumstances. 4. Conditions Precedent. This Amendment, and the waivers described in Section 3 above, will not be effective unless and until each of the following conditions -12- 13 precedent have been satisfied, in form, manner and substance satisfactory to Lender prior to September 24, 1997: (a) Borrower shall have delivered or caused to be delivered to Lender the following documents, all of which shall be properly completed, executed and otherwise satisfactory to Lender: (i) This Amendment; (ii) Consent of Guarantor in the form attached hereto; (iii) Such acknowledgments, reaffirmations and consents of third parties as Lender shall deem necessary; (iv) A corporate resolution of Borrower approving the transactions contemplated hereby to which it is a party; (v) A corporate resolution of Guarantor approving the transactions contemplated hereby to which it is a party; and (vi) Such other items as Lender may require or deem necessary. (b) Lender and General Textiles shall have executed an Amendment No. 10 to the GenTex Loan Agreement and each condition to the effectiveness thereof shall have been satisfied other than the execution of this Amendment. (c) There shall not then exist an Event of Default or any act or event which with notice, passage of time, or both would constitute an Event of Default. (d) All the representations and warranties of the Loan Parties in the Loan Documents shall be true and correct, in all material respects, before and after giving effect to the making of this Amendment. (e) Borrower shall have paid all closing costs, recording fees and taxes, appraisal fees and expenses, travel expenses, fees and expenses of Lender's counsel, and all other costs and expenses incurred by Lender in connection with the preparation of, closing of and disbursement of the advances pursuant to this Amendment, which costs, fees and expenses may be payable from the first advance made pursuant to this Amendment. 5. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness evidenced by the Loan Documents is just and owing and agrees to pay -13- 14 such indebtedness in accordance with the terms of the Loan Documents. Borrower further acknowledges and represents that no event has occurred and no condition presently exists that would constitute a breach, default or Event of Default by Lender under the Loan Agreement or any of the other Loan Documents, with or without notice or lapse of time. 6. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges and agrees that the Loan Agreement and the other Loan Documents represent valid, enforceable and collectable obligations of Borrower, and that Borrower presently has no existing claims, defenses (personal or otherwise) or rights of setoff whatsoever with respect to the Obligations of Borrower under the Loan Agreement or any of the other Loan Documents. Borrower furthermore agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. 7. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each of the representations, warranties, covenants and agreements of Borrower as set forth in each of the Loan Documents with the same force and effect as if each were separately stated herein and made as of the date hereof. Borrower represents and warrants to Lender that, with respect to the financing transaction herein contemplated, no Person is entitled to any brokerage fee or other commission and Borrower agrees to indemnify and hold Lender harmless against any and all such claims. 8. Ratification of Terms and Conditions. All terms, conditions and provisions of the Loan Agreement, and of each of the other Loan Documents shall continue in full force and effect and shall remain unaffected and unchanged except as specifically amended hereby. In the event of any conflict between the terms and conditions of this Amendment and any of the other Loan Documents, the provisions of this Amendment shall control. Without limiting the generality of the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's Consents with respect to all of Borrower's facilities in which Collateral is or is intended to be kept or maintained and further acknowledges that Lender has not waived its right to require the delivery of such Landlord's Consents. 9. Other Writings. Lender and Borrower will execute such other writings as may be necessary to confirm or carry out the intentions of Lender and Borrower evidenced by this Amendment. 10. Benefit of the Amendment. The terms and provisions of this Amendment and the other Loan Documents shall be binding upon and inure to the benefit of Lender and Borrower and their respective successors and assigns, except that Borrower shall not have any right to assign its rights under this Amendment or any of the Loan Documents or any interest therein without the prior written consent of Lender. -14- 15 11. Choice of Law. The Loan Documents and this Amendment shall be performed and construed in accordance with the laws of the State of Arizona. 12. Entire Agreement. Except as modified by this Amendment, the Loan Documents remain in full force and effect. The Loan Documents as modified by this Amendment embody the entire agreement and understanding between Borrower and Lender, and supersede all prior agreements and understandings between said parties relating to the subject matter thereof. 13. Counterparts; Telecopy Execution. This Amendment may be executed in any number of separate counterparts, all of which when taken together shall constitute one and the same instrument, admissible into evidence, notwithstanding the fact that all parties have not signed the same counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile shall also deliver a manually executed counterpart of this Amendment, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. [SIGNATURE PAGE FOLLOWS] -15- 16 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first written above. FINOVA CAPITAL CORPORATION, a Delaware corporation By: /s/ Pete Martinez Name: Pete Martinez Title: Vice President FACTORY 2-U, INC., an Arizona corporation By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President -16- 17 CONSENT OF GUARANTOR The undersigned ("Guarantor") hereby executes this Consent for the purpose of (i) evidencing Guarantor's consent to the execution and performance of the foregoing Amendment No. 7 to Loan and Security Agreement (the "Seventh Amendment") by Lender and Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by Guarantor, (iii) evidencing Guarantor's