-----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, TSFpKQiuegvslVnNnY/OwaIzk3tWHX5P+hNkL7LNjOHTaVRVNJqWc1aUTaOQwv4S J7hvNNWNiXJiQVjvuY1l8w== 0000813775-98-000005.txt : 19980619 0000813775-98-000005.hdr.sgml : 19980618 ACCESSION NUMBER: 0000813775-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980617 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY BARGAIN CORP CENTRAL INDEX KEY: 0000813775 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 510299573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10089 FILM NUMBER: 98649444 BUSINESS ADDRESS: STREET 1: 4000 RUFFIN ROAD STREET 2: 6TH FLR CITY: SAN DIEGO STATE: CA ZIP: 92123-1866 BUSINESS PHONE: 6196271800 MAIL ADDRESS: STREET 1: 4000 RUFFIN ROAD CITY: SAN DIEG STATE: CA ZIP: 92123-1866 FORMER COMPANY: FORMER CONFORMED NAME: DRS INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LONGWOOD GROUP LTD DATE OF NAME CHANGE: 19920527 - -----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, NKUB7RbUpK2pUl0cbzEBB7RCzACuyNkudI/pi/nRaU3nz2k5DuYb0vWmnvaystvC j+5p0VTAlDN053TDCRsTBA== 0000813775-98-000005.txt : 19980618 0000813775-98-000005.hdr.sgml : 19980618 ACCESSION NUMBER: 0000813775-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980617 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY BARGAIN CORP CENTRAL INDEX KEY: 0000813775 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 510299573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10089 FILM NUMBER: 98649444 BUSINESS ADDRESS: STREET 1: 4000 RUFFIN ROAD STREET 2: 6TH FLR CITY: SAN DIEGO STATE: CA ZIP: 92123-1866 BUSINESS PHONE: 6196271800 MAIL ADDRESS: STREET 1: 4000 RUFFIN ROAD CITY: SAN DIEG STATE: CA ZIP: 92123-1866 FORMER COMPANY: FORMER CONFORMED NAME: DRS INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LONGWOOD GROUP LTD DATE OF NAME CHANGE: 19920527 10-Q 1 QUARTERLY REPORT FOR 1ST QTR FYE 1/30/1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 1O-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 2, 1998 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-10089 FAMILY BARGAIN CORPORATION (Exact name of registrant as specified in its charter) Delaware 51-0299573 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4000 Ruffin Road, San Diego, CA 92123-1866 (Address of principal executive office) (Zip Code) (619) 627-1800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO The number of shares outstanding of the registrant's of common stock, as of May 2, 1998, was 5,004,122 shares. 2 FAMILY BARGAIN CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 2, 1998 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Family Bargain Corporation and Subsidiaries Consolidated Balance Sheets as of May 2, 1998 (Unaudited) and January 31, 1998 ..................................................F-1 Family Bargain Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) for the 13 weeks ended May 2, 1998 and May 3, 1997..................................F-3 Family Bargain Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) for the 13 week ended May 2, 1998 and May 3, 1997..................................F-4 Family Bargain Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)......................F-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...........................................3 PART II. OTHER INFORMATION Item 1. Legal Proceedings 6 Item 2. Changes in Securities................................................7 Item 3. Defaults Upon Senior Securities......................................7 Item 4. Submission of Matters to a Vote of Security Holders..................7 Item 5. Other Information....................................................7 Item 6. Exhibits and Reports on Form 8-K ....................................8 Signatures..........................................................10 Exhibit Index.......................................................11 F-1 PART I Item 1. Financial Statements FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) May 2, January 31, 1998 1998 (Unaudited) Assets ----------- ----------- Current assets: Cash $ 4,332 $ 3,167 Merchandise inventories 34,181 29,820 Prepaid expenses and other assets 4,233 727 -------- -------- Total current assets 42,74 33,714 Leasehold improvements and equipment, net 14,668 15,066 Other assets, net 3,063 3,326 Excess of cost over net assets acquired, less accumulated amortization of $7,336 and $6,935 at May 2, 1998 and January 31, 1998, respectively 32,310 32,711 Total assets $ 92,787 $ 84,817 ======== ======== (continued) F-1 F-2 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data) (Continued) May 2, January 31, 1998 1998 (Unaudited) Liabilities and Stockholders' Equity ----------- ----------- Current liabilities: Current maturities of long-term debt and capital lease obligations $ 4,773 $ 4,873 Accounts payable 18,012 19,003 Accrued expenses 11,436 12,587 -------- -------- Total current liabilities 34,221 36,463 Revolving credit notes 27,975 12,657 Long-term debt, less current maturities 14,499 12,922 Capital lease and other long-term obligations 2,257 3,306 Deferred rent 2,232 2,251 -------- -------- Total liabilities 81,184 67,599 -------- -------- Stockholders' equity: Series A convertible preferred stock, $.01 par value, 4,500,000 shares authorized, 3,638,690 shares issued and outstanding (aggregate liquidation preference of $36,387) at May 2, 1998 and January 31, 1998 36 36 Series B junior convertible, exchangeable preferred stock , $.01 par value, 40,000 shares authorized, 35,360 and 33,714 shares issued and outstanding (aggregate liquidation preference of $35,360 and $33,714) at May 2, 1998 and January 31, 1998, respectively - - Common stock, $.01 par value, 80,000,000 shares authorized, 5,004,122 and 4,929,122 shares issued and outstanding at May 2, 1998 and January 31, 1998, respectively 50 49 Additional paid-in capital 88,667 83,312 Accumulated deficit (77,150) (66,179) -------- -------- Total stockholders' equity 11,603 17,218 -------- -------- Total liabilities and stockholders' equity $ 92,787 $ 84,817 ======== ======== See accompanying notes to consolidated financial statements. F-2 F-3 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share data) (Unaudited 13 Weeks Ended ---------------------- May 2, May 3, 1998 1997 ----------- ----------- Net sales $ 66,495 $ 60,436 Cost of sales 44,649 41,016 -------- -------- Gross profit 21,846 19,420 Selling and administrative expenses 21,193 18,899 Amortization of intangibles 590 530 Unusual charges 1,500 - -------- -------- Operating income (1,437) (9) Other income (expense): Interest expense (1,279) (1,352) Loss before income taxes and extraordinary item (2,716) (1,361) Income taxes (74) - -------- -------- Loss before extraordinary item (2,790) (1,361) Extraordinary item - debt extinguishment (less applicable income taxes of $0) (2,750) - -------- -------- Loss before dividends (5,540) (1,361) Preferred stock dividends - Series A (864) (864) Preferred stock dividends - Series B (703) (656) -------- -------- Net loss available to common stockholders $ (7,107) $ (2,881) Basic and diluted earnings per share: Loss before extraordinary item $ (0.88) $ (0.60) Extraordinary item $ (0.56) $ - Net loss $ (1.44) $ (0.60) Weighted average common shares outstanding 4,931 4,818 See accompanying notes to consolidated financial statements. F-3 F-4 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) (Unaudited) 13 weeks ended ------------------------ May 2, May 3, 1998 1997 ----------- ----------- Cash Flows from Operating Activities: Loss before dividends $ (5,540) $ (1,361) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,732 1,207 Debt discount amortization 602 460 Extraordinary loss on debt modification 2,750 - Loss on disposal of equipment 147 - Deferred rent expense (19) 132 Changes in operating assets and liabilities: Merchandise inventories (5,961) (9,395) Prepaid expenses (3,441) (2,277) Accounts payable and accrued expenses (2,720) 4,205 Other 688 (2,031) -------- -------- Net cash used in operating activities (11,762) (9,060) -------- -------- Cash Flows from Investing Activities: Purchase of leasehold improvements and equipment (504) (1,370) -------- -------- Net cash used in investing activities (504) (1,370) -------- -------- Cash Flows from Financing Activities: Borrowings on revolving credit notes 85,170 80,893 Payments on revolving credit notes (69,852) (75,065) Payments on notes payable and capital lease obligations (978) (2,622) Payment of deferred debt issuance costs (45) (57) Net proceeds from issuance of preferred stock - 9,600 Payment of dividends on Series A preferred stock (864) (864) -------- -------- Net cash provided by financing activities 13,431 11,885 -------- -------- (continued) F-4 F-5 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) (Continued) 13 weeks ended ------------------------ May 2, May 3, 1998 1997 ----------- ----------- Net increase in cash $ 1,165 $ 1,455 Cash at the beginning of the period 3,167 3,261 -------- -------- Cash at the end of the period $ 4,332 $ 4,716 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 535 $ 835 Cash paid during the period for income taxes $ 74 $ - Supplemental disclosure of non-cash investing activities: Capital lease purchases $ 333 $ - Supplemental disclosure of non-cash financing activities: Series B preferred stock dividends $ 703 $ 656 See accompanying notes to consolidated financial statements. F-5 F-6 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Unaudited Interim Financial Statements The accompanying unaudited consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the financial statements for the fiscal year ended January 31, 1998 included in the Family Bargain Corporation and Subsidiaries' (the Company) Form 10-K and 10-K/A as filed with the Securities and Exchange Commission. The unaudited consolidated financial statements include the accounts of Family Bargain Corporation and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated financial statements as of and for the 13 weeks ended May 2, 1998 and May 3, 1997 reflect all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Due to the seasonal nature of the Company's business, the results of operations for the interim period may not necessarily be indicative of the results of operations for a full year. (2) Long-term Debt and Revolving Credit Notes Effective April 30, 1998, the Company amended certain terms and conditions of its revolving credit facility. Under the amended terms and conditions, the covenants were reset to be reflective of anticipated earnings, capital expenditures and cash flow over the remaining term of the revolving credit facility. Effective April 30, 1998 the Company entered into agreements to exchange the subordinated and junior subordinated notes for new notes. The new notes removed an estimated excess cash flow calculation previously used to determine the timing and amount of payments. Further, the new notes provide a fixed schedule for debt principal payments. In accordance with EITF 96-19, the Company recorded the exchange of the subordinated debt agreements as an extinguishment of debt, and in connection therewith, recorded an extraordinary loss, net of taxes, of $2.75 million. This loss represents increases in the present value of the principal amount of debt and fees paid to the lenders. The fees included the issuance of 75,000 shares of common stock and warrants to purchase 274,418 shares of common stock, both stated at fair market value. F-7 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued (3) Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, Earnings per Share (SFAS No. 128), which the Company adopted as of January 31, 1998. This Statement sets forth the basis for the computation of "basic" earnings per share and "diluted" earnings per share from the previous method of computing both "primary" and "fully diluted" earnings per share. The preferred stock and other common stock equivalents were not considered as converted because the calculation was anti-dilutive. (4) Provision for Income Taxes An amount for federal alternate minimum taxes was recorded for the 13 weeks ended May 2, 1998. No other provision for income taxes has been reflected in the accompanying consolidated statements of operations for the 13 weeks ended May 2, 1998 and May 3, 1997 since the Company generated tax losses during these periods. Although such losses would increase the Company's net operating loss carry forwards (NOLs), realization of such NOLs is less than likely due to limitations on utilization of NOLs and the Company's history of losses. As a result, a full valuation allowance has been recognized against the net deferred tax assets arising from the increased NOLs and no benefit for income taxes is reflected in the accompanying consolidated statements of operations. (5) Dividends The Series B Junior Convertible, Exchangeable Preferred Stock pays no dividend through December 31, 2001. Beginning in 2002, the Company is obligated to pay a dividend to holders of the Series B Preferred Stock in the amount of $60 per share subject to increases of $20 per share every year thereafter until 2005 up to a maximum of $120 per share. The Company imputes dividends on the Series B Preferred Stock utilizing the effective interest method to provide a level yield until the permanent dividend of $120 per share is payable. The Company expects conversion prior to any actual payment of dividends, therefore the liability is zeroed to additional paid in capital. The accreted dividends therefore increase the carrying value of that part of the additional paid in capital attributable to the Series B Preferred Stock. F-8 FAMILY BARGAIN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued (6) Reclassifications Certain reclassifications have been made to the January 31, 1998 amounts to conform to the May 2, 1998 presentation. 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Management's discussion of the results of operations provides analyses of the Company's operations during the 13 weeks ended May 2, 1998 and May 3, 1997. Results of Operations The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. As of May 2, 1998 there were 162 stores in operation versus 158 at May 3, 1997. 13 Weeks Ended May 2, 1998 Compared to the 13 Weeks Ended May 3, 1997 Net sales were $66.5 million for the 13 weeks ended May 2, 1998 compared to $60.4 million for the 13 weeks ended May 3, 1997, an increase of $6.1 million, or 10.0%. Comparable sales increased 3.3%, or $1.7 million. Gross profit was $21.8 million for the 13 weeks ended May 2, 1998 compared to $19.4 million for the 13 weeks ended May 3, 1997, an increase of approximately $2.4 million. As a percentage of sales, gross profit was 32.8% for the 13 weeks ended May 2, 1998 compared to 32.1% for the 13 weeks ended May 3, 1997. The increase in the gross profit margin is primarily attributable to a higher markup. Selling and administrative expenses were $21.2 million for the 13 weeks ended May 2, 1998 compared to $18.9 million for the 13 weeks ended May 3, 1997, an increase of approximately $2.3 million. As a percentage of sales, selling and administrative expenses increased to 31.9% for the 13 weeks ended May 2, 1998 from 31.3% for the 13 weeks ended May 3, 1997. The increase as a percentage of sales is primarily due to an increase in the minimum wage. Amortization of intangibles was $0.6 million for the 13 weeks ended May 2, 1998 compared to $0.5 million for the 13 weeks ended May 3, 1997. The increase is attributable to the non-compete payments to the prior president that are slightly higher in the current quarter. The unusual charge of $1.5 million represents various expenses incurred in connection with hiring the current President and CEO of General Textiles. Such expenses included a signing bonus, moving expenses, costs to liquidate a former residence, and executive search fees. Interest expense was $1.3 million for the 13 weeks ended May 2, 1998 and $1.4 million for the 13 weeks ended May 3, 1997. Federal income taxes of $74,000 were paid in anticipation of an alternate minimum tax for the 13 weeks ended May 2, 1998. 4 An extraordinary charge of $2.8 million was incurred for the 13 weeks ended May 2, 1998 because notes payable associated with the General Textiles bankruptcy were extinguished and new notes with terms favorable to the Company were issued. The net loss available to common stockholders was $7.1 million for the 13 weeks ended May 2, 1998 compared to a net loss available to common stockholders of $2.9 million for the 13 weeks ended May 3, 1997. The decrease in net income for the 13 weeks ended May 2, 1998 is a result of the operating factors cited above. Liquidity and Capital Resources Family Bargain Corporation As of May 2, 1998, Family Bargain Corporation (the "Parent") had outstanding indebtedness in the principal amount of $0.7 million, no material change from its debt obligations at January 31, 1998. The entire $0.7 million outstanding principal amount is due during the next twelve months. General Textiles General Textiles finances its operations through credit provided by suppliers, amounts borrowed under its $35.0 million revolving credit facility and internally generated cash flow. General Textiles may borrow up to 65% of eligible inventory, as defined, subject to a maximum of $35.0 million of amounts outstanding at any time. As of May 2, 1998, General Textiles had $18.3 million outstanding and $4.0 million available to borrow under its revolving credit facility. Effective April 30, 1998, the Company amended certain terms and conditions of its revolving credit facility. Under the amended terms and conditions, the covenants were reset to be reflective of anticipated earnings, capital expenditures and cash flow over the remaining term of the revolving credit facility. Effective April 30, 1998 the Company entered into agreements to exchange the subordinated and junior subordinated notes for new notes. The new notes removed an estimated excess cash flow calculation previously used to determine the timing and amount of payments. Further, the new notes provide a fixed schedule for debt principal payments. In accordance with EITF 96-19, the Company recorded the exchange of the subordinated debt agreements as an extinguishment of debt, and in connection therewith, recorded an extraordinary loss, net of taxes, of $2.75 million. This loss represents increases in the present value of the principal amount of debt and fees paid to the lenders. The fees included the issuance of 75,000 shares of common stock and warrants to purchase 274,418 shares of common stock, both stated at fair market value. At May 2, 1998, General Textiles was obligated to non-affiliate holders of its subordinated notes in the face amount of $20.6 million with a carrying value of $13.4 million, of which management estimates principal payments in the amount of approximately $3.3 million will be paid in the next twelve months. 5 Factory 2-U Factory 2-U finances its operations through credit provided by suppliers, amounts borrowed under its $15.0 million revolving credit facility and internally generated cash flow. Factory 2-U may borrow up to 65% of eligible inventory, as defined, subject to a maximum of $15.0 million of amounts outstanding at any time. As of May 2, 1998, Factory 2-U had $9.6 million outstanding and $0.1 million available to borrow under its revolving credit facility. Capital Expenditures The Company's planned future capital expenditures include costs to open new stores, to renovate and/or relocate existing stores, to expand its central administrative and distribution facilities and to upgrade its information systems. Management believes that future expenditures will be financed from internal cash flow and the revolving credit facilities. Through May 2, 1998 the Company has spent approximately $0.8 million on capital expenditures. The Company anticipates spending approximately $5.1 million during the remainder of the current fiscal year. Inflation In general, the Company believes that it will be able to offset the effects of inflation by increasing operating efficiency, monitoring and controlling expenses and increasing prices to the extent permitted by competitive factors. Seasonality and Quarterly Fluctuations The Company historically has realized its highest level of sales and income during the third and fourth quarters of the fiscal year (the quarters ending in fiscal October and January) as a result of the "Back to School" (August and September) and Christmas (November and December) seasons. If the Company's sales are substantially below seasonal expectations during the third and fourth quarters, the Company's annual operating results will be adversely affected. The Company historically has realized lower sales in its first two quarters, which often has resulted in the Company incurring losses during those quarters. Deferred Tax Assets The Company has net operating loss ("NOL") carryforwards for Federal and California income tax purposes. The utilization of these NOLs will be partially limited due to restrictions imposed under the Federal and State laws upon a change in ownership. At May 2, 1998, the Company's total net deferred income tax assets, a significant portion of which relates to NOLs discussed above, have been subjected to a 100% valuation allowance since realization of such assets is not likely in light of the Company's recurring losses from operations. 6 Cautionary Statement Regarding Forward-Looking Information Statements, other than those based on historical facts, which address activities, events or developments that the Company expects or anticipates may occur in the future are forward-looking statements which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in such statements. The Company's ability to achieve such results is subject to certain risks and uncertainties, including, but not limited to, economic and weather conditions that affect buying patterns of the Company's customers, changes in consumer spending and the Company's ability to anticipate buying patterns and implement appropriate inventory strategies, continued availability of capital and financing, competitive factors and other factors affecting the Company's business beyond the Company's control. Consequently, all of the forward-looking statements are qualified by these cautionary statements and there can be no assurance that the results or developments anticipated by the Company will be realized or that they will have the expected effects on the Company or its business or operations. 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is at all times subject to pending and threatened legal actions, which arise out of the normal course of business. In the opinion of management, based in part on the advice of legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. 8 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment No. 11 to Loan and Security Agreement, dated as of April 30, 1998, between General Textiles and Finova Capital Capital Corporation (7 pages) 10.2 Acknowledgment and Reaffirmation (Re: Affiliate Debt, Management Fees, Intercreditor Agreement), dated as of April 30, 1998, between Family Bargain Corporation and Finova Capital Corporation (2 pages) 10.3 Employment Agreement, dated March 30, 1998, by and among Family Bargain Corporation, General Textiles and Michael Searles (15 pages) 10.4 Note Exchange Agreement, dated April 27, 1998 by and among General Textiles, Family Bargain Corporation, American Endeavour Fund Ltd. And London Pacific Life Annuity Company (8 pages) 10.5(a) Subordinated Note Agreement, dated April 30, 1998 by and among General Textiles, American Endeavour Fund Limited and London Pacific Life & Annuity Company (12 pages) 10.5(b) Subordinated Note Due 2003, dated April 30, 1998 between General Textiles and American Endeavour Fund Limited for $1,551,363.33 (4 pages) 10.5(c) Subordinated Note Due 2003, dated April 30, 1998 between General Textiles and London Pacific Life & Annuity Company for $1,698,636.67 (4 pages) 10.6(a) Junior Subordinated Note Agreement, dated April 30, 1998 by and among General Textiles, American Endeavour Fund Limited and London Pacific Life & Annuity Company (12 pages) 10.6(b) Junior Subordinated Note, dated April 30, 1998 between General Textiles and American Endeavour Fund Limited for $8,274,779.94 (3 pages) 10.6(c) Junior Subordinated Note, dated April 30, 1998 between General Textiles and London Pacific Life & Annuity Company for $9,060,317.71 (3 pages) 9 Exhibit Number Description 10.7(a) Registration Rights Agreement, dated April 30, 1998 by and Among Family Bargain Corporation, American Endeavour Fund Ltd. and London Pacific Life Annuity Company (5 pages) 10.7(b) Warrant to Purchase Shares of Common Stock of Family Bargain Corporation, dated April 30, 1998 issued to London Pacific Life & Annuity Company (12 pages) 11.1 Computation of per share loss (1 page) 27 Financial Data Schedule (1 page) (b) Reports on Form 8-K None. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FAMILY BARGAIN CORPORATION Date: June 15, 1998 By:/s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 11 EXHIBIT INDEX Exhibit Number Description Page 10.1 Amendment No. 11 to Loan and Security Agreement, dated as of April 30, 1998, between General Textiles and Finova Capital Corporation (7 pages)................................. 12 - 18 10.2 Acknowledgment and Reaffirmation (Re: Affiliate Debt, Management Fees, Intercreditor Agreement), dated as of April 30, 1998, between Family Bargain Corporation and Finova Capital Corporation (2 pages).......................... 19 - 20 10.3 Employment Agreement, dated March 30, 1998, by and among Family Bargain Corporation, General Textiles and Michael Searles (15 pages).................................... 21 - 35 10.4 Note Exchange Agreement, dated April 27, 1998 by and among General Textiles, Family Bargain Corporation, American Endeavour Fund Ltd. And London Pacific Life Annuity Company (8 pages)..................................................... 36 - 43 10.5(a) Subordinated Note Agreement, dated April 30, 1998 by and among General Textiles, American Endeavour Fund Limited and London Pacific Life & Annuity Company (12 pages).......... 44 - 55 10.5(b) Subordinated Note Due 2003, dated April 30, 1998 between General Textiles and American Endeavour Fund Limited for $1,551,363.33 (4 pages)....................................... 56 - 59 10.5(c) Subordinated Note Due 2003, dated April 30, 1998 between General Textiles and London Pacific Life & Annuity Company for $1,698,636.67 (4 pages)................................... 60 - 63 10.6(a) Junior Subordinated Note Agreement, dated April 30, 1998 by and among General Textiles, American Endeavour Fund Limited and London Pacific Life & Annuity Company (12 pages).......... 64 - 75 10.6(b) Junior Subordinated Note, dated April 30, 1998 between General Textiles and American Endeavour Fund Limited for $8,274,779.94 (3 pages)....................................... 76 - 78 10.6(c) Junior Subordinated Note, dated April 30, 1998 between General Textiles and London Pacific Life & Annuity Company for $9,060,317.71 (3 pages)................................... 79 - 81 10.7(a) Registration Rights Agreement, dated April 30, 1998 by and Among Family Bargain Corporation, American Endeavour Fund Ltd. and London Pacific Life Annuity Company (5 pages)... 