-----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, SU6ZtodxFweOz92Kzo4fI8j38aq/4WqWjVxdI60uR48v4Drd95NuZ/nXxjV4ccAj MdAOTSSFKHwRGjeJXmEhrw== 0000950142-97-000039.txt : 19970123 0000950142-97-000039.hdr.sgml : 19970123 ACCESSION NUMBER: 0000950142-97-000039 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970122 SROS: NASD SUBJECT COMPANY: 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: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-39314 FILM NUMBER: 97508856 BUSINESS ADDRESS: STREET 1: 315 EAST 62ND ST STREET 2: 6TH FLR CITY: NEW YORK STATE: NY ZIP: 10021 BUSINESS PHONE: 2129809670 MAIL ADDRESS: STREET 1: 315 EAST 62ND ST CITY: NEW YORK STATE: NY ZIP: 10021 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: THREE CITIES OFFSHORE II CV CENTRAL INDEX KEY: 0001031010 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: P8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 135 EAST 57TH ST STREET 2: C/O THREE CITIES RESEARCH INC CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128389660 MAIL ADDRESS: STREET 1: C/O THREE CITIES RESEARCH INC STREET 2: 135 EAST 57TH ST CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. )* ----------------------- FAMILY BARGAIN CORPORATION (Name of Issuer) COMMON STOCK, PAR VALUE $.01 (Title of Class of Securities) 306889403 (CUSIP Number) ----------------------- ROBERT M. HIRSH, ESQ. PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 AVENUE OF THE AMERICAS NEW YORK, NY 10019-6064 TEL. NO.: (212) 373-3000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) ----------------------- JANUARY 10, 1997 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this statement because of Rule 13d-1(b)(3) or (4), check the following box [ ]. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP NO. 306889403 ----------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Three Cities Offshore II C.V. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ] (B) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS OO -- Contributions from Partners 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Netherlands Antilles 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH 8 SHARED VOTING POWER 6,268,563 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 6,268,563 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,268,563 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] Not Applicable 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 59.0% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP NO. 306889403 ----------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON TCR Offshore Associates, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ] (B) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS Not Applicable 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Netherlands Antilles 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH 8 SHARED VOTING POWER 6,268,563 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 6,268,563 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,268,563(1) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] Not Applicable 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 59.0% 14 TYPE OF REPORTING PERSON PN (1) Solely in its capacity as sole general partner of Three Cities Offshore II C.V. SCHEDULE 13D CUSIP NO. 306889403 ----------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON J. William Uhrig 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ] (B) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS Not Applicable 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH 8 SHARED VOTING POWER 6,268,563 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 6,268,563 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,268,563(1) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] Not Applicable 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 59.0% 14 TYPE OF REPORTING PERSON IN (1) Solely in his capacity as a general partner of TCR Offshore Associates, L.P., which is the sole general partner of Three Cities Offshore II C.V. SCHEDULE 13D CUSIP NO. 306889403 ----------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON H. Whitney Wagner 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ] (B) [X] 3 SEC USE ONLY 4 SOURCE OF FUNDS Not Applicable 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH 8 SHARED VOTING POWER 6,268,563 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 6,268,563 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,268,563(1) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] Not Applicable 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 59.0% 14 TYPE OF REPORTING PERSON IN (1) Solely in his capacity as a general partner of TCR Offshore Associates, L.P., which is the sole general partner of Three Cities Offshore II C.V. CUSIP NO. 306889403 ITEM 1. SECURITY AND ISSUER. The title of the class of equity securities of Family Bargain Corporation, a Delaware corporation (the "Company"), to which this Schedule 13D (this "Statement") relates is the Company's common stock, par value $.01 per share (the "Common Stock"). The address of the principal executive offices of the Company is 4000 Ruffin Road, San Diego, California 92123. ITEM 2. IDENTITY AND BACKGROUND. (a) This Statement is hereby filed by Three Cities Offshore II C.V., a Netherlands Antilles partnership ("Offshore II"), TCR Offshore Associates, L.P., a Netherlands Antilles limited partnership ("TCR Offshore"), J. William Uhrig ("Uhrig") and H. Whitney Wagner ("Wagner"). Offshore II, TCR Offshore, Uhrig and Wagner are sometimes hereinafter collectively referred to as the "Reporting Persons." (b)-(c) OFFSHORE II Offshore II is a Netherlands Antilles partnership, formed to invest in securities to be selected by its investment committee. The principal business address of Offshore II, which also serves as its principal office, is c/o Three Cities Research, Inc., 135 East 57th Street, New York, New York 10022. Pursuant to Instruction C to Schedule 13D of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), information with respect to TCR Offshore, the sole general partner of Offshore II, is set forth below. TCR OFFSHORE TCR Offshore is a Netherlands Antilles limited partnership, the principal business of which is serving as the general partner of Offshore II. The principal business address of TCR Offshore, which also serves as its principal office, is c/o Three Cities Research, Inc., 135 East 57th Street, New York, New York 10022. Pursuant to Instruction C to Schedule 13D of the Exchange Act, information with respect to Uhrig and Wagner, the general partners of TCR Offshore, is set forth below. UHRIG AND WAGNER Uhrig and Wagner are each individuals who serve as general partners of TCR Offshore. Pursuant to Instruction C to Schedule 13D of the Exchange Act, the name, residence or business address, and present principal occupation or employment of each general partner of TCR Offshore is as follows: CUSIP NO. 306889403 RESIDENCE OR PRINCIPAL OCCUPATION NAME BUSINESS ADDRESS OR EMPLOYMENT - ---- ---------------- ------------- J. William Uhrig c/o Three Cities Managing Partner of Three Research, Inc. Cities Research, Inc. 135 East 57th Street New York, NY 10022 H. Whitney Wagner c/o Three Cities Managing Partner of Three Research, Inc. Cities Research, Inc. 135 East 57th Street New York, NY 10022 Three Cities Research, Inc., Delaware corporation, performs investment advisory services for Offshore II and its portfolio companies. The principal business address of Three Cities Research, Inc. is 135 East 57th Street, New York, New York 10022. (d) None of the entities or persons identified in this Item 2 has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the entities or persons identified in this Item 2 has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Each of the natural persons identified in this Item 2 is a citizen of the United States of America. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. As more fully described in Item 6 below, Offshore II purchased an aggregate of 336,213 shares of Common Stock and 44,604 shares of Series A 9 1/2% Cumulative Convertible Preferred Stock ("Series A Preferred") for an aggregate purchase price of $1,503,145.72 and 11,060 shares of Series B Junior Convertible, Exchangeable Preferred Stock ("Series B Preferred") for an aggregate purchase price of $11,059,935.04. Offshore II used contributions from its partners to fund such purchases. CUSIP NO. 306889403 ITEM 4. PURPOSE OF TRANSACTION. The Reporting Persons consummated the transactions described herein in order to acquire a significant interest in the Company and for investment purposes. The Reporting Persons intend to review continuously their position in the Company. Depending upon future evaluations of the business prospects of the Company and upon other developments, including, but not limited to, general economic and business conditions and stock market conditions, each of the Reporting Persons may retain or from time to time increase, or dispose of all or a portion of, its holdings, subject to any applicable legal or other restrictions on its ability to do so. In addition, the matters set forth in Item 6 below are incorporated in this Item 4 by reference as if fully set forth herein. Except as set forth in this Item 4, the Reporting Persons have no present plans or proposals that relate to or that would result in any of the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D of the Exchange Act. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) OFFSHORE II Offshore II may, pursuant to Rule 13d-3 of the Exchange Act, be deemed to be the beneficial owner of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred), which constitutes approximately 59.0% of the 10,625,687 shares of Common Stock deemed outstanding with respect to Offshore II pursuant to Rule 13d-3(d)(1)(i) of the Exchange Act. TCR OFFSHORE In its capacity as the sole general partner of Offshore II, TCR Offshore may, pursuant to Rule 13d-3 of the Exchange Act, be deemed to be the beneficial owner of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred), which constitutes approximately 59.0% of the 10,625,687 shares of Common Stock deemed outstanding with respect to TCR Offshore pursuant to Rule 13d-3(d)(1)(i) of the Exchange Act. CUSIP NO. 306889403 UHRIG In his capacity as a general partner of TCR Offshore, which is the sole general partner of Offshore II, Uhrig may, pursuant to Rule 13d-3 of the Exchange Act, be deemed to be the beneficial owner of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred), which constitutes approximately 59.0% of the 10,625,687 shares of Common Stock deemed outstanding with respect to Uhrig pursuant to Rule 13d-3(d)(1)(i) of the Exchange Act. WAGNER In his capacity as a general partner of TCR Offshore, which is the sole general partner of Offshore II, Wagner may, pursuant to Rule 13d-3 of the Exchange Act, be deemed to be the beneficial owner of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred), which constitutes approximately 59.0% of the 10,625,687 shares of Common Stock deemed outstanding with respect to Wagner pursuant to Rule 13d-3(d)(1)(i) of the Exchange Act. (b) OFFSHORE II Offshore II may be deemed to share the power to vote or to direct the vote, or to share power to dispose of or to direct the disposition, of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred). TCR OFFSHORE In its capacity as the sole general partner of Offshore II, TCR Offshore may be deemed to share the power to vote or to direct the vote, or to share power to dispose of or to direct the disposition, of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred). UHRIG In his capacity as a general partner of TCR Offshore, which is the sole general partner of Offshore II, Uhrig may be deemed to share the power to vote or to direct the vote, or to share power to dispose of or to direct the disposition, of 6,268,563 CUSIP NO. 306889403 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred). WAGNER In his capacity as a general partner of TCR Offshore, which is the sole general partner of Offshore II, Wagner may be deemed to share the power to vote or to direct the vote, or to share power to dispose of or to direct the disposition, of 6,268,563 shares of Common Stock (including 5,818,590 shares of Common Stock issuable upon conversion of the 11,060 shares of the Series B Preferred and 113,760 shares of Common Stock issuable upon conversion of the 44,604 shares of the Series A Preferred). (c) Except as set forth herein or in the Exhibits filed herewith, none of the persons named in response to paragraph (a) has effected any transactions in shares of Common Stock during the past 60 days. (d) Each of the Reporting Persons affirms that no person other than such Reporting Person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares of Common Stock owned by such Reporting Person. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Pursuant to the Securities Purchase Agreement, dated December 30, 1996 (the "Securities Purchase Agreement"), by and among the Company and the Persons (as defined therein) set forth on Schedule 2.2 thereof, the Company agreed to issue and sell to Three Cities Fund II, L.P., Offshore II and Terfin International, Ltd. (collectively, the "Purchasers"), and the Purchasers agreed to purchase from the Company, an aggregate of 27,000 shares of Series A Preferred. At the same time, Offshore II, Three Cities Fund II, L.P. and Terfin International Ltd. entered into a Securities Purchase Agreement ("Stockholder Securities Purchase Agreement") with Benson A. Selzer, Joseph Eiger, John A. Selzer, Dutford Limited and Coplex Foundation (the "Selling Stockholders") pursuant to which Offshore II agreed to purchase an aggregate of 336,213 shares of Common Stock and 44,604 shares of Series A Preferred for an aggregate purchase price of $1,503,145.72. On January 10, 1997, Offshore II purchased 11,060 shares of Series B Preferred and the Purchasers deferred their obligation to purchase an aggregate of 5,000 additional shares of Series B Preferred until a date no later than February 15, 1997. The Purchasers were also granted an option to purchase from the Company, at CUSIP NO. 306889403 the same price and on the same terms and conditions as the Securities Purchase Agreement, at any time up to and including 90 days from January 10, 1997, up to 5,000 additional shares of Series B Preferred. The additional 10,000 shares of Series B Preferred will be allocated among the Purchasers (and their designees) in a manner which has not yet been determined. On January 10, 1997, Offshore II purchased 336,213 shares of Common Stock and 44,604 shares of Series A Preferred from the Selling Stockholders. In connection with the Stockholder Securities Purchase Agreement, the Selling Stockholders executed a Standstill Agreement (the "Standstill Agreement") in favor of Offshore II and the other Purchasers pursuant to which the Selling Stockholders agreed that, until January 9, 2000, the Selling Stockholders shall not (i) acquire direct or indirect beneficial ownership of any shares of any class of capital stock of the Company, or any debt or equity securities (including warrants and options) convertible or exchangeable into, or which may be exercised for, any class of capital stock of the Company, with or without additional cash or consideration; (ii) directly or indirectly solicit proxies or become a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Exchange Act) in opposition to a recommendation of the Board of Directors (the "Board") of the Company; (iii) initiate or induce or attempt to induce or give material support to any other person to initiate, or in any other way participate in, any tender or exchange offer, for acquisition of shares of the Company or any change in control of the Company, or any proxy solicitation which relates to the Company; (iv) initiate any communication with, or respond to any communication from, any shareholder of the Company in his, her or its capacity as a shareholder if such communication relates to any of the matters set forth in (i), (ii) or (iii) above; or (v) attempt to influence the affairs of the Company in any other manner or respect. The Board of Directors (the "Board") of the Company elected Uhrig, Wagner and Thomas G. Weld, each of whom is a Managing Partner of Three Cities Research, Inc., to the Board of the Company. Three Cities Research, Inc. performs investment advisory services for Offshore II and its portfolio companies. In connection with the Securities Purchase Agreement, the Company and the Purchasers entered into the Registration Rights Agreement, dated as of January 10, 1997 (the "Registration Rights Agreement"). The description of the Registration Rights Agreement that follows is not, and does not purport to be, complete and is qualified in its entirety by reference to the Registration Rights Agreement, a copy of which is attached hereto as Exhibit 4. Pursuant to the Registration Rights Agreement, the Purchasers and any of their respective transferees to which shares of Common Stock are transferred (other than the transferee to whom such securities have been transferred pursuant to a registration statement under the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder (the "Securities Act")) holding at least 25% of the Registrable Securities (as defined therein) have the right, subject to certain limitations set forth in the Registration Rights Agreement, to request the Company at any time to register under the Securities Act, at the Company's expense, all or part of the shares of CUSIP NO. 306889403 Common Stock owned by the Purchasers and their transferees (a "Demand Registration"). The Company agreed to pay such expenses in connection with three Demand Registrations; provided that such Demand Registrations may be limited if the certain conditions set forth in Section 3(f) of the Registration Rights Agreement are satisfied. The Purchasers also have certain piggyback registration rights in connection with registrations by the Company under the Securities Act. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Securities Purchase Agreement Exhibit 2 Stockholder Securities Purchase Agreement Exhibit 3 Registration Rights Agreement Exhibit 4 Standstill Agreement CUSIP NO. 306889403 Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: January 21, 1997 THREE CITIES OFFSHORE II C.V., a Netherlands Antilles partnership By: TCR Offshore Associates, L.P., a Netherlands Antilles limited partnership, its General Partner By: /s/ J. William Uhrig ---------------------------------- Name: J. William Uhrig Title: General Partner TCR OFFSHORE ASSOCIATES, L.P., a Netherlands Antilles limited partnership By: /s/ J. William Uhrig ---------------------------------- Name: J. William Uhrig Title: General Partner /s/ J. William Uhrig ---------------------------------- J. William Uhrig /s/ H. Whitney Wagner ---------------------------------- H. Whitney Wagner CUSIP NO. 306889403 EXHIBIT INDEX Number Document ------ -------- 1 Securities Purchase Agreement 2 Stockholder Securities Purchase Agreement 3 Registration Rights Agreement 4 Standstill Agreement EX-1 2 SECURITIES PURCHASE AGREEMENT Exhibit 1 --------- ================================================================================ SECURITIES PURCHASE AGREEMENT AMONG FAMILY BARGAIN CORPORATION AND THE PURCHASERS ================================================================================ ------------------------ Dated: December 30, 1996 ------------------------ TABLE OF CONTENTS Page 1. DEFINITIONS........................................................1 2. CLOSING............................................................9 2.1 Time and Place of the Closings................................9 2.2 Transactions at the Closing...................................9 2.3 Transaction Expenses.........................................10 2.4 Post-Closing Option..........................................10 3. CONDITIONS TO THE CLOSING.........................................11 3.1 Conditions Precedent to the Obligations of the Purchasers....11 3.1.1 Compliance by the Company...........................11 3.1.2 Board of Directors..................................11 3.1.3 Consents............................................12 3.1.4 December Sales......................................12 3.1.5 Absence of Material Adverse Effect..................12 3.1.6 Officer's Certificate...............................12 3.1.7 No Injunction.......................................13 3.1.8 Other Transaction Agreements........................13 3.2 Conditions Precedent to Obligations of the Company...........13 3.2.1 Compliance by the Purchasers........................13 3.2.2 Consents............................................14 3.2.3 Officer's Certificate...............................14 3.2.4 No Injunction.......................................14 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................15 4.1 Corporate Existence and Power................................15 4.2 Power and Authority..........................................16 4.3 Affiliate Transactions.......................................17 4.4 No Contravention, Conflict, Breach, Etc......................17 4.5 Consents.....................................................18 4.6 Capitalization of the Company................................18 4.7 Rights Plan..................................................19 4.8 Registration Rights..........................................19 4.9 Subsidiaries.................................................20 4.10 SEC Documents................................................21 4.11 Financial Statements.........................................22 4.12 14(f) Notice.................................................24 4.13 No Existing Violation, Default, Etc..........................24 4.14 Licenses and Permits.........................................25 4.15 Title to