agreement that the Borrower's Obligations as set forth in the Guaranty Agreement shall, for all purposes, include the Loan Documents, as amended by the Seventh Amendment, and shall further include all additional amounts which may be funded or advanced to Borrower pursuant to the Loan Agreement described above as amended by the Seventh Amendment, and (iv) ratifying and affirming all terms and provisions of the Guaranty Agreement. Except to the extent otherwise indicated, terms used herein with initial capital letters shall have the meanings set forth in the Loan Agreement, as amended by the Seventh Amendment. Guarantor agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent as of this 24th day of September, 1997. FAMILY BARGAIN CORPORATION, a Delaware corporation By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President -17- EX-10 3 EXHIBIT 10.2 AMENDMENT NO. 10 TO LOAN AND SECURITY AGREEMENT AND WAIVER This Amendment No. 10 to Loan and Security Agreement and Waiver (this "Amendment") is entered into as of this 24th day of September, 1997, by and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and GENERAL TEXTILES, a California corporation ("Borrower"). W I T N E S S E T H : WHEREAS, Borrower and Greyhound Financial Capital Corporation, an Oregon corporation, predecessor by merger and name change to Lender, entered into a Loan and Security Agreement dated as of October 14, 1993, as amended by (i) an Amendment No. 1 to Loan and Security Agreement dated as of July 11, 1994, (ii) an Amendment No. 2 to Loan and Security Agreement dated as of March 31, 1995, (iii) an Amendment No. 3 to Loan and Security Agreement dated as of July 27, 1995, (iv) an Amendment No. 4 to Loan and Security Agreement dated as of November 10, 1995, (v) an Amendment No. 5 to Loan and Security Agreement dated as of April 18, 1996, (vi) an Amendment No. 6 to Loan and Security Agreement dated as of July 10, 1996, (vii) an Amendment No. 7 to Loan and Security Agreement dated as of December 31, 1996, (viii) a Letter Agreement dated January 10, 1997 with respect to the establishment of certain letters of credit (ix) an Amendment No. 8 to Loan and Security Agreement and Waiver dated April 23, 1997 and (x) an Amendment No. 9 to Loan and Security Agreement dated as of May 30, 1997 (as so amended, the "Loan Agreement"), that evidences a loan from Lender to Borrower; and WHEREAS, Borrower has asked Lender to modify the Loan Agreement in accordance with the terms of, and subject to the conditions contained in, this Amendment and Lender is willing so to amend the Loan Agreement, upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of these recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. Unless otherwise defined in this Amendment, all capitalized terms used herein which are defined in the Loan Agreement have the same meaning as set forth in the Loan Agreement. 2. Loan Agreement. The Loan Agreement is amended as follows: 2.1. Section 1(A) is hereby amended by adding or substituting, as the case may be, the following definitions: -18- 19 "'Advance Rate' means (i) during the period commencing October 1, 1997 through and including October 31, 1997, an amount equal to seventy-five percent (75.0%); (ii) during the period commencing November 1, 1997 through and including December 15, 1997, an amount equal to seventy percent (70.0%); and (iii) at all other times, an amount equal to sixty-five percent (65.0%)." "'Mowbray Debt' means the settlement obligation of Borrower to William Mowbray in the amount of $1,750,000." "'Temporary Availability' has the meaning given to it in paragraph 2(B)(i)." "'Tenth Amendment' means that certain Amendment No. 10 to Loan and Security Agreement between Lender and Borrower dated as of September 24, 1997." "'Tenth Amendment Effective Date' means September 24, 1997, the date upon which the Tenth Amendment became effective pursuant to the terms and upon the conditions thereof." 2.2. Paragraph 2(B) is hereby amended in its entirety to read as follows: "2(B) Loans. Advances of the Total Facility shall be comprised of the following: (i) Inventory Loans. A revolving line of credit consisting of loans against Borrower's Eligible Inventory ('Inventory Loans') in an aggregate outstanding principal amount not to exceed the lesser of: (a) the sum of (1) the amount obtained when the Advance Rate is multiplied by the value of Borrower's Eligible Inventory, calculated at the lower of cost or market and determined on a first-in, first-out basis (and after reserving for Inventory shrinkage in amounts determined by Lender from time to time in its sole discretion) minus (2) the aggregate face amount of al outstanding Letters of Credit; or (b) Thirty-Five Million Dollars ($35,000,000) minus the sum of the aggregate outstanding balances of (A) the Capex Note, (B) the Term Note and (C) the Additional Term Note. Notwithstanding the foregoing, Availability attributable to that portion of the Advance Rate exceeding the amount of sixty-five percent (65.0%) (such -19- 20 excess being herein the 'Temporary Availability') shall not exceed (x) during the period commencing October 1, 1997 through and including October 31, 1997, an amount equal to THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000), and (y) during the period commencing November 1, 1997 through and including December 15, 1997, an amount equal to ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($1,750,000). (ii) Capital Expenditure Line. The Capital Expenditure Line in such amounts and on such terms as are set forth in the Second Amendment and in the Capex Note. (iii) Term Loan. The Term Loan on such terms as are set forth in the Fifth Amendment and in the Term Note. (iv) Additional Term Loan. The Additional Term Loan on such terms as are set forth in the Sixth Amendment and in the Additional Term Note." 2.3. For all purposes of the Loan Agreement as amended by the Tenth Amendment, the value of Borrower's Eligible Inventory shall be calculated at the lower of cost or market and determined on a first-in, first-out basis (and after reserving for Inventory shrinkage in amounts determined by Lender from time to time in its sole discretion). 