82 - 86 10.7(b) Warrant to Purchase Shares of Common Stock of Family Bargain Corporation, dated April 30, 1998 issued to London Pacific Life & Annuity Company (12 pages)..................... 87 - 98 11.1 Computation of per share loss................................. 99 27 Financial Data Schedule....................................... 100 EX-10 2 EXHIBIT 10.1 04/17/98 AMENDMENT NO. 11 TO LOAN AND SECURITY AGREEMENT This Amendment No. 11 to Loan and Security Agreement (this "Amendment") is entered into as of this 30th day of April, 1998, by and between FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and GENERAL TEXTILES, a California corporation ("Borrower"). W I T N E S S E T H : WHEREAS, Borrower and Greyhound Financial Capital Corporation, an Oregon corporation, predecessor by merger and name change to Lender, entered into a Loan and Security Agreement dated as of October 14, 1993, as amended by (i) an Amendment No. 1 to Loan and Security Agreement dated as of July 11, 1994, (ii) an Amendment No. 2 to Loan and Security Agreement dated as of March 31, 1995, (iii) an Amendment No. 3 to Loan and Security Agreement dated as of July 27, 1995, (iv) an Amendment No. 4 to Loan and Security Agreement dated as of November 10, 1995, (v) an Amendment No. 5 to Loan and Security Agreement dated as of April 18, 1996, (vi) an Amendment No. 6 to Loan and Security Agreement dated as of July 10, 1996, (vii) an Amendment No. 7 to Loan and Security Agreement dated as of December 31, 1996, (viii) a Letter Agreement dated January 10, 1997 with respect to the establishment of certain letters of credit (ix) an Amendment No. 8 to Loan and Security Agreement and Waiver dated April 23, 1997, (x) an Amendment No. 9 to Loan and Security Agreement dated as of May 30, 1997, and (xi) an Amendment No. 10 to Loan and Security Agreement and Waiver dated as of September 24, 1997 (as so amended, the "Loan Agreement"), that evidences a loan from Lender to Borrower; and WHEREAS, Borrower has asked Lender to modify the Loan Agreement in accordance with the terms of, and subject to the conditions contained in, this Amendment and Lender is willing so to amend the Loan Agreement, upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of these recitals, the covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. Unless otherwise defined in this Amendment, all capitalized terms used herein which are defined in the Loan Agreement have the same meaning as set forth in the Loan Agreement. 2. Loan Agreement. The Loan Agreement is amended as follows: 13 2.1.Definitions. Section 1(A) is hereby amended by adding the following definitions: "'Eleventh Amendment' means that certain Amendment No. 11 to Loan and Security Agreement between Lender and Borrower dated as of April 30, 1998." "'Eleventh Amendment Effective Date' means April 30, 1998, the date upon which the Eleventh Amendment became effective pursuant to the terms and upon the conditions thereof." 2.2.Current Ratio. Paragraph 14(N) is hereby amended in its entirety to read as follows: "(N) Current Ratio. Borrower shall maintain its ratio of Current Assets to Current Liabilities, measured as of the end of each fiscal quarter set forth in the table below, of not less than the amount set forth opposite such quarter: Test Date Current Ratio April 30, 1998 1.05 to 1.0 July 31, 1998 1.00 to 1.0 October 31, 1998 1.05 to 1.0 January 31, 1999 0.90 to 1.0 Thereafter 1.20 to 1.0" 2.3 Senior Debt Service Coverage. Paragraph 22 of the Addendum to the Loan Agreement is hereby amended to provide that, so long as any of the Obligations remain outstanding and the Loan Agreement is in effect, Borrower shall maintain its ratio of Operating Cash Flow to Senior Contractual Debt Service, measured as of the end of each calendar month set forth in the table below (on a rolling twelve-month basis), of not less than the amount set forth opposite such month: Test Date Senior Debt Service Ratio April 30, 1998 1.60 to 1.0 July 31, 1998 1.15 to 1.0 October 31, 1998 1.15 to 1.0 January 31, 1999 1.30 to 1.0 Thereafter 1.60 to 1.0 14 2.4 Total Debt Service Coverage. Paragraph 22 of the Addendum to the Loan Agreement is hereby further amended to provide that, so long as any of the Obligations remain outstanding and the Loan Agreement is in effect, Borrower shall maintain its ratio of Operating Cash Flow to Total Contractual Debt Service, measured as of the end of each calendar month set forth in the table below (on a rolling twelve-month basis), of not less than the amount set forth opposite such month: Test Date Total Debt Service Ratio April 30, 1998 1.40 to 1.0 July 31, 1998 1.00 to 1.0 October 31, 1998 1.00 to 1.0 January 31, 1999 1.15 to 1.0 Thereafter 1.40 to 1.0 3. Effect as an Amendment. Other than as specifically set forth in this Amendment, the remaining terms of the Loan Agreement and the other Loan Documents shall remain in full force and effect and shall remain unaffected and unchanged except as specifically amended hereby. In the event of any conflict between the terms and conditions of this Amendment and any of the other Loan Documents, the provisions of this Amendment shall control. Each reference to in the Loan Agreement to "this Agreement" shall be deemed to refer to the Loan Agreement as amended through and including the Eleventh Amendment, and each reference in any other Loan Document to the Loan Agreement as amended through and including the Eleventh Amendment. 4. No Waiver. This Amendment in no way acts as a waiver by Lender of any breach, default, Event of Default or condition which, with the giving of notice or passing of time or both, would constitute an Event of Default, of Borrower (whether known or unknown to Lender) or as a release or relinquishment of any of the liens, security interests, rights or remedies securing payment and performance of the Obligations or the enforcement thereof. Nothing contained in this Amendment is intended to or shall be construed as relieving any person or entity, whether a party to this Amendment or not, of any of such person's or entity's obligations to Lender. 5. Amendment Fee. In consideration of Lender's agreement to enter into this Amendment and to the modification to the Loan Documents and the waivers by Lender described herein, Borrower agrees to pay on or before the Eleventh Amendment Effective Date the amount of FORTY-FIVE THOUSAND DOLLARS ($45,000) (the "Amendment Fee"). Borrower and Lender acknowledge that Lender may withhold the Amendment Fee from the proceeds of the Total Facility, to the extent the Amendment Fee is not paid prior to disbursement thereof. 15 6. Conditions Precedent. This Amendment will not be effective unless and until each of the following conditions precedent have been satisfied, in form, manner and substance satisfactory to Lender prior to April 30, 1998: (a) Borrower shall have delivered or caused to be delivered to Lender the following documents, all of which shall be properly completed, executed and otherwise satisfactory to Lender: (i) This Amendment; (ii)Consent of Guarantor in the form attached hereto and incorporated herein by this reference; (iii)A corporate resolution and Certificate of Secretary of each of Borrower and Guarantor, approving the transactions contemplated hereby to which it is a party; (iv) An Acknowledgment and Reaffirmation, in form and substance, and from such parties, as Lender may require; and (v)Such other items as Lender may require or deem necessary. (b) There shall not then exist an Event of Default or any act or event which with notice, passage of time, or both would constitute an Event of Default. (c) All the representations and warranties of the Loan Parties in the Loan Documents shall be true and correct, in all material respects, before and after giving effect to the making of this Amendment. (d) Borrower shall have paid all closing costs, recording fees and taxes, appraisal fees and expenses, travel expenses, fees and expenses of Lender's counsel, and all other costs and expenses incurred by Lender in connection with the preparation of, closing of and disbursement of the advances pursuant to this Amendment, which costs, fees and expenses may be payable from the first advance made pursuant to this Amendment. (e) Borrower shall have paid the Amendment Fee. 16 7. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness evidenced by the Loan Documents is just and owing and agrees to pay such indebtedness in accordance with the terms of the Loan Documents. Borrower further acknowledges and represents that no event has occurred and no condition presently exists that would constitute a default or event of default by Lender under the Loan Agreement or any of the other Loan Documents, with or without notice or lapse of time. 8. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges and agrees that the Loan Agreement and the other Loan Documents represent valid, enforceable and collectable obligations of Borrower, and that Borrower presently has no existing claims, defenses (personal or otherwise) or rights of setoff whatsoever with respect to the Obligations of Borrower under the Loan Agreement or any of the other Loan Documents. Borrower furthermore agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. 9. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each of the representations, warranties, covenants and agreements of Borrower as set forth in each of the Loan Documents with the same force and effect as if each were separately stated herein and made as of the date hereof. Borrower represents and warrants to Lender that with respect to the financing transaction herein contemplated, no Person is entitled to any brokerage fee or other commission and Borrower agrees to indemnify and hold Lender harmless against any and all such claims. 10. Other Writings. Lender and Borrower will execute such other writings as may be necessary to confirm or carry out the intentions of Lender and Borrower evidenced by this Amendment. 11. Entire Agreement. The Loan Documents as modified by this Amendment embody the entire agreement and understanding between Borrower and Lender, and supersede all prior agreements and understandings between said parties relating to the subject matter thereof. 12. Counterparts; Telefacsimile Execution. This Amendment (including the consents attached hereto) may be executed in any number of separate counterparts, all of which when taken together shall constitute one and the same instrument, admissible into evidence, notwithstanding the fact that all parties have not signed the same counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile shall also deliver a manually executed counterpart of this Amendment, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. [SIGNATURE PAGE FOLLOWS] 17 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first written above. FINOVA CAPITAL CORPORATION, a Delaware corporation, successor-by-merger to Greyhound Financial Capital Corporation, an Oregon corporation By: Name: Title: GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title:Executive Vice President 18 CONSENT OF GUARANTOR The undersigned ("Guarantor") hereby executes this Consent for the purpose of (i) evidencing Guarantor's consent to the execution and performance of the foregoing Amendment No. 11 to Loan and Security Agreement (the "Eleventh Amendment") by Lender and Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by Guarantor, (iii) evidencing Guarantor's agreement that the Borrower's Obligations as set forth in the Guaranty Agreement shall, for all purposes, include the Loan Documents, as amended by the Eleventh Amendment, and shall further include all additional amounts which may be funded or advanced to Borrower pursuant to the Loan Agreement described above as amended by the Eleventh Amendment, and (iv) ratifying and affirming all terms and provisions of the Guaranty Agreement. Except to the extent otherwise indicated, terms used herein with initial capital letters shall have the meanings set forth in the Loan Agreement, as amended by the Eleventh Amendment. Guarantor agrees that it has no defense, counterclaim, offset, cross-complaint, claim or demand of any nature whatsoever which can be asserted as a basis to seek affirmative relief or damages from Lender. IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent as of this 30th day of April, 1998. FAMILY BARGAIN CORPORATION, a Delaware corporation By: /s/ Jaonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President EX-10 3 EXHIBIT 10.2 ACKNOWLEDGMENT AND REAFFIRMATION The undersigned, FAMILY BARGAIN CORPORATION, a Delaware corporation ("FBC") acknowledges: 1. FBC is a party to that certain Standstill and Subordination Agreement (re: Affiliate Debt) dated as of July 11, 1994, as amended by that certain Amendment No. 1 to Standstill and Subordination Agreement dated as of March 31, 1995, and that certain Amendment No. 2 to Standstill and Subordination Agreement dated as of July 27, 1995 (as amended, the "Affiliate Debt Subordination Agreement"). 2. FBC is a party to that certain Subordination and Standstill Agreement dated October 14, 1993, as amended by that certain Amendment No. 1 to Standstill and Subordination Agreement dated as of July 11, 1994, as amended by that certain Amendment No. 2 to Standstill and Subordination Agreement dated as of March 31, 1995, and that certain Amendment No. 3 to Standstill and Subordination Agreement dated as of July 27, 1995 (as amended, the "Management Fees Subordination Agreement"). 3. FBC is a party to that certain Intercreditor, Standstill and Subordination Agreement dated as of October 14, 1993, originally executed by and among Greyhound Financial Capital Corporation, Westinghouse Electric Corporation, Guilford Investments, Inc. and General Textiles, as amended by that certain Amendment No. 1 to Intercreditor, Standstill and Subordination Agreement dated as of July 11, 1994, that certain Amendment No. 2 to Intercreditor, Standstill and Subordination Agreement dated as March 31, 1995, and that certain Amendment No. 3 to Intercreditor, Standstill and Subordination Agreement dated as of July 27, 1995 (as amended, the "Intercreditor Agreement"). 4. FBC is a party to that certain Subordination and Standstill Agreement (re: 6.35 MM Debt) dated as of May 30, 1997 (the "6.35MM Debt Subordination Agreement"). 5. FINOVA Capital Corporation, successor by merger and name change to Greyhound Financial Capital Corporation ("FINOVA") is also a party to the Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement, Intercreditor Agreement and 6.35MM Debt Subordination Agreement. 6. FBC has received a copy of that certain Loan and Security Agreement dated as of October 14, 1993, by and between FINOVA and General Textiles, a California corporation, and each amendment thereto, including without limitation, that certain Amendment No. 11 to Loan and Security Agreement of even date herewith. 20 7. FBC hereby agrees that each of the Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement, Intercreditor Agreement and 6.35 MM Debt Subordination Agreement remains in effect and FBC re-states, affirms and confirms each term thereof, notwithstanding the terms of the Amendment. 8. FBC restates, affirms and confirms each of FBC's representations and warranties set forth in each of the Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement, Intercreditor Agreement and 6.35MM Debt Subordination Agreement as if made on the date hereof. Executed as of this 30th day of April, 1998. FAMILY BARGAIN CORPORATION By: /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President EX-10 4 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, dated as of March 30, 1998, by and among General Textiles, a California corporation which has its principal office at 4000 Ruffin Road, San Diego, California, ("General Textiles"); Family Bargain Corporation, a Delaware corporation which indirectly owns all of the outstanding shares of capital stock of General Textiles and has its principal office at 4000 Ruffin Road, San Diego, California ("FBC"); and Michael Searles, who currently resides at 11 Farnham Way, Farmington, Connecticut ("Executive"). W I T N E S S E T H: WHEREAS, General Textiles, FBC and Executive desire to enter into an agreement (the "Agreement") setting forth the terms of Executive's employment by General Textiles for a term beginning on March 30, 1998 (the "Effective Date"). NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term of Employment. Except upon earlier termination as provided in Section 9 hereof, Executive's employment under this Agreement shall be for a five year term commencing on the Effective Date and terminating on March 29, 2003 (the "Employment Term"). 2. Positions. (a) Executive shall serve as President and Chief Executive Officer of General Textiles. Executive shall report to the Board of Directors of General Textiles (the "Board") and shall have such duties and authority, consistent with his position as the Chief Executive Officer of General Textiles as shall be assigned to him from time to time by the Board. (b) During the Employment Term, Executive shall, without additional compensation, also (i) serve on the Board of Directors of FBC and perform such executive and consulting services for, or on behalf of, FBC and one or more other affiliates of General Textiles and FBC as the Board may, from time to time, request. General Textiles, FBC and such other affiliates are hereinafter referred to, collectively, as the "Company" and, individually, as a "Constituent Corporation". For purposes of this Agreement, the term "affiliate" shall have the meaning ascribed thereto in the Securities Exchange Act of 1934, as amended (the "Act"). 22 (c) During the Employment Term, Executive shall devote substantially all of his business time and efforts to the performance of his duties hereunder; provided, however, that Executive shall be permitted, to the extent that such activities do not materially interfere with the performance of his duties and responsibilities hereunder, to manage his personal financial and legal affairs and to serve on corporate, civic, or charitable boards or committees. Notwithstanding the foregoing, the Executive shall not serve on any corporate board of directors or similar body if such service would be inconsistent with his fiduciary responsibilities to any Constituent Corporation and in no event shall Executive serve on any such board or other body unless approved by the Board, which approval shall not be unreasonably withheld. 3. Base Salary. During the Employment Term, General Textiles shall pay to the Executive a base salary at the annual rate of not less than six hundred thousand dollars ($600,000). Base salary shall be payable in accordance with the usual payroll practices of General Textiles. Executive's base salary shall be subject to annual review by the Board or its designee and may be increased, but not decreased, from time to time. The base salary, as determined as aforesaid from time to time, shall constitute "Base Salary" for purposes of this Agreement. 4. Annual Bonus. Executive's annual bonus will be targeted at 50% of the Base Salary. The Board and the Executive will agree on annual targets, with final discretion residing with the Board. If the targets are exceeded, the Board may increase the bonus. If the targets are not met, the Board may reduce or withhold the bonus entirely. The Board will annually review whether a merit increase of the annual bonus is warranted. 5. Equity Compensation. (a) FBC will grant to Executive options under its incentive stock option plan ("ISO Plan") entitling Executive to acquire a total of three hundred thousand (300,000) shares of FBC's common stock at a price equal to the closing market price of such common stock on March 10, 1998, the date upon which General Textiles, FBC and the Executive came to an agreement as to the terms of this Agreement. The options granted to Executive pursuant to this Section 5 shall vest in increments of sixty thousand (60,000) shares on each of the first five anniversaries of the Effective Date. (b) As promptly as practicable following the Effective Date, the Executive shall purchase from FBC, at a purchase price of $1,000 per share, one thousand four hundred (1,400) shares of FBC's Series B preferred stock (the "Executive Stock"). FBC will lend to Executive, upon the terms and subject to the conditions set forth in Exhibit A hereto, an amount equal to the cost incurred by the Executive for the acquisition of the Executive Stock. 23 (c) Executive will grant to FBC an option (the "Buy-back Option") entitling FBC to acquire the Executive Stock, or the common shares into which the Executive Stock has been converted ("Conversion Shares"), from Executive in the event that Executive's employment under this Agreement is terminated for any reason other than pursuant to Section 9(a)(i), (ii) or (iii) hereof. The price at which FBC will be entitled to exercise the Buy-back Option shall be determined by reference to the following table: ================================================================================ Number of years elapsed 1 2 3 4 5 from the Effective Date ================================================================================ - - -------------------------------------------------------------------------------- Percentage of Executiv 80% 60% 40% 20% 0% Stock (or Conversion Shares) subject to the Buy-back Option - - -------------------------------------------------------------------------------- Exercise Price of the $1.75 $2.00 $2.25 $2.50 - Buy-back Option, assuming conversion into common stock ================================================================================ The number of shares of Executive Stock or Conversion Shares subject to the Buy-Back Option and the exercise price of the Buy-Back Option shall be determined by interpolation in the event of any exercise of the Buy-Back Option on any date other than an anniversary of the Effective Date. (d) FBC will grant to Executive, effective as of the Effective Date, further options (the "Further Options") entitling Executive to acquire a total of nine hundred thousand (900,000) shares of FBC's common stock at a price of two dollars ($2.00) per share. The Executive will be entitled to exercise the Further Options prior to the sixth anniversary of the Effective Date, provided that: (i) the Executive shall not be entitled to exercise any of the Further Options unless the closing market price of FBC's shares shall equal or exceed six dollars ($6.00) per share on sixty (60) trading days during any twelve (12) month period commencing at any time after the Effective Date and terminating prior to the termination, for any reason, of Executive's employment hereunder; (ii) the Executive shall be entitled to exercise not more than four hundred fifty thousand (450,000) of the Further Options if the closing market price of FBC's shares shall equal or exceed six dollars ($6.00) per share on, but shall fail to exceed seven dollars and fifty cents ($7.50) per share, on sixty (60) 24 trading days during any twelve (12) month period commencing at any time after the Effective Date and terminating prior to the termination, for any reason, of Executive's employment hereunder; and (iii) the Executive shall be entitled to exercise all of the Further Options if the closing market price of FBC's shares shall equal or exceed seven dollars and fifty cents ($7.50) for sixty (60) trading days during any twelve (12) month period commencing at any time after the Effective Date and terminating prior to the termination, for any reason, of Executive's employment hereunder. 6. Employee Benefits and Vacation. (a) During the Employment Term, Executive shall be entitled to participate in all pension, retirement, savings, welfare and other pension and welfare employee benefit plans and arrangements and fringe benefits and perquisites generally maintained by the Company from time to time for the benefit of senior executives of the Company, in accordance with their respective terms as in effect from time to time (other than any special arrangement entered into by contract with an executive). (b) During the Employment Term, Executive shall be entitled to vacation each year in accordance with the Company's policies in effect from time to time, but in no event less than four (4) weeks paid vacation per calendar year. The Executive shall also be entitled to such sick leave as is customarily provided by the Company for its senior executive employees. 7. Moving Expenses. The Executive shall be reimbursed, on an after-tax basis, for expenses incurred by the Executive in the relocation of his family to San Diego for the purpose of commencing Executive's employment with General Textiles pursuant to this Agreement. 