Properties..........................................26 4.16 Intellectual Property........................................26 4.17 Environmental Matters........................................28 i Page 4.18 Taxes........................................................29 4.19 Litigation...................................................30 4.20 Labor Matters................................................30 4.21 Employee Benefits............................................31 4.22 Contracts....................................................33 4.23 Contingent Liabilities.......................................34 4.24 No Material Adverse Change...................................34 4.25 Finder's Fees................................................35 4.26 Investment Company...........................................35 4.27 Exemption from Registration; Restrictions on Offer and Sale of Same or Similar Securities...................................35 4.28 Full Disclosure..............................................36 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..................37 5.1 Existence and Power..........................................37 5.2 Power and Authority..........................................37 5.3 No Contravention, Conflict, Breach, Etc......................37 5.4 Acquisition for Own Account..................................38 5.5 Finder's Fee.................................................39 5.6 Ownership of Common Stock....................................39 6. COVENANTS OF THE PARTIES..........................................39 6.1 Pre-Closing Activities.......................................39 6.2 Stock Exchange Listing.......................................43 6.3 14(f) Notification...........................................43 6.4 Access. ....................................................43 6.5 Publicity....................................................44 6.6 Acquisition Proposals........................................44 6.7 Certificates for Securities, Exchange Notes and Conversion Shares To Bear Legends.......................................45 6.8 Removal of Legends...........................................46 7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS............................................47 8. INDEMNIFICATION...................................................47 8.1 Indemnification by the Company...............................47 8.2 Notification.................................................48 9. TERMINATION.......................................................50 9.1 Termination..................................................50 9.2 Effect of Termination........................................51 ii Page 10. MISCELLANEOUS.....................................................52 10.1 Performance; Waiver..........................................52 10.2 Successors and Assigns.......................................52 10.3 Notices......................................................53 10.4 Governing Law................................................54 10.5 Severability.................................................54 10.6 Headings; Interpretation.....................................54 10.7 Entire Agreement.............................................55 10.8 No Third Party Rights........................................55 10.9 Counterparts.................................................55 iii SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT ("AGREEMENT"), dated December 30, 1996, among Family Bargain Corporation, a Delaware corporation (the "Company"), and the Persons set forth on Schedule 2.2 hereof (the "Purchasers"). WHEREAS, the Company desires to sell to the Purchasers, and the Purchasers desire to purchase, an aggregate of 27,000 shares (the "Securities") of the Company's Series B Junior Convertible Exchangeable Preferred Stock, par value $.01 per share (the "Series B Preferred"), at a purchase price equal to $1,000.00 per Security (the "Purchase Price Per Security") (or $27,000,000 in the aggregate) upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions contained herein, each of the Company and the Purchasers agrees as follows: 1. DEFINITIONS. The terms defined in this Section 1 shall have the following meanings for all purposes of this Agreement: "Acquisition Proposal" means any proposal or offer to the Company or stockholders of the Company with respect to a merger, consolidation, tender offer (including a self tender offer), exchange offer, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its Subsidiaries, any purchase of, or option to purchase, any equity securities (or securities convertible into equity securities) of the Company or any of its Subsidiaries or any purchase of, or option to 2 purchase, any of the assets of the Company or any of its Subsidiaries (other than (i) the sale of inventory in the ordinary course of business of the Company or any of its Subsid iaries and (ii) grants and exercises of options actually granted prior to the date hereof. "Act" means the Securities Act of 1933, as amended, or any superseding Federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect from time to time. References to a particular section of the Securities Act of 1933, as amended, shall include a reference to the comparable section, if any, of any such superseding Federal statute. An "Affiliate" of, or a person "affiliated" with, a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. The term "control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. "Annual Reports" means the Company's Annual Report on Form 10-K for the year ended January 28, 1995 as filed with the SEC and the Company's Annual Report on Form 10-K for the year ended January 27, 1996 (as amended by the Company's Form 10-K/A dated May 14, 1996), as filed with the SEC and delivered to the Purchasers (including, in each case, all exhibits and schedules thereto and documents incorporated by reference therein). "Benefit Plans" has the meaning set forth in Section 4.21. 3 "Board of Directors" means the Board of Directors of the Company, as constituted from time to time. "By-Laws" means the By-laws of the Company, as amended through the date hereof. "Certificate of Designations" means the Certificate of Designations of the Company to be filed by the Company with the Secretary of State of the State of Delaware on or prior to the date and time of the Closing, substantially in the form attached as Exhibit A hereto. "Certificate of Incorporation" means the Certificate of Incorporation of the Company, as amended through the date hereof. "Closings" has the meaning set forth in Section 2.1. "Closing Date" has the meaning set forth in Section 2.1. "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" shall mean the Company's common stock, par value $.01 per share. "Company" has the meaning set forth in the preamble to this Agreement. "Conversion Shares" means the shares of Common Stock issuable or issued upon conversion of the Series B Preferred pursuant to the terms of this Agreement and the Certificate of Designations. "Disclosure Letter" has the meaning set forth in Article 4. "Employee Preferred" has the meaning set forth in Section 4.6. "Encumbrance" means any mortgage, pledge, lien, security interest, restriction upon voting or transfer, claim or other encumbrance of any kind. 4 "Environmental Information" has the meaning set forth in Section 4.17(D). "Environmental Laws" means all federal, state, local and foreign laws, principles of common law, regulations, codes and ordinances, as well as orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder relating to pollution, protection of the environment, or health and safety. "ERISA" has the meaning set forth in Section 4.21. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any superseding Federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include a reference to the comparable section, if any, of such superseding Federal statute. "Exchange Notes" means the Subordinated Notes of the Company issuable or issued in redemption of the Series B Preferred pursuant to the terms of this Agreement and the Certificate of Designations. "Factory 2-U" means Factory 2-U, Inc., an Arizona corporation. "Financial Advisory Agreement" means the Financial Advisory Agreement, dated as of the date hereof, between the Company and TCR, as amended, supplemented or modified from time to time in accordance with the terms thereof. "FINOVA Credit Facility" means the credit facility provided under the loan and security agreement dated November 10, 1995, between Factory 2-U and FINOVA Capital Corporation, as amended through the date hereof and as may be further amended in accordance with the terms hereof. 5 "14(f) Notice" means a notice of the Company containing the information required by Rule 14f-1 under the Exchange Act to be filed with the SEC in compliance with such Rule in connection with the actions described in Section 3.1.2, as amended, modified or supplemented (including all exhibits and schedules thereto and documents incorporated by reference therein). "General Textiles" means General Textiles, a California corporation. "Governmental Authority" means the government of any nation or state, or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "GT Credit Facility" means the credit facility provided under the loan and security agreement dated as of October 14, 1993, between General Textiles and Greyhound Financial Capital Corporation (now named FINOVA Capital Corporation), as amended through the date hereof. "Intellectual Property" has the meaning set forth in Section 4.16(A). "Initial Closing" has the meaning set forth in Section 2.1. "IP Licenses" has the meaning set forth in Section 4.16(B). "Knowledge of the Company" means the knowledge of the Company after due inquiry. "Law" means any law, treaty, rule or regulation of a Governmental Authority or judgment, order, writ, injunction or determination of an arbitrator or a court or other Governmental Authority. 6 "Liabilities" has the meaning set forth in Section 9.1. "Licenses" means any certificates, permits, licenses, franchises, consents, approvals, orders, authorizations and clearances from appropriate Governmental Authorities. "Material Adverse Effect" means a material adverse effect on the assets, results of operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. "Monthly Financial Statements" has the meaning set forth in Section 4.11(B). "NASDAQ Small-Cap Market" means the Nasdaq Small-Cap Market of the Nasdaq Stock Market. "1995 Audited Financial Statements" has the meaning set forth in Section 4.11(A). "Person" means any individual, firm, corporation, partnership, limited liability company or partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" has the meaning set forth in Section 4.6. "Preliminary Prospectus" shall mean the Company's Preliminary Prospectus, dated November 6, 1996 (subject to completion), relating to convertible subordinated debentures due 2006 of the Company, which were never sold. 7 "Purchase Price Per Security" has the meaning set forth in the first recital of this Agreement. "Purchasers" has the meaning set forth in the preamble to this Agreement. "Quarterly Reports" means the Company's Quarterly Report on Form 10-Q for the quarter ended October 27, 1996, the Company's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996, the Company's Quarterly Report on Form 10-Q for the quarter ended April 27, 1996, the Company's Quarterly Report on Form 10-Q for the quarter ended October 28, 1995, the Company's Quarterly Report on Form 10-Q for the quarter ended July 28, 1995 and the Company's Quarterly Report on Form 10-Q for the quarter ended April 28, 1995, each as filed with the SEC. "Registration Rights Agreement" means the Registration Rights Agreement to be dated as of the date of the Closing between the Company and the Purchasers, substantially in the form attached as Exhibit B hereto, as amended, supplemented or modified from time to time in accordance with the terms thereof. "Representatives" shall mean the employees, counsel, accountants and other authorized representatives of the Purchasers, investors in any of the Purchasers and any of their respective Affiliates. "Rights" shall mean the Company's Preferred Stock Purchase Rights issued pursuant to the Rights Plan. "Rights Plan" shall mean the Rights Agreement dated as of November 27, 1995, between the Company and Corporate Stock Transfer, Inc., as Rights Agent. "SEC" means the Securities and Exchange Commission. 8 "SEC Documents" means the Annual Reports, the Quarterly Reports, the Preliminary Prospectus and all other documents filed by the Company with the SEC (including all exhibits and schedules thereto and documents incorporated by reference therein) since January 1, 1994. "Second closing" shall have the meaning set forth in Section 2.1. "Securities" has the meaning set forth in the second recital of this Agreement. "Separation Agreement" means the Separation Agreement dated as of the date hereof, a true and complete copy of which has been delivered by the Company to the Purchasers, as amended, supplemented or modified from time to time in accordance with the terms thereof and Section 3.1.8. "Series A Preferred" has the meaning set forth in Section 4.6. "Series B Preferred" has the meaning set forth in the first recital of this Agreement. "Shareholders Securities Purchase Agreement" has the meaning set forth in Section 4.2. "Subsidiary" means, with respect to any Person, any corporation, limited or general partnership, joint venture, association, limited liability company or partnership, joint stock company, trust, unincorporated organization, or other entity analogous to any of the foregoing of which 50% or more of the equity ownership (whether voting stock or comparable interest) is, at the time, owned, directly or indirectly by such Person. "Tax" or "Taxes" has the meaning set forth in Section 4.18. 9 "TCR" means Three Cities Research, Inc. "Transaction Agreements" means this Agreement, the Separation Agreement, the Financial Advisory Agreement and the Registration Rights Agreement. "Transaction Expenses" means, with respect to the Company or the Purchasers and their Affiliates, the expenses of such Person or Persons (whether or not incurred prior to the date hereof) arising out of, relating to or incidental to the discussion, evaluation, negotiation, documentation and closing of the transactions contem plated hereby (including, without limitation, the fees, disbursements and other expenses of lawyers, accountants, actuaries, investment bankers and any other advisors thereto). 2. CLOSING. 2.1 Time and Place of the Closings. Subject to the terms and conditions of this Agreement, the closing of the sale and purchase of the Securities contemplated hereby (the "Closing") shall take place at the offices of Baer, Marks & Upham LLP, 805 Third Avenue, New York, New York 10022, at 10:00 A.M., New York time on January 14, 1997 (the "Initial Closing") or at such other date and such other place as the parties hereto shall agree; provided, however, the Purchasers may defer their obligation to purchase up to $5,000,000.00 of the Securities until a date no later than February 15, 1997 (the "Second Closing"). The "Closing Date" shall be the date the Initial Closing occurs. 2.2 Transactions at the Closings. At any Closing, subject to the terms and conditions of this Agreement, the Company shall issue and sell to each of the Purchasers, and each of the Purchasers shall purchase, the pro rata portion (based upon 10 the number of Securities to be purchased at such Closing) of such number of Securities as are set forth opposite such Purchaser's name on Schedule 2.2 at the Purchase Price Per Security. At such Closing, the Company shall deliver to each of the Purchasers certificates representing the pro rata portion (based upon the number of Securities to be purchased at such Closing) of such number of Securities as are set forth opposite such Purchaser's name on Schedule 2.2, each registered in the name of such Purchaser or its nominees, against payment of the Purchase Price Per Security with respect thereto by wire transfer of immediately available funds to an account or accounts previously desig nated by the Company. 2.3 Transaction Expenses. At any Closing, subject to the terms and provisions of this Agreement, the Company shall pay to each of the Purchasers or their respective designees an amount equal to the pro rata portion (based upon the number of Securities to be purchased at such Closing) of the Transaction Expenses, plus (without duplication) in the case of a Second Closing, the Transaction Expenses incurred since the Initial Closing, of such Purchaser and its Affiliates, in each case, by wire transfer of immediately available funds to an account or accounts designated by the Purchasers. 2.4 Post-Closing Option. The Purchasers shall have an option to purchase from the Company, at the same price and on the same terms and conditions as this Agreement, at any time up to and including 90-days from the Initial Closing, up to 5,000 shares of Series B Preferred in addition to the 27,000 shares purchased at the Initial Closing and/or deferred pursuant to the proviso in Section 2.1. This option may be exercised by written notice by the Purchasers to the Company. 11 3. CONDITIONS TO THE CLOSING. 3.1 Conditions Precedent to the Obligations of the Purchasers. The obligations of each of the Purchasers to be discharged under this Agreement on or prior to the Closings are subject to satisfaction of the following conditions at or prior to the Initial Closing (unless expressly waived in writing by each of the Purchasers at or prior to the Initial Closing), except for the conditions set forth in Section 3.1.3 and 3.1.7, which must be satisfied at or prior to the Initial Closing and the Second Closing with respect to the Initial Closing and the Second Closing, respectively (unless expressly waived in writing by each of the Purchasers at or prior to such Closing): 3.1.1 Compliance by the Company. All of the terms, covenants and conditions of this Agreement to be complied with and performed by the Company at or prior to the Initial Closing shall have been complied with and performed by it in all material respects, and the representations and warranties made by the Company in this Agreement shall be true and correct at and as of the Initial Closing, with the same force and effect as though such representations and warranties had been made at and as of the Initial Closing, except for changes expressly contemplated by this Agreement and except for representations and warranties that are made as of a specific time, which shall be true and correct only as of such time, and except for representations and warranties made in Sections 4.14 to 4.17 and Section 4.24, which shall be true and correct as of the date hereof. 3.1.2 Board of Directors. The members of the Board of Directors identified on Schedule 3.1.2A shall have delivered irrevocable resignations from the Board of Directors effective upon the Initial Closing. The Board of Directors 12 shall have elected the individuals set forth on Schedule 3.1.2B to fill such vacancies and such newly-elected persons shall be legally entitled to fill such vacancies upon the later to occur of (a) the Closing Date or (b) 10 days after the later of the date that the 14(f) Notice is mailed to stockholders of the Company and filed with the SEC. 3.1.3 Consents. All consents, approvals, authorizations, orders, registrations, filings and qualifications of or with any (A) Governmental Authority, (B) stock exchange on which the securities of the Company are traded and (C) other Persons (whether acting in an individual, fiduciary or other capacity) necessary or required to be made or obtained by the Company or any of its Subsidiaries for the consummation of the transactions contemplated by the Transaction Agreements shall have been made or obtained, as the case may be, and shall be in full force and effect, and the Purchasers shall have been furnished with appropriate evidence thereof. 3.1.4 December Sales. The Company shall have sales for the five weeks ended on December 28, 1996 of at least $42 million, as reflected in the unaudited monthly consolidated financial statements of the Company or, if such unaudited monthly consolidated financial statements of the Company have not been completed, in a certificate of the chief financial officer of the Company. 3.1.5 Absence of Material Adverse Effect. No event or events shall have occurred between October 27, 1996 and the date hereof that individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect. 3.1.6 Officer's Certificate. The Purchasers shall have received a certificate, dated the Closing Date and signed by the Chief Operating Officer 13 of the Company, certifying that the conditions set forth in this Section 3.1 have been satisfied on and as of such date. 3.1.7 No Injunction. There shall be no judgment, injunction, order or decree enjoining the Company or the Purchasers from consummating the transactions contemplated by this Agreement to be consummated at or before the Closing. 3.1.8 Other Transaction Agreements. The Separation Agreement, the Financial Advisory Agreement and the Registration Rights Agreement shall have each been executed and delivered by the parties thereto (other than the Purchasers and TCR) and remain in full force and effect. The Company shall not have agreed to any amendment of, or waived any of its rights under, the Separation Agreement. 