Gottschalks and Everbright Development Overseas Ltd. Sign Letter of Intent for $30 Million Investment and Strategic Sourcing and
23 September 2008 - 1:30PM
PR Newswire (US)
~Capital Infusion Will Support Company's Value Improvement Program
and Future Growth~ FRESNO, Calif., Sept. 23 /PRNewswire-FirstCall/
-- Gottschalks Inc. (NYSE: GOT) today announced that it has entered
into a non-binding letter of intent for a $30 million investment in
the Company by Everbright Development Overseas Ltd. ("Everbright"),
a British Virgin Islands corporation, as well as a strategic
partnership for direct sourcing and consignment product sales.
Under the terms of the letter of intent, Everbright's investment
will consist of a $10 million acquisition of newly-issued shares of
Gottschalks common stock and the Company's issuance of a $20
million convertible secured note to Everbright, as well as warrants
to acquire additional shares of Gottschalks common stock. Under the
terms of the letter of intent, the investment will be structured as
follows: -- Common Stock: The investment anticipates the
acquisition by Everbright of 5,555,556 shares of Gottschalks common
stock, to be issued by the Company at a price of $1.80 per share,
which will amount to approximately 29% of the Company's common
stock then outstanding. -- Convertible Secured Note: The Company
plans to issue a five-year, convertible secured note to Everbright
in the principal amount of $20 million. The principal amount of the
note and any accrued but unpaid interest may be converted into
Gottschalks common stock at a fixed conversion price of $1.80 per
share. Interest on the note is payable, at Gottschalks' option, in
cash or in kind. -- Milestone Warrants: The proposed investment
also includes the issuance by the Company of warrants permitting
Everbright to acquire up to 60 million shares of Gottschalks common
stock upon payment by Everbright of $120 million in cash or,
subject to certain valuation requirements, transfer to the Company
of certain of Everbright's real estate assets. The warrants will be
exercisable at any time during the three-year period following the
closing of the investment, subject to shares of Gottschalks common
stock trading at or above $6.00 per share over any 60 consecutive
trading-day period and the achievement of certain performance
thresholds by the newly-added sourcing, consignment and online
platform businesses described below. -- Additional Warrants:
Finally, the investment contemplates the issuance of warrants to
Everbright to acquire potentially an additional 30 million shares
of Gottschalks common stock at an exercise price of $20.00 per
share, payable in cash, and exercisable at any time during the
four-year period following the closing of the initial investment.
Under the terms of the letter of intent, the strategic partnership
would consist of additional business opportunities and
enhancements, including some of the following: -- Direct Sourcing:
As part of the proposed investment and strategic partnership,
Gottschalks and Everbright would establish a direct sourcing
program with a network of Chinese manufacturers for a variety of
high quality merchandise. Partnering with Everbright provides
Gottschalks with the leverage and scale needed to access key
overseas manufacturers and enhance the Company's private label
offerings. -- Consignment Product Sales: Additionally, the Company
and Everbright will work together with a network of overseas
consumer goods manufacturers to establish consignment arrangements
for specific merchandise categories to be sold in Gottschalks
stores. This partnership would enable the Company to expand its
current merchandise assortment into new product categories and
generate incremental revenue, while requiring minimal investment by
Gottschalks. -- Internet Platform: Gottschalks will have access to
expanded capabilities for future internet sourcing, sales and
revenue fees through the development and use of Everbright's
advanced Luichi global sourcing business platform, which connects
customers with the manufacturers who make the products they buy,
eliminating many of the markup layers in between. Everbright's
Luichi platform integrates various services - including product
exhibition, supply and demand management, credit and transaction
management, and use of consumer consultants and membership cards -
into a secure online system that protects the interests of all
parties. Jim Famalette, Chairman and Chief Executive Officer of
Gottschalks, stated, "The letter of intent with Everbright not only
provides for a significant infusion of capital into our business
but also creates opportunities for us to strengthen and improve our
operations through new strategic initiatives. Importantly, the
partnership would allow us to leverage Everbright's strong network
to source a variety of merchandise direct from Chinese
manufacturers at advantageous terms and conditions. In addition, we
would be able to introduce and test an expanded merchandise
assortment with very limited risk by working with manufacturers
that would offer products through our stores on consignment. We
also expect to grow our business by having the opportunity through
Everbright to expand our traditional business model with more
direct business to business, and direct to consumer product sales
from the network." Mr. Famalette concluded, "We anticipate all of
these initiatives would have a positive impact on our bottom line
over time. As always, we remain committed to providing our
customers an assortment of the best national brands of merchandise.
Now, we are positioning the Company to also expand upon our ability
to differentiate our product assortment with an exciting new
concept. These new opportunities will strengthen the Company and
generate growth in our business for the long-term while maximizing
shareholder value." Mi Wang, Chairman of Everbright, stated, "We
are excited about the opportunity to invest and partner with
Gottschalks to help them achieve their long-term growth plans.
Gottschalks has established itself as a leader in bringing the best
brands and quality merchandise to customers in their markets in the
U.S. This investment and partnership with Gottschalks will extend
the distribution in the U.S. for many of Everbright's Chinese
manufacturing partners. We look forward to capitalizing on the
complementary aspects of our businesses and forming a solid,
long-term relationship with Gottschalks." The Company is obligated
under the letter of intent to negotiate toward a definitive
agreement exclusively with Everbright over a 45-day period,
beginning on the date of the letter of intent, during which time
the Company may not, subject to certain exceptions, engage in
discussions or negotiations with any third party regarding a
competing proposed transaction. The proposed investment and
strategic partnership with Everbright, remains subject to
satisfactory completion of legal and financial due diligence by the
Company and Everbright, as well as the negotiation and execution of
mutually acceptable definitive agreements governing the investment.