8. Business Expenses. The Executive shall be reimbursed for the travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder, in accordance with policies generally applicable to senior executives of the Company as in effect from time to time. 9. Termination. (a) The employment of Executive under this Agreement shall terminate upon the occurrence of any of the following events: (i) the death of Executive; (ii) the termination by General Textiles of Executive's employment due to Executive's Disability pursuant to Section 9(b) hereof, 25 (iii) the termination by Executive of Executive's employment for Good Reason pursuant to Section 9(c) hereof; (iv) the termination by General Textiles of Executive's employment without Cause; (v) the termination by Executive of Executive's employment without Good Reason upon sixty (60) days prior written notice; or (vi) the termination by General Textiles of Executive's employment for Cause pursuant to Section 9(e) hereof. (b) Disability. If, by reason of the same or related physical or mental reasons, Executive is unable to carry out his material duties pursuant to this Agreement for more than six (6) months in any twelve (12) consecutive month period, General Textiles may terminate Executive's employment for Disability upon thirty (30) days prior written notice, by a Notice of Disability Termination. (c) Termination for Good Reason. A Termination for Good Reason means a termination by Executive by written notice given within ninety (90) days after the occurrence of the Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the occurrence or failure to cause the occurrence, as the case may be, without Executive's express written consent, of any of the following circumstances, unless such circumstances are fully corrected prior to the date of termination specified in the Notice of Termination for Good Reason (as defined in Section 9(d) hereof): (i) the material branch by the Company of any of its obligations to Executive under this Agreement or the failure of General Textiles to make timely payments of compensation or reimbursement pursuant to Section 3, 4, 7 or 8 hereof; (ii) any material diminution, after the Effective Date, of Executive's positions, duties or responsibilities hereunder, as of the Effective Date (except in each case in connection with the termination of Executive's employment for Cause or Disability or as a result of Executive's death, or temporarily as a result of Executive's illness or other absence and provided that a reduction in the size or number of the units reporting to Executive as a result of dispositions, shall not be a material diminution), or the assignment to Executive of duties or responsibilities that are inconsistent with Executive's position as the Chief Executive Officer of General Textiles; (iii) removal of, or the nonreelection of, the Executive from his position as the Chief Executive Officer of General Textiles; or (iv) a relocation of the principal executive offices of General Textiles to a location more than twenty-five (25) miles from San Diego, California or a relocation of Executive away from such principal executive office. (d) Notice of Termination for Good Reason. A Notice of Termination for Good Reason shall mean a notice that shall indicate the specific 26 termination provision in Section 9(c) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination for Good Reason. The failure by Executive to set forth in the Notice of Termination for Good Reason any fact or circumstance which contributes to the showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. The Notice of Termination for Good Reason shall provide for a date of termination not less than ten (10) nor more than sixty (60) days after the date such Notice of Termination for Good Reason is given, provided that in the case of the events set forth in Section 9(c)(ii) or (iii) the date may be two (2) days after the giving of such notice. (e) Cause. Subject to the notification provisions of Section 9(f) below, Executive's employment hereunder may be terminated by General Textiles for Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i) willful misconduct by Executive with regard to the Company; (ii) the refusal of Executive to follow the proper written direction of the Board or the Board of Directors of FBC; provided, however, that the foregoing refusal shall not be "Cause" if Executive in good faith believes that such direction is illegal, unethical or immoral and promptly so notifies the entity or person giving the direction; (iii) Executive being convicted of a felony; (iv) the willful breach by Executive of any fiduciary duty owed by Executive to any Constituent Corporation which has a material adverse effect on the Company; or (v) Executive's material fraud with regard to any Constituent Corporation. (f) Notice of Termination for Cause. A Notice of Termination for Cause shall mean a notice that shall indicate the specific termination provision in Section 10(e) relied upon and shall set forth in reasonable detail the facts and circumstances which provide a basis for Termination for Cause. Further, a Notification for Cause shall include a copy of a resolution duly adopted by at least a majority of the entire membership of the Board at a meeting of the Board which was called for the purpose of considering such termination and which Executive and his representative had the right to attend and address the Board, finding that, in the good faith opinion of the Board, Executive engaged in conduct set forth in the definition of Cause herein and specifying the particulars thereof in reasonable detail. The date of termination for a Termination for Cause shall be the date indicated in the Notice of Termination. Any purported Termination for Cause which is held by a court not to have been based on the grounds set forth in this Agreement or not to have followed the procedures set forth in this Agreement shall be deemed a Termination without Cause. 10. Consequences of Termination of Employment. (a) Death. If Executive's employment is terminated during the Employment Term by reason of Executive's death, the employment period under this Agreement shall terminate 27 without further obligations to the Executive's legal representatives under this Agreement except for (i) any compensation earned but not yet paid, including and without limitation, any declared but unpaid bonus, any amount of Base Salary or deferred compensation accrued or earned but unpaid, any accrued vacation pay payable pursuant to the Company's policies and any unreimbursed business expenses payable pursuant to Section 8, which amounts shall be promptly paid in a lump sum to Executive's estate; (ii) the product of (x) the target annual bonus for the fiscal year of Executive's death, multiplied by (y) a fraction, the numerator of which is the number of days of the current fiscal year during which Executive was employed by General Textiles, and the denominator of which is 365, which bonus shall be paid when bonuses for such period are paid to the other executives; (iii) full accelerated vesting, with a waiver of all performance based targets, under all outstanding equity-based and long-term incentive plans (with options remaining outstanding as provided under the applicable stock option plan and a pro rata payment under any long term incentive plans based on actual coverage under such plans at the time payments normally would be made under such plans); (iv) subject to Section 11 hereof, any other amounts or benefits owing to Executive under the then applicable employee benefit plans or policies of the Company, which shall be paid in accordance with such plans or policies; (v) payment on a monthly basis of twelve (12) months of Base Salary, which shall be paid to Executive's spouse, or if she shall predecease him, then to Executive's children (or their guardian if one is appointed) in equal shares; and (vi) payment of the spouse's and dependent's COBRA coverage premiums to the extent, and so long as, they remain eligible for COBRA coverage, but in no event more than three (3) years. (b) Disability. If Executive's employment is terminated by reason of Executive's Disability, Executive shall be entitled to receive the payments and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death; provided that the payment of Base Salary shall be reduced by the projected amount he would receive under any long-term disability policy or program maintained by the Company during the twelve (12) month period during which Base Salary is being paid. (c) Termination by Executive for Good Reason or for Change in Control. If (i) Executive terminates his employment hereunder for Good Reason during the Employment Term, or (ii) a Change in Control occurs and within 90 days thereafter Executive terminates his employment for any reason, Executive shall be entitled to receive the payments and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death. (d) Termination with Cause or Voluntary Resignation without Good Reason. If Executive's employment hereunder is terminated (i) by General Textiles for Cause or (ii) by Executive without Good Reason except within 90 days following 28 a Change in Control, the Executive shall be entitled to receive only his Base Salary through the date of termination, any earned but unpaid bonus, and any unreimbursed business expenses payable pursuant to Section 8. All other benefits (including without limitation restricted stock and options) due Executive following such termination of employment shall be determined in accordance with the plans, policies and practices applicable to Executive. (e) Termination by the Company Without Cause. If Executive's employment is terminated by the Company without cause, Executive shall be entitled to receive the payments and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death; provided, however, that Executive shall not be entitled to receive the benefit set forth in clause (iii) of Paragraph 10(a) hereof. 11. No Mitigation; No Set-Off. In the event of any termination of employment under Section 9, Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain. Any amounts due under Section 10 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. Such amounts are inclusive and in lieu of any amounts payable under any other salary continuation or cash severance arrangement of General Textiles or any affiliate thereof and to the extent paid or provided under any other such arrangement shall be offset from the amount due hereunder. 12. Change in Control. (a) Subject to the provisions of Section 12(b) hereof, for purposes of this Agreement, the term "Change in Control" shall mean (a) the sale of all or substantially all of the assets of the Company in the aggregate, whether pursuant to a single transaction or pursuant to a series of transactions and whether through an asset sale or stock sale, other than to an affiliate; (b) any "person" (as defined in the Act) not an affiliate of FBC on the Effective Date becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of FBC representing fifty (50%) or more of the combined voting power of FBC's then outstanding securities; (c) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with FBC to effect a transaction described in this paragraph) whose election by the Board of Directors of FBC or nomination for election by FBC's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; (d) the stockholders of FBC approve a merger or consolidation of FBC with any other 29 corporation, other than a merger or consolidation which would result in the voting securities of FBC outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of FBC or such surviving entity outstanding immediately after such merger or consolidation; or (e) the stockholders of FBC approve a plan of complete liquidation of FBC or an agreement for the sale or disposition by FBC of all or substantially all of FBC's assets other than the sale of all or substantially all of the assets of FBC to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of FBC at the time of the sale. (b) General Textiles, FBC and Searles acknowledge that General Textiles and FBC currently have under consideration the possibility of effecting a restructuring of such corporations. Notwithstanding anything to the contrary set forth herein, it is agreed that no restructuring, recapitalization, reorganization, merger, consolidation or similar transaction involving General Textiles, FBC or any affiliate thereof (but not involving any unaffiliated third party) shall be deemed to constitute a Change of Control hereunder unless, upon consummation thereof, an actual change in control over the Company, within the meaning of the Act, from that in effect on the Effective Date shall have taken place. 13. Confidential Information, Non-Competition and Non-Solicitation of the Company. (a) (i) Executive acknowledges that, as a result of his employment hereunder, Executive will obtain secret and confidential information of the Company and the Company will suffer substantial damage, which would be difficult to ascertain and in an amount which would be difficult to compute, if Executive should use any of such confidential information and that because of the nature of the information that will be known to Executive it is necessary for the Company to be protected by the prohibition against Competition as set forth herein, as well as the Confidentiality restrictions set forth herein. (ii)Executive acknowledges that the retention of nonclerical employees of the Company, in which the Company has invested training and on which the Company depends for the operation of its business, is important to the businesses of the Company; Executive will obtain unique information as to such employees as an executive of the Company and will develop a unique relationship with such persons as a result of being an executive of the Company; and, therefore, it is necessary for the Company to be protected from Executive's Solicitation of such employees as set forth below. (iii)Executive acknowledges that the provisions of this Agreement are reasonable and necessary for the protection of the business of the 30 Company and that part of the compensation paid under this Agreement and the agreement to pay severance in certain instances is in consideration for the agreements in this Section 13. (b) As used herein, "Competition" shall mean: participating, directly or indirectly, as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, consultant or in any capacity whatsoever (within the United States of America, or in any other country where any Constituent Corporation does business) in a business in competition with any business conducted any Constituent Corporation; provided, however, that such participation shall not include (i) the ownership of not more than one percent (1%) of the total outstanding stock of a publicly-held company; or any activity engaged in with the prior written approval of the Board. (c) As used herein, "Solicitation" shall mean recruiting, soliciting or inducing any nonclerical employee of any Constituent Corporation to terminate his or her employment with, or otherwise cease his or her relationship with, such Constituent Corporation or hiring, or assisting another person or entity to hire, any nonclerical employee of any Constituent Corporation or any person who, within six (6) months before, had been a nonclerical employee of any Constituent Corporation, unless the employment of such person by a Constituent Corporation was terminated involuntarily and without cause. (d) If any restriction set forth with regard to Competition or Solicitation is found by any court of competent jurisdiction, or an arbitrator, to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend over the maximum period of time, range of activities or geographic area as to which it may be enforceable. If any provision of this Section 13 shall be declared to be invalid or unenforceable, in whole or in part, as a result of the foregoing, as a result of public policy or for any other reason, such invalidity shall not affect the remaining provisions of this Section which shall remain in full force and effect. (e) During and after the Employment Term, Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company and its business, including any confidential information as to suppliers (i) obtained by Executive during his employment by the Company and (ii) not otherwise in the public domain. Executive shall not, without prior written consent of the Company, unless compelled pursuant to the order of a court or other governmental or legal body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company, and those designated by it. In the event Executive is compelled by order of a court or other governmental or legal body to communicate or 31 divulge any such information, knowledge or data to anyone other than the foregoing, he shall promptly notify the Company of any such order and he shall cooperate fully with the Company in protecting such information to the full extent possible under applicable law. (f) Upon termination of his employment with General Textiles, or at any time General Textiles may request, Executive will promptly deliver to General Textiles, as requested, all documents (whether prepared by the Company, Executive or a third party) relating to the Company or any of its business or property which he may possess or have under his direction or control, other than his personal employment and personnel records. (g) During the Employment Term and for one (1) year thereafter, Executive will not enter into Competition with the Company. Furthermore, in the event of any termination of Executive's employment for any reason whatsoever, whether by the Company or by the Executive and whether or not for Cause, Good Reason or expiration of the Employment Term, the Executive will not engage in Solicitation for three (3) years thereafter. (h) Executive acknowledges that in the event of a breach of this Section 13, the Company will be caused irreparable injury and money damages may not be an adequate remedy. Consequently, Executive agrees that the Company shall be entitled to injunctive relief (in addition to its other remedies at law) to have the provisions of this Section 13 enforced. 14. Indemnification. (a) The Company agrees that if Executive is made a party to or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director or officer of any Constituent Corporation or is or was serving at the request of any Constituent Corporation as a director, officer, member, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a director, officer, member, employee, fiduciary or agent while serving as a director, officer, member, employee, fiduciary or agent, he shall be indemnified and held harmless by the applicable company to the fullest extent authorized by applicable law against all Expenses incurred or suffered by Executive in connection therewith, and such indemnification shall continue as to Executive even if Executive has ceased to be an officer, director, member, fiduciary or agent, or is no longer employed by such company, and shall inure to the benefit of his heirs, executors and administrators. 32 (b) As used in this Agreement, the term "Expenses" shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties, excise taxes, settlements and costs, attorneys' fees, accountants' fees, and disbursements and costs of attachment or similar bonds, investigations, and any expenses of establishing a right to indemnification under this Agreement. (c) Expenses incurred by Executive in connection with any Proceeding shall be paid in advance upon request of Executive and the giving by the Executive of any undertakings required by applicable law. (d) Executive shall give the Company notice of any claim made against him for which indemnity will or could be sought under this Agreement. In addition, Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within Executive's power and at such times and places as are reasonably convenient for Executive. (e) With respect to any Proceeding as to which Executive notifies the Company of the commencement thereof: (i) The Company will be entitled to participate therein at its own expense; and (ii) Except as otherwise provided below, to the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Executive, in which case Executive also shall have the right to employ his own counsel in such action, suit or proceeding, but only at his own cost and expense, provided that the Company shall only be permitted to assume defense of a Proceeding if (1) the Proceeding could not result in imposition of criminal penalties against Executive and (2) the Company acknowledges that it is liable to indemnify Executive with respect to all Expenses with respect to such Proceedings, except as provided earlier in this sentence with regard to Executive's own counsel. (f) The Company shall not be liable to indemnify Executive under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty on Executive (except a penalty in respect of which Executive is fully indemnified hereunder) without Executive's written consent. Neither the Company nor Executive will unreasonably withhold or delay consent to any proposed settlement. (g) The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Section 14 shall not be exclusive of any other right which Executive may have or 33 hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the any company, agreements, vote of stockholders or disinterested directors or otherwise. (h) The Company shall obtain officer and director liability insurance policies covering Executive in the same aggregate amount and under the same terms as are maintained by the Company for senior officers and directors. 15. Miscellaneous. (a) Entire Agreement/Amendments. This Agreement and the instruments contemplated herein, contain the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (b) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any such waiver must be in writing and signed by Executive or an authorized officer of General Textiles, as the case may be. (c) Assignment. This Agreement shall not be assignable by Executive. This Agreement shall be assignable by General Textiles, but only to another Constituent Corporation and only if such Constituent Corporation promptly assumes all of the obligations hereunder of General Textiles in a writing delivered to the Executive and otherwise complies with the provisions hereof with regard to such assumption. Upon such assignment and assumption, all obligations of General Textiles herein shall be the obligations of the assignee entity or acquiror, as the case may be, but General Textiles shall remain secondarily liable for the obligations hereunder. (d) Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon the personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees legatees and permitted assignees of the parties hereto. (e) Communications. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two 34 business days after being mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the initial page of this Agreement, provided that all notices to General Textiles or FBC shall be directed to the Chairman of the Board of Directors of General Textiles and FBC or to such other address as any party may have furnished to the other in writing in accordance herewith. Notice of change of address shall be effective only upon receipt. (f) Withholding Taxes. The Company may withhold from any and all amounts payable under this Agreement to Executive such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. (g) Survival. The respective rights and obligations of the parties hereunder shall survive any termination of Executive's employment to the extent necessary to the agreed preservation of such rights and obligations. (h) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. (i) Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. GENERAL TEXTILES By:/s/ James D. Somerville FAMILY BARGAIN CORPORATION By:/s/ James D. Somerville /s/ Michael Searles Michael Searles 35 EXHIBIT A Terms of Loan Principal Amount: $1,400,000 Interest Rate: 8%, to accrue and be paid at maturity Principal Amortization: Annual repayments of principal in an amount equal to 16.25% of the annual bonus paid to the borrower by General Textiles Maturity: Five years from the date of the loan Security and Recourse: The loan will be secured by a pledge of the shares purchased with the proceeds of the loan. Personal recourse against the borrower will be limited to the amount of $600,000. EX-10 5 EXHIBIT 10.4 NOTE EXCHANGE AGREEMENT This is an agreement dated April 27, 1998 among General Textiles (the "Company"), a California corporation, Family Bargain Corporation ("Family Bargain") American Endeavour Fund Ltd., a Jersey corporation ("Endeavour") and London Pacific Life Annuity Company ("London Pacific," and together with Endeavour, the "Noteholders"), a North Carolina joint stock life insurer, regarding the exchange by the Noteholders (a) of $4,900,000 principal amount of Subordinated Reorganization Notes (the "Old Subordinated Notes") for $3,250,000 principal amount of Subordinated Notes due 2003 ("New Subordinated Notes"), and (b) a total of $17,335,097.65 principal amount of Junior Subordinate Reorganization Notes (the "Old Junior Notes") for (i) $17,335,097.65 principal amount of Junior Subordinated Notes due 2005 ("New Junior Notes"), warrants ("Warrants") entitling the holders to purchase a total of 274,418 shares of common stock, par value $.01 per share, of the Company ("Common Stock") and 75,000 shares of Common Stock (the "Shares"). The agreement of the parties is as follows: ARTICLE I EXCHANGE OF NOTES SECTION 01 Exchange of Notes. At the Closing described in Paragraph 2.01, each of the Noteholders will Exchange the principal amount of Old Subordinated Notes and Old Junior Notes listed next to the name of that Noteholder on Exhibit 1.01 for the principal amounts of New Subordinated Notes, Junior Notes and Warrants or shares Common Stock shown opposite that Noteholder's name on Exhibit 1.01. ARTICLE II THE CLOSING SECTION 2.01 Place and Time of the Closing. The closing of the exchange of Old Subordinated Notes and Old Junior Notes for New Subordinated Notes, New Junior Notes, Warrants and Shares (the "Closing") will take place at the offices of Rogers & Wells, 200 Park Avenue, New York, New York at 11:00 A.M., New York City time, on April 30, 1998 (the "Closing Date"). SECTION 2.02 Occurrences at the Closing. At the Closing, the Company will deliver to each Noteholder the following: (i)A copy, executed by the Company, of a Subordinated Note Agreement (the "Subordinated Note Agreement") substantially in the form of Exhibit 2.02-A(1). (ii) A New Subordinated Note, in the principal amount shown on Exhibit 1.01. (iii) A copy, executed by the Company, of a Junior Subordinated Note Agreement (the "Junior Note Agreement') substantially in the form of Exhibit 2.02-A(3). 37 (iv) A New Junior Subordinated Note in the principal amount shown on Exhibit 1.01. The New Subordinated Notes will be in the form of Exhibit A to the Subordinated Note Agreement and the New Junior Notes will be in the form of Exhibit A to the Junior Note Agreement. The New Subordinated Note and the New Junior Note issued to a Noteholder each will be registered in the name of that Noteholder, and each may bear a legend to the effect that it was issued in a transaction which was not registered under the Securities Act of 1933, as amended, and it may not be sold or transferred except in a transaction which is registered under that Act or is exempt from the registration requirements of that Act. (b) At the Closing, Family Bargain will deliver to the Noteholders the following: (i) To Endeavour, a certificate, registered in the name of Endeavour, representing the Shares. (ii)To London Pacific, a Warrant, substantially in the form of Exhibit 2.02-B(2), registered in the name of London Pacific, relating to 274,418 shares of Common Stock. (iii)To each of the Noteholders, a copy, executed by Family Bargain, of a Registration Rights Agreement (the "Registration Rights Agreement") substantially in the form of Exhibit 2.02-B(3). The certificates representing the Shares and the Warrant delivered at the Closing each may bear a legend to the effect that the Shares were, or the Warrant was, issued in a transaction which was not registered under the Securities Act of 1933, as amended, and may not be sold or transferred except in a transaction which is registered under that Act or is exempt from the registration requirements of that Act. (c) At the Closing, each Noteholder will deliver to the Company the following: (i)Old Subordinated Notes and Old Junior Notes in the aggregate principal amount shown on Exhibit 1.01, in proper form for transfer to the Company in accordance with Article 8 of the Uniform Commercial Code as in effect in New York (or, if Old Subordinated Notes or Old Junior Notes have been lost, an affidavit of lost notes in the form of Exhibit 2.02-C relating to the lost Old Subordinated Notes or Old Junior Notes, accompanied by a document assigning the lost Old Subordinated Notes or Old Junior Notes to the Company). (ii) A copy, executed by the Noteholder, of the Subordinated Note Agreement. (iii) A copy, executed by the Noteholder, of the Junior Note Agreement. (iv) A document, executed by the Noteholder, in which the Noteholder states that the New Subordinated Notes, New Junior Notes and Warrants or Shares the Noteholder receives at the Closing are in full satisfaction of all obligations of the Company with regard to the Old Subordinated Notes and the Old Junior Notes being delivered, or which are the subject of the affidavit of lost notes being delivered, by the Noteholder at the Closing, and with regard to the indebtedness which resulted in the issuance of the Old Subordinated Notes and the Old Junior Notes to the Noteholder or its predecessor in interest. 