3.2 Conditions Precedent to Obligations of the Company. The obligations of the Company to be discharged under this Agreement on or prior to the Closings are subject to satisfaction of the following conditions at or prior to the Initial Closing (unless expressly waived in writing by the Company at or prior to the Initial Closing), except for the conditions set forth in Sections 3.2.2 and 3.2.4, which must be satisfied at or prior to the Initial Closing and the Second Closing with respect to the Initial Closing and the Second Closing, respectively (unless expressly waived in writing by the Company at or prior to such Closing): 3.2.1 Compliance by the Purchasers. All of the terms, covenants and conditions of this Agreement to be complied with and performed by the Purchasers in all material respects at or prior to the Initial Closing, shall have been 14 complied with and performed by the Purchasers and the representations and warranties made by the Purchasers in this Agreement, shall be true and correct at and as of the Initial Closing, with the same force and effect as though such representations and warranties had been made at and as of the Initial Closing, except for changes contemplated by this Agreement. 3.2.2 Consents. All consents, approvals, authorizations, orders, registrations, filings and qualifications of or with any (A) Governmental Authority and (B) other Persons (whether acting in an individual, fiduciary or other capacity) necessary or required to be made or obtained by the Purchasers for the consum mation of the transactions contemplated by the Transaction Agreements to which any Purchaser is a party, shall have been made or obtained, as the case may be, and shall be in full force and effect, and the Company shall have been furnished with appropriate evidence thereof. 3.2.3 Officer's Certificate. The Company shall have received a certificate, dated the Closing Date and signed by an appropriate officer of each Purchaser, certifying that the conditions set forth in this Section 3.2 have been satisfied on and as of such date. 3.2.4 No Injunction. There shall be no judgment, injunction, order or decree enjoining the Company or the Purchasers from consummating the transactions contemplated by this Agreement to be consummated at or before the Closing. 15 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Purchaser that, except as disclosed in writing by the Company to the Purchasers in a letter specifically with respect to this Article 4 (the "Disclosure Letter") delivered to the Purchasers on or prior to the date hereof: 4.1 Corporate Existence and Power. (A) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the SEC Documents and as currently conducted. The Company is duly qualified to transact business as a foreign corporation and is in good standing (if applicable) in each jurisdiction in which the conduct of its business or its ownership, leasing or operation of property requires such qualification, other than any failure to be so qualified or in good standing as would not singly or in the aggregate with all such other failures reasonably be expected to have a Material Adverse Effect. (B) True and complete copies of the Certificate of Incorporation and the By-Laws as in effect on the date hereof have been provided by the Company to the Purchasers. The minute books of the Company contain in all material respects true and complete records of all meetings and consents in lieu of meetings of the Board of Directors (and any committees thereof) and of the stockholders of the Company. 16 4.2 Power and Authority. The Company has the full corporate power and authority to execute and deliver the Transaction Agreements and to perform its obligations thereunder. The execution, delivery and performance by the Company of the Transaction Agreements and the consummation by the Company of the transactions contemplated thereby have been duly authorized and approved by the Board of Directors and no further corporate action on the part of the Company is necessary to authorize the execution, delivery and performance by the Company of such agreements or the consummation by the Company of the transactions contemplated thereby. The purchase of securities of the Company under the Securities Purchase Agreement, dated December 30, 1996 ("Shareholders Securities Purchase Agreement"), by and between Benson A. Selzer, Joseph Eiger, John A. Selzer, Dutford Limited and Coplex Foundation and the purchasers listed on the signature pages thereof has been approved by the Board of Directors. Each of the Transaction Agreements has been duly executed and delivered by the Company and is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. Assuming the Purchasers (individually or as a group) have not been the beneficial owners (within the meaning of Rule 13d-3 of the Exchange Act) of any shares of Common Stock prior to their execution and delivery of this Agreement other than such shares as have been disclosed in writing to the Company prior to the execution of this Agreement, the foregoing authorizations and approvals by the Board of Directors (including the approval of the acquisition of securities under the Shareholders Securities Purchase Agreement) constitute prior approval by the Board of Directors of the transactions which resulted in the Purchasers 17 becoming "interested stockholders" within the meaning of paragraph (a)(1) of Section 203 of the Delaware General Corporation Law. 4.3 Affiliate Transactions. Except for the transactions contemplated by the Separation Agreement or as disclosed in any SEC Document or in the Disclosure Letter, the Company and its Subsidiaries have not entered into any material transaction or material series of transactions with any stockholder, director, officer, employee or Affiliate of the Company other than any transactions with any Subsidiary in the ordinary course of business of the Company and its Subsidiaries. 4.4 No Contravention, Conflict, Breach, Etc. The execution, delivery and performance of each of the Transaction Agreements by the Company and the consummation of the transactions contemplated thereby will not conflict with, contravene or result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the creation or imposition of any Encumbrance upon any assets or properties of the Company or of any of its Subsidiaries, or cause the Company or any of its Subsidiaries to be required to redeem, repurchase or offer to repurchase any of their respective indebtedness under (A) the certificate of incorporation, the by-laws or other organizational document of the Company or any of its Subsidiaries, (B) any material Law of any Governmental Authority having jurisdiction over the Company or any of its Subsidiaries, or any of their respective assets, properties or operations or (C) any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any material lease, permit, license or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or 18 any of its Subsidiaries is bound or to which any of the assets, properties or operations of the Company or any of its Subsidiaries is subject. 4.5 Consents. No consent, approval, authorization, order, registration, filing or qualification of or with any (A) Governmental Authority, (B) stock exchange on which the securities of the Company are traded or (C) other Person (whether acting in an individual, fiduciary or other capacity) is required to be made or obtained by the Company or any of its Subsidiaries for the execution, delivery and performance by the Company of the Transaction Agreements and the consummation of the transactions contemplated thereby, except for the actions described in Section 3.1.2 and 3.1.6 and except consents which are not material to the business or operations of the Company and its Subsidiaries, taken as a whole. 4.6 Capitalization of the Company. The authorized capital stock of the Company consists of: (A) 80,000,000 shares of Common Stock of which 4,693,337 shares are issued and outstanding; and (B) 7,500,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), of which 4,500,000 shares are designated as Series A 9 1/2% Cumulative Convertible Preferred Stock (the "Series A Preferred") and 25,000 shares are designated as Series A Junior Participating Preferred. There are not more than 3,881,261 shares of the Series A Preferred issued and outstanding. No other class of capital stock of the Company is, or, other than the Securities, up to an aggregate of $1,500,000 in value of Class B Preferred offered to the employees of the Company (the "Employee Preferred") and such additional number of shares of Class B Preferred as may be agreed to by the Purchasers in writing, at the Closings will be issued. From the date hereof until the Initial Closing, except for the 19 issuance of the Securities and the Employee Preferred and the exercise of any options or the conversion of the Preferred Stock described in the Disclosure Letter, the Company will not issue any shares of its capital stock. All outstanding shares of capital stock of the Company have been duly authorized, are validly issued, fully paid and nonassessable and have been issued in compliance with applicable federal and state securities laws. At the Initial Closing, all of the Securities subject to such Closing will be duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable. The stockholders of the Company have no preemptive or similar rights with respect to the securities of the Company. Except as set forth in the Disclosure Letter, there are no outstanding (i) securities or obligations of the Company (other than the Series A Preferred) convertible into or exchangeable for any capital stock of the Company, (ii) warrants (other than 414,105 warrants), rights (other than 4,693,337 Rights), or options to subscribe for or purchase from the Company any such capital stock or any such convertible or exchangeable securities or obligations or (iii) obligations of the Company to issue such shares, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options. 4.7 Rights Plan. The Board of Directors has voted to redeem the rights issued under the Rights Plan effective on the Closing Date, after which such Rights Plan has no further force and effect. 4.8 Registration Rights. The Purchasers shall, by virtue of their purchase of Securities hereunder and conversion thereof into Conversion Shares in accordance with the terms of this Agreement and the Certificate of Designations, be entitled to the rights of a holder under the Registration Rights Agreement. Other than 20 the Registration Rights Agreement and except as set forth in the Disclosure Letter, neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights to any Person. 4.9 Subsidiaries. The Disclosure Letter sets forth a complete and accurate list of all of the Subsidiaries of the Company together with their respective jurisdictions of incorporation or organization. Except for its Subsidiaries, the Company holds no equity, partnership, joint venture or other interest in any Person. True and complete copies of the certificate of incorporation, by-laws and other organizational documents of the Subsidiaries of the Company as in effect on the date hereof have been provided by the Company to the Purchasers. Each Subsidiary of the Company has been duly incorporated or organized and is validly existing as a corporation or other legal entity in good standing under the laws of the jurisdiction of its incorporation or organization, has the corporate or other power and authority to own, lease and operate its properties and to conduct its business as currently conducted and is duly qualified to transact business as a foreign corporation or other legal entity and is in good standing (if applicable) in each jurisdiction in which the conduct of its business or its ownership, leasing or operation of property requires such qualification, other than any failure to be so qualified or in good standing as would not singly or in the aggregate with all such other failures reasonably be expected to have a Material Adverse Effect. All of the outstanding capital stock of each Subsidiary of the Company has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through other Subsidiaries of the Company (other than directors' qualifying shares), free and clear of any Encumbrance (other than such transfer restrictions as may 21 exist under federal and state securities laws or any Encumbrances between or among the Company and/or any Subsidiary of the Company or as may be reflected in the financial statements included in the SEC Documents or described in the Disclosure Letter), and there are no rights granted to or in favor of any third party (whether acting in an individual, fiduciary or other capacity), other than the Company or any Subsidiary of the Company, to acquire any such capital stock, any additional capital stock or any other securities of any such Subsidiary. Except as set forth in the SEC Documents, there exists no restriction, other than those pursuant to applicable law or regulation, on the payment of cash dividends by any Subsidiary. 4.10 SEC Documents. (A) The Company has delivered true and complete copies of all SEC Documents to the Purchasers. (B) As of its filing date, each SEC Document filed, and each SEC Document that will be filed by the Company prior to the Closing Date, as amended or supplemented prior to the Closing Date, if applicable, pursuant to the Exchange Act (i) complied or will comply in all material respects with the applicable requirements of the Exchange Act and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (C) Each final registration statement filed with the SEC pursuant to the Act, as of the date such statement or amendment became effective (i) complied in all material respects with the applicable requirements of the Act and 22 (ii) did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any prospectus, in light of the circumstances under which they were made). 4.11 Financial Statements. (A) The audited consolidated financial statements and related schedules and notes included in the SEC Documents comply in all material respects with the requirements of the Exchange Act and the Act and the rules and regulations of the SEC thereunder, were prepared in accordance with generally accepted accounting principles consistently applied throughout the period involved and fairly present in all material respects the financial condition, results of operations, cash flows and changes in stockholders' equity of the Company and its Subsidiaries at the dates and for the periods presented. The Company previously delivered true and complete copies of the audited consolidated financial statements and related schedules and notes of the Company as of January 27, 1996 and January 28, 1995 and for each of the three years in the period ended January 27, 1996 (the "1995 Audited Financial Statements"). Except as set forth in the Disclosure Letter, the 1995 Audited Financial Statements comply in all material respects with the requirements of the Exchange Act and the Act and the rules and regulations of the SEC thereunder, were prepared in accordance with generally accepted accounting principles consistently applied throughout the period involved and fairly present in all material respects the financial condition, results of operations, cash flows and changes in stockholders' equity of the Company and its Subsidiaries at the dates and for the periods presented. The unaudited quarterly consolidated financial 23 information included in the SEC Documents were derived from financial statements which fairly present in all material respects the financial condition, results of operations and cash flows of the Company and its Subsidiaries at the dates and for the periods to which they relate, subject to year-end adjustments (consisting only of normal recurring accruals), and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis except as otherwise stated therein and have been prepared on a basis consistent with that of the audited financial statements referred to above except as otherwise stated therein. (B) The unaudited monthly consolidated financial statements for the month of November 1996 (the "Monthly Financial Statements") previously delivered by the Company to the Purchasers fairly present in all material respects the financial condition and results of operations of the Company and its Subsid iaries at the dates and for the periods to which they relate, subject to quarter-end and year-end adjustments (consisting only of normal recurring accruals), and have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the monthly financial statements of the Company for 1994 and 1995 except as otherwise stated therein. Notwithstanding the foregoing, the Monthly Financial Statements do not reflect an inventory shrinkage adjustment, which adjustment shall be an amount not to exceed $560,000. Such inventory shrinkage adjustment shall be provided for in the Monthly Financial Statements for the months of December 1996 and January 1997. For each fiscal month after the date hereof and prior to the Closing, beginning with December 1996, as soon as reasonably practicable and in any event within 14 days after the end of each such fiscal month, the Company shall prepare and 24 deliver to the Purchasers monthly financial statements of the Company that shall fairly present in all material respects the financial condition and results of operations of the Company and its Subsidiaries at the dates and for the periods to which they relate, subject to quarter-end and year-end adjustments (consisting only of normal recurring accruals), prepared in accordance with generally accepted accounting principles applied on a basis consistent with the Monthly Financial Statements. 4.12 14(f) Notice. At the time the 14(f) Notice is first mailed to the stockholders of the Company and filed with the SEC, it will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to (i) any statement or omissions included in the 14(f) Notice based upon information furnished in writing to the Company by or on behalf of the Purchasers specifically for use therein or (ii) any portion thereof which is not deemed to be filed under applicable SEC rules and regulations. 4.13 No Existing Violation, Default, Etc. None of the Company nor any of its Subsidiaries is (A) in violation of any provision of its certificate of incorporation, by-laws or other organizational documents or (B) in violation of any applicable Law, stock exchange rule or regulation, which violation has or would reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 4.13, no breach, event of default or event that, but for the giving of notice or the lapse of time or both, would constitute an event of default exists under any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, 25 any guarantee of any agreement or instrument for borrowed money or any lease, permit, license or other agreement to which the Company or any of its Subsidiaries is a party or by which the Company or any such Subsidiary is bound or to which any of the properties, assets or operations of the Company or any such Subsidiary is subject, which breach, event of default, or event that, but for the giving of notice or the lapse of time or both, would constitute an event of default, has or would reasonably be expected to have a Material Adverse Effect. Without giving effect to any waiver previously granted, there exists (i) no event of default, (ii) no event that, but for the giving of notice or the lapse of time or both, would constitute an event of default and (iii) no event that would require the Company or any of its Subsidiaries to prepay, redeem, repurchase or offer to repurchase any of (a) its indebtedness existing under the FINOVA Credit Facility, the GT Credit Facility or otherwise or (b) the Series A Preferred. 4.14 Licenses and Permits. The Company and its Subsidiaries have such Licenses as are necessary to own, lease or operate their properties and to conduct their businesses in the manner described in the SEC Documents and as currently owned or leased and conducted and all such Licenses are valid and in full force and effect except such Licenses that the failure to have or to be in full force and effect individually or in the aggregate has not had, and would not reasonably be expected to have, a Material Adverse Effect. None of the Company nor any of its Subsidiaries has received any written notice that any violations are being or have been alleged in respect of any such License and no proceeding is pending or, to the Knowledge of the Company, threatened, to suspend, revoke or limit any such License the effect of which would reasonably be expected to have a Material Adverse Effect. The Company and its 26 Subsidiaries are in compliance with their respective obligations under such Licenses, with such exceptions as individually or in the aggregate have not had, and would not reasonably be expected to have, a Material Adverse Effect, and no event has occurred that allows, or after notice or lapse of time would allow, revocation, suspension, limitation or termination of such Licenses, except such events as have not had, or would not reasonably be expected to have, a Material Adverse Effect. 4.15 Title to Properties. The Company and its Subsidiaries have sufficient title to all material properties (real and personal) owned by the Company and any such Subsidiary that are necessary for the conduct of the business of the Company and any such Subsidiary as described in the SEC Documents and as currently conducted, free and clear of any Encumbrance that may materially interfere with the conduct of its business, and all material properties held under lease by the Company and the Subsidiaries are held under valid, subsisting and enforceable leases except for such leases the loss of which would not reasonably be expected to have a Material Adverse Effect. 4.16 Intellectual Property. (A) The Company and each of its Subsidiaries owns or is licensed to use all (i) patents, trademarks, trade names, service marks, copyrights and any applications therefor and (ii) trade secrets, know-how, computer software programs and proprietary information, in each case, that are material to the conduct of the business of the Company and its Subsidiaries as described in the SEC Documents and as currently conducted, free and clear of any Encumbrance that may materially interfere with the conduct of their business ("Intellectual Property"). 