2.4. Paragraph 3(A) is hereby amended in its entirety to read as follows: "3(A) Interest. Borrower shall pay Lender interest on the daily outstanding balance of Borrower's loan account at a per annum rate of three-quarters of one percent (0.750%) in excess of the rate of interest announced publicly by Citibank, N.A., from time to time as its "base rate" (or any successor thereto), which may not be such institution's lowest rate (the "Base Rate"); provided, however, that the outstanding and unpaid principal balance of each of the Capex Note, the Term Note and the Additional Term Note shall accrue interest at the per annum rate respectively provided therein; provided further, however, that the outstanding and unpaid principal balance of any and all loans initially advanced against Temporary Availability shall accrue interest at the per annum rate of three percent (3.0%) in excess of the Base Rate. The interest rate chargeable hereunder shall be increased or decreased, as the case may be, without notice or demand of any kind, upon the announcement of any change in the Base Rate. Each change in the Base Rate shall be effective hereunder on the first day following the announcement of such change, provided, that a cumulative change of less than one-fourth of one percent (0.25%) shall not be considered. Interest charges and all other fees and charges herein shall be computed on the basis of a -20- 21 year of 360 days and actual days elapsed and will be payable to Lender in arrears on the first day of each month hereafter at its address set forth in Exhibit B of the Original Agreement." 2.5. Borrower acknowledges and agrees that Lender has no obligation to fund any advance of Term Loan D. Accordingly, each and every reference to each of "Term Loan D" and "Term Note D" shall be deemed deleted and of no further effect. 2.6. Paragraph 14(N) is hereby amended in its entirety to read as follows: "(N) Current Ratio. As of the end of each fiscal month of Borrower, through and including September 30, 1997, and as of the end of each quarter thereafter, beginning with the quarter ending October 31, 1997, maintain a ratio of Current Assets to Current Liabilities of not less than 1.2 to 1.0." 2.7. Paragraph 14(P) is hereby amended in its entirety to read as follows: "(P) Debt to Net Worth. As of the end of each fiscal month of Borrower, commencing with the month ending October 31, 1997, maintain a ratio of Indebtedness to Net Worth of not greater than 1.70 to 1.0. For the purposes hereof, Net Worth shall not include the Guilford Subordinated Debt, the New Subordinated Debt, the New Subordinated Notes, the Junior Subordinated Reorganization Notes, the Subordinated Reorganization Notes, the Mowbray Debt or any indebtedness of Borrower incurred under or in connection with real estate leases; further, Net Worth shall be increased by, and Indebtedness shall be decreased by, the unpaid and outstanding principal balance of the 6.35MM Debt at the end of the period to be tested." 2.8. Paragraph 15(I) is hereby amended in its entirety to read as follows: "15(I) Capital Expenditures. Make or incur any Capital Expenditure except to the extent set forth in this paragraph. Borrower shall be permitted to make or incur Capital Expenditures during each fiscal year of Borrower in an aggregate amount not in excess of the sum of Six Million Five Hundred Thousand Dollars ($6,500,000); provided that all Capital Expenditures are made from (A) the proceeds of capital contributions made by Guarantor to Borrower, (B) the proceeds of Permitted Guarantor Indebtedness or(C) the proceeds of Permitted Equipment Indebtedness or (D) working capital representing the proceeds of an advance of the Inventory Loans; provided further, that before the aggregate amount of Capital Expenditures incurred by Borrower and by Factory 2-U during any fiscal year of Borrower exceeds the amount of Three Million Dollars ($3,000,000), Borrower shall establish Availability of not less than Seven Hundred Thousand Dollars ($700,000) and shall maintain such Availability for remaining portion of such fiscal year. The Availability required to be maintained by Borrower pursuant to this paragraph shall be in addition to -21- 22 any required Availability which Borrower must establish and maintain pursuant to other provisions of the Loan Documents. The foregoing covenant shall be tested monthly." 2.9. Paragraph 22 of the Addendum to the Loan Agreement, entitled "Debt Service Coverage Ratio", shall be amended to provide that, commencing with the quarter ending October 31, 1997, each of Senior Contractual Debt Service and Total Contractual Debt Service covenant compliance shall be tested quarterly, on a cumulative quarter-to-date rolling basis up to twelve (12) months. Paragraph 22 of the Addendum to the Loan Agreement shall be further amended to provide that so long as any of the Obligations remain outstanding and the Loan Agreement is in effect, Borrower shall maintain a ratio of Operating Cash Flow to Senior Contractual Debt Service of not less than 1.6 to 1.0. Paragraph 22 of the Addendum to the Loan Agreement shall be further amended to provide that so long as any of the Obligations remain outstanding and the Loan Agreement is in effect, Borrower shall maintain a ratio of Operating Cash Flow to Total Contractual Debt Service of not less than 1.4 to 1.0. 2.10. All references to the "Loan Documents" shall be deemed to refer to any such Loan Documents as the same may be amended as of the Tenth Amendment Effective Date, or as the same may subsequently be modified, amended, renewed or restated. 3. Waivers. Provided that the conditions precedent described in Section 6 hereof are met to the satisfaction of Lender, and subject to the terms of this Amendment, Lender hereby waives Borrower's non-compliance with (i) the covenant with respect to Borrower's ratio of Current Assets to Current Liabilities, described in Section 14(N) of the Loan Agreement, through Borrower's fiscal month ending September 30, 1997, (ii) the covenant with respect to Borrower's ratio of Indebtedness to Net Worth, described in Section 14(P) of the Loan Agreement, through Borrower's fiscal month ending September 30, 1997, (iii) the covenant with respect to Borrower's ratio of Operating Cash Flow to Senior Contractual Debt Service, described in Paragraph 22 to the Addendum to the Loan Agreement, through Borrower's fiscal month ending September 30, 1997, and (iv) the covenant with respect to Borrower's ratio of Operating Cash Flow to Total Contractual Debt Service, described in Paragraph 22 to the Addendum to the Loan Agreement, through Borrower's fiscal month ending September 30, 1997. The waivers set forth in this Section 3 shall be effective only in this specific instance and for the specific purpose for which given, and Lender's granting of such waivers shall not entitle Borrower to any further or other waiver in any similar or other circumstances. 