38 (v)A letter stating that the Noteholder will be acquiring New Subordinated Note, the New Junior Note and the Warrant or Shares which are being issued to it at the Closing for investment, and not with a view to the resale or distribution of any of them. (vi) A letter in which the Noteholder consents to any and all of (i) a merger of the Company for the sole purpose of reincorporating in Delaware, (ii) a merger of the Company with Factory 2-U and (iii) a merger of the Company with Family Bargain. (vii) A copy, executed by the Noteholder of the Registration Rights Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01 Representations and Warranties of the Company and Family Bargain. The Company and Family Bargain jointly and severally represent and warrant to each Noteholder as follows: The Company and Family Bargain each is a corporation duly incorporated, validly existing and in good standing under the laws of the state in which it was incorporated. The Company and Family Bargain each has all corporate power and authority necessary to enable it to enter into this Agreement and carry out the transactions contemplated by this Agreement. All corporate actions necessary to authorize each of the Company and Family Bargain to enter into this Agreement and carry out the transactions contemplated by it have been taken. This Agreement has been duly executed by the Company and by Family Bargain and is a valid and binding agreement of each of them, enforceable against each of them in accordance with its terms. Neither the execution or delivery of this Agreement or of any document to be delivered in accordance with this Agreement, nor the consummation of the transactions contemplated by this Agreement or by any document to be delivered in accordance with this Agreement, will violate, result in a breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, the Articles or Certificate of Incorporation or by-laws of the Company or Family Bargain, any agreement or instrument to which the Company or Family Bargain or any of their respective subsidiaries is a party or by which any of them is bound, any law, or any order, rule or regulation of any court or governmental agency or any other regulatory organization having jurisdiction over the Company, Family Bargain or any of their respective subsidiaries. When executed and delivered at the Closing, (i) the Subordinate Note Agreement and the Junior Note Agreement each will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, (ii) each of the New Subordinated Notes and New Junior Notes which the Company is required to deliver at the Closing will be a valid and binding debt instrument of the Company, enforceable against the Company in accordance with its terms and (iii) the Warrant issued at the Closing and the Registration Rights Agreement each will be a valid and binding agreement of Family Bargain, enforceable against Family Bargain in accordance with its terms. When issued at the Closing, the Shares will be, and when shares of Common Stock are issued upon exercise of Warrants, those shares will be, validly authorized, duly issued, fully paid and non-assessable. 39 No governmental filings, authorizations, approvals or consents, or other governmental actions, are required to permit the Company or Family Bargain to fulfill all its obligations under this Agreement. When it is filed with the Securities and Exchange Commission, Family Bargain's Annual Report on Form 10-K for the fiscal period ended January 31, 1998 (the "Family Bargain 10-K") will (i) comply in all material respects with the requirements for a report on Form 10-K, (ii) not contain a misstatement of a material fact or omit to state any material fact necessary to make the statements in it not misleading, and (iii) not differ materially from the draft which is Exhibit 3.01-G to this Agreement. Since the dates as of which information is provided in the Family Bargain 10-K, there has been no material adverse change (other than as a result of normal seasonal factors) in the business, financial condition or results of operations of Family Bargain and its subsidiaries taken as a whole. SECTION 3.02 Noteholders' Representations and Warranties. Each Noteholder, for itself but not for any other Noteholder, represents and warrants to the Company and to Family Bargain as follows: The Noteholder is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated. The Noteholder has all corporate power and authority necessary to enable it to enter into this Agreement and carry out the transactions contemplated by this Agreement. All corporate actions necessary to authorize the Noteholder to enter into this Agreement and carry out the transactions contemplated by it and have been taken. This Agreement has been duly executed by the Noteholder and is a valid and binding agreement of the Noteholder, enforceable against the Noteholder in accordance with its terms. Neither the execution of this Agreement or any document to be delivered in accordance with this Agreement nor the consummation of the transactions contemplated by this Agreement or by any document to be delivered in accordance with this Agreement will violate, result in a breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under the Certificate or Articles of Incorporation or by-laws (or comparable organic documents) of the Noteholder, any agreement or instrument to which the Noteholder is a party or by which it is bound, any law or any order, rule or regulation of any court or governmental agency or other regulatory organization having jurisdiction over the Noteholder. When executed and delivered at the Closing, the Subordinated Note Agreement, the Junior Note Agreement and the Registration Rights Agreement each will be a valid and binding agreement of the Noteholder, enforceable against the Noteholder in accordance with its terms. The Noteholder owns the Old Subordinated Notes and the Old Junior Notes listed opposite the Noteholder's name on Exhibit 1.01, free and clear of any liens, encumbrances or claims by anyone else, the Noteholder has not transferred to anyone else any interest in those Old Subordinated Notes or Old Junior Notes, the Noteholder has full power and authority to transfer those Old Subordinated Notes and the Old Junior Notes to the Company, and when the Noteholder transfers those Old Subordinated Notes and Old Junior Notes to the Company, the Noteholder will have no further interest in those Old Subordinated Notes and Old Junior Notes, and neither the Noteholder nor anyone else will be entitled to receive any sum (including any sum which may be due at the time of the transfer) with regard to them. 40 No governmental filings, authorizations, approvals or consents, or other governmental actions, are required to permit the Noteholder to fulfill all its obligations under this Agreement. ARTICLE IV COVENANT SECTION 4.01 Effort to Prepay New Subordinated Notes. Family Bargain and General Textiles will use their best efforts to complete by June 30, 1998, or as soon as practicable after that, a sale of equity securities of Family Bargain or General Textiles which will provide funds sufficient to enable General Textiles to prepay the principal of the New Subordinated Notes in full, and promptly after completion of that sale of equity securities, General Textiles will prepay the principal of the New Subordinated Notes in full. ARTICLE V CONDITIONS PRECEDENT TO CLOSING SECTION 5.01 Conditions to Company's Obligations. The obligations of the Company and Family Bargain at the Closing are subject to satisfaction of the following conditions (any or all of which may be waived by Family Bargain): The representations and warranties of each of the Noteholders contained in this Agreement will, except as contemplated by this Agreement, be true and correct in all material respects at the Closing Date with the same effect as through made on that date. Each of the Noteholders will have fulfilled in all material respects all its obligations under this Agreement required to have been fulfilled prior to or at the Closing. No order will have been entered by any court or governmental authority and be in force which invalidates this Agreement or restrains the Company or Family Bargain from completing the transactions which are the subject of this Agreement. SECTION 5.02 Conditions to Noteholders' Obligations. The obligations of each of the Noteholders at the Closing are subject to the following conditions (any or all of which may be waived by any Noteholder as to itself): The representations and warranties of the Company and Family Bargain contained in this Agreement will, except as contemplated by this agreement, be true and correct in all material respects at the Closing Date, with the same effect as though made on that date. The Company and Family Bargain each will have fulfilled in all material respects all its obligations to that Noteholder under this Agreement required to have been fulfilled prior to or at the Closing. 41 No order will have been entered by any court or governmental authority and be in force which invalidates this Agreement or restrains that Noteholder from completing the transactions which are the subject of this Agreement. ARTICLE VI ABSENCE OF BROKERS SECTION 6.01 Representations and Warranties Regarding Brokers and Others. The Company and Family Bargain jointly and severally represent to each of the Noteholders, and each Noteholder represents to the Company and Family Bargain,as to that Noteholder but not as to any other Noteholder, that nobody acted as a broker, a finder or in any similar capacity on its behalf in connection with the transactions which are the subject of this Agreement. The Company and Family Bargain jointly and severally indemnify each of the Noteholders against and agree to hold each of the Noteholders harmless from, and each of the Noteholders indemnifies each of the Company and Family Bargain against and agrees to hold each of the Company and Family Bargain harmless from, all losses, liabilities and expenses, including, but not limited to, reasonable fees and expenses of counsel and costs of investigation) incurred because of any claim by anyone for compensation as a broker, a finder or in any similar capacity by reason of services allegedly rendered to the indemnifying party in connection with the transactions which are the subject of this Agreement. ARTICLE VII GENERAL SECTION 7.01 Expenses. The Company, Family Bargain and each of the Noteholders will pay its own expenses in connection with transactions which are the subject of this Agreement, except that the Company will reimburse Endeavour for fees and expenses of legal counsel up to a maximum of $15,000. SECTION 7.02 Entire Agreement. This Agreement and the documents to be delivered in accordance with this Agreement contain the entire agreement among the Company, Family Bargain and the respective Noteholders relating to the transactions which are the subject of this Agreement and those other documents, all prior negotiations, understandings and agreements among the Company, Family Bargain and the respective Noteholders are superseded by this Agreement and those other documents, and there are no representations, warranties, understandings or agreements concerning the transactions which are the subject of this Agreement or those other documents other than those expressly set forth in this Agreement or those other documents. SECTION 7.03 Captions.The captions of the articles and sections of this Agreement are for reference only, and do not affect the meaning or interpretation of this Agreement. SECTION 7.04 Notices and Other Communications. Any notice or other communication under this Agreement must be in writing and will be deemed given when delivered in person or sent by facsimile (with proof of receipt at the number to which it is required to be sent) or on the third business day after the day on which mail by first class mail from within the United States of America, addressed if to the Company or Family Bargain, at 4000 Ruffin Road, San Diego, CA 92123, Facsimile No. (619) 637-4180, and if to any Noteholder, at the address or facsimile number shown under that Noteholder's name on the signature page of this Agreement or as otherwise shown on the Company's register of Noteholders. The address or facsimile number to which communications should be sent to the Company or to a Noteholder may be changed by a notice given as provided in this Section. 42 SECTION 7.05 Governing Law. This Agreement will be governed by, and construed under, the substantive laws of the State of New York. SECTION 7.06 Amendments. This Agreement may be amended only by a document in writing signed by the Company and, if an amendment affects any Noteholder, signed by that Noteholder. SECTION 7.07 Counterparts. This Agreement may be executed in two or more counterparts, some of which may be signed by fewer than all the parties and may be delivered by facsimile transmission, each of which will be deemed an original, but all of which together will constitute one and the same agreement. IN WITNESS WHEREOF, the Company, Family Bargain and the Noteholders have executed this Agreement, intending to be legally bound by it, on the date shown on the first page of this Agreement. THE COMPANY: GENERAL TEXTILES By: Title: FAMILY BARGAIN: FAMILY BARGAIN CORPORATION By: Title: NOTEHOLDERS: AMERICAN ENDEAVOUR FUND LIMITED By: Title: c/o Kleinwort Benson (US) Asset Managers LLC 75 Wall Street, 24th Floor New York, New York 10005 Attention: Richard H. Wolf Facsimile No.: (212) 429-3099 LONDON PACIFIC LIFE & ANNUITY COMPANY By: Title: 3109 Poplarwood Court, Suite 1800 Raleigh, North Carolina 27604 Attention: Susan Y. Gressel Facsimile No.: (919) 981-2797 43 EXHIBIT 1.01 - - ---------------------- --------------------------- ---------------------------- Noteholder Endeavour London Pacific - - ---------------------- --------------------------- ---------------------------- - - ---------------------- --------------------------- ---------------------------- Old Subordinated Notes 2,338,978.56 2,561,021.44 - - ---------------------- --------------------------- ---------------------------- - - ---------------------- --------------------------- ---------------------------- Old Junior Notes 8,274,779.95 9,060,317.70 - - ---------------------- --------------------------- ---------------------------- - - ---------------------- --------------------------- ---------------------------- New Subordinated Notes 1,551,363.33 1,698,636.67 - - ---------------------- --------------------------- ---------------------------- - - ---------------------- --------------------------- ---------------------------- New Junior Notes 8,274,779.94 9,060,317.71 - - ---------------------- --------------------------- ---------------------------- - - ---------------------- --------------------------- ---------------------------- Shares 75,000 0 - - ---------------------- --------------------------- ---------------------------- - - ---------------------- --------------------------- ---------------------------- Warrants 0 274,418 - - ---------------------- --------------------------- ---------------------------- EX-10 6 EXHIBIT 10.5(A) SUBORDINATED NOTE AGREEMENT THIS SUBORDINATED NOTE AGREEMENT (the "Agreement") is made and entered into as of this day of April, 1998 by and among GENERAL TEXTILES, a California corporation (the "Company"), AMERICAN ENDEAVOUR FUND LIMITED, a Jersey corporation ("Endeavour"), and LONDON PACIFIC LIFE & ANNUITY COMPANY, a North Carolina joint stock life insurer ("London Pacific"). Endeavour and London Pacific shall sometimes be referred to herein collectively as the "Noteholders." RECITAL The Company and the Noteholders have entered into a Note Exchange Agreement in which they have agreed that the Company will issue $3,250,000 principal amount of Notes to the Noteholders in exchange for $4,900,000 principal amount of the Company's Subordinated Reorganization Notes. AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extension of credit by the Noteholders to or on behalf of the Company heretofore, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE DEFINITIONS AND INCORPORATION BY REFERENCE "Actual Knowledge" means the actual knowledge of any executive officer of the Company; provided, however, that each executive officer of the Company shall be deemed to have actual knowledge of any fact that would have come to such officer's attention if he or she had exercised reasonable care in performing his or her duties, given the nature of his or her duties and the Company's business and organization. "Affiliate" means (i) any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, (ii) any spouse, immediate family member or other relative, provided such individual has the same principal residence, of any Person described in clause (i) above, (iii) any trust in which any Person described in clauses (i) or (ii) above has a beneficial interest, and (iv) any corporation or other organization of which the Persons described in clauses (i) or (ii) above individually or collectively own a general partnership interest or equity securities or trust certificates with more than five percent (5%) of the total voting power for the election of directors or persons exercising similar authority of such corporation or other organization; provided, however, that the term Affiliate shall not include any wholly owned subsidiary of the Company. For this purpose, "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Board of Directors" means the Board of Directors of the Company or any committee of the Board authorized to act for it. 45 "Business Day" means any day other than a Legal Holiday. "Company" means General Textiles, a California corporation, and its successors and assigns. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Debtors' Laws. "Debtors' Laws" means all applicable liquidation, conservatorship, bankruptcy, moratorium, fraudulent conveyance, arrangement, receivership, insolvency, reorganization or similar laws or general equitable principles from time to time in effect affecting the rights of creditors generally. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Endeavour" means American Endeavour Fund Limited, a Jersey Corporation. "Event of Default" has the meaning assigned to such term in Section 5.01 hereof. "Factory 2-U" means Factory 2-U, Inc., a Delaware corporation which, at the date of this Agreement, is wholly owned by Family Bargain. "Family Bargain" means Family Bargain Corporation, a Delaware corporation which, at the date of this Agreement, is the sole stockholder of the Company. "Indebtedness" means, with respect to any Person and without duplication, all: (i) liabilities or obligations, direct and contingent, matured or unmatured, liquidated or unliquidated, including, without limitation, trade debt; (ii) liabilities or obligations of others for which such Person is directly or indirectly liable, by way of guaranty (whether by direct guaranty, suretyship, discount, endorsement, take-or-pay agreement, agreement to purchase or advance or keep in funds or other agreement having the effect of a guaranty) or otherwise; (iii) liabilities or obligations secured by liens on any assets of such Person, whether or not such liabilities or obligations shall have been assumed by it; and (iv) liabilities or obligations of such Person, direct or contingent, with respect to letters of credit issued for the account of such Person and bankers' acceptances created for such Person, whether now in existence or hereafter incurred; and (v) the Notes and the Junior Subordinated Notes. "IRS" means the United States Internal Revenue Service. "Junior Subordinated Notes" means the Company's Junior Subordinated Notes in the aggregate principal amount of $17,335,097.65. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions are not required to be open in New York, New York or San Diego, California. "London Pacific" means London Pacific Life & Annuity Company, a North Carolina joint stock life insurer. "Maturity Date" means May 28, 2003. "Noteholders" has the meaning assigned to such term in the preamble to this Agreement. 46 "Notes" means the Company's Subordinated Notes due 2003, which Notes shall be substantially in the form set forth in Exhibit A attached hereto and made a part hereof, and "Note" shall mean any one of the Notes. "Officer" means the Chairman of the Board, the President, any Vice-President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Senior Indebtedness" means the principal of and premium, if any, on all Indebtedness of the Company, whether outstanding on the date hereof or hereafter incurred or created, for money borrowed from banks, insurance companies or other companies engaged in lending money as a regular part of their business, other than (i) the Notes, (ii) the Junior Subordinated Notes, and (iii) any indebtedness of Family Bargain which becomes Indebtedness of the Company solely because of a merger of Family Bargain and the Company. ARTICLE 2. THE NOTES Section 2.01 The Subordinated Notes due 2005. The Company is authorized to execute and deliver Subordinated Notes due 2005 (each a "Note" and collectively the "Notes"), substantially in the form of Exhibit A attached hereto and made a part hereof. The Notes shall have an aggregate principal amount of not more than Three Million Two Hundred Fifty Thousand Dollars ($3,250,000). SECTION 2.02 Interest. If the entire principal of the Notes is paid by May 28, 1998, the Notes will not bear interest. After May 28, 1998, the Notes will bear interest, payable quarterly in arrears not later than the fifteenth (15th) day after the end of each calendar quarter. Between May 29, 1998 and March 31, 1999, the Note shall bear interest at the rate of nine and two-tenths percent (9.2%) per annum from May 28, 1998. If any principal balance remains outstanding on April 1, 1999, the interest rate on the Note will increase on such date, and on the first day of each successive calendar quarter thereafter (i.e., April 1, July 1, October 1 and so forth) by one hundred (100) basis pints (i.e., so that the per annum interest rate on the Notes shall increase by one full percent (1%) of the principal of the Notes as of the first day of each calendar quarter commencing April 1, 1999); provided, however, that the interest rate on the Notes shall not exceed thirteen and two-tenths percent (13.2%) per annum. Interest on the principal amounts of the Notes outstanding shall be computed on the basis of the actual days elapsed in a year of 360 days from the last day on which interest has been paid (or, if no interest has been paid from the day on which interest began to accrue) a 360 day year, actual days elapsed, from the date accrued until paid. The Company shall allocate all payments on the Notes (including payments of interest) pro rata as nearly as practicable among the Notes based on the outstanding principal balances thereof. Payments on the Notes shall be applied first to accrued but unpaid interest and then to principal. SECTION 2.03 Payments of Principal. The Company will be required to pay the principal of each Note in installments as follows: 47 ------------------------ ---------------------------------- Principal Payment Percentage of Original Date Principal Amount to be Paid ------------------------ ---------------------------------- ------------------------ ---------------------------------- December 31, 1999 5.768644% December 31, 2000 5.768644% December 31, 2001 11.537287% December 31, 2002 11.537287% Maturity Date 65.388138% 100.000000% ------------------------ ---------------------------------- The Notes will mature on the Maturity Date and all principal and interest which has not been paid prior to the Maturity Date will be due and payable on the Maturity Date. SECTION 2.04 Prepayment. The Company may prepay all or any portion of the principal of the Notes at any time without prepayment penalty or premium. Each prepayment will be accompanied by all accrued but unpaid interest on the principal amount being prepaid to the date of the prepayment. If fewer than all of the Notes are to be prepaid, the Company shall allocate the total principal amount to be prepaid pro rata as nearly as practicable among the Notes based on the outstanding principal balances thereof. Any Note which is to be prepaid only in part shall be surrendered to the Company (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder of such Note or its attorney duly authorized in writing), and the Company shall execute for the holder of such Note a new Note equal in principal amount to the unprepaid portion of the Note surrendered and identical to the Note surrendered in all other respects. SECTION 2.05 Overdue Payments; Business Days. If any principal or interest of any of the Notes is not paid when due, then interest shall accrue on the entire principal amount of the Notes outstanding from the date such overdue principal or interest is due until it is paid at the rate which is 300 basis points higher than the interest rate which would otherwise apply to the Notes under Section 2.02, compounded quarterly, or at the maximum rate permitted by law, whichever is less. Whenever any payment of principal or interest on any of the Notes shall be stated to be due, or whenever any date specified in this Agreement or in any of the Notes would otherwise occur on a Legal Holiday, such payment shall be made, and such other date shall occur, on the next succeeding Business Day. Any such extension of time shall be included in the computation of interest payable. ARTICLE 3. SUBORDINATION OF NOTES SECTION 3.01 Agreement to Subordinate. The Company agrees, and each holder of Notes, by accepting Notes, agrees, that all Notes shall be issued subject to the provisions of this Article 3 and each holder of a Note, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to and shall be bound by such provisions. All Notes, to the extent and in the manner set forth in this Article 3, shall be subordinated and subject in right of payment to the prior payment in full of the principal of, premium, if any, on and interest on all Senior Indebtedness. 48 SECTION 3.02 No Payment on Notes if Senior Indebtedness in Default. In addition to the restrictions set forth in Section 2.03 hereof, no payment on account of the principal of, or interest on, the Notes shall be made if, at the time of such payment or immediately after giving effect thereto, (a) there shall exist a default in the payment of principal, premium, if any, sinking funds, or interest with respect to any Senior Indebtedness, or (b) there shall have occurred any other event of default (of which the Company shall have received notice from any holder or trustee with respect to any Senior Indebtedness) relating to any Senior Indebtedness, as defined therein or in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. In the event that the Notes are declared due and payable before their expressed maturity because of the occurrence of an Event of Default, the holders of Senior Indebtedness shall be entitled to receive payment in full of all principal (and premium, if any) and interest with respect to such indebtedness before the holders of the Notes shall be entitled to receive any payment on account of principal or otherwise. SECTION 3.03 Priority of Senior Indebtedness upon Distribution of Assets. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors in the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company or to its property, or upon any such payment in the event of proceedings for voluntary or involuntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, all principal, premium, if any, and interest due or to become due upon all Senior Indebtedness shall first be paid in full, or payment thereof duly provided for, before any payment is made on account of the Indebtedness evidenced by the Notes. Upon any such proceedings (but subject to the power of a court of competent jurisdiction to make other equitable provision with respect to the rights of the holders of any Senior Indebtedness and the holders of the Notes pursuant to a lawful plan of reorganization under applicable Debtors' Laws) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes would be entitled, except for the provisions of this Article 3, shall be paid or delivered by the Company or by any Custodian or other Person making such payment or distribution, or by the holders of the Notes if received by them or it, directly to the holders of Senior Indebtedness (pro rata to each such holder on the basis of the respective amounts of Senior Indebtedness held by such holder) or their representatives to the extent necessary to pay all Senior Indebtedness in full after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes. In the event that, notwithstanding the foregoing provisions of this Section 3.03, any such payment or distribution of property or securities, shall be received by the holders of the Notes before all Senior Indebtedness is paid in full, or provision made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of such Senior Indebtedness or their representatives, as their respective interests may require, ratably as aforesaid, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. 49 SECTION 3.04 Notice to Holders of Notes of Specified Events; Reliance on Certificate of Liquidating Agent. The Company shall give prompt written notice to the registered holders of the Notes of any proceedings of the type specified in Section 3.03. The holders of the Notes shall be entitled to assume that no such event has occurred unless the Company or any one or more holders of Senior Indebtedness or any trustee therefor or any other Person has given such notice to the registered holders of the Notes. Upon any payment or distribution of assets of the Company referred to in this Article 3, the registered holders of the Notes shall be entitled to rely upon a certificate of the Custodian or other Person making such payment or distribution, delivered to such holders, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 3. In the event that any holder of the Notes determines, in good faith, that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payments or distribution pursuant to this Article 3, such holder may request such Person to furnish evidence to the reasonable satisfaction of such holder as to the amount of Senior Indebtedness held by such Person, as to the extent to which such Person is entitled to participate in such payment or distribution, and as to other facts pertinent to the rights of such Person under this Article 3, and if such evidence is not furnished, such holder may defer any payment to such Person pending judicial determination as to the right of such person to receive such payment. SECTION 3.05 Subrogation of Notes. Subject to the payment in full of the principal of, premium, if any, on and interest on all Senior Indebtedness, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company made on the Senior Indebtedness paid in full. For the purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property, or securities to which the holders of the Notes would be entitled except for the provisions of this Article 3 shall, as between the Company and the holders of the Notes or of the Junior Subordinated Notes be deemed to be a payment by the Company to or on account of Senior Indebtedness, it being understood that the provisions of this Article 3 are and are intended solely for the purpose of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. SECTION 3.06 Obligation to Pay Not Impaired. Except as provided in Section 2.03 hereof, nothing contained in this Article 3 or elsewhere in this Agreement, or in the Notes, is intended to or shall impair as among the Company and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the outstanding principal amount of the Notes, as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the holders of the Notes nor shall anything herein or therein prevent the holders of the Notes from exercising, subject to the terms hereof, all remedies otherwise permitted by applicable law upon the occurrence of an Event of Default under this Agreement, subject to the rights, if any, under this Article 3 of the holders of the Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. ARTICLE 4. COVENANTS SECTION 4.01 Corporate Existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence; provided, however, that the Company shall not be required to preserve any right or privilege if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the holders of the Notes. 50 SECTION 4.02 Payment of Taxes. The Company will pay or discharge or cause to be paid or discharged, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or upon the income, profits or property of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge which is being contested in good faith by appropriate proceedings. SECTION 4.03 Limitation on Dividends. Until the Notes are paid in full, the Company will not pay dividends or make other distributions with regard to its outstanding stock of any class, unless the holders of two-thirds in aggregate principal amount of the Notes outstanding consent. This Section 4.03 will not prevent the Company from making payments to a parent which files a consolidated Federal or state income tax return for an affiliated group which includes the Company equal to the Federal or state income taxes the Company would have had to pay if it had filed a separate return, and those payments will not be treated as dividends or other distributions to stockholders. SECTION 4.04 Compliance Certificate. The Company shall deliver to the holders of the Notes within 105 days after the end of each fiscal year of the Company an Officers' Certificate stating that, after a review of the activities of the Company during such period and of the Company's performance under this Agreement, whether or not, to the best knowledge of the signers thereof based on such review, there has been any Default or Event of Default by the Company in performing any of its obligations under this Agreement or the Notes. If they do know of any such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status. SECTION 4.05 Notice of Default. In the event that any Default under this Agreement shall occur, the Company will give prompt written notice of such Default to each registered holder of the Notes, specifying the nature and status of such default and the steps which the Company has taken or proposes to take in order to cure such Default. SECTION 4.06 Reports. The Company shall (i) within forty-five (45) days of the close of each fiscal quarter of the Company cause to be furnished to each registered holder of the Notes a copy of its consolidated balance sheet, income statement and cash flow statement for the preceding fiscal quarter, each prepared in accordance with generally accepted accounting principles applied on a consistent basis and (ii) if the Company becomes required to file reports with the Securities and Exchange Commission, within ten (10) days after the Company files a report with the Securities and Exchange Commission, the Company will furnish a copy of that report to each registered holder of Notes. ARTICLE 5. DEFAULTS AND REMEDIES SECTION 5.01 Events of Default. An "Event of Default" occurs if: the Company defaults in the payment of any installment of the principal or interest of any Note when the same becomes due and payable; the Company fails to observe or perform in any material respect any of its covenants or agreements in the Notes or this Agreement, which failure continues for a period of 60 days after the earlier of (i) the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time outstanding or (ii)Ethe date on which the Company had Actual Knowledge of such failure; 51 the Company commits a default under any Senior Indebtedness and as a result the obligation of the Company to pay principal or interest with regard to any of that Senior Indebtedness is accelerated so that it becomes due and payable prior to the date on which it would otherwise have been due and payable, and that acceleration is not rescinded or annulled within 30 days after the date on which the Company had Actual Knowledge of the acceleration; provided that if an event of default under Senior Indebtedness is cured or waived, any Event of Default under this Section 5.01(c) relating to the event of default under the Senior Indebtedness, and any Event of Default under Section 5.01(a) because of failure to make an accelerated payment of principal or a payment of interest which becomes due solely because of the Event of Default under this Section 5.01(c), will be deemed to have been cured at the same time the event of default under the Senior Indebtedness is cured or waived, without any action by any holders of Notes. the entry of an order for relief under any Debtors' Laws against the Company by any bankruptcy court of competent jurisdiction which shall approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition; appoint a Custodian for any part of its property; or order the dissolution of the Company or the winding up or liquidation of its affairs and such order remains unstayed and in effect for a period of thirty (30) consecutive days; the appointment of a Custodian for all or any substantial part of the property of the Company, and such appointment shall continue unstayed and in effect for a period of thirty (30) consecutive days; and the entry of judgment by a court of competent jurisdiction against the Company and the scheduling of a sale of any substantial part of the Company's property which is not stayed prior to the scheduled date of such sale. SECTION 5.02 Acceleration. If an Event of Default occurs and is continuing or has occurred and has continued for a period of not less than three (3) months without having been waived, remedied or cured, the holders of not less than two-thirds in principal amount of the Notes, or, in the case of an Event of Default specified in Section 5.01(a) hereof, the holder of any of the Notes, by notice to the Company, may declare the principal of the Notes to be due and payable, and upon such declaration, the principal of the Notes shall be due and payable immediately; provided that with regard to an Event of Default of the type described in Section 5.01(c) or (d) the principal of the Notes will become immediately due and payable when the Event of Default occurs, without the passage of three (3) months' time and, as to an Event of Default of the type described in Section 5.01(d), without notice from, or any other action on the part of, the holders of the Notes. The holders of not less than two-thirds of the principal amount of the Notes may rescind an acceleration and its consequences by notice to the Company if the rescission would not conflict with any judgment or decree and if each outstanding Event of Default has been cured or waived except, unless theretofore cured, nonpayment of principal that has become due solely because of the acceleration. No such rescission shall affect any subsequent Default or impair any right or remedy with respect thereto. 52 SECTION 5.03 Other Remedies. Notwithstanding any other provision of this Agreement, if an Event of Default occurs and is continuing and the Notes have been accelerated in accordance with Section 5.02 above, the holder of any of the Notes may pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of the Notes or to enforce the performance of any provision of the Notes or this Agreement. The holder of any of the Notes may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by any or all of the holders of the Notes in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All remedies are cumulative. In case any or all of the holders of the Notes shall have proceeded to enforce any rights under this Agreement and such proceedings shall have been discontinued or abandoned because of rescission or annulment or for any other reason or shall have been determined adversely to the holders who participated in such proceedings, then in every such case the Company and the holders of the Notes shall, subject to any determination in such proceeding, be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the holders of the Notes shall continue as though no such proceeding had been taken. ARTICLE 6. MISCELLANEOUS SECTION 6.01 Successors and Assigns in General. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer its rights hereunder or any interest herein or delegate its duties hereunder (other than in a merger or other combination of the type described in Section 4.01) without the prior written consent of the holders of the Notes. Each holder of the Notes may assign, pledge or transfer all or any portion of its Notes or its rights hereunder to the extent permitted by law, including state and federal securities laws. In the event of any such assignment, pledge or transfer, such assignee shall, to the extent provided in such assignment, pledge or transfer, be entitled to exercise the rights of the holder of a Note making such assignment, pledge or transfer and shall be deemed a holder of a Note under this Agreement. SECTION 6.02 Further Assurance. The Company shall, from time to time at the request of any holder of a Note, execute and deliver to such holder or to such Person or Persons as such holder may designate, any and all further instruments as may in the reasonable opinion of such holder be necessary to give full force and effect to any transfer or assignment contemplated by Section 6.01, and shall provide to such holder or to such Person or Persons as such holder may designate, all such information as such holder may reasonably request. SECTION 6.03 No Waiver. No delay, failure or discontinuance of any holder of any of the Notes, in exercising any right, power or remedy under this Agreement or any of the Notes shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by any holder of any of the Notes, of any breach of or default under this Agreement or any of the Notes must be in writing and shall be effective only to the extent set forth in such writing. 53 SECTION 6.04 Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the first occurrence and during the continuance of any Event of Default (after the giving of any notice and the expiration of any grace period contained in the definition thereof), any holder of any of the Notes is hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply to any and all Indebtedness at any time held or owing by such holder to or for the credit or the account of the Company, against and on account of the obligations and liabilities of the Company to such holder under this Agreement and the Notes, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement or the Notes irrespective of whether or not (a) such holder shall have made any demand hereunder, or (b) such holder shall have declared the principal of and interest on the Notes and other amounts due hereunder to be due and payable, and although said obligations and liabilities, or any of them, may be contingent or unmatured. SECTION 6.05 Notices. Any notice or other communication provided for or permitted hereunder, in order to be effective, shall, unless otherwise stated herein, be in writing or by telex, telegram, telecopy or cable and mailed or sent or delivered, as to each party hereto, at its address set forth in this Section 6.05 or at such other address as shall be designated by such party in a written notice to the other parties hereto as provided hereunder. All notices and communications shall be effective, in the case of written notice, (i) when delivered by hand, (ii) five days after having been given by certified mail, return receipt requested, (iii) when delivered to the telegraph company in the case of telegraphic notice, (iv) when sent in the case of telex or telecopied notice, or (v) three Business Days after deposit with a recognized overnight delivery service. The addresses of the parties hereto are as follows: THE COMPANY: GENERAL TEXTILES 4000 Ruffin Road San Deigo, California 92123 Attention: President Telecopier (619) 637-4180 NOTEHOLDERS: AMERICAN ENDEAVOUR FUND LIMITED c/o Kleinwort Benson (US) Asset Managers LLC 75 Wall Street, 24th Floor New York, New York 10005 Attention: Richard H. Wolf Telecopier: (212) 429-3099 With a copy to: Greenberg Traurig Hoffman Lipoff Rosen & Quentel MetLife Building 200 Park Avenue, 15th Floor New York, New York 10166 Attn: Spencer G. Feldman, Esq. Facsimile: (212) 801-6400 54 LONDON PACIFIC LIFE & ANNUITY COMPANY 3109 Poplarwood Court, Suite 108 Raleigh, North Carolina 27604 Attention: Susan Y. Gressel Telecopier: (919) 981-2797 with copies to: BERKELEY INTERNATIONAL CAPITAL CORPORATION 650 California Street Suite 2800 San Francisco, California 94108 Attention: John W. Quarterman, Esq. Telecopier: (415) 249-0553 Any notice delivered to an address outside the United States of America shall be duplicated by counterpart telex or telecopy. SECTION 6.06 Cost, Expenses and Attorney's Fees. The Company shall promptly reimburse each holder of the Notes for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees expended or incurred by such holder in the enforcement of this Agreement or any of the Notes, actions for declaratory relief in any way related to this Agreement or any holder of the Notes or the collection of any sum which becomes due to such holder on any of the Notes or pursuant to this Agreement. SECTION 6.07 Entire Agreement, Amendment. The Notes and this Agreement constitute the entire agreement between the Company and the persons who from time to time are holders of Notes with respect to the subject matter hereof and thereof; supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof and thereof; and may be amended or modified, or any provision hereof may be waived, or any acceleration rescinded, only with the written consent of the holders of two-thirds of the principal amount of the Notes then outstanding, except that no such amendment or modification shall become effective if it extends the maturity or reduces the rate of interest payable with respect to the Notes, alters the terms of payment of the principal or interest under the Notes, or reduces the percentage of holders of principal amount of the Notes necessary to approve modifications or amendments to this Agreement without the consent of each holder of the Notes affected thereby. SECTION 6.08 Time. Time is of the essence of each and every provision of this Agreement and the Notes. SECTION 6.09 Good Faith and Fair Dealing. The Company agrees to perform its obligations under this agreement and the Notes in good faith and in the spirit of fair dealing. SECTION 6.10 Severability of Provisions. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 6.11 Governing Law. This Agreement and the Notes shall be governed by and construed in accordance with the substantive laws of the State of New York. 55 SECTION 6.12 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument. All counterparts shall be considered an original of this Agreement. IN WITNESS WHEREOF, the parties have caused this Subordinated Note Agreement to be executed as of the date first above written. THE COMPANY: GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Its: Executive Vice President ENDEAVOUR: AMERICAN ENDEAVOUR FUND LIMITED, a Jersey corporation By: Its: LONDON PACIFIC: LONDON PACIFIC LIFE & ANNUITY COMPANY, a North Carolina joint stock life insurer By: Its: EX-10 7 EXHIBIT 10.5(B) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS. PAYMENT OF ALL SUMS DUE UNDER THIS NOTE IS SUBJECT TO SUBORDINATION PROVISIONS SET FORTH IN A SUBORDINATED NOTE AGREEMENT AMONG GENERAL TEXTILES, AMERICAN ENDEAVOUR FUND LIMITED AND LONDON PACIFIC LIFE & ANNUITY COMPANY DATED APRIL 30, 1998. A COPY OF THE SUBORDINATED NOTE AGREEMENT IS ON FILE AT THE CORPORATION'S PRINCIPAL OFFICE. $1,551,363.33 April 30, 1998 SUBORDINATED NOTE DUE 2003 FOR VALUE RECEIVED, General Textiles, a California corporation (the "Corporation") hereby promises to pay to the order of American Endeavour Fund Limited, or its registered assigns (the "Holder"), the principal sum of one million five hundred fifty-one thousand three hundred sixty-three dollars and thirty-three cents ($1,551,363.33) which shall be due and payable to the Holder, as follows: ------------------------ ------------------------- Percentage of Original Principal Amount Plus Principal Payment Interest Added to Date Principal to be Paid ------------------------ ------------------------- ------------------------ ------------------------- December 31, 1999 5.768644% December 31, 2000 5.768644% December 31, 2001 11.537287% December 31, 2002 11.537287% May 28, 2003 65.388138% ---------- 100.000000% ------------------------ ------------------------- All principal and interest which is not paid prior to May 28, 2003 will be due and payable on that day. If the entire principal of the Notes is paid by May 28, 1998, the Notes will not bear interest. After May 28, 1998, this Note will bear interest, payable quarterly in arrears not later than the fifteenth (15th) day after the end of each calendar quarter. Between May 29, 1998 and March 31, 1999, this Note shall bear interest at the rate of nine and two-tenths percent (9.2%) per annum from May 28, 1998. If any principal balance remains outstanding on this Note on April 1, 1999, the interest rate on this Note will increase on such date, and thereafter on the first day of each successive calendar quarter thereafter (i.e., April 1, July 1, October 1 and so forth) by one hundred (100) basis points (i.e., so that the per annum interest rate on this Note shall increase by one full percent (1%) of the principal of the Note as of the first day of each calendar quarter commencing April 1, 1999); provided, however, that the interest rate on this Note shall not exceed thirteen and two-tenths percent (13.2%) per annum. If any principal or interest of any of the Notes is not paid when due, 57 the entire principal amount of this Note will bear interest from the date the overdue principal or interest is due until it is paid at the rate which is 300 basis points higher than the rate which would otherwise apply. Interest on the principal amount of this Note shall be computed on the basis of the actual number of days elapsed in a year of 360 days from the last day on which interest has been paid (or, if no interest has been paid, from the day on which interest began to accrue). Payments on this Note shall be applied first to accrued but unpaid interest and then to principal. Each payment with regard to this Note will be made in U.S. Dollars in cash or by wire transfer of funds which are immediately available at the place of payment to the account of the Holder set forth in Attachment 1 to this Note or at any other place of payment that may be designated by the Holder in the manner described in the Note Purchase Agreement at least two Business Days before the day on which the payment is due. This Note is one of the "Subordinated Notes due 2003" referred to in, and the Holder is entitled to all the rights, preferences and privileges set forth in and other benefits of, that certain Subordinated Note Agreement of even date herewith by and among the Corporation, American Endeavour Fund Limited and London Pacific Life & Annuity Company (the "Subordinated Note Agreement"). Capitalized terms used without definition in this Note shall have the meanings given to them in the Subordinated Note Agreement. The Corporation may prepay all or any portion of the principal of this Note at any time without prepayment penalty or premium. If this Note is to be prepaid only in part, this Note shall be surrendered to the Corporation (with, if the Corporation so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing), and the Corporation shall execute for the Holder a new Note equal in principal amount to the unprepaid portion of the Note surrendered and identical to the Note surrendered in all other respects. The Holder may assign, pledge or transfer all or any portion of this Note or such Holder's rights hereunder to the extent permitted by law, including state and federal securities laws. In the event of any such assignment, pledge or transfer, the assignee of this Note shall, to the extent provided in such assignment, pledge or transfer, be entitled to exercise the rights of a Holder. Upon any transfer of all or any portion of this Note, the Holder shall present this Note to the Corporation, accompanied by an executed form of assignment. The Corporation shall thereupon issue a new Note or Notes to the transferee or transferees having a principal equal to the amount of this Note so transferred, but otherwise in all other respects identical to this Note, and shall issue to the Holder a new Note having a principal equal to the amount of this Note not so transferred, which Note shall otherwise be identical to this Note in all other respects. Except as otherwise expressly provided in the Subordinated Note Agreement, the Corporation waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Subordinated Note Agreement. In any action on this Note, the Holder or its assignee need not produce or file the original of this Note, but need only file a photocopy of this Note certified by the Holder or such assignee to be a true and correct copy of this Note. The Corporation agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, expended or incurred by the Holder in connection with the enforcement of this Note, the collection of any sums hereunder, any actions for declaratory relief in any way related to this Note, or the protection or preservation of any rights of the Holder hereunder. 