27 (B) None of the Company, any of its Subsidiaries, nor, to the Knowledge of the Company, any other party is in breach of or default under any material licenses, sublicenses and agreements ("IP Licenses") under which the Company or any of its Subsidiaries is either a licensor or licensee of Intellectual Property. Each IP License is now, and immediately following the consummation of the transactions herein contemplated will be, valid and in full force and effect. (C) No litigation is pending or, to the Knowledge of the Company, threatened, that challenges the validity, enforceability or ownership of, or right to use or license, any Intellectual Property, nor does the Company or any Subsidiary know of any valid grounds for any such claim, which would reasonably be expected to have a Material Adverse Effect. (D) No item of Intellectual Property is subject to any outstanding order, ruling, judgment, decree or agreement restricting the use thereof by the Company or its Subsidiaries except for agreements made in the ordinary course of business of the Company or its Subsidiaries. None of the Company or any of its Subsidiaries has agreed to indemnify any person against any charge of infringement or other violation with respect to any Intellectual Property owned or used by the Company or any of its Subsidiaries except in the ordinary course of business. (E) To the Knowledge of the Company, none of the Company or its Subsidiaries has infringed upon or otherwise violated the intellectual property rights of third parties which would reasonably be expected to have a Material Adverse Effect. None of the Company or its Subsidiaries has received any complaint or notice alleging any such infringement or other violation. 28 (F) To the Company's knowledge, no third party is infringing upon or otherwise violating the Intellectual Property rights of the Company or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect. (G) All material registered trademarks and copyrights held by the Company or any of its Subsidiaries are valid and subsisting. The Company and its Subsidiaries have taken all necessary action to maintain and protect the Intellectual Property that they own or use other than such actions taken in the ordinary course of business of the Company and its Subsidiaries that would not reasonably be expected to have a material adverse effect on any of the Intellectual Property. 4.17 Environmental Matters. Subject to such disclosures as are contained in the SEC Documents: (A) the Company and its Subsidiaries, and their respective operations and properties, are and have been in compliance with all applicable Environmental Laws except for such failures which, individually and in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect. (B) There is no civil, criminal or administrative judgment, action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending or, to their knowledge, threatened against the Company or any of its Subsidiaries pursuant to Environmental Laws which could reasonably be expected to result in a fine, penalty or other obligation, cost or expense, except such obligations, costs or expenses which, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect. 29 (C) There are no past or present events, conditions, circumstances, activities, practices, incidents, agreements, actions or plans which may prevent compliance by the Company or its Subsidiaries with, or which have given rise to, or will give rise to, material liability to the Company or any of its Subsidiaries under Environmental Laws, except any such events, conditions, circumstances, activities, practices, incidents, agreements, actions or plans which, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. (D) Any facts or circumstances that are the subject of a written report provided to the Purchasers as a result of an environmental investigation conducted by the Purchasers of the Company and its Subsidiaries (the "Environmental Information") shall be deemed to amend the Disclosure Letter as of the date hereof. 4.18 Taxes. The Company and its Subsidiaries have filed or caused to be filed, or have properly filed extensions for, all material Tax returns that are required to be filed and have paid or caused to be paid all material Taxes as shown on said returns and on all material assessments received by it to the extent that such Taxes have become due, except Taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves, in accordance with generally accepted accounting principles, have been set aside. The Company and its Subsidiaries have paid or caused to be paid, or have established reserves that the Company or such Subsidiaries reasonably believe to be adequate in all material respects, for all Tax liabilities applicable to the Company and its Subsidiaries for all fiscal years that have not been examined and reported on by the taxing authorities (or closed by applicable statutes). There is no pending examination of United States 30 Federal income tax returns of the Company and its Subsidiaries. For purposes of this Section 4.18, "Tax" or "Taxes" means any federal, state, county, local, foreign and other taxes (including, without limitation, income, profits, premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment, unemployment compensation, payroll and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustments related to any of the foregoing. 4.19 Litigation. Except as set forth in SEC Documents filed with the SEC prior to the date of this Agreement, there are no pending actions, suits, proceedings, arbitrations or investigations against or affecting the Company or any of its Subsidiaries or any of their respective properties, assets or operations, or with respect to which the Company or any such Subsidiary is responsible by way of indemnity or otherwise, that are required under the Exchange Act to be described in such SEC Documents or that, if successful, could singly, or in the aggregate, with all such other actions, suits, investigations or proceedings, reasonably be expected to have a Material Adverse Effect and, to the Knowledge of the Company, no such actions, suits, proceedings or investigations are threatened. 4.20 Labor Matters. No labor disturbance by the employees of the Company or any of its Subsidiaries that has had or that could reasonably be expected to have a Material Adverse Effect exists or, to the Knowledge of the Company, is threatened. 31 4.21 Employee Benefits. (A) Except for the plans set forth in the Disclosure Letter (the "Benefit Plans"), there are no employee benefit plans or arrangements of any type (including, without limitation, plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended and the regulations thereunder ("ERISA")), under which the Company or any of its Subsidiaries has or in the future could have directly, or indirectly through a Commonly Controlled Entity (within the meaning of Sections 414(b), (c), (m) and (o) of the Code), any material liability with respect to any current or former employee of the Company, any of its Subsidiaries, or any Commonly Controlled Entity. No such Benefit Plan is a "multiemployer plan" (within the meaning of ERISA Section 4001(a)(3)). (B) With respect to each Benefit Plan the Company has delivered or made available to the Purchasers complete and accurate copies of (i) all plan texts and agreements (as amended or modified to date), (ii) all summary plan descriptions and similar material employee communications, (iii) the most recent annual report (Form 5500 including, if applicable, Schedule B thereto), (iv) the most recent annual and periodic accounting of plan assets, (v) the most recent determination letter received from the Internal Revenue Service and (vi) the most recent actuarial valuation. (C) With respect to each Benefit Plan: (i) such Benefit Plan has been maintained and administered at all times in material compliance with its terms and applicable law and regulation; (ii) to the Knowledge of the Company, no event has occurred and there exists no circumstance under which the Company or any of its Subsidiaries could directly, or indirectly through a Commonly Controlled Entity, incur 32 any material liability under ERISA, the Code or otherwise (other than routine claims for benefits and other liabilities arising in the ordinary course pursuant to the normal operation of such Benefit Plan); (iii) there are no actions, suits or claims (other than routine claims for benefits) pending or, to the Knowledge of the Company, threatened, with respect to any Benefit Plan or against the assets of any Benefit Plan with respect to which suits the Company or any of its Subsidiaries could incur any material liability; (iv) all contributions and premiums due and owing to any Benefit Plan have been made or paid on a timely basis and no "accumulated funding deficiency", as defined in Code Section 412, has been incurred, whether or not waived; (v) all contributions made under any Benefit Plan have met the requirements for deductibility under the Code, and all contributions that have not been made have been properly recorded on the books of the Company or a Commonly Controlled Entity thereof in accordance with generally accepted accounting principles and (vi) if such Benefit Plan is intended to be qualified under Section 401(a) of the Code, such Benefit Plan has been determined to be so qualified and each trust created under such Benefit Plan has been determined to be exempt from tax under Section 501(a) of the Code and no event has occurred since the date of such determinations, including effective changes in laws or regulations or modifications to the Benefit Plans, that would adversely affect such qualification or tax exempt status. (D) The Accumulated Postretirement Benefit Obligation (as defined in Statement of Financial Accounting Standards No. 106) in respect of post- retirement health and medical benefits for current and former employees of the Company and its Subsidiaries, calculated as of December 31, 1995 on the basis of reasonable 33 actuarial assumptions in accordance with generally accepted accounting principles, does not exceed $25,000.00. Except as set forth in the Separation Agreement, no condition exists that would prevent the Company or any of its Subsidiaries from amending or terminating any plan providing health or medical benefits in respect of current or former employees of the Company or its Subsidiaries. (E) There is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of the Company or its Subsidiaries that, individually or collectively, could give rise to the payment by the Company or its Subsidiaries of any amount that would not be deductible pursuant to the terms of Section 280G of the Code other than transactions under the Separation Agreement and provisions of the employment agreements with William W. Mowbray and Jeffrey Gerstel. (F) Except as set forth in Schedule 4.21(F), no employee or former employee of the Company or its Subsidiaries will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. 4.22 Contracts. Except as set forth in Schedule 4.22, all of the material contracts of the Company or any of its Subsidiaries that are required to be described in the SEC Documents or to be filed as exhibits thereto are described in the SEC Documents or filed as exhibits thereto and are in full force and effect. True and complete copies of all such material contracts have been delivered by the Company to the Purchasers. Neither the Company nor any of its Subsidiaries nor, to the Knowledge 34 of the Company, any other party is in breach of or in default under any such contract except for such breaches and defaults as in the aggregate have not had, and would not reasonably be expected to, have a Material Adverse Effect. 4.23 Contingent Liabilities. Except as fully reflected or reserved against in the 1995 Audited Financial Statements, or disclosed in the footnotes contained in such financial statements, the Company and its Subsidiaries had no liabilities (including tax liabilities) at the date of such financial statements, absolute or contingent, that were required by generally accepted accounting principles consistently applied to be reflected or reserved against in such 1995 Audited Financial Statements or disclosed in the footnotes contained in such financial statements. 4.24 No Material Adverse Change. Except as set forth in Schedule 4.24, since October 27, 1996: (A) the Company and its Subsidiaries have not incurred any material liability or obligation (indirect, direct or contingent), or entered into any material oral or written agreement or other transaction, that is not in the ordinary course of business or that would reasonably be expected to result in a Material Adverse Effect; (B) the Company and its Subsidiaries have not sustained any loss or interference with its business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance) that has had or that would reasonably be expected to have a Material Adverse Effect; (C) there has been no material change in the indebtedness of the Company and its Subsidiaries (other than increases or decreases in working capital borrowings in the ordinary course of business); (D) other than with respect to dividends required to be paid on the outstanding Series A Preferred there has been no dividend or distribution of any kind declared, paid or made by the Company or 35 any of its Subsidiaries on any class of its capital stock; (E) neither the Company nor any of its Subsidiaries has made (nor does it propose to make) (i) any material change in its accounting methods or practices or (ii) any material change in the depreciation or amortization policies or rates adopted by it, in either case, except as may be required by law or applicable accounting standards; and (F) there has been no event causing a Material Adverse Effect, nor any development that would, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. 4.25 Finder's Fees. Except for Rodman & Renshaw, no broker, finder or other party is entitled to receive from the Company or any of its Subsidiaries any brokerage or finder's fee for the transactions contemplated by the Transaction Agreements as a result of the actions of the Company, any of its Subsidiaries, or any of its Affiliates. 4.26 Investment Company. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.27 Exemption from Registration; Restrictions on Offer and Sale of Same or Similar Securities. Assuming the representations and warranties of the Purchasers set forth in Section 5.4 hereof are true and correct in all material respects, the offer and sale of the Securities made pursuant to this Agreement will be exempt from the registration requirements of the Act. Neither the Company nor any Person acting on its behalf has, in connection with the offering of the Securities, engaged in (A) any form of general solicitation or general advertising (as those terms are used within the meaning of Rule 502(c) under the Act), (B) any action involving a public offering within the meaning of Section 4(2) of the Act, or (C) any other action that would require the 36 registration under the Act of the offering and sale of the Securities pursuant to this Agreement or that would violate applicable state securities or "blue sky" laws with respect to the Securities. The Company has not made and will not prior to the Closing make, directly or indirectly, any offer or sale of Securities or of securities of the same or a similar class as the Securities if as a result the offer and sale of the Securities contemplated hereby could fail to be entitled to exemption from the registration require ments of the Act. As used herein, the terms "offer" and "sale" have the meanings specified in Section 2(3) of the Act. 4.28 Full Disclosure. To the Knowledge of the Company, no statement by the Company contained in this Agreement, the Disclosure Letter, the SEC Documents or any other documents listed in the Disclosure Letter, or any certificates, notices or consents delivered to the Purchasers in connection with the purchase and sale of the Securities at or prior to the Closing, taken as a whole, in light of the circumstances in which made, contains (or will contain) an untrue statement of a fact material either individually or in the aggregate to the Company and its Subsidiaries taken as a whole or omits (or will omit) to state a fact material either individually or in the aggregate to the Company and its Subsidiaries taken as a whole required to be stated therein or necessary to make the statements made, in the light of the circumstances in which made, not materially false or misleading. 37 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. The Purchasers hereby represent and warrant to the Company that: 5.1 Existence and Power. Each Purchaser is duly organized, validly existing and in good standing under the laws of the State of its formation and has all requisite power and authority to own, lease and operate its properties and to conduct its business as currently conducted. 5.2 Power and Authority. Each of the Purchasers has the full power and authority to execute and deliver the Transaction Agreements to which it is a party and to perform its obligations thereunder. The execution, delivery and performance by each Purchaser of such Transaction Agreements and the consummation by each Purchaser of the transactions contemplated thereby have been duly authorized. Each of such Transaction Agreements has been duly executed and delivered by each Purchaser and is a valid and binding agreement of each of the Purchasers, enforceable against each of the Purchasers in accordance with its terms. 5.3 No Contravention, Conflict, Breach, Etc. The execution, delivery and performance by each Purchaser of the Transaction Agreements to which it is a party and the consummation of the transactions contemplated thereby will not conflict with, contravene or result in a breach or violation of any of the terms and provisions of, or constitute a default under, (A) the partnership agreement or other organizational documents of each such Purchaser, (B) any Law of any Governmental Authority having jurisdiction over each such Purchaser or (iii) any agreement to which each such Purchaser is a party. 38 5.4 Acquisition for Own Account. The Securities to be acquired by the Purchasers pursuant to this Agreement are being acquired by them for their own accounts and with no intention of distributing or reselling the Securities in any transaction that would be in violation of the Act or the securities laws of any state, without prejudice, however, to the rights of the Purchasers at all times to sell or otherwise dispose of all or any part of the Securities under an effective registration statement under the Act, under an exemption from such registration available under the Act, and subject, nevertheless, to the disposition of the Purchasers' property being at all times within their control, except as otherwise provided by this Agreement. The Purchasers (A) have such knowledge, sophistication and experience in business and financial matters that they are capable of evaluating the merits and risks of an investment in the Securities, (B) fully understand the nature, scope and duration of the limitations on transfer contained in this Agreement and (C) can bear the economic risk of an investment in the Securities and can afford a complete loss of such investment. The Purchasers acknowledge receipt of the SEC Documents, the Disclosure Letter and all documents delivered in accordance therewith and that they have been afforded the opportunity to ask such questions as they deemed necessary, and to receive answers from, representatives of the Company concerning the merits and risks of investing in the Securities and to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and completeness of the information contained in the SEC Documents. Notwithstanding the foregoing, nothing contained in this Section 5.5 shall affect or be deemed to modify any representation or warranty made by the Company. 39 5.5 Finder's Fee. Except for Rodman & Renshaw, Inc., no broker, finder or other party is entitled to receive from the Company or any of its Subsidiaries any brokerage or finder's fee for the transactions contemplated by the Transaction Agreements as a result of the actions of the Purchasers. 5.6 Ownership of Common Stock. Except as otherwise disclosed in writing to the Company prior to the execution of this Agreement, no Purchaser owns beneficially (within the meaning of Rule 13d-3 of the Exchange Act) any shares of Common Stock. 5.7 14(f) Notice. At the time the 14(f) Notice is first mailed to the stockholders of the Company, the information furnished in writing to the Company by or on behalf of the Purchasers specifically for use therein shall be complete in all material aspects and shall not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of circumstances under which they were made, not misleading; provided, however, that the Purchasers make no representation or warranty with respect to any portion thereof which is not deemed to be filed under applicable SEC rules and regulations. 6. COVENANTS OF THE PARTIES. 