4. Fees. In consideration of Lender's agreement to enter into this Amendment and to the modification to the Loan Documents and the waivers by Lender described herein, Borrower agrees to pay on or before the Tenth Amendment Effective Date the amount of FIFTY THOUSAND DOLLARS ($50,000). Borrower and Lender acknowledge that Lender may withhold the Fee from the proceeds of the Total Facility, to the extent the Fee is not paid prior to disbursement thereof. -22- 23 5. Subordination Agreement. Borrower is a party to that certain Standstill and Subordination Agreement dated November 10, 1995, Factory 2-U and Lender (the "GT Subordination Agreement"). Borrower hereby acknowledges that the GT Subordination Agreement shall remain in full force and effect notwithstanding the making of Amendment No. 7 to the Factory 2-U Loan Agreement and notwithstanding the making of any previous amendments thereto. Borrower restates and confirms each of Borrower's representations and warranties set forth the GT Subordination Agreement as if made on the date hereof. 6. Conditions Precedent. This Amendment, and the waivers described in Section 3 above, will not be effective unless and until each of the following conditions precedent have been satisfied, in form, manner and substance satisfactory to Lender prior to September 24, 1997: (a) Borrower shall have delivered or caused to be delivered to Lender the following documents, all of which shall be properly completed, executed and otherwise satisfactory to Lender: (i) This Amendment; (ii) Consent of Guarantor in the form attached hereto; (iii) Such acknowledgments, reaffirmations and consents of third parties as Lender shall deem necessary; (iv) A corporate resolution of Borrower approving the transactions contemplated hereby to which it is a party; (v) A corporate resolution of Guarantor approving the transactions contemplated hereby to which it is a party; (vi) Such other items as Lender may require or deem necessary. (b) Lender and Factory 2-U shall have executed an Amendment No. 7 to the Factory 2-U Loan Agreement and each condition to the effectiveness thereof shall have been satisfied other than the execution of this Amendment. (c) There shall not then exist an Event of Default or any act or event which with notice, passage of time, or both would constitute an Event of Default. -23- 24 (d) All the representations and warranties of the Loan Parties in the Loan Documents shall be true and correct, in all material respects, before and after giving effect to the making of this Amendment. (e) Borrower shall have paid all closing costs, recording fees and taxes, appraisal fees and expenses, travel expenses, fees and expenses of Lender's counsel, and all other costs and expenses incurred by Lender in connection with the preparation of, closing of and disbursement of the advances pursuant to this Amendment, which costs, fees and expenses may be payable from the first advance made pursuant to this Amendment. (f) Borrower shall have paid the Fee. 7. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness evidenced by the Loan Documents is just and owing and agrees to pay such indebtedness in accordance with the terms of the Loan Documents. Borrower further acknowledges and represents that no event has occurred and no condition presently exists that would constitute a default or event of default by Lender under the Loan Agreement or any of the other Loan Documents, with or without notice or lapse of time. 8. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges and agrees that the Loan Agreement and the other Loan Documents represent valid, enforceable and collectable obligations of Borrower, and that Borrower presently has no existing claims, defenses (personal or otherwise) or rights of setoff whatsoever with respect to the Obligations of Borrower under the Loan Agreement or any of the other Loan Documents. Borrower furthermore agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. 9. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each of the representations, warranties, covenants and agreements of Borrower as set forth in each of the Loan Documents with the same force and effect as if each were separately stated herein and made as of the date hereof. Borrower represents and warrants to Lender that with respect to the financing transaction herein contemplated, no Person is entitled to any brokerage fee or other commission and Borrower agrees to indemnify and hold Lender harmless against any and all such claims. 10. Ratification of Terms and Conditions. All terms, conditions and provisions of the Loan Agreement, and of each of the other Loan Documents shall continue in full force and effect and shall remain unaffected and unchanged except as specifically amended hereby. In the event of any conflict between the terms and conditions of this Amendment and any of the other Loan Documents, the provisions of this Amendment shall control. Without limiting the generality of the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's Consents with respect to all of Borrower's facilities in which Collateral is or is intended to be kept or maintained and further acknowledges that Lender has not waived its right to require the delivery of such Landlord's Consents. -24- 25 11. Other Writings. Lender and Borrower will execute such other writings as may be necessary to confirm or carry out the intentions of Lender and Borrower evidenced by this Amendment. 12. Benefit of the Amendment. The terms and provisions of this Amendment and the other Loan Documents shall be binding upon and inure to the benefit of Lender and Borrower and their respective successors and assigns, except that Borrower shall not have any right to assign its rights under this Amendment or any of the Loan Documents or any interest therein without the prior written consent of Lender. 13. Choice of Law. The Loan Documents and this Amendment shall be performed and construed in accordance with the laws of the State of Arizona. 14. Entire Agreement. Except as modified by this Amendment, the Loan Documents remain in full force and effect. The Loan Documents as modified by this Amendment embody the entire agreement and understanding between Borrower and Lender, and supersede all prior agreements and understandings between said parties relating to the subject matter thereof. 