58 IN WITNESS WHEREOF, the Corporation has caused this Subordinated Note due 2003 to be executed by its duly authorized officer as of the date set forth above. GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Its: Executive Vice President 59 Attachment 1 Place of Payment Wire transfer payments should be made to the account of the Holder at: Bank: Bankers Trust New York ABA Number: 021001033 Account Name: Ansbacher (Jersey) Limited Account Number: 0416 3691 Reference: American Endeavour Fund, 600809 at David Preddy Family Bargain Centers EX-10 8 EXHIBIT 10.5(C) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS. PAYMENT OF ALL SUMS DUE UNDER THIS NOTE IS SUBJECT TO SUBORDINATION PROVISIONS SET FORTH IN A SUBORDINATED NOTE AGREEMENT AMONG GENERAL TEXTILES, AMERICAN ENDEAVOUR FUND LIMITED AND LONDON PACIFIC LIFE & ANNUITY COMPANY DATED APRIL 30, 1998. A COPY OF THE SUBORDINATED NOTE AGREEMENT IS ON FILE AT THE CORPORATION'S PRINCIPAL OFFICE. $1,698,636.67 April 30, 1998 SUBORDINATED NOTE DUE 2003 FOR VALUE RECEIVED, General Textiles, a California corporation (the "Corporation") hereby promises to pay to the order of London Pacific Life & Annuity Company, or its registered assigns (the "Holder"), the principal sum of one million six hundred ninety-eight thousand six hundred thirty-six dollars and sixty-seven cents ($1,698,636.67) which shall be due and payable to the Holder, as follows: ------------------------ ------------------------- Percentage of Original Principal Amount Plus Principal Payment Interest Added to Date Principal to be Paid ------------------------ ------------------------- ------------------------ ------------------------- December 31, 1999 5.768644% December 31, 2000 5.768644% December 31, 2001 11.537287% December 31, 2002 11.537287% May 28, 2003 65.388138% ---------- 100.000000% ------------------------ ------------------------- All principal and interest which is not paid prior to May 28, 2003 will be due and payable on that day. If the entire principal of the Notes is paid by May 28, 1998, the Notes will not bear interest. After May 28, 1998, this Note will bear interest, payable quarterly in arrears not later than the fifteenth (15th) day after the end of each calendar quarter. Between May 29, 1998 and March 31, 1999, this Note shall bear interest at the rate of nine and two-tenths percent (9.2%) per annum from May 28, 1998. If any principal balance remains outstanding on this Note on April 1, 1999, the interest rate on this Note will increase on such date, and thereafter on the first day of each successive calendar quarter thereafter (i.e., April 1, July 1, October 1 and so forth) by one hundred (100) basis points (i.e., so that the per annum interest rate on this Note shall increase by one full percent (1%) of the principal of the Note as of the first day of each calendar quarter commencing April 1, 1999); provided, however, that the interest rate on this Note shall not exceed thirteen and two-tenths percent (13.2%) per annum. If any principal or interest of any of the Notes is not paid when due, 61 the entire principal amount of this Note will bear interest from the date the overdue principal or interest is due until it is paid at the rate which is 300 basis points higher than the rate which would otherwise apply. Interest on the principal amount of this Note shall be computed on the basis of the actual number of days elapsed in a year of 360 days from the last day on which interest has been paid (or, if no interest has been paid, from the day on which interest began to accrue). Payments on this Note shall be applied first to accrued but unpaid interest and then to principal. Each payment with regard to this Note will be made in U.S. Dollars in cash or by wire transfer of funds which are immediately available at the place of payment to the account of the Holder set forth in Attachment 1 to this Note or at any other place of payment that may be designated by the Holder in the manner described in the Note Purchase Agreement at least two Business Days before the day on which the payment is due. This Note is one of the "Subordinated Notes due 2003" referred to in, and the Holder is entitled to all the rights, preferences and privileges set forth in and other benefits of, that certain Subordinated Note Agreement of even date herewith by and among the Corporation, American Endeavour Fund Limited and London Pacific Life & Annuity Company (the "Subordinated Note Agreement"). Capitalized terms used without definition in this Note shall have the meanings given to them in the Subordinated Note Agreement. The Corporation may prepay all or any portion of the principal of this Note at any time without prepayment penalty or premium. If this Note is to be prepaid only in part, this Note shall be surrendered to the Corporation (with, if the Corporation so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing), and the Corporation shall execute for the Holder a new Note equal in principal amount to the unprepaid portion of the Note surrendered and identical to the Note surrendered in all other respects. The Holder may assign, pledge or transfer all or any portion of this Note or such Holder's rights hereunder to the extent permitted by law, including state and federal securities laws. In the event of any such assignment, pledge or transfer, the assignee of this Note shall, to the extent provided in such assignment, pledge or transfer, be entitled to exercise the rights of a Holder. Upon any transfer of all or any portion of this Note, the Holder shall present this Note to the Corporation, accompanied by an executed form of assignment. The Corporation shall thereupon issue a new Note or Notes to the transferee or transferees having a principal equal to the amount of this Note so transferred, but otherwise in all other respects identical to this Note, and shall issue to the Holder a new Note having a principal equal to the amount of this Note not so transferred, which Note shall otherwise be identical to this Note in all other respects. Except as otherwise expressly provided in the Subordinated Note Agreement, the Corporation waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Subordinated Note Agreement. In any action on this Note, the Holder or its assignee need not produce or file the original of this Note, but need only file a photocopy of this Note certified by the Holder or such assignee to be a true and correct copy of this Note. The Corporation agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, expended or incurred by the Holder in connection with the enforcement of this Note, the collection of any sums hereunder, any actions for declaratory relief in any way related to this Note, or the protection or preservation of any rights of the Holder hereunder. 62 IN WITNESS WHEREOF, the Corporation has caused this Subordinated Note due 2003 to be executed by its duly authorized officer as of the date set forth above. GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Its: Executive Vice President 63 Attachment 1 Place of Payment Wire transfer payments should be made to the account of the Holder at: Bank: NationsBank Customer Connection Dallas, Texas ABA Number: 111000012 Account Name: London Pacific Life & Annuity Company Account Number: 3750326028 Reference: General Textiles EX-10 9 EXHIBIT 10.6(A) JUNIOR SUBORDINATED NOTE AGREEMENT THIS JUNIOR SUBORDINATED NOTE AGREEMENT (the "Agreement") is made and entered into as of this 30th day of April, 1998 by and among GENERAL TEXTILES, a California corporation (the "Company"), AMERICAN ENDEAVOUR FUND LIMITED, a Jersey corporation ("Endeavour"), and LONDON PACIFIC LIFE & ANNUITY COMPANY, a North Carolina joint stock life insurer ("London Pacific"). Endeavour and London Pacific shall sometimes be referred to herein collectively as the "Noteholders." RECITAL The Company and the Noteholders have entered into a Note Exchange Agreement in which they have agreed that the Company will issue, among other things, a total of $17,335,097.65 principal amount of Notes to the Noteholders in exchange for a total of $17,335,097.65 principal amount of the Company's Junior Subordinated Reorganization Notes. AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extension of credit by the Noteholders to or on behalf of the Company heretofore, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE DEFINITIONS AND INCORPORATION BY REFERENCE "Actual Knowledge" means the actual knowledge of any executive officer of the Company; provided, however, that each executive officer of the Company shall be deemed to have actual knowledge of any fact that would have come to such officer's attention if he or she had exercised reasonable care in performing his or her duties, given the nature of his or her duties and the Company's business and organization. "Affiliate" means (i) any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, (ii) any spouse, immediate family member or other relative, provided such individual has the same principal residence, of any Person described in clause (i) above, (iii) any trust in which any Person described in clauses (i) or (ii) above has a beneficial interest, and (iv) any corporation or other organization of which the Persons described in clauses (i) or (ii) above individually or collectively own a general partnership interest or equity securities or trust certificates with more than five percent (5%) of the total voting power for the election of directors or persons exercising similar authority of such corporation or other organization; provided, however, that the term Affiliate shall not include any wholly owned subsidiary of the Company. For this purpose, "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 65 "Board of Directors" means the Board of Directors of the Company or any committee of the Board authorized to act for it. "Business Day" means any day other than a Legal Holiday. "Company" means General Textiles, a California corporation, and its successors and assigns. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Debtors' Laws. "Debtors' Laws" means all applicable liquidation, conservatorship, bankruptcy, moratorium, fraudulent conveyance, arrangement, receivership, insolvency, reorganization or similar laws or general equitable principles from time to time in effect affecting the rights of creditors generally. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Endeavour" means American Endeavour Fund Limited, a Jersey corporation. "Event of Default" has the meaning assigned to such term in Section 5.01 hereof. "Factory 2-U" means Factory 2-U, Inc., a Delaware corporation which, at the date of this Agreement, is wholly owned by Family Bargain. "Family Bargain" means Family Bargain Corporation, a Delaware corporation which, at the date of this Agreement, is the sole stockholder of the Company. "Indebtedness" means, with respect to any Person and without duplication, all: (i) liabilities or obligations, direct and contingent, matured or unmatured, liquidated or unliquidated, including, without limitation, trade debt; (ii) liabilities or obligations of others for which such Person is directly or indirectly liable, by way of guaranty (whether by direct guaranty, suretyship, discount, endorsement, take-or-pay agreement, agreement to purchase or advance or keep in funds or other agreement having the effect of a guaranty) or otherwise; (iii) liabilities or obligations secured by liens on any assets of such Person, whether or not such liabilities or obligations shall have been assumed by it; and (iv) liabilities or obligations of such Person, direct or contingent, with respect to letters of credit issued for the account of such Person and bankers' acceptances created for such Person, whether now in existence or hereafter incurred; and (v) the Notes and the Subordinated Notes. "IRS" means the United States Internal Revenue Service. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions are not required to be open in New York, New York or San Diego, California. "London Pacific" means London Pacific Life & Annuity Company, a North Carolina joint stock life insurer. "Maturity Date" means May 28, 2005. "Noteholders" has the meaning assigned to such term in the preamble to this Agreement. 66 "Notes" means the Company's Junior Subordinated Notes, which Notes shall be substantially in the form set forth in Exhibit A attached hereto and made a part hereof, and "Note" shall mean any one of the Notes. "Officer" means the Chairman of the Board, the President, any Vice-President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Senior Indebtedness" means the principal of and premium, if any, on all Indebtedness of the Company, whether outstanding on the date hereof or hereafter incurred or created, for money borrowed from banks, insurance companies or other companies engaged in lending money as a regular part of their business, other than (i) the Notes, and (ii) any indebtedness of Family Bargain which becomes Indebtedness of the Company solely because of a merger of Family Bargain and the Company. "Subordinated Notes" means the Subordinated Notes due 2003 in the aggregate principal amount of $3,250,000 issued by the Company in exchange for $4,900,000 principal amount of its Subordinated Reorganization Notes. ARTICLE 2. THE NOTES SECTION 2.01 The Junior Subordinated Notes. The Company is authorized to execute and deliver Junior Subordinated Notes (each a "Note" and collectively the "Notes"), substantially in the form of Exhibit A attached hereto and made a part hereof. The Notes shall have an aggregate principal amount of not more than Seventeen Million Three Hundred Thirty-Five Thousand Ninety-Seven Dollars and Sixty-Five Cents ($17,335,097.65). SECTION 2.02 Interest. The Notes shall not bear interest, except as provided in Section 2.05. SECTION 2.03 Payments of Principal. The Company will be required to pay the principal of each Note in installments as follows: 67 ------------------------ ---------------------------------- Principal Payment Percentage of Original Date Principal Amount to be Paid ------------------------ ---------------------------------- ------------------------ ---------------------------------- December 31, 1999 5.768644% December 31, 2000 5.768644% December 31, 2001 11.537287% December 31, 2002 11.537287% December 31, 2003 17.305931% December 31, 2004 17.305931% Maturity Date 30.776276% ---------- 100.000000% ------------------------ ---------------------------------- The Notes will mature on the Maturity Date and all principal and interest (if any) which has not been paid prior to the Maturity Date will be due and payable on the Maturity Date. SECTION 2.04 Prepayment. The Company may prepay all or any portion of the principal of the Notes at any time without prepayment penalty or premium. If fewer than all of the Notes are to be prepaid, the Company shall allocate the total principal amount to be prepaid pro rata as nearly as practicable among the Notes based on the outstanding principal balances thereof. Any Note which is to be prepaid only in part shall be surrendered to the Company (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder of such Note or its attorney duly authorized in writing), and the Company shall execute for the holder of such Note a new Note equal in principal amount to the unprepaid portion of the Note surrendered and identical to the Note surrendered in all other respects. SECTION 2.05 Overdue Payments; Business Days. If any principal amount of any of the Notes is not paid when due, then interest shall accrue on the entire Note outstanding from the date such sum is due until paid at the rate of ten percent (10%) per annum, compounded quarterly, or at the maximum rate permitted by law, whichever is less. Interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days from the last day on which interest was paid (or if no interest has been paid, from the day on which interest began to accrue). Whenever any payment of principal or interest on any of the Notes shall be stated to be due, or whenever any date specified in this Agreement or in any of the Notes would otherwise occur on a Legal Holiday, such payment shall be made, and such other date shall occur, on the next succeeding Business Day. Any such extension of time shall be included in the computation of interest payable. ARTICLE 3. SUBORDINATION OF NOTES SECTION 3.01 Agreement to Subordinate. The Company agrees, and each holder of Notes, by accepting Notes, agrees, that all Notes shall be issued subject to the provisions of this Article 3 and each holder of a Note, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to and shall be bound by such provisions. All Notes, to the extent and in the manner set forth in this Article 3, shall be subordinated and subject in right of payment to the prior payment in full of the principal of, premium, if any, on and interest on all Senior Indebtedness. 68 SECTION 3.02 No Payment on Notes if Senior Indebtedness in Default. In addition to the restrictions set forth in Section 2.03 hereof, no payment on account of the principal of, or interest on, the Notes shall be made if, at the time of such payment or immediately after giving effect thereto, (a) there shall exist a default in the payment of principal, premium, if any, sinking funds, or interest with respect to any Senior Indebtedness, or (b) there shall have occurred any other event of default (of which the Company shall have received notice from any holder or trustee with respect to any Senior Indebtedness) relating to any Senior Indebtedness, as defined therein or in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. In the event that the Notes are declared due and payable before their expressed maturity because of the occurrence of an Event of Default, the holders of Senior Indebtedness shall be entitled to receive payment in full of all principal (and premium, if any) and interest with respect to such indebtedness before the holders of the Notes shall be entitled to receive any payment on account of principal or otherwise. SECTION 3.03 Priority of Senior Indebtedness upon Distribution of Assets. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors in the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company or to its property, or upon any such payment in the event of proceedings for voluntary or involuntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, all principal, premium, if any, and interest due or to become due upon all Senior Indebtedness shall first be paid in full, or payment thereof duly provided for, before any payment is made on account of the Indebtedness evidenced by the Notes. Upon any such proceedings (but subject to the power of a court of competent jurisdiction to make other equitable provision with respect to the rights of the holders of any Senior Indebtedness and the holders of the Notes pursuant to a lawful plan of reorganization under applicable Debtors' Laws) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes would be entitled, except for the provisions of this Article 3, shall be paid or delivered by the Company or by any Custodian or other Person making such payment or distribution, or by the holders of the Notes if received by them or it, directly to the holders of Senior Indebtedness (pro rata to each such holder on the basis of the respective amounts of Senior Indebtedness held by such holder) or their representatives to the extent necessary to pay all Senior Indebtedness in full after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes. In the event that, notwithstanding the foregoing provisions of this Section 3.03, any such payment or distribution of property or securities, shall be received by the holders of the Notes before all Senior Indebtedness is paid in full, or provision made for such payment, in accordance with its terms, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of such Senior Indebtedness or their representatives, as their respective interests may require, ratably as aforesaid, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. 69 SECTION 3.04 Notice to Holders of Notes of Specified Events; Reliance on Certificate of Liquidating Agent. The Company shall give prompt written notice to the registered holders of the Notes of any proceedings of the type specified in Section 3.03. The holders of the Notes shall be entitled to assume that no such event has occurred unless the Company or any one or more holders of Senior Indebtedness or any trustee therefor or any other Person has given such notice to the registered holders of the Notes. Upon any payment or distribution of assets of the Company referred to in this Article 3, the registered holders of the Notes shall be entitled to rely upon a certificate of the Custodian or other Person making such payment or distribution, delivered to such holders, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 3. In the event that any holder of the Notes determines, in good faith, that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payments or distribution pursuant to this Article 3, such holder may request such Person to furnish evidence to the reasonable satisfaction of such holder as to the amount of Senior Indebtedness held by such Person, as to the extent to which such Person is entitled to participate in such payment or distribution, and as to other facts pertinent to the rights of such Person under this Article 3, and if such evidence is not furnished, such holder may defer any payment to such Person pending judicial determination as to the right of such person to receive such payment. SECTION 3.05 Subrogation of Notes. Subject to the payment in full of the principal of, premium, if any, on and interest on all Senior Indebtedness, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company made on the Senior Indebtedness paid in full. For the purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property, or securities to which the holders of the Notes would be entitled except for the provisions of this Article 3 shall, as between the Company and the holders of the Notes, be deemed to be a payment by the Company to or on account of Senior Indebtedness, it being understood that the provisions of this Article 3 are and are intended solely for the purpose of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. SECTION 3.06 Obligation to Pay Not Impaired. Except as provided in Section 2.03 hereof, nothing contained in this Article 3 or elsewhere in this Agreement, or in the Notes, is intended to or shall impair as among the Company and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the outstanding principal amount of the Notes, as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the holders of the Notes nor shall anything herein or therein prevent the holders of the Notes from exercising, subject to the terms hereof, all remedies otherwise permitted by applicable law upon the occurrence of an Event of Default under this Agreement, subject to the rights, if any, under this Article 3 of the holders of the Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. 70 ARTICLE 4. COVENANTS SECTION 4.01 Corporate Existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence; provided, however, that the Company shall not be required to preserve any right or privilege if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the holders of the Notes. SECTION 4.02 Payment of Taxes. The Company will pay or discharge or cause to be paid or discharged, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or upon the income, profits or property of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge which is being contested in good faith by appropriate proceedings. SECTION 4.03 Limitation on Dividends. Until the Notes are paid in full, the Company will not pay dividends or make other distributions with regard to its outstanding stock of any class, unless the holders of two-thirds in aggregate principal amount of the Notes outstanding consent, except that if all or a portion of the principal of the Subordinated Notes due 2003, issued under an Indenture between General Textiles and IBJ Schroeder Bank & Trust Company, held by Family Bargain on April 30, 1998 ("FB 2003 Notes") are eliminated or satisfied without payment by the Company (whether because that principal is contributed to the Company, because of a merger of the Company and Family Bargain or otherwise), the Company may at any time when (i) all the Subordinated Notes have been paid in full and (ii) no Event of Default has occurred and is continuing, without the consent of any holders of Notes, declare dividends or make other distributions to stockholders in an amount not exceeding (a) in any year, $4 million and (b) in total, the amount of the principal of FB 2003 Notes which is eliminated or satisfied without payment by the Company. This Section 4.03 will not prevent the Company from making payments to a parent which files a consolidated Federal or state income tax return for an affiliated group which includes the Company equal to the Federal or state income taxes the Company would have had to pay if it had filed a separate return, and those payments will not be treated as dividends or other distributions to stockholders. SECTION 4.04 Compliance Certificate. The Company shall deliver to the holders of the Notes within 105 days after the end of each fiscal year of the Company an Officers' Certificate stating that, after a review of the activities of the Company during such period and of the Company's performance under this Agreement, whether or not, to the best knowledge of the signers thereof based on such review, there has been any Default or Event of Default by the Company in performing any of its obligations under this Agreement or the Notes. If they do know of any such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status. SECTION 4.05 Notice of Default. In the event that any Default under this Agreement shall occur, the Company will give prompt written notice of such Default to each registered holder of the Notes, specifying the nature and status of such default and the steps which the Company has taken or proposes to take in order to cure such Default. SECTION 4.06 Reports. The Company shall (i) within forty-five (45) days of the close of each fiscal quarter of the Company cause to be furnished to each registered holder of the Notes a copy of its consolidated balance sheet, income statement and cash flow statement for the preceding fiscal quarter, each prepared in accordance with generally accepted accounting principles applied on a consistent basis and (ii) if the Company becomes required to file reports with the Securities and Exchange Commission, within ten (10) days after the Company files a report with the Securities and Exchange Commission, the Company will furnish a copy of that report to each registered holder of Notes. 