6.1 Pre-Closing Activities. From and after the date of this Agreement until the Initial Closing, each of the Company and the Purchasers shall act with good faith towards, and shall use its reasonable efforts to consummate, the transactions contemplated by this Agreement, and neither the Company nor the Purchasers will take any action that would prohibit or impair its ability to consummate 40 the transactions contemplated by this Agreement, subject to the fiduciary duties of the Board of Directors of the Company under Delaware law. From the date hereof until the Initial Closing, the Company shall conduct the business of it and its Subsidiaries in the ordinary course and shall use all reasonable efforts to preserve intact its business organizations and relationships with third parties and, except as otherwise provided herein or in the Separation Agreement, to keep available the services of the present directors, officers and key employees. Without limiting the generality of the foregoing, from the date hereof until the Initial Closing, except as contemplated by this Agreement or as permitted by Section 6.6, without the Purchasers' prior written consent: (A) the Company shall not, and shall cause each of its Subsidiaries not to, adopt or propose (or agree to commit to) any change in the certificate of incorporation or by-laws of the Company or any of such Subsidiaries; (B) the Company shall not, and shall cause each of its Subsidiaries not to, (i) enter into any loan agreement or other agreement pursuant to which the Company or such Subsidiary incurs indebtedness for borrowed money in excess of $250,000 (other than any such agreement among the Company and its wholly owned Subsidiaries or among the Company's wholly owned Subsidiaries) or (ii) amend any such existing agreement (other than to increase the amount available for borrowing under and amend the terms of the GT Credit Facility and the FINOVA Facility up to a maximum of $50 million); (C) the Company shall not, and shall cause each of its Subsidiaries not to, sell any of the assets of the Company or such Subsidiaries (or 41 the securities of entities holding the same) in one transaction or a series of related transactions, where the total consideration to be received by the Company and its Subsidiaries exceeds $250,000 (other than in the ordinary course of business of the Company and its Subsidiaries); (D) other than in the ordinary course of business of the Company consistent with past practice or as set forth in the Separation Agreement, the Company shall not, and shall cause each of its Subsidiaries not to, acquire any assets of any other Person or Persons or acquire any equity, partnership or other interests in any other Person or Persons, in one transaction or series of related transactions, where the total consideration to be paid by the Company and its Subsidiaries exceeds $100,000; (E) except for required payments under the FINOVA Credit Facility or the GT Credit Facility, the Company shall not, and shall cause each of its Subsidiaries not to, repay, redeem or repurchase any indebtedness of the Company or any of the Subsidiaries or any shares of capital stock of the Company; (F) except for the transactions contemplated by the Separation Agreement or as agreed to by the Purchasers in writing, the Company shall not, and shall cause each of its Subsidiaries not to, enter into any transaction with any director, executive officer or Affiliate (other than any transaction among the Company and its wholly-owned Subsidiaries or among any wholly-owned Subsidiaries of the Company) of the Company out of the ordinary course of its business; 42 (G) the Company shall not, and shall cause each of its Subsidiaries not to, (i) grant to any employee any increase in salary or other remuneration not consistent with past practices or any increase in severance or termination pay; (ii) grant or approve any general increase in salaries of all or a substantial portion of its employees not consistent with past practice; (iii) pay or award any bonus, incentive, compensation, service award or other like benefit for or to the credit of any employee except in accordance with written policy or consistent with past practice; or (iv) except as set forth in the Separation Agreement, enter into any employment contract or severance arrangement with any employee except in accordance with written policy or consistent with past practice or adopt or amend in any material respect any of its employee benefit plans except as required by law; (H) the Company shall, and shall cause each of its Subsidiaries to, not take or agree to commit to take any action that would make any representation or warranty of the Company hereunder required to be true at and as of the Initial Closing as a condition to the Purchasers' obligations to consummate the transactions contemplated hereby, inaccurate at the Initial Closing; and (I) except as permitted by the FINOVA Credit Facility and the GT Credit Facility and in the ordinary course of business consistent with past practice, the Company shall not, and shall cause its Subsidiaries not to, agree to expend, commit or otherwise obligate itself to make any capital expenditures. 43 6.2 Stock Exchange Listing. Upon demand of the Purchasers, the Company shall take all actions, if necessary, to cause the Conversion Shares to be listed on the NASDAQ Small-Cap Market. 6.3 14(f) Notification. (A) The Company: (i) shall promptly prepare, file with the SEC and mail to its stockholders the 14(f) Notice in accordance with Rule 14f-1 under the Exchange Act and (ii) shall otherwise comply with all legal requirements applicable to the activities described in Section 3.1.2. The Company shall make available to the Purchasers copies of the 14(f) Notice prior to the filing thereof with the SEC or mailing thereof to the stockholders of the Company and shall make any changes therein reasonably requested by the Purchasers insofar as such changes relate to any matters relating to the Purchasers or the description of the transactions contemplated by the Transaction Agreements. (B) The Purchasers shall promptly provide to the Company such information concerning the individuals listed on Schedule 3.1.2B as the Company shall reasonably request for the purpose of complying with its obligations under Section 6.3(A). 6.4 Access. Upon reasonable notice prior to the Initial Closing, the Company shall (and shall cause each of its Subsidiaries to) afford the Purchasers and the Representatives reasonable access during normal business hours to its properties, books, contracts and records and personnel and advisors (who will be instructed by the Company to cooperate), and the Company shall (and shall cause each of the Subsidiaries to) furnish promptly to the Purchasers all information concerning its business, properties 44 and personnel as the Purchasers or the Representatives may reasonably request; provided, however, that any review will be conducted in a way that will not interfere unreasonably with the conduct of the Company's business, and provided, further, however, that no review pursuant to this Section 6.3 shall affect or be deemed to modify any representa tion or warranty made by the Company. 6.5 Publicity. Except as required by law, regulation or stock exchange requirements, neither (A) the Company or any of its Affiliates nor (B) the Purchasers or any of their respective Affiliates shall, without the consent of the other, make any public announcement or issue any press release with respect to the transactions contemplated by the Transaction Agreements. In no event will either (i) the Company or any of its Affiliates or (ii) the Purchasers or any of their respective Affiliates make any public announcement or issue any press release without consulting with the other party, to the extent feasible, as to the content of such public announcement or press release. 6.6 Acquisition Proposals. From the date hereof until the earlier of the Initial Closing or the termination of this Agreement, the Company shall not, directly or indirectly, take (nor shall the Company authorize or permit its officers, directors, employees, representatives, investment bankers, attorneys, accountants or other agents or affiliates, to take) any action to: solicit or initiate the submission of any Acquisition Proposal, or enter into any agreement with respect to or propose any Acquisition Proposal or participate in any way in discussions or negotiations with, or furnish any information to, any Person (other than the Purchasers or any of their partners or their respective officers, directors, employees, representatives, investment bankers, 45 attorneys, accountants, other agents or Affiliates) in connection with, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, an Acquisition Proposal. The Company shall give immediate telephonic notice to the Purchasers (promptly followed by written notice) of its receipt of any Acquisition Proposal or of any inquiry or request for information contemplating an Acquisition Proposal. The Company shall keep the Purchasers informed, on a current basis, of the status of any Acquisition Proposal and any negotiations or discussions relating to such a proposal. Except as required by law, the Company agrees that it shall not disclose to any Person any written information furnished to it by the Purchasers or any of their Representatives (including, without limitation, TCR and Paul, Weiss, Rifkind, Wharton & Garrison). 6.7 Certificates for Securities, Exchange Notes and Conversion Shares To Bear Legends. (A) So long as the Securities are not sold pursuant to an effective registration statement under the Act or pursuant to Rule 144 under the Act, the Securities shall be subject to a stop-transfer order and the certificates therefor shall bear the following legend by which each holder thereof shall be bound: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER." 46 (B) So long as the Conversion Shares are not sold pursuant to an effective registration statement under the Act or pursuant to Rule 144 under the Act, the Conversion Shares shall be subject to a stop-transfer order and the certificates therefor shall bear the following legend by which each holder thereof shall be bound: "THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES OR OTHER SECURITIES ISSUABLE UPON EXCHANGE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. (C) So long as the Exchange Notes are not sold pursuant to an effective registration statement under the Act or pursuant to Rule 144 under the Act, the Exchange Notes shall be subject to a stop-transfer order and the certificates therefor shall bear the following legend by which each holder thereof shall be bound: "THESE NOTES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. 6.8 Removal of Legends. After termination of the requirement that all or part of such legend be placed upon a certificate, the Company shall, upon receipt by the Company of evidence reasonably satisfactory to it that such requirement has terminated and upon the written request of the holders of the Securities, Conversion 47 Shares or Exchange Notes issued with respect to the Securities, issue certificates for such Securities or Conversion Shares or Exchange Notes, as the case may be, that do not bear such legend. 7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties, covenants and agreements contained herein shall survive the execution and delivery of this Agreement and the Closing hereunder. 8. INDEMNIFICATION. 8.1 Indemnification by the Company. In addition to all other sums due hereunder or provided for in this Agreement, the Company agrees to indemnify and hold harmless the Purchasers, their partners and their respective Affiliates and the respective officers, directors, agents, employees, subsidiaries, partners, advisors, representatives and controlling Persons of each of the foregoing (each, an "indemnified party") to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities ("Liabilities") resulting from any legal, administrative or other actions brought by any Person or entity (including actions brought by the Company or any equity or debt holders of the Company or derivative actions brought by any Person claiming through the Company or in the Company's name), proceedings or investigations (whether formal or informal), or written threats thereof, based upon, relating to or arising out of this Agreement, the transactions contemplated hereby, or any indemnified party's role therein or in the transactions contemplated hereby; provided, 48 however, that nothing contained in this Section 8.1 shall be construed as a guarantee by the Company with respect to the value of the Securities being purchased by the Purchasers hereunder or indemnification of the Purchasers against any diminution in value thereof which may occur; provided, further, however, that the Company shall not be liable under this Section 8.1 to an indemnified party to the extent that it is finally judicially determined that such Liabilities resulted primarily from the willful malfeasance of such indemnified party; and provided, further, however, that if and to the extent that such indemnification is unenforceable for any reason other than the immediately preceding proviso, the Company shall make the maximum contribution to the payment and satisfaction of such indemnified Liabilities that shall be permissible under applicable laws. In connection with the obligation of the Company to indemnify for Liabilities as set forth above, the Company further agrees to reimburse each indemnified party for all such expenses (including reasonable fees, disbursements and other charges of counsel) as they are incurred by such indemnified party. 8.2 Notification. Each indemnified party under this Section 8 will, promptly after the receipt of notice of the commencement of any action or other proceeding against such indemnified party in respect of which indemnity may be sought from the Company hereunder, notify the Company in writing of the commencement thereof. The omission of any indemnified party so to notify the Company of any such action shall not relieve the Company from any liability that it may have to such indemnified party unless the Company is materially prejudiced thereby. In case any such action or other proceeding shall be brought against any indemnified party and it shall notify the Company of the commencement thereof, the Company shall be entitled to 49 participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that any indemnified party may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any action or proceeding in which both the Company and an indemnified party is, or is reasonably likely to become, a party, such indemnified party shall have the right to employ separate counsel at the Company's expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such indemnified party, there are or may be legal defenses available to such indemnified party or to other indemnified parties that are different from or additional to those available to the Company which, if the Company and such indemnified party were to be represented by the same counsel, would constitute a conflict of interest for such counsel or materially prejudice the prosecution of the defenses available to such indemnified party; provided, however, that in no event shall the Company be required to pay fees and expenses under this Article 8 for more than one firm of attorneys representing the indemnified parties (together, if appropriate, with one firm of local counsel per jurisdiction) in any one legal action or group of related legal actions; and provided, further, however, that the Company shall only be liable for the fees and expenses of separate counsel with respect to such different or additional defenses and such indemnified party shall instruct such separate counsel to cooperate with the Company's counsel in order to reduce the fees and expenses for which the Company is liable. The Company shall not be liable for any settlement of such action or proceeding effected without its prior written consent, not to be unreasonably withheld. The Purchasers agree that they will not, without the prior written consent of the Company, 50 not to be unreasonably withheld, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to any matter subject to indemnification hereunder unless such settlement, compromise or consent includes an unconditional release of the Company and each other indemnified party from all liability arising or that may arise out of such claim, action or proceeding and the Purchasers and each other indemnified party are not obligated to take or forego taking any action, including the payment of money, thereunder. The rights accorded to indemnified parties hereunder shall be in addition to any rights that any indemnified party may have at common law, under federal and state securities laws, by separate agreement or otherwise. 9. TERMINATION. 9.1 Termination. Subject to Section 9.2, this Agreement may be terminated at any time prior to the Initial Closing: (A) by the Purchasers if there has been a material breach of any representation, warranty, covenant or agreement of the Company contained in this Agreement, which breach is incurable or has not been cured by the Company within 15 days after written notice from the Purchasers; (B) by the Company if there has been a material breach of any representation, warranty, covenant or agreement of the Purchasers contained in this Agreement, which breach is incurable or has not been cured by the Purchasers within 15 days after written notice from the Company; 51 (C) by the Purchasers if any one or more of the conditions to the obligation of the Purchasers to close has not been fulfilled as of the scheduled Closing Date; (D) by the Company if any one or more of the conditions to the obligation of the Company to close has not been fulfilled as of the scheduled Closing Date; (E) by the Company or the Purchasers, if the Initial Closing shall not have occurred on or before January 14, 1997; provided, however, that the right to terminate this Agreement under this Section 9.1(E) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; (F) by the Company or the Purchasers, if any judgment, injunction, order or decree enjoining the Company or the Purchasers from consummating the transactions contemplated by a Transaction Agreement is entered and such judgment, injunction, order or decree becomes final and nonappealable; provided, however, that the party seeking to terminate this Agreement must use all reasonable efforts to remove such judgment, injunction, order or decree; and (G) by mutual written consent of the Company and the Purchasers. 9.2 Effect of Termination. If this Agreement is terminated pursuant to Section 9.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto, except (A) to the extent such termination results from the breach by a party hereto of any of its representations, warranties, covenants or 52 agreements set forth in this Agreement and (B) that the covenants and agreements contained in Section 6.5 shall survive the termination hereof. 10. MISCELLANEOUS. 10.1 Performance; Waiver. The provisions of this Agreement may be modified or amended, and waivers and consents to the performance and observance of the terms hereof may be given by written instrument executed and delivered by the Company and (A) prior to the Initial Closing, by the Purchasers and (B) after the Initial Closing by the holder or holders of the Securities representing 66-2/3% of the aggregate outstanding Securities. The failure at any time to require performance of any provision hereof shall in no way affect the full right to require such performance at any time thereafter (unless performance thereof has been waived in accordance with the terms hereof for all purposes and at all times by the parties to whom the benefit of such performance is to be rendered). The waiver by any party to this Agreement of a breach of any provision hereof shall not be taken or held to be a waiver of any succeeding breach of such provision of any other provision or as a waiver of the provision itself. 10.2 Successors and Assigns. All covenants and agreements contained in this Agreement by or on behalf of the parties hereto shall bind, and inure the benefit of, the respective successors and assigns of the parties hereto; provided, however, that the rights and obligations of either party hereto may not be assigned without the prior written consent of the other parties except that assignments of all or a 53 portion of the Purchasers' rights hereunder may be made by the Purchasers following the Initial Closing in connection with transfers of the Securities. 10.3 Notices. All notices or other communications given or made hereunder shall be validly given or made if in writing and delivered by facsimile transmission or in Person at, mailed by registered or certified mail, return receipt requested, postage prepaid, or sent by a reputable overnight courier to, the following addresses (and shall be deemed effective at the time of receipt thereof). If to the Company: Family Bargain Corporation 4000 Ruffin Road San Diego, California 92123-1866 Telecopy: (619) 637-4180 Attention: William W. Mowbray with copies to: Rogers & Wells 200 Park Avenue New York, New York 10166 Telecopy: (212) 878-8375 Attention: David W. Bernstein, Esq. If to the Purchasers: Three Cities Research, Inc. 135 East 57th Street New York, New York 10022 Telecopy: (212) 980-1142 Attention: J. William Uhrig 54 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Telecopy: (212) 757-3990 Attention: Robert M. Hirsh, Esq. or to such other address as the party to whom notice is to be given may have previously furnished notice in writing to the other in the manner set forth above. 10.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 10.5 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, each of the Company and the Purchasers directs that such court interpret and apply the remainder of this Agreement in the manner that it determines most closely effectuates their intent in entering into this Agreement, and in doing so particularly take into account the relative importance of the term, provision, covenant or restriction being held invalid, void or unenforceable. 10.6 Headings; Interpretation. The index and section headings herein are for convenience only and shall not affect the construction hereof. References 55 to sections means sections of this Agreement unless the context otherwise requires. References to herein or hereof mean this Agreement. 