15. Counterparts; Telecopy Execution. This Amendment may be executed in any number of separate counterparts, all of which when taken together shall constitute one and the same instrument, admissible into evidence, notwithstanding the fact that all parties have not signed the same counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile shall also deliver a manually executed counterpart of this Amendment, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. [SIGNATURE PAGE FOLLOWS] -25- 26 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first written above. FINOVA CAPITAL CORPORATION, a Delaware corporation, successor-by-merger to Greyhound Financial Capital Corporation, an Oregon corporation By: /s/ Pete Martinez Name: Pete Martinez Title: Vice President GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President -26- 27 CONSENT OF GUARANTOR The undersigned ("Guarantor") hereby executes this Consent for the purpose of (i) evidencing Guarantor's consent to the execution and performance of the foregoing Amendment No. 10 to Loan and Security Agreement and Waiver (the "Tenth Amendment") by Lender and Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by Guarantor, (iii) evidencing Guarantor's agreement that the Borrower's Obligations as set forth in the Guaranty Agreement shall, for all purposes, include the Loan Documents, as amended by the Tenth Amendment, and shall further include all additional amounts which may be funded or advanced to Borrower pursuant to the Loan Agreement described above as amended by the Tenth Amendment, and (iv) ratifying and affirming all terms and provisions of the Guaranty Agreement. Except to the extent otherwise indicated, terms used herein with initial capital letters shall have the meanings set forth in the Loan Agreement, as amended by the Tenth Amendment. Guarantor agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent as of this 24th day of September, 1997. FAMILY BARGAIN CORPORATION, a Delaware corporation By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President -27- EX-10 4 EXHIBIT 10.3 ACKNOWLEDGMENT AND REAFFIRMATION The undersigned, FAMILY BARGAIN CORPORATION, a Delaware corporation ("FBC") acknowledges: 1. FBC is a party to that certain Standstill and Subordination Agreement (re: Affiliate Debt) dated as of July 11, 1994, as amended by that certain Amendment No. 1 to Standstill and Subordination Agreement dated as of March 31, 1995, and that certain Amendment No. 2 to Standstill and Subordination Agreement dated as of July 27, 1995 (as amended, the "Affiliate Debt Subordination Agreement"). 2. FBC is a party to that certain Subordination and Standstill Agreement dated October 14, 1993, as amended by that certain Amendment No. 1 to Standstill and Subordination Agreement dated as of July 11, 1994, as amended by that certain Amendment No. 2 to Standstill and Subordination Agreement dated as of March 31, 1995, and that certain Amendment No. 3 to Standstill and Subordination Agreement dated as of July 27, 1995 (as amended, the "Management Fees Subordination Agreement"). 3. FBC is a party to that certain Intercreditor, Standstill and Subordination Agreement dated as of October 14, 1993, originally executed by and among Greyhound Financial Capital Corporation, Westinghouse Electric Corporation, Guilford Investments, Inc. and General Textiles, as amended by that certain Amendment No. 1 to Intercreditor, Standstill and Subordination Agreement dated as of July 11, 1994, that certain Amendment No. 2 to Intercreditor, Standstill and Subordination Agreement dated as of March 31, 1995, and that certain Amendment No. 3 to Intercreditor, Standstill and Subordination Agreement dated as of July 27, 1995 (as amended, the "Intercreditor Agreement"). 4. FBC is a party to that certain Subordination and Standstill Agreement (re: 6.35MM Debt) dated as of May 30, 1997 (the "6.35MM Debt Subordination Agreement"). 5. FBC is a party to that certain Standstill and Subordination Agreement dated as of November 10, 1995 (the "F2U Subordination Agreement"). 6. FINOVA Capital Corporation, successor by merger and name change to Greyhound Financial Capital Corporation ("FINOVA") is also a party to the Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement, Intercreditor Agreement, 6.35MM Debt Subordination Agreement and F2U Subordination Agreement. -28- 29 7. FBC has received a copy of that certain Loan and Security Agreement dated as of October 14, 1993, by and between FINOVA and General Textiles, a California corporation, and each amendment thereto, including without limitation, that certain Amendment No. 10 to Loan and Security Agreement and Waiver of even date herewith. 8. FBC has received a copy of that certain Loan and Security Agreement dated as of November 10, 1995, by and between FINOVA and Factory 2-U, Inc., an Arizona corporation, and each amendment thereto, including without limitation that certain Amendment No. 7 to Loan and Security Agreement and Waiver of even date herewith. 9. Each of the Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement, Intercreditor Agreement, 6.35MM Debt Subordination Agreement and F2U Subordination Agreement remains in effect and FBC re-states and confirms each term thereof, notwithstanding the terms of the Amendment. 10. FBC restates and confirms each of FBC's representations and warranties set forth in each of the Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement, Intercreditor Agreement, 6.35MM Debt Subordination Agreement and F2U Subordination Agreement as if made on the date hereof. Executed as of this 24th day of September, 1997. FAMILY BARGAIN CORPORATION By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President -29- EX-10 5 EXHIBIT 10.4 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (the "Agreement") made as of the 1st day of August, 1997 by and between Family Bargain Corporation, a Delaware corporation (the "Company") and William W. Mowbray ("Mowbray"). W I T N E S S E T H WHEREAS, the Company and Mowbray are currently parties to the following agreements: (i) an Amended and Restated Employment Agreement dated February 24, 1997 (which replaced and superseded an Employment Agreement dated as of November 1, 1996) (the "Employment Agreement"); and (ii) Options to purchase One Hundred Ten Thousand (110,000) shares