The proposed investment will also be subject to approval by the
Company's stockholders at a special meeting called for that
purpose, approval by the New York Stock Exchange of the Company's
additional listing application for the shares of Gottschalks common
stock to be issued to Everbright as part of the investment, as well
as the receipt of certain required third party consents. The
Company anticipates that a definitive agreement governing the
proposed investment and strategic partnership will be executed
during the third or fourth quarter of fiscal 2008, with a closing
to occur no earlier than during the fourth quarter. About
Gottschalks Gottschalks is a regional department store chain,
currently operating 58 department stores and three specialty
apparel stores in six western states, including California (38),
Washington (7), Alaska (5), Oregon (4), Nevada (2) and Idaho (2).
Gottschalks offers better to moderate brand-name fashion apparel,
cosmetics, shoes, accessories and home merchandise. Gottschalks
offers corporate information and selected merchandise on its
website located at http://www.gottschalks.com/. About Everbright
Development Overseas Ltd. Everbright is engaged in the business of
providing trade facilitation, credit and logistical support to
manufacturers and merchants engaged in international trade between
the People's Republic of China and the U.S. Everbright was founded
by Guangying Wang and is controlled by his family. Mr. Wang's
daughter, Mi Wang, has served as Chairman of Everbright since its
inception. In the early 1970's, Mr. Wang served as a member of the
PRC's economic growth council, responsible for the development and
management of a government-backed international trade consortium
comprised of business and government leaders in the areas of
international finance, transportation, logistics and
communications. From 1991 to 2003, Mr. Wang served as Vice Chairman
of the People's Assembly of the PRC. Mr. Wang's responsibilities as
Vice Chairman included the institution of an international trade
legal system predicated on the outcomes that were developed during
his tenure managing the international trade consortium. Note to
Investors The Company will file a proxy statement and other
documents regarding the proposed transaction described in this
release with the Securities and Exchange Commission. Investors and
security holders are urged to read the proxy statement when it
becomes available, because it will contain important information
about the Company, Everbright and the proposed transaction. A
definitive proxy statement will be sent to security holders of the
Company seeking their approval of the transaction. Investors and
security holders may obtain a free copy of the definitive proxy
statement (when available) and other documents filed by the Company
with the SEC at the SEC's website at http://www.sec.gov/. The
definitive proxy statement and other relevant documents may also be
obtained free of cost by directing a request to the Company at 7
River Park Place East, Fresno, California 93720, Attention: Daniel
T. Warzenski, Vice President, Chief Financial Officer (telephone
559-434-4800). The Company and its directors and executive officers
may be deemed to be participants in the solicitation of proxies
from the stockholders of Gottschalks in connection with the
proposed transaction described in this release. Information about
the Company and its directors and officers can be found in the
Company's Proxy Statement and Annual Report on Form 10-K filed with
the SEC. Additional information regarding the interests of those
persons may be obtained by reading the proxy statement when it
becomes available. Business Risks and Forward Looking Statements
This release contains forward-looking statements (within the
meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995) that involve risks and
uncertainties. In some instances, such statements may be identified
by the use of forward-looking terminology such as "may," "will,"
"expects," "believes," "intends," "projects," "forecasts," "plans,"
"estimates," "anticipates," "continues," "targets," or similar
terms, variations of such terms or the negative of such terms. Such
statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in the
forward-looking statements, including, without limitation, the
Company's ability to negotiate acceptable definitive agreements
governing the proposed transaction described in this release and to
thereafter successfully consummate such transaction; the ability to
meet debt obligations and adhere to the restrictions and covenants
imposed under the Company's various debt agreements; the timely
receipt of merchandise and the Company's ability to obtain adequate
trade credit from its key factors and vendors; risks arising from
general economic and market conditions (including uncertainties
arising from acts of terrorism or war); the ability to improve the
profitability and cash flows of its stores or to sell, sublease or
close underperforming stores; the ability to modify operations in
order to minimize the adverse impact of rising costs, including but
not limited to health care, workers' compensation, property and
casualty insurance and utilities costs; the effects of seasonality
and weather conditions, changing consumer trends and preferences,
competition, consumer credit, the Company's dependence on its key
personnel and general labor conditions, all of which are described
in more detail in Gottschalks' Annual Report on Form 10-K and other
reports filed by Gottschalks with the Securities and Exchange
Commission. GOTTSCHALKS DOES NOT PRESENTLY INTEND TO UPDATE THESE
STATEMENTS AND UNDERTAKES NO DUTY TO ANY PERSON TO EFFECT ANY SUCH
UPDATE UNDER ANY CIRCUMSTANCES. DATASOURCE: Gottschalks Inc.
CONTACT: Gregory Ambro, Executive Vice President, Chief Operating
Officer of Gottschalks Inc., +1-559-434-4800; Financial Dynamics:
Leigh Parrish, +1-212-850-5651, or Stephanie Rich, +1-212-850-5706
Web site: http://www.gottschalks.com/
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