10.7 Entire Agreement. The Transaction Agreements embody the entire agreement between the parties relating to the subject matter hereof and supersede any and all prior oral or written agreements, representations or warranties, contracts, understandings, correspondence, conversations, and memoranda, whether written or oral, between the Company and the Purchasers, or between or among any agents, representatives, parents, Subsidiaries, Affiliates, predecessors in interest or successors in interest, with respect to the subject matter hereof (including, without limitation, the letter agreement heretofore executed between the Company and TCR, except for the provisions regarding confidentiality contained therein). 10.8 No Third Party Rights. Except for the indemnified parties, directors and officers described in Article 8 and the rights of such Persons expressly created under Article 8, this Agreement is intended solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any Person (including, without limitation, any stockholder or debtholder of the Company or any of the Purchasers) other than the parties hereto. 10.9 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both of which together shall be deemed to be one and the same instrument. 56 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date last set forth above. FAMILY BARGAIN CORPORATION By: /s/ Jeffrey Gerstel -------------------------------------- Name: Jeffrey Gerstel Title: Exec VP THREE CITIES FUND II, L.P. By: TCR Associates, L.P., as General Partner By: /s/ J. William Uhrig -------------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact THREE CITIES OFFSHORE II C.V. By: TCR Associates Offshore, L.P., as General Partner By: /s/ J. William Uhrig -------------------------------------- Name: J. William Uhrig Title: General Partner TERFIN INTERNATIONAL LTD. By: /s/ J. William Uhrig -------------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact Schedule 2.2 SECURITIES Number of Purchaser Securities --------- ---------- Three Cities Fund II, L.P. 6,540 Three Cities Offshore II C.V. 11,060 Terfin International Ltd. 4,400 ------ Total 22,000 The remaining 5,000 shares shall be allocated among the Purchasers (and/or other designees as determined by the Purchasers); provided that the Purchasers shall be jointly and severally liable for the payment of the Purchase Price Per Security for such shares from and after the Initial Closing. Schedule 3.1.2A RESIGNING DIRECTORS 1. Benson A. Selzer 2. Joseph Eiger 3. John A. Selzer Schedule 3.1.2B NOMINEES TO BOARD OF DIRECTORS 1. J. William Uhrig 2. H. Whitney Wagner 3. Thomas G. Weld Schedule 4.13 EXISTING VIOLATIONS, DEFAULTS, ETC. None. Schedule 4.21(F) ADDITIONAL OR ENHANCED BENEFITS None. Schedule 4.22 CONTRACTS None. Schedule 4.24 MATERIAL CHANGES None. EX-2 3 STOCKHOLDER SECURITIES PURCHASE AGMT. Exhibit 2 --------- SECURITIES PURCHASE AGREEMENT by and between BENSON A. SELZER, JOSEPH EIGER, JOHN A. SELZER, DUTFORD LIMITED and COPLEX FOUNDATION and THE PURCHASERS December 30, 1996 THIS SECURITIES PURCHASE AGREEMENT is made this ___ day of December, 1996, by and between the Purchasers listed on the signature pages hereof (the "Purchasers") and Benson A. Selzer ("BAS"), Joseph Eiger ("JE"), John A. Selzer ("JAS") (BAS, JE and JAS are sometimes referred to herein as the "Selzer/Eiger Group"), Dutford Limited, a British Virgin Islands corporation ("Dutford"), and Coplex Foundation, a not-for-profit organization ("Coplex" and, together with Dutford, the "Affiliates"). W I T N E S S E T H WHEREAS, each of BAS, JAS and the Affiliates own certain equity securities of Family Bargain Corporation, a Delaware corporation (the "Company"), as more fully described herein (collectively, the "Equity Securities"). WHEREAS, the parties desire for the Purchasers to purchase the Equity Securities in accordance with the terms hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto, each intending to be legally bound, hereby agree as follows: 1. Purchase and Sale of Equity Securities. BAS, JAS and the Affiliates hereby agree to sell to the Purchasers, and the Purchasers hereby agree to purchase from BAS, JAS and such Affiliates, the Equity Securities, as set forth in Schedule 1 hereof, BAS, JAS and such Affiliates shall deliver such Equity Securities to the Purchasers, free and clear of all liens, security interests, pledges, claims and encumbrances of every kind, nature and description. 2. Consideration to BAS and JAS and the Affiliates. In consideration of the sale to the Purchasers of the Equity Securities, the Purchasers will deliver on the Closing Date (as defined herein) to BAS, JAS and the Affiliates, by wire transfer, to the bank account or bank accounts designated in writing by BAS, JAS and the Affiliates on Schedule 2, $2,990,000.00 (the "Cash Consideration"). 3. Representations and Warranties by BAS, JE and JAS. As material inducement for the Purchasers to enter into this Agreement, each of BAS and JAS hereby jointly and severally represents and warrants to the Purchasers (for himself only, except that each of BAS, JE and JAS make the representations and warranties in subparagraphs (b) and (c) for himself and each of the Affiliates) as follows: a. That he is not aware of any breaches of representations, warranties or covenants given by either him or the Company in any of the agreements listed on Schedule 3(a) (the "Related Agreements'). b. That he and each of the Affiliates has full power and authority to consummate the transactions contemplated by this Agreement; that the Agreement, and to the extent he or any of the Affiliates is a party thereto, the Related Agreements, constitute the valid and binding obligations of him and such Affiliates, enforceable against them in accordance with their respective terms; that neither the execution and delivery of this Agreement and the Related Agreements, nor the consummation of the transactions contemplated herein or therein in the manner herein 2 or therein provided, will violate any agreement to which he or any of the Affiliates is a party or by which he or any of the Affiliates is bound, or any law, order, decree or judgment applicable to him or any of the Affiliates; that any authorization, approval or consent of any third party that is required for the lawful execution, delivery and performance of this Agreement and the Related Agreements by him or the Affiliates has been obtained; and that the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action on the part of the Affiliates. c. That he and each of the Affiliates transfers the Equity Securities attributed to him or it on Schedule 1 attached hereto, free and clear of all liens, security interests and claims and encumbrances of every kind, nature and description, and neither he nor any of the Affiliates owns, claims ownership of or is the beneficial owner, directly or indirectly, of shares of capital stock, or owns or claims ownership or right to any options or other rights to purchase shares of capital stock, of the Company other than those identified on Schedule 1. 4. Representations and Warranties by the Purchasers. As material inducement for the members of Selzer/Eiger Group and the Affiliates to enter into this Agreement, the Purchasers hereby represent and warrant to the Selzer/Eiger Group and the Affiliates as follows: a. That the Purchasers have full power and authority to consummate the transactions contemplated by this Agreement. 3 b. That this Agreement and the Related Agreements constitute the legal, valid, and binding obligations of the Purchasers, enforceable against them in accordance with their respective terms. c. That neither the execution and delivery of this Agreement and the Related Agreements, nor the consummation of the transactions contemplated herein or therein in the manner provided herein or therein, respectively, will violate any agreement to which any Purchaser 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 any Purchaser, or any provision of their certificate of incorporation or by-laws, and that no authorization, approval or consent of any third party is required for the lawful execution, delivery and performance of this Agreement and the Related Agreements by any Purchaser. d. That the execution, delivery, and performance of this Agreement and the Related Agreements have been duly authorized by all necessary corporate action on the part of each Purchaser. e. That the Purchasers are purchasing the Equity Securities for purposes of investment and not with a view toward the distribution thereof. 5. Indemnification by the Members of the Selzer/Eiger Group. Each of BAS, JE, JAS and the Affiliates agrees to jointly and severally indemnify and hold harmless the Purchasers from and against any claims, losses, costs (including, without limitation, reasonable legal, witness and expert fees and disbursements and other charges of counsel (collectively "Legal Fees")), expenses, liabilities, damages or expenses arising from or relating to any material misrepresentation or breach of any 4 material covenant, warranty or agreement made by him in this Agreement or in any Related Agreements or in connection with the enforcement of this paragraph. 6. Indemnification by the Purchasers. The Purchasers hereby agree to indemnify and hold harmless BAS, JE and JAS and the Affiliates from and against any claims, losses, costs (including Legal Fees), expenses, liabilities or damages or expenses (including Legal Fees) arising from or relating to any material misrepresentation or breach of any material covenant, warranty or agreement made by any Purchaser in this Agreement or in any Related Agreements or in connection with the enforcement of this paragraph. 7. Termination. This Agreement may be terminated by BAS, JAS or any Affiliate or the Purchasers, if the Company Securities Agreement (as defined herein) is terminated. 8. Cooperation. The Purchasers, on the one hand, and BAS, JE and JAS and the Affiliates, on the other hand, shall, upon the reasonable request of the other and without compensation, cooperate, including testifying in any relevant proceeding, with the other in defending litigation to which any Purchasers or the Selzer/Eiger Group and the Affiliates, as a result of their involvement with any Purchaser, is a party; provided, however, that any party who agrees to so testify shall be reimbursed for their reasonable out-of-pocket expenses, so long as the nature of such expenses is approved in advance by the Purchasers or the Selzer/Eiger Group, as the case may be, and is incurred in connection with such testimony. 5 9. Deliveries. a. BAS, JAS and Affiliate Deliveries. On the Closing Date, BAS, JAS and the Affiliates have delivered or caused to be delivered to the Purchasers certificates for the Equity Securities, endorsed by the holder thereof in blank or with stock transfer powers executed by the holder thereof in blank attached. b. Purchasers Delivery. On the Closing Date, the Purchasers shall deliver to BAS, JAS and/or the Affiliates the Cash Consideration by wire transfer, in immediately available funds, to such account or accounts as are designated in writing and delivered before the Closing Date to the Purchasers. 10. Miscellaneous. a. Indulgences, Etc. Neither the failure nor any delay on the part of any party to execute 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. b. Controlling Law. THIS AGREEMENT AND ALL QUESTIONS RELATING TO ITS VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT (INCLUDING, WITHOUT LIMITATION, PROVISIONS CONCERNING LIMITATIONS OF ACTIONS), 6 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. c. 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: (i) If to the Purchasers: c/o Three Cities Research, Inc. 135 East 57th Street New York, New York 10022 Attn.: J. William Uhrig with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Robert M. Hirsh, Esq. (ii) If to the Selzer/Eiger Group or any of the Affiliates: c/o The Selzer/Eiger Group 315 East 62nd Street, 6th Floor New York, NY 10021 Attn.: John Selzer with a copy to: Baer, Marks & Upham LLP 805 Third Avenue New York, NY 10022 Attention: Joel M. Handel, Esq. 7 Any person may alter 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 alteration shall become effective upon actual receipt. d. 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 parties hereto. e. Execution in Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original as against the party whose signature appears thereon, and both of which shall together constitute one and the same instrument. This Agreement shall become binding when one (1) or more counterparts hereof, individually or taken together, shall bear the signatures of each of the parties reflected hereon as the signatories. f. Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provisions 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. g. 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. 8 h. Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. i. Number of Days. In computing the number of days for purposes of this Agreement, only business days shall be counted. j. Exhibits and Schedules. All Exhibits and Schedules attached hereto are hereby incorporated by reference into, and made a part of, this Agreement. k. Affiliate. When the term affiliate is used in this Agreement with a lower case "all," such term shall have the meaning ascribed to it in Rule 251 of the Rules and Regulations promulgated pursuant to the Securities Act of 1933, as amended. l. Entire Agreement. This Agreement and the Related Agreements contain the entire understanding among the parties hereto with respect to the subject matter hereof, and supersede 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. m. Closing. The closing (the "Closing") with respect to this Agreement shall occur concurrently with the Initial Closing (as defined in the 9 Securities Purchase Agreement, dated December 30, 1996 (the "Company Securities Purchase Agreement"), between the Company and the Purchasers) of the Company Securities Purchase Agreement, at the offices of Baer, Marks & Upham LLP, 805 Third Avenue, New York, New York 10022, or at such other date and such other place as the parties hereto shall agree (the "Closing Date"). 10 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date first above written. Purchasers: THREE CITIES FUND II, L.P. By: TCR Associates, L.P., as General Partner By: /s/ J. William Uhrig ----------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact THREE CITIES OFFSHORE II C.V. By: TCR Associates Offshore, L.P., as General Partner By: /s/ J. William Uhrig ----------------------------------- Name: J. William Uhrig Title: General Partner TERFIN INTERNATIONAL LTD. By: /s/ J. William Uhrig ----------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact Selzer/Eiger Group: /s/ Benson A. Selzer --------------------------------------- BENSON A. SELZER /s/ Joseph Eiger --------------------------------------- JOSEPH EIGER /s/ John A. Selzer --------------------------------------- JOHN A. SELZER 11 Affiliates: COPLEX CORPORATION /s/ Benson A. Selzer By: /s/ Joel Handel ----------------------------------- Name: Title: Attest: ------------------------------- DUTFORD LIMITED By: /s/ Joel Handel ----------------------------------- Name: Title: Attorney-In-Fact Attest: ------------------------------- 12 SCHEDULE 1 EQUITY SECURITIES Cash Seller Securities of the Company Consideration Benson A. Selzer 342,140 shares of common stock 23,225 shares of Series A Preferred $ 1,254,524 John A. Selzer 30,500 shares of Series A Preferred 378,108 Dutford Limited 301,640 shares of common stock 850,369 Coplex Foundation 25,000 shares of common stock 35,000 shares of Series A Preferred 506,999 ------------- $ 2,990,000 ============= OPTIONS TO PURCHASE COMMON STOCK OF THE COMPANY EXERCISE PRICE $1.38 $3.63 ----- ----- Benson A. Selzer 163,917 350,000 Joseph Eiger 163,917 350,000 John A. Selzer 75,883 175,000 SCHEDULE 2 WIRE TRANSFER INSTRUCTIONS SCHEDULE 3(a) RELATED AGREEMENTS 1. Separation Agreement, dated December 30, 1996, by and between Benson A. Selzer, Joseph Eiger and John Selzer and Family Bargain Corporation ("FBC"). 2. Securities Purchase Agreement, dated December 30, 1996, by and among FBC and the Purchasers listed on Schedule 2.2 thereof. 3. Registration Rights Agreement, dated as of January __, 1997, among FBC, Three Cities Fund II, L.P., Three Cities Offshore II C.V. and Terfin International Ltd. 4. Agreement Not to Compete, dated December 30, 1996, by each of Joseph Eiger, Benson A. Selzer and John A. Selzer for the benefit of FBC. 5. Non-Compete Agreement, dated January ___, 1997, by and between FBC and Benson A. Selzer. 6. Non-Compete Agreement, dated January ___, 1997, by and between FBC and John Selzer. 7. Non-Compete Agreement, dated January ___, 1997, by and between FBC and Joseph Eiger. 8. Side Letter, dated December 30, 1996, by FBC in favor of Benson A. Selzer, Joseph Eiger and John A. Selzer with respect to payment of expenses and cancellation of indebtedness. 9. Side Letter, dated January __, 1997, re Standstill Agreement by Benson A. Selzer, Joseph Eiger, John A. Selzer, Coplex Corporation and Dutford Limited in favor of Purchasers. EX-3 4 REGISTRATION RIGHTS AGREEMENT Exhibit 3 --------- ================================================================================ REGISTRATION RIGHTS AGREEMENT among FAMILY BARGAIN CORPORATION, THREE CITIES FUND II, L.P., THREE CITIES OFFSHORE II C.V. and TERFIN INTERNATIONAL LTD. ----------------------------------- Dated as of January 10, 1997 ---------------------------------- ================================================================================ TABLE OF CONTENTS Page 1. Definitions............................................................1 2. Securities Subject to this Agreement...................................3 (a) Registrable Securities...........................................3 (b) Holders of Registrable Securities................................3 3. Demand Registration....................................................4 (a) Request for Demand Registration..................................4 (b) Effective Demand Registration....................................4 (c) Expenses.........................................................5 (d) Underwriting Procedures..........................................5 (e) Selection of Underwriters........................................5 4. Piggy-Back Registration................................................6 (a) Piggy-Back Rights................................................6 (b) Priority of Registrations........................................7 (c) Expenses.........................................................7 5. Registration Procedures................................................7 (a) Obligations of the Company.......................................7 (b) Seller Information..............................................10 (c) Notice to Discontinue...........................................11 (d) Sale to Underwriter.............................................11 6. Registration Expenses.................................................11 7. Indemnification; Contribution.........................................12 (a) Indemnification by the Company..................................12 (b) Indemnification by Holders......................................12 (c) Conduct of Indemnification Proceedings..........................13 (d) Contribution....................................................14 8. Rule 144; Other Exemptions............................................14 9. Certain Limitations on Registration Rights............................15 i Page 10. Miscellaneous.........................................................15 (a) Recapitalizations, Exchanges, etc...............................15 (b) No Inconsistent Agreements; Other Registration Rights...........15 (c) Remedies........................................................15 (d) Amendments and Waivers..........................................16 (e) Notices.........................................................16 (f) Successors and Assigns..........................................17 (g) Counterparts....................................................17 (h) Headings........................................................17 (i) Governing Law...................................................17 (j) Jurisdiction....................................................17 (k) Severability....................................................18 (l) Rules of Construction...........................................18 (m) Entire Agreement................................................18 (n) Further Assurances..............................................18 ii REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of January 10, 1997, among FAMILY BARGAIN CORPORATION, a Delaware corporation (the "COMPANY"), THREE CITIES FUND II, L.P., a Delaware limited partnership ("FUND II"), THREE CITIES OFFSHORE II C.V., a Netherland Antilles limited partnership ("OFFSHORE II") and TERFIN INTERNATIONAL LTD., a British Virgin Islands corporation ("TERFIN"). This Agreement is made in connection with (i) the Securities Purchase Agreement, dated as of December 30, 1996, among the Company, Fund II, Offshore II and Terfin, relating to the acquisition by Fund II, Offshore II and Terfin of an aggregate of 27,000 shares of Series B Convertible Exchangeable Preferred Stock, $.01 par value per share, of the Company (the "CONVERTIBLE PREFERRED STOCK"), for an aggregate purchase price of $27,000,000.00. In order to induce Fund II, Offshore II and Terfin to acquire the Convertible Preferred Stock, the Company has agreed to provide registration rights with respect to the Registrable Securities (as hereinafter defined) as set forth in this Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated hereunder. "Approved Underwriter" has the meaning assigned such term in Section 3(e). "Approved Underwriter Amount" has the meaning assigned such term in Section 3(d). "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. "Common Stock" means the Common Stock, $0.01 par value, of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "Company Underwriter" has the meaning assigned such term in Section 4(a). 