of common stock of the Company at $1.375 per share expiring ten (10) years after issuance ("First New Options"); and (iii) a Secured Promissory Note and related agreement dated March 21, 1997 (the "Note"); and (iv) Options to purchase Six Hundred Seventeen Thousand (617,000) shares of common stock of the Company at $2.25 per share expiring five (5) years after issuance, which become exercisable in twenty-five percent (25%) installments at such time as the market price of common stock of the Company exceeds $6, $7.50, $10 and $15 per share for sixty (60) consecutive trading days (the "Class A Second New Options"); and (v) Options to purchase Thirty-Five Thousand Five Hundred (35,500) shares of common stock of the Company at $2.25 per share expiring five (5) years after issuance and currently exercisable (the "Class B Second New Options"); and WHEREAS, Mowbray is a member of the Board of Directors of the Company; and WHEREAS, the parties desire that: (i) Mowbray resign from the Board of Directors of the Company and as an officer of the Company; (ii) the Employment Agreement be terminated; -30- 31 (iii)Mowbray agree not to compete with the Company (the "Non-Competition Agreement"); and (iv) the Note and Class A Second New Options be modified as herein set forth, all of the foregoing transactions to be in accordance with the terms hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereby agree as follows: 1. Resignation as Director and Officer. Effective upon the execution of this Agreement by both parties, Mowbray resigns as a Director of the Company and as an officer of the Company and as a director and/or officer of any subsidiary of the Company for which he presently serves in such capacity. 2. Termination of the Employment Agreement. Effective upon the execution of this Agreement by both parties, the Employment Agreement shall be terminated and be of no further force or effect and the rights and obligations of the parties thereunder shall be as set forth herein. 3. Non-Competition Agreement. In consideration of the payments to be made by the Company pursuant to Paragraph 4A below, Mowbray agrees that from the date of this Agreement until December 31, 2000, he will not, directly or indirectly, (a) compete with the Company, or any direct or indirect subsidiary of the Company, in the operation of a retail bargain clothing store or chain of such stores which markets products to low income consumers in the States of California, Arizona, New Mexico, Washington, Oregon, Texas and such other states in which the Company is operating on the date hereof; or (b) be interested in, employed by, engaged by, or participate in the ownership, management, operation, or control of, or act in any advisory or other capacity for, any firm or corporation which competes with the Company in the States of California, Arizona, New Mexico, Washington, Oregon, Texas and such other states in which the Company is operating on the date hereof (provided, however, that notwithstanding the foregoing, Mowbray may make solely passive investments in any corporation the common stock of which is Apublicly held,@ and of which Mowbray shall not own or control securities which constitute more than one percent (1%) of the voting rights or equity ownership of such corporation); or (c) solicit or divert business from the Company or assist any person, firm or corporation in doing so or attempting to do so; or (e) hire any person employed on a full-time basis by the Company on the date hereof, or any person who was a full-time employee of the Company within six (6) months from the date hereof, or assist any person, firm or corporation in doing so or attempting to do so. 4. Consideration to Mowbray. A. In consideration of the Non-Competition Agreement, the Company shall pay to Mowbray the sum of Nine Hundred Seventy Thousand Dollars ($970,000) payable as follows: -31- 32 (i) Three Hundred Sixty Thousand Dollars ($360,000) on March 30, 1998; and (ii) Three Hundred Sixty Thousand Dollars ($360,000) on March 30, 1999; and (iii)Two Hundred Fifty Thousand Dollars ($250,000) on August 1, 2001. B. In consideration for the termination of the Employment Agreement, the Company shall pay to Mowbray: I. (i) upon execution of this Agreement, the gross sum of $44,767.50 which is equal to $1,313.60 per day multiplied by the number of accrued and unused vacation days as of the date hereof; and (ii) from the date hereof until December 31, 1997, the pro rata portion of Three Hundred Forty-One Thousand Five Hundred Thirty-Six Dollars ($341,536) payable in biweekly installments on the normal payroll cycle of the Company; and (iii) from January 1, 1998 to December 31, 1998, the sum of Three Hundred Sixty-Five Thousand Four Hundred Forty-Four Dollars ($365,444) payable in biweekly installments on the normal payroll cycle of the Company; and (iv) on or about February 28, 1998, the bonus due, if any, under the Company's existing bonus plan for the fiscal year ending January 31, 1998, pro rated to the date hereof; and (v) from January 1, 1999 to December 31, 1999, the sum of Three Hundred Ninety-One Thousand Twenty-Five Dollars ($391,025) payable in biweekly installments on the normal payroll cycle of the Company; and (vi) from January 1, 2000 to January 31, 2000, the pro rata share of Four Hundred Eighteen Thousand Three Hundred Thirty-Six Dollars ($418,396) payable in biweekly installments on the normal payroll cycle of the Company. II. Each of the payments described in subparagraph BI above shall be subject to standard deductions for taxes and other withholding items. In the event of a "Change in Control" (as that term is defined in the Employment Agreement), all amounts payable under subparagraphs A and B of this Paragraph 4 shall become immediately due and payable. -32- 33 C. The Company shall continue to provide to Mowbray, all of the benefits described in Sections 3.01, 3.04 and 3.05 of the Employment Agreement, which provisions are incorporated herein by reference as if set forth in full, for the five (5) year period commencing on August 1, 1997 and ending July 31, 2002. In the event of Mowbray's death prior to the end of such five (5) year period, his spouse shall continue to receive such benefits until July 31, 2002. D. Amendment of Note. The Note is hereby amended to forgive and waive all interest payable thereunder. E. Stock Options. The First New Options and the Class B Second Options shall continue to be exercisable by Mowbray in accordance with their respective terms. The Class A Second New Options are hereby amended so that Mowbray can exercise fifty percent (50%) thereof at such time as the market price of the common stock of the Company exceeds $6 per share for sixty (60) consecutive trading days and fifty percent (50%) at such time as the market price of the common stock of the Company exceeds $7.50 per share for sixty (60) consecutive trading days. 4. Representations and Warranties by Mowbray. Mowbray hereby represents and warrants as follows: (i) That he is not aware of any claims or causes of action which are pending or threatened against him in his capacities as a director, officer or employee of the Company or any subsidiary thereof. (ii) That he is not aware of any material claims or causes of action which are pending or threatened against the Company which have not been disclosed to the Company. 