71 ARTICLE 5. DEFAULTS AND REMEDIES SECTION 5.01 Events of Default. An "Event of Default" occurs if: the Company defaults in the payment of any installment of the principal or interest of any Note when the same becomes due and payable; the Company fails to observe or perform in any material respect any of its covenants or agreements in the Notes or this Agreement, which failure continues for a period of 60 days after the earlier of (i) the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time outstanding or (ii)Ethe date on which the Company had Actual Knowledge of such failure; the Company commits a default under any Senior Indebtedness and as a result the obligation of the Company to pay principal or interest with regard to any of that Senior Indebtedness is accelerated so that it becomes due and payable prior to the date on which it would otherwise have been due and payable, and that acceleration is not rescinded or annulled within 30 days after the date on which the Company had Actual Knowledge of the acceleration; provided that if an event of default under Senior Indebtedness is cured or waived, any Event of Default under this Section 5.01(c) relating to the event of default under the Senior Indebtedness, and any Event of Default under Section 5.01(a) because of failure to make an accelerated payment of principal or a payment of interest which becomes due solely because of the Event of Default under this Section 5.01(c), will be deemed to have been cured at the same time the event of default under the Senior Indebtedness is cured or waived, without any action by any holders of Notes. the entry of an order for relief under any Debtors' Laws against the Company by any bankruptcy court of competent jurisdiction which shall approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition; appoint a Custodian for any part of its property; or order the dissolution of the Company or the winding up or liquidation of its affairs and such order remains unstayed and in effect for a period of thirty (30) consecutive days; the appointment of a Custodian for all or any substantial part of the property of the Company, and such appointment shall continue unstayed and in effect for a period of thirty (30) consecutive days; and the entry of judgment by a court of competent jurisdiction against the Company and the scheduling of a sale of any substantial part of the Company's property which is not stayed prior to the scheduled date of such sale. 72 SECTION 5.02 Acceleration. If an Event of Default occurs and is continuing or has occurred and has continued for a period of not less than three (3) months without having been waived, remedied or cured, the holders of not less than two-thirds in principal amount of the Notes, or, in the case of an Event of Default specified in Section 5.01(a) hereof, the holder of any of the Notes, by notice to the Company, may declare the principal of the Notes to be due and payable, and upon such declaration, the principal of the Notes shall be due and payable immediately, provided that with regard to an Event of Default of the type described in Section 5.01(c) or (d), the principal of the Notes will become immediately due and payable when the Event of Default occurs, without the passage of three (3) months time and, as to an Event of Default of the type described in Section 5.01(d), without notice from, or any other action on the part of, the holders of the Notes. The holders of not less than two-thirds of the principal amount of the Notes may rescind an acceleration and its consequences by notice to the Company if the rescission would not conflict with any judgment or decree and if each outstanding Event of Default has been cured or waived except, unless theretofore cured, nonpayment of principal that has become due solely because of the acceleration. No such rescission shall affect any subsequent Default or impair any right or remedy with respect thereto. SECTION 5.03 Other Remedies. Notwithstanding any other provision of this Agreement, if an Event of Default occurs and is continuing and the Notes have been accelerated in accordance with Section 5.02 above, the holder of any of the Notes may pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of the Notes or to enforce the performance of any provision of the Notes or this Agreement. The holder of any of the Notes may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by any or all of the holders of the Notes in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All remedies are cumulative. In case any or all of the holders of the Notes shall have proceeded to enforce any rights under this Agreement and such proceedings shall have been discontinued or abandoned because of rescission or annulment or for any other reason or shall have been determined adversely to the holders who participated in such proceedings, then in every such case the Company and the holders of the Notes shall, subject to any determination in such proceeding, be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the holders of the Notes shall continue as though no such proceeding had been taken. ARTICLE 6. MISCELLANEOUS SECTION 6.01 Successors and Assigns in General. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer its rights hereunder or any interest herein or delegate its duties hereunder (other than in a merger or other combination of the type described in Section 4.01) without the prior written consent of the holders of the Notes. Each holder of the Notes may assign, pledge or transfer all or any portion of its Notes or its rights hereunder to the extent permitted by law, including state and federal securities laws. In the event of any such assignment, pledge or transfer, such assignee shall, to the extent provided in such assignment, pledge or transfer, be entitled to exercise the rights of the holder of a Note making such assignment, pledge or transfer and shall be deemed a holder of a Note under this Agreement. 73 SECTION 6.02 Further Assurance. The Company shall, from time to time at the request of any holder of a Note, execute and deliver to such holder or to such Person or Persons as such holder may designate, any and all further instruments as may in the reasonable opinion of such holder be necessary to give full force and effect to any transfer or assignment contemplated by Section 6.01, and shall provide to such holder or to such Person or Persons as such holder may designate, all such information as such holder may reasonably request. SECTION 6.03 No Waiver. No delay, failure or discontinuance of any holder of any of the Notes, in exercising any right, power or remedy under this Agreement or any of the Notes shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by any holder of any of the Notes, of any breach of or default under this Agreement or any of the Notes must be in writing and shall be effective only to the extent set forth in such writing. SECTION 6.04 Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the first occurrence and during the continuance of any Event of Default (after the giving of any notice and the expiration of any grace period contained in the definition thereof), any holder of any of the Notes is hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply to any and all Indebtedness at any time held or owing by such holder to or for the credit or the account of the Company, against and on account of the obligations and liabilities of the Company to such holder under this Agreement and the Notes, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement or the Notes irrespective of whether or not (a) such holder shall have made any demand hereunder, or (b) such holder shall have declared the principal of and interest on the Notes and other amounts due hereunder to be due and payable, and although said obligations and liabilities, or any of them, may be contingent or unmatured. SECTION 6.05 Notices. Any notice or other communication provided for or permitted hereunder, in order to be effective, shall, unless otherwise stated herein, be in writing or by telex, telegram, telecopy or cable and mailed or sent or delivered, as to each party hereto, at its address set forth in this Section 6.05 or at such other address as shall be designated by such party in a written notice to the other parties hereto as provided hereunder. All notices and communications shall be effective, in the case of written notice, (i) when delivered by hand, (ii) five days after having been given by certified mail, return receipt requested, (iii) when delivered to the telegraph company in the case of telegraphic notice, (iv) when sent in the case of telex or telecopied notice, or (v) three Business Days after deposit with a recognized overnight delivery service. The addresses of the parties hereto are as follows: THE COMPANY: GENERAL TEXTILES 4000 Ruffin Road San Deigo, CA 92123 Attention: President Telecopier (619) 637-4180 NOTEHOLDERS: AMERICAN ENDEAVOUR FUND LIMITED c/o Kleinwort Benson (US) Asset Managers LLC 75 Wall Street, 24th Floor New York, New York 10005 Attention: Richard H. Wolf Telecopier: (212) 429-3099 74 With a copy to: Greenberg Traurig Hoffman Lipoff Rosen & Quentel MetLife Building 200 Park Avenue, 15th Floor New York, New York 10166 Attn: Spencer G. Feldman, Esq. Facsimile: (212) 801-6400 LONDON PACIFIC LIFE & ANNUITY COMPANY 3109 Poplarwood Court, Suite 108 Raleigh, North Carolina 27604 Attention: Susan Y. Gressel Telecopier: (919) 981-2797 with copies to: BERKELEY INTERNATIONAL CAPITAL CORPORATION 650 California Street Suite 2800 San Francisco, California 94108 Attn: John W. Quarterman, Esq. Telecopier: (415) 249-0553 Any notice delivered to an address outside the United States of America shall be duplicated by counterpart telex or telecopy. SECTION 6.06 Cost, Expenses and Attorney's Fees. The Company shall promptly reimburse each holder of the Notes for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees expended or incurred by such holder in the enforcement of this Agreement or any of the Notes, actions for declaratory relief in any way related to this Agreement or any holder of the Notes or the collection of any sum which becomes due to such holder on any of the Notes or pursuant to this Agreement. SECTION 6.07 Entire Agreement, Amendment. The Notes and this Agreement constitute the entire agreement between the Company and the persons who from time to time are holders of Notes with respect to the subject matter hereof and thereof; supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof and thereof; and may be amended or modified, or any provision hereof may be waived, or any acceleration rescinded, only with the written consent of the holders of two-thirds of the principal amount of the Notes then outstanding, except that no such amendment or modification shall become effective if it extends the maturity or reduces the rate of interest payable with respect to the Notes, alters the terms of payment of the principal or interest under the Notes, or reduces the percentage of holders of principal amount of the Notes necessary to approve modifications or amendments to this Agreement without the consent of each holder of the Notes affected thereby. SECTION 6.08 Time. Time is of the essence of each and every provision of this Agreement and the Notes. 75 SECTION 6.09 Good Faith and Fair Dealing. The Company agrees to perform its obligations under this agreement and the Notes in good faith and in the spirit of fair dealing. SECTION 6.10 Severability of Provisions. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 6.11 Governing Law. This Agreement and the Notes shall be governed by and construed in accordance with the substantive laws of the State of New York. SECTION 6.12 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument. All counterparts shall be considered an original of this Agreement. IN WITNESS WHEREOF, the parties have caused this Junior Subordinated Note Agreement to be executed as of the date first above written. THE COMPANY: GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Its: Executive Vice President ENDEAVOUR: AMERICAN ENDEAVOUR FUND LIMITED, a Jersey corporation (Involuntary Liquidation) By: Its: Liquidator LONDON PACIFIC: LONDON PACIFIC LIFE & ANNUITY COMPANY, a North Carolina joint stocklife insurer By: /s/ Susan Y. Gressel Its: V.P. & Treasurer EX-10 10 EXHIBIT 10.6(B) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS. PAYMENT OF ALL SUMS DUE UNDER THIS NOTE IS SUBJECT TO SUBORDINATION PROVISIONS SET FORTH IN A JUNIOR SUBORDINATED NOTE AGREEMENT AMONG GENERAL TEXTILES, AMERICAN ENDEAVOUR FUND LIMITED AND LONDON PACIFIC LIFE & ANNUITY COMPANY DATED APRIL 30, 1998. A COPY OF THE JUNIOR SUBORDINATED NOTE AGREEMENT IS ON FILE AT THE CORPORATION'S PRINCIPAL OFFICE. $8,274,779.94 April 30, 1998 JUNIOR SUBORDINATED NOTE FOR VALUE RECEIVED, General Textiles, a California corporation (the "Corporation") hereby promises to pay to the order of American Endeavour Fund Limited, or its registered assigns (the "Holder"), the principal sum of eight million two hundred seventy-four thousand seven hundred seventy-nine dollars and ninety-four cents ($8,274,779.94) which shall be due and payable to the Holder, without interest thereon, as follows: ------------------------ ---------------------------------- Principal Payment Percentage of Original Date Principal Amount to be Paid ------------------------ ---------------------------------- ------------------------ ---------------------------------- December 31, 1999 5.768644% December 31, 2000 5.768644% December 31, 2001 11.537287% December 31, 2002 11.537287% December 31, 2003 17.305931% December 31, 2004 17.305931% May 28, 2005 30.776276% ---------- 100.000000% ------------------------ ---------------------------------- All principal and interest (if any), which is not paid prior to May 28, 2005 will be due and payable on that day. This Note is one of the "Junior Subordinated Notes" referred to in, and the Holder is entitled to all the rights, preferences and privileges set forth in and other benefits of, that certain Junior Subordinated Note Agreement of even date herewith by and among the Corporation, American Endeavour Fund Limited and London Pacific Life & Annuity Company (the "Junior Subordinated Note Agreement"). Capitalized terms used without definition in this Note shall have the meanings given to them in the Junior Subordinated Note Agreement. 77 This Note will not bear interest, except that if any principal amount of this Note is not paid when due, then interest shall accrue on the entire Note outstanding from the date such sum is due until paid at the rate of ten percent (10%) per annum, compounded quarterly, or at the maximum rate permitted by law, whichever is less. Interest will be calculated on the basis of the actual number of days elapsed in a year of 360 days from the last day on which interest was paid (or if no interest has been paid, from the day on which interest began to accrue). Each payment with regard to this Note will be made in U.S. Dollars in cash or by wire transfer of funds which are immediately available at the place of payment to the account of the Holder set forth in Attachment 1 to this Note or at any other place of payment that may be designated by the Holder in the manner described in the Note Purchase Agreement at least two Business Days before the day on which the payment is due. The Corporation may prepay all or any portion of the principal of this Note at any time without prepayment penalty or premium. If this Note is to be prepaid only in part, this Note shall be surrendered to the Corporation (with, if the Corporation so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing), and the Corporation shall execute for the Holder a new Note equal in principal amount to the unprepaid portion of the Note surrendered and identical to the Note surrendered in all other respects. The Holder may assign, pledge or transfer all or any portion of this Note or such Holder's rights hereunder to the extent permitted by law, including state and federal securities laws. In the event of any such assignment, pledge or transfer, the assignee of this Note shall, to the extent provided in such assignment, pledge or transfer, be entitled to exercise the rights of a Holder. Upon any transfer of all or any portion of this Note, the Holder shall present this Note to the Corporation, accompanied by an executed form of assignment. The Corporation shall thereupon issue a new Note or Notes to the transferee or transferees having a principal equal to the amount of this Note so transferred, but otherwise in all other respects identical to this Note, and shall issue to the Holder a new Note having a principal equal to the amount of this Note not so transferred, which Note shall otherwise be identical to this Note in all other respects. Except as otherwise expressly provided in the Junior Subordinated Note Agreement, the Corporation waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Junior Subordinated Note Agreement. In any action on this Note, the Holder or its assignee need not produce or file the original of this Note, but need only file a photocopy of this Note certified by the Holder or such assignee to be a true and correct copy of this Note. The Corporation agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, expended or incurred by the Holder in connection with the enforcement of this Note, the collection of any sums hereunder, any actions for declaratory relief in any way related to this Note, or the protection or preservation of any rights of the Holder hereunder. IN WITNESS WHEREOF, the Corporation has caused this Junior Subordinated Note to be executed by its duly authorized officer as of the date set forth above. GENERAL TEXTILES, a California corporation By:/s/ Jonathan W. Spatz Its: Executive Vice President 78 Attachment 1 Place of Payment Wire transfer payments should be made to the account of the Holder at: Bank: Bankers Trust New York ABA Number: 021001033 Account Name: Ansbacher (Jersey) Limited Account Number: 0416 3691 Reference: American Endeavour Fund, 600809 at David Preddy Family Bargain Centers EX-10 11 EXHIBIT 10.6(C) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS. PAYMENT OF ALL SUMS DUE UNDER THIS NOTE IS SUBJECT TO SUBORDINATION PROVISIONS SET FORTH IN A JUNIOR SUBORDINATED NOTE AGREEMENT AMONG GENERAL TEXTILES, AMERICAN ENDEAVOUR FUND LIMITED AND LONDON PACIFIC LIFE & ANNUITY COMPANY DATED APRIL 30, 1998. A COPY OF THE JUNIOR SUBORDINATED NOTE AGREEMENT IS ON FILE AT THE CORPORATION'S PRINCIPAL OFFICE. $9,060,317.71 April 30, 1998 JUNIOR SUBORDINATED NOTE FOR VALUE RECEIVED, General Textiles, a California corporation (the "Corporation") hereby promises to pay to the order of London Pacific Life & Annuity Company, or its registered assigns (the "Holder"), the principal sum of nine million sixty thousand three hundred and seventeen dollars and seventy-one cents ($9,060,317.71) which shall be due and payable to the Holder, without interest thereon, as follows: ------------------------ ---------------------------------- Principal Payment Percentage of Original Date Principal Amount to be Paid ------------------------ ---------------------------------- ------------------------ ---------------------------------- December 31, 1999 5.768644% December 31, 2000 5.768644% December 31, 2001 11.537287% December 31, 2002 11.537287% December 31, 2003 17.305931% December 31, 2004 17.305931% May 28, 2005 30.776276% ---------- 100.000000% ------------------------ ---------------------------------- All principal and interest (if any), which is not paid prior to May 28, 2005 will be due and payable on that day. This Note is one of the "Junior Subordinated Notes" referred to in, and the Holder is entitled to all the rights, preferences and privileges set forth in and other benefits of, that certain Junior Subordinated Note Agreement of even date herewith by and among the Corporation, American Endeavour Fund Limited and London Pacific Life & Annuity Company (the "Junior Subordinated Note Agreement"). Capitalized terms used without definition in this Note shall have the meanings given to them in the Junior Subordinated Note Agreement. 80 This Note will not bear interest, except that if any principal amount of this Note is not paid when due, then interest shall accrue on the entire Note outstanding from the date such sum is due until paid at the rate of ten percent (10%) per annum, compounded quarterly, or at the maximum rate permitted by law, whichever is less. Interest will be calculated on the basis of the actual number of days elapsed in a year of 360 days from the last day on which interest was paid (or if no interest has been paid, from the day on which interest began to accrue). Each payment with regard to this Note will be made in U.S. Dollars in cash or by wire transfer of funds which are immediately available at the place of payment to the account of the Holder set forth in Attachment 1 to this Note or at any other place of payment that may be designated by the Holder in the manner described in the Note Purchase Agreement at least two Business Days before the day on which the payment is due. The Corporation may prepay all or any portion of the principal of this Note at any time without prepayment penalty or premium. If this Note is to be prepaid only in part, this Note shall be surrendered to the Corporation (with, if the Corporation so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing), and the Corporation shall execute for the Holder a new Note equal in principal amount to the unprepaid portion of the Note surrendered and identical to the Note surrendered in all other respects. The Holder may assign, pledge or transfer all or any portion of this Note or such Holder's rights hereunder to the extent permitted by law, including state and federal securities laws. In the event of any such assignment, pledge or transfer, the assignee of this Note shall, to the extent provided in such assignment, pledge or transfer, be entitled to exercise the rights of a Holder. Upon any transfer of all or any portion of this Note, the Holder shall present this Note to the Corporation, accompanied by an executed form of assignment. The Corporation shall thereupon issue a new Note or Notes to the transferee or transferees having a principal equal to the amount of this Note so transferred, but otherwise in all other respects identical to this Note, and shall issue to the Holder a new Note having a principal equal to the amount of this Note not so transferred, which Note shall otherwise be identical to this Note in all other respects. Except as otherwise expressly provided in the Junior Subordinated Note Agreement, the Corporation waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Junior Subordinated Note Agreement. In any action on this Note, the Holder or its assignee need not produce or file the original of this Note, but need only file a photocopy of this Note certified by the Holder or such assignee to be a true and correct copy of this Note. The Corporation agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, expended or incurred by the Holder in connection with the enforcement of this Note, the collection of any sums hereunder, any actions for declaratory relief in any way related to this Note, or the protection or preservation of any rights of the Holder hereunder. IN WITNESS WHEREOF, the Corporation has caused this Junior Subordinated Note to be executed by its duly authorized officer as of the date set forth above. GENERAL TEXTILES, a California corporation By: /s/ Jonathan W. Spatz Its: Executive Vice President 81 Attachment 1 Place of Payment Wire transfer payments should be made to the account of the Holder at: Bank: NationsBank Customer Connection Dallas, Texas ABA Number: 111000012 Account Name: London Pacific Life & Annuity Account Number: 3750326028 Reference: General Textiles EX-10 12 EXHIBIT 10.7(A) REGISTRATION RIGHTS AGREEMENT This is an agreement dated April 30, 1998 among Family Bargain Corporation (the "Company"), a Delaware corporation, American Endeavour Fund Ltd. ("Endeavour"), a Jersey corporation, and London Pacific Life Annuity Company ("London Pacific"), a North Carolina joint stock life insurer, regarding registration under the Securities Act of 1933, as amended the "Securities Act," of shares of Common Stock of the Company ("Common Stock"), par value $.01 per share, which may be issued under a Note Exchange Agreement (the "Note Exchange Agreement") dated the same date as this Agreement, among the Company, Endeavour and London Pacific, or issued upon exercise of warrants issued by the Company under the Note Exchange Agreement. Under the Note Exchange Agreement, the Company will be issuing 75,000 shares of Common Stock to Endeavour and will be issuing warrants (the "Warrants") to purchase a total of 274,418 shares Common Stock to London Pacific. The Company, Endeavour and London Pacific agree as follows regarding registration under the Securities Act of Common Stock issued under the Note Exchange Agreement or upon exercise of Warrants: Registrable Stock. This Agreement relates to Registrable Stock. As used in this Agreement, the term "Registrable Stock" means (i) Common Stock issued under the Note Exchange Agreement and (ii) Common Stock and other securities issued on exercise of Warrants, which, in each case, (x) has not previously been sold in a transaction registered under the Securities Act or in a brokers transaction made in accordance with Rule 144 under the Securities Act and (y) may not be sold in accordance with Rule 144(k) under the Securities Act (or any successor to that rule) without limitation as to manner of sale or volume. Piggy-Back Registration. If, at any time during the period ending on the second anniversary of the last date on which any Warrants are exercised (which will not occur later than May 28, 2005) and while any Warrants or Registrable Stock are or is outstanding, the Company decides to file with the Securities and Exchange Commission (the "Commission") a registration statement under the Securities Act (other than on Form S-4, Form S-8, or any successor form), the Company will give all the then holders of Warrants or Registrable Stock (the "Eligible Holders") at least 45 days' prior written notice of the Company's intention to file the registration statement. If requested by any Eligible Holder in writing within 20 days after receipt of a notice of intention to file a registration statement, the Company will, at the Company's sole expense (other than the fees and disbursements of counsel for the Eligible Holders and any underwriting discounts or commissions payable in respect of the Warrants or Warrant Stock sold by the Eligible Holder), include the shares of Registrable Stock (and shares of Common Stock which will become Registrable Stock upon exercise of Warrants) specified in the Eligible Holder's request in the securities which are the subject of the registration statement, except that if the registration statement will relate solely to an offering of securities by the Company for its own account and the managing underwriter of that offering advises the Company in writing that, in its opinion, including all or a specified portion of the requested Registrable Securities in the registration statement would materially adversely affect the distribution of the securities being offered by the Company for its own account, the Company may elect not to include all or the specified portion of the requested Registrable Stock in the registration statement. If it does so, however, the Company will within six months after the registration statement becomes effective, file at its sole expense (other than fees and disbursements of counsel for the Eligible Holders and any underwriting discounts or commissions payable in respect of the Registrable Stock) a new registration statement relating to the Registrable Stock which the Company elected not to include in the prior registration statement and the Company will use its best efforts to cause the registration statement to become effective as promptly as practicable. 