2 "Convertible Preferred Stock" has the meaning assigned such term in the second paragraph of this Agreement. "Cumulative Convertible Preferred Stock" means the Cumulative Convertible Preferred Stock, $.01 par value per share, of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "Demand Registration" has the meaning assigned such term in Section 3(a). "Designated Holder" means Fund II, Offshore II and Terfin and any of their respective transferees to whom Registrable Securities have been transferred other than the transferee to whom such securities have been transferred pursuant to a registration statement under the Act or Rule 144 under the Act. "Exchange Act" means the Securities and Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder. "Holder" has the meaning assigned such term in Section 2(b). "Holders' Counsel" means (a) with respect to any Demand Registration that has been requested pursuant to Section 3, the one counsel selected by the Initiating Holders holding a majority of the Registrable Securities held by all Initiating Holders being registered in such registration, and (b) with respect to a request for registration of Registrable Securities pursuant to Section 4, the one counsel selected by the Holders holding a majority of the Registrable Securities being registered in such registration. "Indemnified Party" has the meaning assigned such term in Section 7(c). "Indemnifying Party" has the meaning assigned such term in Section 7(c). "Initiating Holders" has the meaning assigned to such term in Section 3(a). "Inspector" has the meaning assigned such term in Section 5(a) (viii). "NASD" has the meaning assigned such term in Section 5(a)(xv). "Other Investors" means holders of the Common Stock of the Company not entitled to distribute such shares of Common Stock to the public pursuant to Rule 144(k) (or any successor provision then in effect) under the Act. 3 "Person" means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of any such entity. "Registrable Securities" means, subject to Section 2(a), each of the following: (a) any shares of Common Stock issued or issuable upon conversion of or in exchange for shares of the Convertible Preferred Stock and (b) any shares of Common Stock issued or issuable in respect of shares of Common Stock issued, issuable or held pursuant to clause (a) above by way of a stock dividend or stock split or in connection with a combina tion of shares, recapitalization, merger, consolidation or other reorganization or otherwise. "Registration Expenses" has the meaning assigned such term in Section 6. "SEC" means the Securities and Exchange Commission. "Shares" means the Common Stock, the Convertible Preferred Stock, the Cumulative Convertible Preferred Stock, any class of common stock of the Company authorized after the date of this Agreement, or any other class of stock resulting from successive changes or reclassifications of the Shares. "Total Securities" has the meaning assigned such term in Section 4(a). "Underwriters" has the meaning assigned such term in Section 5(d). "Valid Business Reason" has the meaning assigned such term in Section 3(f). 2. Securities Subject to this Agreement. (a) Registrable Securities. For the purposes of this Agreement, Registrable Securities will cease to be Registrable Securities when (i) a registration statement covering such Registrable Securities has been declared effective under the Act by the SEC and such Registrable Securities have been disposed of pursuant to such effective registration statement or (ii) the entire amount of Registrable Securities proposed to be sold in a single sale are or, in the opinion of counsel satisfactory to the Company and the Holder, each in their reasonable judgment, may, be distributed to the public pursuant to Rule 144 in compliance with the requirements of paragraphs (c), (e), (f) and (g) of Rule 144 (notwithstanding the provisions of paragraph (k) of such Rule) (or any successor provision then in effect) under the Act. (b) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities (a "HOLDER") whenever such Person (i) is a party to this Agreement (or a permitted transferee thereof) and (ii) owns of record Registrable Securities, 4 or holds a security convertible into or exercisable or exchangeable for, Registrable Securities, whether or not such purchase or conversion has actually been effected and disregarding any legal restrictions upon the exercise of such rights. If the Company receives conflicting instructions, notices or elections from two or more persons with respect to the same Registrable Securities, the Company may act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. Registrable Securities issuable upon conversion of another security shall be deemed outstanding for the purposes of this Agreement. 3. Demand Registration. (a) Request for Demand Registration. Subject to Section 3(f) below, at any time the Designated Holders holding at least 25% of the Registrable Securities held by all of the Designated Holders (the "INITIATING HOLDERS") may request in writing the registration of Registrable Securities under the Act, and under the securities or blue sky laws of any jurisdiction designated by such holder or holders (each such registration under this Section 3(a) that satisfies the requirements set forth in Section 3(b) is referred to herein as a "DEMAND REGISTRATION"). Notwithstanding the foregoing, in no event shall the Company be required to effect more than three Demand Registrations. Two or more registrations filed in response to one demand shall be counted as one registration statement. Each request for a Demand Registration by the Initiating Holders in respect thereof shall specify the amount of the Registrable Securities proposed to be sold, the intended method of disposition thereof and the jurisdictions in which registration is desired. Upon a request for a Demand Registration, the Company shall promptly take such steps as are necessary or appropriate to prepare for the registration of the Registrable Securities to be registered. Within fifteen (15) days after the receipt of such request, the Company shall give written notice thereof to all other Designated Holders and include in such registration all Registrable Securities held by a Designated Holder from whom the Company has received a written request for inclusion therein at least ten (10) days prior to the filing of the registration statement. Each such request will also specify the number of Registrable Securities to be registered, the intended method of disposition thereof and the jurisdictions in which registration is desired. Subject to Section 3(d), the Company shall be entitled to include in any registration statement and offering made pursuant to a Demand Registration, authorized but unissued shares of Common Stock, shares of Common Stock held by the Company as treasury shares or shares of Common Stock held by Stockholders other than the Holders; provided, that such inclusion shall be permitted only to the extent that it is pursuant to and subject to the terms of the underwriting agreement or arrangements, if any, entered into by the Initiating Holders exercising the Demand Registration rights. (b) Effective Demand Registration. The Company shall use its best efforts to cause any such Demand Registration to become effective not later than ninety (90) days after it receives a request under Section 3(a). A registration requested pursuant to Section 3(a) hereof shall not count as one of the three demands to which the Designated Holders are entitled thereunder unless such registration statement is declared effective and remains effective for at least ninety (90) days. 5 (c) Expenses. In any registration initiated as a Demand Registration, the Company shall pay all Registration Expenses in connection therewith, whether or not such requested Demand Registration becomes effective. (d) Underwriting Procedures. If the Initiating Holders holding a majority of the Registrable Securities held by all Initiating Holders to which the requested Demand Registration relates so elect, the offering of such Registrable Securities pursuant to such requested Demand Registration shall be in the form of a firm commitment underwritten offering and the managing underwriter or underwriters selected for such offering shall be the Approved Underwriter selected in accordance with Section 3(e). In such event, if the Approved Underwriter advises the Company in writing that, in its opinion, the aggregate amount of such Registrable Securities requested to be included in such offering (including those securities requested by the Company to be included in such registration) is sufficiently large to have an adverse effect on the success of such offering, then the Company shall include in such registration only the aggregate amount of Registrable Securities that in the opinion of the Approved Underwriter may be sold without any such effect on the success of such offering (the "APPROVED UNDERWRITER AMOUNT"), and (i) each Designated Holder shall be entitled to have included in such registration Registrable Securities equal to its pro rata portion of the Approved Underwriter Amount, as based on the amounts of Registrable Securities sought to be registered by the Designated Holders in their requests for participation in the requested Demand Registration and (ii) to the extent that the number of Registrable Securities to be included by the Designated Holders is less than the Approved Underwriter Amount, securities that the Company proposes to register shall also be included. If, as a result of the proration provision of this Section 3(d), any Designated Holder shall not be entitled to include all Registrable Securities in a registration that such Designated Holder has requested to be included, such Designated Holder may elect to withdraw his request to include Registrable Securities in such registration or may reduce the number requested to be included; provided, however, that (x) such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration and (y) such withdrawal or reduction shall be irrevocable. (e) Selection of Underwriters. If any requested Demand Registration is in the form of an underwritten offering, the Initiating Holders holding a majority of the Registrable Securities held by all Initiating Holders to be included in the requested Demand Registration shall select and obtain an investment banking firm of national reputation to act as the managing underwriter of the offering (the "APPROVED UNDERWRITER"); provided, that such underwriter shall be reasonably satisfactory to the Company. (f) Limitations on Demand Registrations. The Demand Registration rights granted to the Holders in Section 3(a) are subject to the following limitations: (i) the Company shall not be required to cause a registration pursuant to Section 3(a) to be declared effective within a period of 90 days after the effective date of any registration statement of 6 the Company effected in connection with a Demand Registration; and (ii) if the Board of Directors of the Company, in its good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other transaction involving the Company or any of its subsidiaries (a "VALID BUSINESS REASON"), the Company may postpone filing a registration statement relating to a Demand Registration until such Valid Business Reason no longer exists, but in no event for more than ninety (90) days. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company that the Company has determined to withdraw any registration statement pursuant to clause (ii) above, such Holder will discontinue its disposition of Registrable Securities pursuant to such registration statement and, if so directed by the Company, will deliver to the Company (at the Company's expenses) all copies, other than permanent file copies, then in such Holder's possession, of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice. If the Company shall give any notice of postponement or withdrawal of a registration statement, the Company shall, at such time as the Valid Business Reason that caused such postponement or withdrawal no longer exists (but in no event later than ninety (90) days after the date of the postponement), use its best efforts to promptly effect the registration under the Act of the Registrable Securities covered by the postponed or withdrawn registration statement in accordance with this Section 3 (unless the Holder(s) delivering the Demand Registration request shall have withdrawn such request, in which case the Company shall not be considered to have effected an effective registration for the purposes of this Agreement), and such registration shall not be postponed or withdrawn pursuant to clause (ii) above. 4. Piggy-Back Registration. (a) Piggy-Back Rights. If the Company proposes to file a registration statement under the Act with respect to an offering by the Company for its own account of any class of security (other than a registration statement on Form S-4 or S-8 (or any successor form thereto)) under the Act, then the Company shall give written notice of such proposed filing to each of the Holders at least twenty (20) days before the anticipated filing date, and such notice shall describe in detail the proposed registration and distribution (including those jurisdictions where registration under the securities or blue sky laws is intended) and offer such Holders the opportunity to register the number of Registrable Securities as each such Holder may request. The Company shall use its best efforts (within ten (10) days of the notice provided for in the preceding sentence) to permit the Holders who have requested to participate in the registration for such offering to include such Registrable Securities in such offering on the same terms and conditions as the securities of the Company included therein. Notwithstanding the foregoing, if such registration involves an underwritten offering and the managing underwriters or underwriters (the "COMPANY UNDERWRITER") shall advise the Holders of Registrable Securities in writing that, in its opinion, the total amount of securities requested to be included in such offering (the "TOTAL SECURITIES") is sufficiently large so as to have an adverse effect on the success of the 7 distribution of the Total Securities, then the Company shall include in such registration, to the extent of the number of Registrable Securities which the Company is so advised can be sold in (or during the time of) such offering, first, all Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock that the Company proposed to register for its own account, second, all securities proposed to be registered by all Designated Holders and Other Investors, pro rata among such Designated Holders and Other Investors, and third, all other securities proposed to be registered. Notwithstanding anything in this Section 4 to the contrary, the Company shall not be required to include any Registrable Securities in its Initial Public Offering. (b) Priority of Registrations. Subject to the provisions of Section 3(f)(ii), if the Company proposes to register securities pursuant to Section 4(a) hereof on the same day that the Designated Holders request a registration pursuant to Section 3(a) hereof, then the Demand Registration requested pursuant to Section 3(a) hereof shall be given priority. (c) Expenses. The Company shall bear all Registration Expenses in connection with any registration pursuant to this Section 4. (d) Conditions and Limitations on Piggyback Registrations. If, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to all Holders of record of Registrable Securities and (i) in the case of a determination not to register, shall be relieved of its obligation to register the Registrable Securities in connection with such abandoned registration, without prejudice, however, to the rights of Holders under Section 3, and (ii) in the case of a determination to delay the registration of its securities, shall be permitted to delay the registration of such Registrable Securities for the same period as the delay in registering such other equity securities. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 4 by giving written notice to the Company of its request to withdraw; provided, however, that (i) such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration and (ii) such withdrawal shall be irrevocable and, after making such withdrawal, a Holder shall no longer have any right to include Registrable Securities in the registration as to which such withdrawal was made. 5. Registration Procedures. (a) Obligations of the Company. Whenever registration of Registrable Securities has been requested pursuant to Section 3 or 4 of this Agreement, the Company shall use its best efforts to effect the registration and sale of such Registrable 8 Securities in accordance with the intended method of distribution thereof as quickly as prac ticable, and in connection with any such request, the Company shall, as expeditiously as possible: (i) prepare and file with the SEC (in any event not later than sixty (60) Business Days after receipt of a request to file a registration statement with respect to Registrable Securities) a registration statement on any form on which registration is requested for which the Company then qualifies, which counsel for the Company and Holders' Counsel shall deem appropriate and which shall be available for the sale of such Registrable Securities in accordance with the intended method of distribution thereof, and use its best efforts to cause such registration statement to become effective; provided, however, that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall (A) provide Holders' Counsel with an adequate and appropriate opportunity to participate in the preparation of such registration statement and each prospectus included therein (and each amendment or supplement thereto) to be filed with the SEC, which documents shall be subject to the review of Holders' Counsel, and (B) notify Holders' Counsel and each seller of Registrable Securities pursuant to such registration statement of any stop order issued or threatened by the SEC and take all reasonable action required to prevent the entry of such stop order or to remove it if entered; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier of (a) such time as all of such Registrable Securities and other securities have been disposed of in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement and (b) 180 days after the effective date of such registration statement, except with respect to any such registration statement filed pursuant to Rule 415 (or any successor Rule) under the Act if the Company is eligible to file a registration statement on Form S-3, in which case such period shall be two (2) years; (iii) as soon as reasonably possible, furnish to each seller of Registrable Securities, prior to filing a registration statement, copies of such registration statement as it is proposed to be filed, and thereafter such number of copies of such regis tration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as each such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (iv) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller of Registrable Securities may request, and to continue such qualification in effect in each such jurisdiction for as long as is permissible pursuant to the laws of such jurisdiction, or for as long as any such seller requests or until all of such Registrable 9 Securities are sold, whichever is shortest, and do any and all other acts and things which may be reasonably necessary or advisable to enable any such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 5(a)(iv), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction; (v) use its best efforts to obtain all other approvals, covenants, exemptions or authorizations from such governmental agencies or authorities as may be necessary to enable the sellers of such Registrable Securities to consummate the disposition of such Registrable Securities; (vi) notify each seller of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and the Company shall promptly prepare a supplement or amendment to such prospectus and furnish to each such seller a reasonable number of copies of a supplement to or amendment of such prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; (vii) enter into and perform customary agreements (including an underwriting agreement in customary form with the Approved Underwriter or Company Underwriter, if any, selected as provided in Section 3 or 4; provided, that the underwriting agreement, if any, shall be reasonably satisfactory in form and substance to the Company) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; (viii) make available for inspection by any seller of Registrable Securities, any managing underwriter participating in any disposition pursuant to such registration statement, Holders' Counsel and any attorney, accountant or other agent retained by any such seller or any managing underwriter (each, an "INSPECTOR" and, collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company and any subsidiaries thereof as may be in existence at such time (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's and any subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspector in connection with such registration statement; provided, that such Inspector agrees to keep all such information confidential. 