5. Representations and Warranties by the Company. The Company hereby represents and warrants as follows: (i) That the Company has full power and authority to consummate the transactions contemplated by this Agreement; this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms; that neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated herein, will violate any agreement to which the Company is a party or by which it or any of its property or assets is bound, or any law, order, decree or judgment applicable to the Company, or any provision of its Amended and Restated Certificate of Incorporation or Restated Bylaws, and that no authorization, approval or consent of any third party is required for the lawful execution, delivery and performance of this Agreement by the Company; and (ii) That the execution, delivery and performance of this Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. -33- 34 6. Indemnification by the Company. a) The Company agrees to indemnify and hold harmless Mowbray against any claims, losses, costs (including, without limitation, legal, witness and expert fees and disbursements and other charges of counsel (collectively "Legal Fees"), expenses, liabilities, or damages in connection with any claims or actions arising from or related to any of the transactions consummated or contemplated pursuant to this Agreement (but not legal fees relating to the transactions themselves), excluding federal, state and local taxes (including interest, penalties and associated expenses) imposed on Mowbray with respect to payments received by him pursuant to the transactions consummated or contemplated by this Agreement, which shall be the sole responsibility of Mowbray; or arising from or relating to any misrepresentation or breach of any covenant, warranty or agreement made by the Company, or in connection with the enforcement of this paragraph. b. The indemnification set forth above shall be in addition to, and without limiting or affecting, the Company's imdemnification obligations pursuant to the Company's Articles of Incorporation and Amended and Restated Bylaws (the "Bylaws"), provided, however that the Company further agrees that, notwithstanding Section 5 of the Bylaws (provided that an undertaking of repayment of expenses required by such Section 5 is given to the Company), any expenses incurred by Mowbray defending any civil, criminal, administrative or investigative action, suit or proceeding, or threat thereof, including without limitation any claims or actions contemplated by this Paragraph 6, shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, to the fullest extent permissible under the Company's Bylaws and Delaware law. 7. Indemnification by Mowbray. Mowbray agrees to indemnify and hold harmless the Company from and against any claims, losses, costs (including Legal Fees), expenses, liabilities or damages arising from or relating to any misrepresentation or breach of any covenant, warranty or agreement made by him in this Agreement or connection with the enforcement of this Paragraph 7 and from and against any liability for withholding taxes pursuant to federal, state and local law (including interest, penalties and reasonable attorneys' fees) with respect to any amounts payable to Mowbray under this Agreement or the Non-Competition Agreement. 8. Mutual General Release. The Company on one hand, and Mowbray on the other hand, hereby each release, remise, acquit and forever discharge the other party and its respective, agents, principals, servants, parents, subsidiaries, partners, affiliates, officers, directors, shareholders, attorneys, employees, heirs, executors, successors and assigns from all actions, causes of action and from any and all past, present or future actions, causes of action, suits, claims, demands, debts, sums of money, judgments, liabilities (statutory or otherwise), damages, costs, expenses, interest, compensation, liens and attorneys' fees in law or in equity (collectively "Claims") which relate to or in any way are based upon or arise out of in any respect the service, acts, facts, circumstances, matters, claims, transactions or occurrences of or involving Mowbray as an officer, director and/or employee of the Company. Notwithstanding the foregoing, nothing herein will release the Company from its obligations under this Agreement or its indemnification and expense advancement -34- 35 obligations to Mowbray under its Bylaws and under Delaware law. The Company further agrees that it will not prosecute nor allow to be prosecuted on its behalf in any administrative agency, whether federal or state, or in any court, whether federal or state, any claims or actions against Mowbray, his agents and attorneys, heirs, representatives, successors and assigns, related to the matters discharged herein. The parties hereby expressly waive all rights under California Civil Code section 1542 which reads as follows: Section 1542. A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 10. No Derogatory Statements; Press Releases. a) Mowbray agrees not to make any disparaging or derogatory statements about the Company, any of its officers or directors, or any of its subsidiaries or other corporate affiliates, except as may be required by law or in connection with the enforcement of his rights under this Agreement or any other agreement related hereto. b) The Company agrees not to make, and to cause the members of the Executive Committee of the Company and the Company's directors not to make, any disparaging or derogatory statements about Mowbray, except as may be required by law or in connection with the enforcement of its rights under this Agreement or any other agreement related hereto. The Company further agrees to give positive references to any potential employer of Mowbray. c) The Company shall provide Mowbray with the opportunity to review and to approve, which approval shall not be unreasonably withheld, the descriptions of this Agreement contained in (i) any Company press release, and (ii) any of the Company's documents concerning this Agreement to be filed with the Securities and Exchange Commission or distributed to the Company's shareholders. Mowbray shall not issue any press release and shall not make any other public statement except as required by law, concerning the transactions consummated pursuant to this Agreement. The time permitted for obtaining approval hereunder shall be subject to the Company's requirement of complying with applicable law on timely disclosures. 11. Miscellaneous. a. Expenses. The Company shall bear all of its costs and expenses incurred in connection with the transactions contemplated hereunder and shall, upon execution of this Agreement, pay directly to counsel for Mowbray, for legal and accounting fees and costs in connection with the negotiation and execution of this Agreement, or reimburse Mowbray if previously paid by him, the sum of Seven Thousand Five Hundred Dollars ($7,500). -35- 36 b. Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. c. Governing Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of California. d. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received only when personally delivered, or on the next business day when deposited with a reputable overnight courier service, such as Federal Express, for delivery to the intended addressee. All notices shall be addressed as follows: If to the Company: Family Bargain Corporation 4000 Ruffin Road San Diego, California 92123 Attn: Chief Executive Officer With a copy to: David Stone, Esq. Weil, Gotshal & Manges 767 Fifth Avenue New York, New York 10153 If to Mowbray: William W. Mowbray 6814 Vianda Court Carlsbad, California 92009 With a copy to: Lawrence M. Sherman, Esq. Sherman & Lapidus LLP 750 B Street, Suite 1930 San Diego, California 92101 Either party may change the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subparagraph for the giving of notice, and such change of address shall become effective upon actual receipt of such notice. -36- 37 e. Binding Nature of Agreement - No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal representatives, successors and assigns, except that no party may assign or transfer its rights nor delegate its duties under this Agreement without the prior written consent of the other party hereto. f. Execution in Counterpart. This Agreement may be executed in counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, and all of which shall together constitute one and the same instrument. g. Provisions Separable. The provisions of this Agreement are independent of and separable from each other; and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. h. Paragraph Headings. The Paragraph and subparagraph headings in this Agreement are for convenience of reference only; they form no part of this Agreement and shall not affect its interpretation. 12. Entire Agreement This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein and therein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 13. Court Jurisdiction. The parties agree that any action or proceeding to enforce any provision of this Agreement, or otherwise arising out of or relating to this Agreement, may be brought in any federal or state court in San Diego County in the State of California, and in no other court, and each party (a) consents to the jurisdiction of each of those courts in any such action or proceeding (b) agrees not to seek to change the venue of any such action or proceeding from any of those courts because of inconvenience of the forum or otherwise (except that nothing in this Paragraph will prevent a party from removing any action from a state court to a federal court sitting in the appropriate venue, and (c) agrees that process in any such action or proceeding may be served by registered mail or in any other manner permitted by the rules of the court in which the action or proceeding is brought. -37- 38 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date first above written. Family Bargain Corporation, a Delaware corporation By: /s/ James D. Somerville Its: Chairman /s/ William W. Mowbray William W. Mowbray -38- EX-11 6 EXHIBIT 11.1 Family Bargain Corporation Computation of Net Gain (Loss) Per Common Share (Dollars in Thousands, except per share data) (Audited)
13 Weeks Ended 39 Weeks Ended -------------- -------------- Nov 1, Oct 26, Nov 1, Oct 26, 1997 1996 1997 1996 ---- ---- ---- ---- The computation of net (loss) available & adjusted shares outstanding follows: Net income (loss) $ 1,606 $ (80) $(3,924) $(1,009) Less: Preferred stock dividends $(1,536) $ (885) $(4,555) $(2,624) -------- ------- -------- -------- Net (loss) used for primary and fully diluted computation $ 70 $ (965) $(8,479) $(3,633) ======== ======= ======== ======== Weighted average number of common shares outstanding 4,929,822 4,693,337 4,892,573 4,440,572 Add: Assumed exercise of those options that are common stock equivalents - - - - Assumed exercise of convertible preferred stock - - - - --------- --------- --------- ---------- Adjusted shares outstanding, used for primary & fully diluted computation 4,929,822 4,693,337 4,892,573 4,440,572 ========= ========= ========= ========= Net loss applicable to common stock per common & common share equivalent $ 0.01 $ (0.21) $ (1.73) $ (0.82) ========= ========= ========== =========
EX-27 7 FDS --
5 This schedule contains summary financial information extracted from the Balance Sheet and Statement of Operations as of and for the 39 weeks ended November 1, 1997 and is qualified in its entirety by reference to such financial statements as included in the Company's Quarterly Report on Form 10-Q. 0000813775 Family Bargain Corporation 1,000 9-MOS JAN-31-1998 FEB-2-1997 NOV-1-1997 3,319 0 0 0 43,413 47,906 21,390 7,161 98,686 38,775 0 0 36 49 14,201 98,686 207,074 207,074 134,105 134,105 79,929 0 3,964 (3,924) 0 (3,924) 0 0 0 (3,924) (1.73) (1.73)
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