10 (ix) obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters, as Holders' Counsel or the managing underwriter reasonably request; (x) furnish, at the request of any seller of Registrable Securities on the date such securities are delivered to the underwriters for sale pursuant to such registration or, if such securities are not being sold through underwriters, on the date the registration statement with respect to such securities becomes effective, an opinion, dated such date, of counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the seller making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as such seller may reasonably request and as are customarily included in such opinions; (xi) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable but no later than fifteen (15) months after the effective date of the registration statement, an earnings statement covering a period of twelve (12) months beginning after the effective date of the registration statement, in a manner which satisfies the provisions of Section 11(a) of the Act; (xii) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed (if any) if the listing of such Registrable Securities is then permitted under the rules of such exchange or, if no similar securities are then so listed, cause all such Registrable Securities to be listed on an exchange on which the Initiating Holders request that such Registrable Securities be listed, subject to the satisfaction of the applicable listing requirements of each such exchange; (xiii) keep each seller of Registrable Securities advised in writing as to the initiation and progress of any registration under Section 3 or 4 hereunder; (xiv) provide officers' certificates and other customary closing documents; (xv) cooperate with each seller of Registrable Securities and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"); and (xvi) use its best efforts to take all other steps necessary to effect the registration of the Registrable Securities contemplated hereby. (b) Seller Information. The Company may require as a condition precedent of the Company's obligations under this Section 5 that each seller of Registrable Securities as to which any registration is being effected furnish to the Company such 11 information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. (c) Notice to Discontinue. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(a)(vi), such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Sec tion 5(a)(vi) and, if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities which is current at the time of receipt of such notice. If the Company shall give any such notice, the Company shall extend the period during which such registration statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period referred to in Section 5(a)(ii)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 5(a)(vi) to and including the date when the Holder shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 5(a)(vi). (d) Sale to Underwriter. Subject to the limitations on inclusion of Registrable Securities in a registration under Sections 3(d) and 4(a), in lieu of converting any shares of Convertible Preferred Stock into Registrable Securities to be included in a registration under Section 3 or 4 prior to or simultaneously with the filing or the effectiveness of any registration statement filed pursuant thereto, the holder of such Convertible Preferred Stock may sell such Convertible Preferred Stock to the Approved Underwriter or the Company Underwriter, as the case may be, and any other underwriters of the offering being registered (collectively, the Approved Underwriter or Company Underwriter, as the case may be, and such other underwriters, the "UNDERWRITERS") if the Underwriters consent thereto and if the Underwriters undertake to convert such shares of Convertible Preferred Stock into Registrable Securities before making any distribution pur suant to such registration statement and to include such Registrable Securities among the Registrable Securities being offered pursuant to such registration statement. Assuming timely delivery by the Holder of the Convertible Preferred Stock certificates to or for the account of the Underwriters, the Company agrees to cause the relevant Registrable Securities to be issued so as to permit the Underwriters to make and complete the distribution (including the distribution of such Registrable Securities) contemplated by the underwriting. 6. Registration Expenses. The Company shall pay all expenses (other than underwriting discounts and commissions) arising from or incident to the performance of, or compliance with, this Agreement, including, without limitation, (a) SEC, stock exchange and NASD registration and filing fees, (b) all fees and expenses incurred in complying with securities or blue sky laws (including, without limitation, reasonable fees, charges and dis bursements of counsel in connection with blue sky qualifications of the Registrable Securities), (c) all printing, messenger and delivery expenses, (d) the fees, charges and disbursements of counsel to the Company and of its independent public accountants and any 12 other accounting and legal fees, charges and expenses incurred by the Company (including, without limitation, any expenses arising from any special audits incident to or required by any registration or qualification) and (e) the reasonable fees, charges and expenses of any special experts retained by the Company in connection with any requested Demand Registration or piggy-back registration pursuant to the terms of this Agreement, regardless of whether the registration statement filed in connection with such registration is declared effective. In connection with each registration hereunder, the Company shall reimburse the Holders of Registrable Securities being registered in such registration for the reasonable fees, charges and disbursements of not more than one Holders' Counsel. All of the expenses described in this Section 6 are referred to in this Agreement as "REGISTRATION EXPENSES." Notwithstanding the foregoing provisions of this Section 6, in connection with any registration hereunder, each Holder of Registrable Securities being registered shall pay all underwriting discounts and commissions and any capital gains, income or transfer taxes, if any, attributable to the sale of such Registrable Securities, pro rata with respect to payments of discounts and commissions in accordance with the number of shares sold in the offering. 7. Indemnification; Contribution. (a) Indemnification by the Company. In the event of any proposed registration of securities of the Company pursuant to Section 3 or Section 4, the Company agrees to indemnify and hold harmless each Holder, its directors, officers, partners, employees, advisors and agents, and each Person who controls (within the meaning of the Act or the Exchange Act) such Holder, to the extent permitted by law, from and against any and all losses, claims, damages, expenses (including, without limitation, reasonable costs of investigation and fees, disbursements and other charges of counsel) or other liabilities resulting from or arising out of or based upon any untrue, or alleged untrue, statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or notification or offering circular (as amended or supplemented if the Company shall have fur nished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by or on behalf of such Holder expressly for use therein. The Company shall also indemnify any underwriters of the Registrable Securities, their officers, directors and employees, and each Person who controls any such underwriter (within the meaning of the Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities. (b) Indemnification by Holders. In connection with any proposed registration in which a Holder is participating pursuant to Section 3 or 4 hereof, each such Holder shall furnish to the Company in writing such information with respect to such Holder as the Company may reasonably request or as may be required by law for use in connection with any registration statement or prospectus to be used in connection with such registration and each Holder agrees to indemnify and hold harmless the Company, any underwriter retained by the Company and their respective directors, officers, employees and each Person 13 who controls (within the meaning of the Act and the Exchange Act) the Company or such underwriter to the same extent as the foregoing indemnity from the Company to the Holders (subject to the proviso to this sentence and applicable law), but only with respect to any such information furnished in writing by or on behalf of such Holder expressly for use therein; provided, however, that the liability of any Holder under this Section 7(b) shall be limited to the amount of the net proceeds received by such Holder in the offering giving rise to such liability. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder (the "INDEMNIFIED PARTY") agrees to give prompt written notice to the indemnifying party (the "INDEMNIFYING PARTY") after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement; provided, that, the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party hereunder. If notice of commencement of any such action is given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and satisfactory to such Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investi gation) shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense of such action with counsel satisfactory to the Indemnified Party in its reasonable judgment, (iii) the named parties to any such action (including any impleaded parties) have been advised by such counsel that either (A) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (B) there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnifying Party; provided, however, that the Indemnifying Party shall only have to pay the fees and expenses of one firm of counsel for all Indemnified Parties in each jurisdiction, except to the extent representation of all Indemnified Parties by the same counsel is inappropriate under applicable standards of professional conduct. In either of such cases the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party. No Indemnifying Party shall be liable for any settlement entered into without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (A) includes an unconditional release of the Indemnified Party from all liability arising out of such action or claim and (B) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party. The rights accorded to any 14 Indemnified Party hereunder shall be in addition to any rights that such Indemnified Party may have at common law, by separate agreement or otherwise. (d) Contribution. If the indemnification provided for in Section 7(a) from the Indemnifying Party is unavailable to an Indemnified Party in respect of any losses, claims, damages, expenses or other liabilities referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, expenses or other liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such losses, claims, damages, expenses or other liabilities, as well as any other relevant equitable considerations. The relative faults of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, was made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the Indemnifying Party's and Indemnified Party's relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, expenses or other liabilities referred to above shall be deemed to include, subject to the limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution pursuant to this Section 7(d). 8. Rule 144; Other Exemptions. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Act in respect of Common Stock or securities of the company convertible into or exchangeable or exercisable for Common Stock, the Company covenants that it shall file any reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the SEC thereunder, and that it shall take such further action as each Holder may reasonably request (including, but not limited to, providing any information necessary to comply with Rules 144 and 144A under the Act), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Act within the limitation of the exemptions provided by (a) Rule 144 or Rule 144A under the Act, as such rules may be amended from time to time, or (b) any other rules or regulations now existing or hereafter adopted by the SEC. The Company shall, upon the request of any Holder, deliver to such Holder a written statement as to whether the Company has complied with such requirements. 15 9. Certain Limitations on Registration Rights. In the case of a registration under Section 4 if the Company has determined to enter into an underwriting agreement in connection therewith, no person may participate in such registration unless such person (a) agrees to sell such person's securities on the basis provided therein and (b) completes and executes all questionnaires, powers of attorney, indemnities, lock-up agreements, underwriting agreements and other documents reasonably required under the terms of such underwriting agreements. 10. Miscellaneous. (a) Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the Shares and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. (b) No Inconsistent Agreements; Other Registration Rights. The Company shall not enter into any agreement with respect to its securities that is inconsistent with or adversely affects the rights granted to the Holders in this Agreement other than any lock-up agreement with the underwriters in connection with an underwritten offering pursuant to which the Company agrees, for a period not in excess of 180 days if such underwritten offering is an Initial Public Offering or, for a period not in excess of 90 days if such underwritten offering is not an Initial Public Offering, not to register for sale, and not to sell or otherwise dispose of, Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. The Company shall not grant any other Person registration rights without the written consent of the Designated Holders holding at least a majority of the Registrable Securities held by all of the Designated Holders. If the Company shall at any time hereafter provide to any holder of any securities of the Company rights with respect to the registration of such securities and such rights are provided on terms or conditions more favorable to such holder than the terms and conditions applicable to the Designated Holders herein, the Company shall provide (by way of amendment to this Agreement or otherwise) such more favorable terms or conditions to the Designated Holders under this Agreement. (c) Remedies. The Holders, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of their rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate. 16 (d) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions of such section may not be given unless the Company has obtained the prior written consent of (i) the Designated Holders holding at least a majority of the Registrable Securities held by all of the Designated Holders and (ii) the Holders holding at least a majority of the Registrable Securities. (e) Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (i) if to Fund II, Offshore II or Terfin: Three Cities Research, Inc. 135 East 57th Street New York, New York 10022 Telecopier No.: (212) 980-1142 Attention: J. William Uhrig with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Telecopier No.: (212) 757-3990 Attention: Robert M. Hirsh, Esq. (ii) if to the Company: Family Bargain Corporation 4000 Ruffin Road San Diego, California 92123-1866 Telecopier No.: (619) 637-4180 Attention: William W. Mowbray with a copy to: Rogers & Wells 200 Park Avenue New York, New York 10166 Telecopier No.: (212) 878-8375 Attention: David W. Bernstein, Esq. 17 All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto; provided, however, that the registration rights and the other obligations of the Company contained in this Agreement shall, with respect to any Registrable Security, be automatically transferred from a Holder to any subsequent holder of such Registrable Security (including any pledgee). Notwithstanding any transfer of such rights, all of the obligations of the Company hereunder shall survive any such transfer and shall continue to inure to the benefit of all transferees. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of law of such State. (j) Jurisdiction. Each party to this Agreement hereby irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York and hereby expressly submits to the personal jurisdiction and venue of such courts for the purposes thereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each party hereby irrevocably consents to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the address set forth in Section 10(e), such service to become effective 10 days after such mailing. (k) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, it being intended that all of the rights and privileges of the Holders shall be enforceable to the fullest extent permitted by law. 18 (l) Rules of Construction. Unless the context otherwise requires, "or" is not exclusive, and references to sections or subsections refer to sections or subsections of this Agreement. (m) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings in respect of the subject matter contained herein, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (n) Further Assurances. Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. 19 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized on the date first above written. FAMILY BARGAIN CORPORATION By: /s/ Jeffrey Gerstel ---------------------------------- Name: Jeffrey Gerstel Title: EVP THREE CITIES FUND II, L.P. By: TCR Associates, L.P., as General Partner By: /s/ J. William Uhrig ---------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact THREE CITIES OFFSHORE II C.V. By: TCR Associates Offshore, L.P., as General Partner By: /s/ J. William Uhrig ---------------------------------- Name: J. William Uhrig Title: General Partner TERFIN INTERNATIONAL LTD. By: /s/ J. William Uhrig ---------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact EX-4 5 STANDSTILL AGREEMENT Exhibit 4 --------- January 10, 1997 Three Cities Fund II, L.P. Three Cities Offshore II C.V. Terfin International Ltd. c/o Three Cities Research, Inc. 135 East 57th Street New York, New York 10022 Re: Standstill Agreement -------------------- Gentlemen: Reference is made to the Securities Purchase Agreement, dated December 30, 1996 (the "Securities Purchase Agreement"), by and between the undersigned and Three Cities Fund II, L.P., Three Cities Offshore II C.V., and Terfin International Ltd. (the "Purchasers") pursuant to which the Purchasers agreed to purchase from the undersigned, and the undersigned agreed to sell to such Purchasers, the Equity Securities (as defined in the Securities Purchase Agreement) of Family Bargain Corporation, a Delaware corporation (the "Company"). In consideration of the amount of $10,000.00, the receipt of which is hereby acknowledged, the undersigned hereby covenant and agree with the Purchasers that, for a period of three years from the date hereof, the undersigned will refrain from (a) acquiring direct or indirect beneficial ownership of any shares of any class of capital stock of the Company, or any debt or equity securities (including warrants and options) convertible or exchangeable into, or which may be exercised for, any class of capital stock of the Company, with or without additional cash or consideration; (b) directly or indirectly soliciting proxies or becoming a "participant" in a "solicitation" (as such terms are defined in Regulation 14A under the Securities Exchange Act of 1934, as amended) in opposition to a recommendation of the Board of Directors of the Company; (c) initiating or inducing or attempting to induce or give material support to any other person to initiate, or in other way participating in, any tender or exchange offer, for acquisition of, shares of the Company or any change of control of the Company, or any proxy solicitation which relates to the Company; (d) initiating any communication with, or responding to any communication from, any shareholder of the Company in his, her or its capacity as a shareholder if such communication relates to any of the matters set forth in (a), (b) or (c) above; or (e) attempting to influence the affairs of the Company in any other manner or respect. 2 This letter agreement constitutes the entire agreement and supersedes all prior agreements and understandings, whether oral or written, among the parties hereto with respect to the subject matter hereof. The parties hereby agree and acknowledge that the allocation of consideration for the subject matter hereof is the proper allocation, and the parties will not agree to any other allocation. This letter agreement shall become effective, and the $10,000.00 (the "Payment") shall be delivered, upon, and only upon, the Closing (as defined in the Securities Purchase Agreement) of the Securities Purchase Agreement. Such Payment shall be made to the undersigned by wire transfer of immediately available funds to an account or accounts designated by the undersigned prior to the Closing. This letter 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 New York. This letter agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument. Very truly yours, /s/ Benson A. Selzer ------------------------------------ BENSON A. SELZER /s/ Joseph Eiger ------------------------------------ JOSEPH EIGER /s/ John A. Selzer ------------------------------------ JOHN A. SELZER 3 DUTFORD LIMITED By: /s/ Joel Handel ------------------------------- Name: Title: Attorney-In-Fact COPLEX FOUNDATION /s/ Joel Handel By: /s/ Benson A. Selzer ------------------------------- Name: Title: Trustee Accepted and agreed to as of the date first written above: THREE CITIES FUND II, L.P. By: TCR Associates, L.P., as General Partner By: /s/ J. William Uhrig -------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact THREE CITIES OFFSHORE II C.V. By: TCR Associates Offshore, L.P., as General Partner By: /s/ J. William Uhrig -------------------------------- Name: J. William Uhrig Title: General Partner TERFIN INTERNATIONAL LTD. By: /s/ J. William Uhrig -------------------------------- Name: J. William Uhrig Title: Attorney-In-Fact -----END PRIVACY-ENHANCED MESSAGE-----