83 Demand Registration Rights. If, at any time during the period ending on the second anniversary of the last day on which any Warrants are exercised (which will not occur later than May 28, 2005), Eligible Holders who in aggregate own (or upon exercise of all the Warrants then outstanding would own) a majority of the total number of shares of Registrable Stock (including shares which would be Registrable Stock upon exercise of all the Warrants then outstanding) ("Majority Holders"), deliver to the Company a written request that it register under the Securities Act the sale of at least 200,000 shares of Registrable Stock, the Company will, as promptly as practicable, prepare and file with the Commission a registration statement sufficient to permit the public offering and sale of the shares of Registrable Stock specified in the request, will use its best efforts to cause that registration statement to become effective as promptly as practicable and will take any actions which are necessary to qualify sales of that Registrable Stock by the Eligible Holders under applicable state securities laws; provided, however, that (i) the Company will not be required to file more than two registration statements under this Section 3, (ii) the Company will not be required to file a registration statement with regard to Registrable Stock which, in the reasonable opinion of counsel to the Company, may all be sold to the public without registration under the Securities Act and after such a sale will not be restricted securities (as that term is used in Rule 144 under the Securities Act) and will not otherwise be subject to restrictions on resales, and (iii) the Company will not be obligated to file a registration statement in accordance with this Section 3 within six months after the effective date of a previous registration statement filed in accordance with Section 3 or this Section 3. The Company will pay all the costs relating to the first registration statement filed in accordance with this Section 3 (including amendments necessary to cause the registration statement to become effective), other than fees and disbursements of counsel for the Eligible Holders and any underwriting discounts or commissions in respect of the Underwriters' Securities sold by Eligible Holders. The reasonable costs of any other registration statement filed in accordance with this 3 will be paid by the Eligible Holders. Within 20 days after the Company receives a request under this Section 3 to file a registration statement, the Company will notify all the Eligible Holders who had not joined in the request that the Company is proceeding with the requested registration and will offer to include all or any portion of those other Eligible Holders' Registrable Stock in the registration statement if requested to do so within 20 days after the notice to the other Eligible Holders. Filing and Effectiveness. The Company will take all steps, including filing all amendments and supplements, which are necessary to keep each registration statement filed in accordance with Section 2 or 3 effective and current until the Eligible Holders whose Warrant Stock are the subject of the registration statement have completed the offering of those shares of Warrant Stock, except that the Company will not be required to keep a registration statement in effect for more than nine months after it becomes effective. Copies of Registration Statements and Prospectuses. The Company will furnish each Eligible Holder with such number of copies of each registration statement filed in accordance with Section 2 or 3 which relates to Registrable Stock offered by that Eligible Holder, and each amendment or supplement to that registration statement, in each case, including exhibits, and such number of copies of the prospectus included in that registration statement, and each amendment or supplement to it, as are reasonably requested by the Eligible Holder to enable it to complete the sale of the Registrable Stock to which the registration statement relates. 84 Underwriting Agreement. Ifthe shares of Registrable Stock which are the subject of a registration statement filed in accordance with Section 2 or 3 are to be sold in an underwritten offering, the Company and the Eligible Holders of those shares of Registrable Stock each will enter into a customary underwriting agreement relating to that underwritten offering, which will contain customary representations, warranties, provisions regarding allocations of expenses, closing conditions, and indemnities. Filings Current. Until all the Warrants have been exercised or expired and all the Registrable Stock has been sold in transactions registered under the Securities Act or in transactions made in accordance with Rule 144 under the Act, the Company will keep current all the filings it is required to make with the Commission which are necessary to permit holders of Registrable Stock to sell that stock under Rule 144. Indemnification. The Company will indemnify and hold harmless each officer, director, partner, employee and agent of each Eligible Holder, and each person, if any, who controls any Eligible Holder within the meaning of Section 15 of the Securities Act or of Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, liabilities, claims, damages or expenses (including, but not limited to, attorneys' fees and expenses and costs of investigation) arising out of, or based upon, any actual or alleged untrue statements, or omissions of statements necessary in order to make the statements therein not misleading, in any registration statement relating to Registrable Stock, any prospectus included in such a registration statement (as from time to time amended or supplemented), any amendment or supplement to any such registration statement or prospectus or any application or related document filed in any jurisdiction in order to qualify Registrable Stock under the securities laws of that jurisdiction which was executed by the Company or based upon written information furnished by the Company, unless the statement or omission is with respect to an Eligible Holder and was made in reliance upon and in conformity with written information furnished to the Company by that Eligible Holder. Each holder which includes Registrable Stock in the securities which are the subject of a registration statement will indemnify and hold harmless the Company, each director, officer, employee and agent of the Company, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent the Company agrees in Section 8(a) to indemnify and hold harmless each Eligible Holder, but only with respect to statements or omissions with respect to the holder which were made in reliance upon and in conformity with written information furnished to the Company by the holder for inclusion in the registration statement, prospectus, amendment, supplement or application, as the case may be; provided, that the obligation of the a holder of Registrable Stock under this Section 8(b) will be limited to the proceeds received by the holder from the sale of Registrable Stock which is the subject of a registration statement filed in accordance with Section 2 or 3. If an action is brought against a person entitled to indemnification under Section 8(a) or (b) (an "Indemnified Party") in respect of which that person may seek indemnity, the indemnified party will promptly notify all the parties (the "Indemnifying Parties") against whom indemnification may be sought in writing of the institution of the action (but failure to give the notice will not relieve the indemnifying parties from any liability they may have other than under this Section 8), and the Indemnifying Parties will be entitled to assume the defense of the action on behalf of the Indemnified Parties with counsel selected by the Indemnifying Parties who are reasonably satisfactory to the Indemnified Parties (which counsel will not, without the consent of all the Indemnified Parties, be counsel to any of the Indemnifying Parties). Any Indemnified Party may employ its own additional counsel with regard to an action, but if one or more 85 Indemnifying Parties assumes the defense of the action, the Indemnifying Parties will not be responsible for the fees and expenses of additional counsel employed by an Indemnified Party. An Indemnifying Party will not be liable for any settlement of a claim or action effected without its written consent, which consent will not be unreasonably withheld or delayed. An Indemnifying Party will not, without the prior written consent of each Indemnified Party that is not released as described in this sentence, settle or compromise any action, or permit a default or consent to the entry of judgment in any action, in respect of which indemnity may be sought under this Section (whether or not any Indemnified Party is a party to the action), unless the settlement, compromise or judgment includes an unconditional release of each Indemnified Party from all liability in respect of the action. Rights of Transferees. If any holder transfers Registerable Stock in a transaction which does not cause the transferred shares to cease being Registerable Stock (as that term is defined in Section 1), the person to whom the Registerable Stock is transferred will be entitled to the benefits of this Agreement if (i) the Company is notified about the transfer and provided with the name, address and social security or employer identification number of the person to whom the Registerable Stock is transferred, and (ii) the person to whom the Registerable Stock is transferred agrees to be bound by this Agreement (including Section 8(b) of this Agreement) to the same extent as a holder of Warrants or Common Stock who executed this Agreement. If a holder transfers Registerable Stock to a person who does not become entitled to the benefits of this Agreement as provided in the preceding sentence, the shares which are transferred to that person will cease being Registerable Stock until such, if any, time as the person to whom the shares are transferred becomes entitled to the benefits of this Agreement. Notices. Notices or other communications under or relating to this Agreement must be in writing and will be deemed given when they are delivered in person or sent by facsimile transmission to a number specified by the recipient, or on the third business day after the day on which they are sent by First Class Mail, addressed (a) if to a holder of Warrants or Registrable Stock, to the holder's last known address shown on the Warrant Register or Share Register maintained by the Company and (b) if to the Company, to 4000 Ruffin Road, San Diego, CA, 92123-8166, Attention: President, or to such other address as the recipient of the notice may subsequent by specify in the manner provided in this Section. Entire Agreement. This Agreement contains the entire agreement between the Company and the holders of Warrants or Registerable Stock relating to the registration of stock or warrants of the Company under the Securities Act. Captions. The captions of the Sections of this Agreement are for reference only, and do not affect the meaning or interpretation of this Agreement. Governing Law. This Agreement will be governed by, and construed under, the substantive laws of the State of New York. Amendments. This Agreement may be amended only by a document in writing signed by the Company and by each holder of Warrants or Registerable Stock which may be affected by the amendment. Counterparts. This Agreement may be executed in two or more counterparts, some of which may be signed by fewer than all the parties and may be delivered by facsimile transmission, each of which will be deemed an original, but all of which together will constitute one and the same agreement. 86 IN WITNESS WHEREOF, the Company, Endeavour, and London Pacific have executed this Agreement, intending to be legally bound by it, on the date shown on the first page of this Agreement. FAMILY BARGAIN CORPORATION By: /s/ Jonathan W. Spatz Title: Executive Vice President AMERICAN ENDEAVOUR FUND LTD. By: Title: LONDON PACIFIC LIFE ANNUITY COMPANY By:/s/ Susan Y. Gressel Title: V.P. & Treasurer EX-10 13 EXHIBIT 10.7(B) NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED EXCEPT IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THAT ACT. VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON MAY 28, 2005. No. W-1 274,418 SHARES WARRANT TO PURCHASE SHARES OF COMMON STOCK OF FAMILY BARGAIN CORPORATION TRANSFER RESTRICTED -- SEE SECTION 5.01 This certifies that London Pacific Life & Annuity Company, or registered assigns, (the "Warrant Holder") is entitled to purchase from FAMILY BARGAIN CORPORATION (the "Company"), a Delaware corporation, at any time before 5:00 P.M., New York City time, on the Expiration Date described in Section 1.01(c), the number of fully paid and nonassessable shares of Common Stock, par value $.01 per share, of the Company ("Common Stock") stated above at the Exercise Price described in Section 1.01(b). The Exercise Price and the number and nature of the Warrant Shares which may be purchased on exercise of this Warrant are subject to adjustment as provided in Article III. ARTICLE 1 Definitions Section 1.01. The term "Business Day" means a day other than a Saturday, Sunday or other day on which banks in the State of New York are authorized by law to remain closed. The term "Exercise Price" means, $6.00 per share, as that price may be adjusted from time to time as provided in Article III. The term "Expiration Date" means May 28, 2005. The term "Warrant Holder" means the person or entity named above or any other person or entity in whose name this Warrant is registered on the books of the Company. 88 The term "Warrants" means this Warrant and all warrants of like tenor (together evidencing the right to purchase a total of 274,418 shares of Common Stock) originally issued under a Note Exchange Agreement dated April 30, 1998 between the Company and the persons referred to in that Note Exchange Agreement as the Noteholders. The term "Warrant Shares" means the shares of Common Stock or other securities deliverable upon exercise of the Warrants. ARTICLE II Duration and Exercise of Warrant Section 2.01. This Warrant may be exercised at any time before 5:00 P.M., New York City time, on the Expiration Date. If this Warrant is not exercised at or before 5:00 P.M., New York City time, on the Expiration Date, it will become void and neither the Warrant Holder nor any other person will have any rights under this Warrant. Section 2.02. To exercise this Warrant in whole or in part, the Warrant Holder must surrender this Warrant, with the Subscription Form on it duly executed, to the Company at its principal office accompanied by a certified or official bank check payable to the order of the Company in an amount equal to the Exercise Price for the Warrant Shares as to which this Warrant is being exercised. When the Company receives this Warrant with the Subscription Form duly executed and accompanied by payment of the full Exercise Price for the Warrant Shares as to which this Warrant is being exercised, the Company will issue certificates, registered in the name of the Warrant Holder or such other names as are designated by the Warrant Holder, representing the total number of shares of Common Stock (and other securities, if any) as to which this Warrant is being exercised, in such denominations as are requested by the Warrant Holder, and the Company will deliver those certificates to the Warrant Holder. If the Warrant Holder exercises this Warrant with respect to fewer than all the Warrant Shares to which it relates, the Company will execute a new Warrant for the balance of the Warrant Shares that may be purchased upon exercise of this Warrant and deliver that new Warrant to the Warrant Holder. The Company will pay any taxes which may be payable in respect of the issuance of Warrant Shares or in respect of the issuance of a new Warrant if this Warrant is exercised as to fewer than all the Warrant Shares to which it relates. The Company will not, however, be required to pay any transfer tax which becomes payable because Warrant Shares or a new Warrant are to be registered in a name other than that of the Warrant Holder, and the Company will not be required to issue any Warrant Shares or to issue a new Warrant registered in a name other than that of the Warrant Holder until the Company receives either evidence that any applicable transfer taxes have been paid or funds with which to pay those taxes. 89 ARTICLE III Adjustment of Shares of Common Stock Purchasable and of Warrant Price Section 3.01. The Exercise Price and the shares of Common Stock or other securities issuable on exercise of this Warrant are subject to adjustment as follows: If, after April 15, 1998, the Company (i) makes a distribution on its Common Stock in shares of its capital stock, (ii) subdivides the outstanding Common Stock into a greater number of shares, or (iii) combines the outstanding Common Stock into a lesser number of shares, in each such case, the Exercise Price in effect at the record date for the distribution or the effective date of the subdivision or combination will be adjusted so that upon exercise of this Warrant after the record date or effective date with respect to a specified number of Warrant Shares, the Warrant Holder will receive the number and kind of shares which the Warrant Holder would have owned if the Warrant Holder had exercised this Warrant with respect to that number of Warrant Shares immediately before the first of those events and retained all the shares and other securities which the Warrant Holder received as a result of each of those events. If, after April 15, 1998, the Company fixes a record date for the issuance (or issues without fixing a record date) to the holders of the Common Stock of rights, options (other than options granted to employees or directors of the Company or its subsidiaries under Plans approved by the Company's stockholders) or warrants to subscribe for or purchase Common Stock, or securities which are convertible into or exchangeable for Common Stock, at an exercise, conversion or exchange price per share less than the lesser of (i) the Exercise Price in effect, or (ii) the mean of the high and low sale prices of the Common Stock reported in the principal market on which the Common Stock is traded (which, on April 15, 1998 is the Nasdaq Small-Cap market) on the record date (or on the date of issuance, if there is no record date), the Exercise Price will be adjusted by multiplying the Exercise Price in effect immediately prior to that record date (or issuance date) by a fraction, the numerator of which is the number of shares of Common Stock outstanding on that record date plus the number of shares of Common Stock which the aggregate exercise, conversion or exchange price would purchase at that Exercise Price and the denominator of which is the number of shares of Common Stock outstanding on that record date (or issuance date) plus the number of additional shares of Common Stock which the Company would be required to issue upon exercise, conversion or exchange of all the rights, options, warrants or convertible or exchangeable securities. Each adjustment will become effective at the close of business on the record date for issuance of the rights, options, warrants or convertible or exchangeable securities (or the date of issuance, if there is no record date). For the purposes of this Section 3.01(b), the exercise, conversion or exchange price of rights, options, warrants or convertible or exchangeable securities will include any consideration the holders of the Common Stock are required to pay in order to receive the rights, options, warrants or convertible or exchangeable securities, as well as any consideration the holders are required to pay upon exercise, conversion or exchange (other than surrender of the securities being exercised, converted or exchanged). If the right to exercise any rights, options or warrants, or to convert or exchange any convertible or exchangeable securities, the issuance of which results in an adjustment under this Section 3.01(b), expires in whole or in part without that right's being exercised, when that occurs, the Exercise Price will be readjusted as though the rights, options, warrants or convertible or exchangeable securities which were not exercised, converted or exchanged had not been issued. However, no readjustment will affect any exercise of this Warrant which takes place before the readjustment. 90 If, after April 15, 1998, the Company distributes to the holders of its Common Stock any cash (other than a cash dividend which, together with all other cash dividends paid within 12 months before the record date for the cash dividend, does not exceed five percent of the Exercise Price in effect on the record date for the cash dividend), evidences of indebtedness or other assets (other than distributions to which Section 3.01(a) or (b) applies), in each such case, the Exercise Price will be adjusted by subtracting from the Exercise Price in effect immediately prior to the record date for the determination of stockholders entitled to receive the distribution, the value of the cash, evidences of indebtedness or other assets to be distributed with respect to a share of Common Stock. Each adjustment under this Section will be effective at the close of business on the record date for the determination of stockholders entitled to receive the distribution which results in the adjustment. The value of evidences of indebtedness or other assets will be their fair market value as determined in good faith by the Board of Directors of the Company. If, after April 15, 1998, the Company sells or otherwise issues any Common Stock (other than in a transaction to which Section 3.01(a) applies or upon exercise of rights, options or warrants, or conversion or exchange of convertible or exchangeable securities) at a price per share which is less than the lesser of (i) the Exercise Price in effect immediately before the sale or other issuance, or (ii) the Market Price on the day before the sale or other issuance, in each such case, the Exercise Price will be adjusted, effective at the close of business on the day of the sale or other issuance, by multiplying the Exercise Price in effect immediately before the sale or other issuance by a fraction (i) the numerator of which will be equal to the sum of (A) the number of shares of Common Stock outstanding immediately before the sale or other issuance plus (B) the number of shares of Common Stock which could be purchased at the Exercise Price in effect immediately before the sale or other the issuance for the consideration received by the Company upon the sale or other issuance, and (ii) the denominator of which will be the total number of shares of Common Stock outstanding immediately after the sale or other issuance. If, after April 15, 1998, the Company sells or otherwise issues any rights, options, warrants or convertible or exchangeable securities (other than in a distribution to which Section 3.01(b) applies and other than options granted to employees or directors of the Company or its subsidiaries under plans approved by the Company's stockholders), when it does so it will, for the purpose of this Section 3.01(d), be treated as having sold the Common Stock it would be required to issue upon exercise of all the rights, options or warrants, or upon conversion or exchange of all the convertible or exchangeable securities, for a price per share equal to (i) (A) the total price paid for the rights, options or warrants or convertible or exchangeable securities, divided by (B) the number of shares of Common Stock issuable on exercise, conversion or exchange of the rights, options, warrants or convertible or exchangeable securities, plus (ii) any additional consideration per share of Common Stock which must be paid upon exercise of the rights, options or warrants or conversion or exchange of the convertible or exchangeable securities (other than surrender of the securities being exercised, converted or exchanged). If the right to exercise any rights, options or warrants, or to convert or exchange any convertible or exchangeable securities, the issuance of which results in an adjustment under this Section 3.01(d), expires in whole or in part without that right's being exercised, when that occurs, the Exercise Price will be readjusted as though the rights, options, warrants or convertible or exchangeable securities which were not exercised, converted or exchanged had not been issued. However, no readjustment will affect any exercise of this Warrant which takes place before the readjustment. 91 If, after April 15, 1998, there is a reclassification or change of outstanding shares of Common Stock (other than a change in par value or a change as a result of a subdivision or combination to which Section 3.01(a) applies) or a merger or consolidation of the Company with any other entity that results in a reclassification, change, conversion, exchange or cancellation of outstanding shares of Common Stock, or a sale or transfer of all or substantially all the assets of the Company and distribution of all or a portion of the proceeds of that sale or transfer, upon any subsequent exercise of this Warrant as to a specified number of Warrant Shares, the Warrant Holder will be entitled to receive the kind and amount of securities, cash and other property which the Warrant Holder would have received if the Warrant Holder had exercised this Warrant as to that number Warrant Shares immediately before the first of those events and had retained all the securities, cash and other assets received as a result of these events. If all or part of the consideration for, or payable on exercise, conversion or exchange of, any shares of Common Stock, rights, options, warrants or convertible or exchangeable securities is other than cash, for the purposes of this Section 3.01, the non-cash consideration will be valued at its fair market value as determined in good faith by the Board of Directors of the Company. If in connection with any sale or other issuance of Common Stock or other securities or assets, the Company is required to pay underwriting discounts or other fees or commissions, for the purposes of this Section 3.01, the consideration the Company receives will be the amount it receives net of the underwriting discounts, fees or commissions. If the exercise price of any rights, options or warrants, or the conversion or exchange price of any convertible or exchangeable securities, is changed, on the day the change becomes effective, the Company will be treated for the purposes of the Warrants as having (i) cancelled the outstanding rights, options, warrants or convertible or exchangeable securities which were exercisable, convertible or exchangeable at the prior price and (ii) issued new rights, options, warrants or convertible or exchangeable securities which are exercisable, convertible or exchangeable at the new price. No adjustment in the Exercise Price will be required if the adjustment is less than $.10 per Warrant Share. However, any adjustments which are not made because of this Section 3.01(h) will be carried forward and taken into account in any subsequent adjustments. All calculations under this Section 3.01 will be made to the nearest cent or to the nearest whole share, as the case may be. Upon each adjustment of the Exercise Price under this Section 3.01, the number of Warrant Shares which will be issued upon exercise of this Warrant will be adjusted so that (i) if this Warrant is exercised in full, the Warrant Holder will receive (A) the number of Warrant Shares the Warrant Holder would receive by exercising this Warrant in full immediately before the adjustment, times (B) the Exercise Price in effect immediately before the adjustment, divided by (C) the Exercise Price in effect after the adjustment, and (ii) if this Warrant is exercised only in part, the Warrant Holder will receive the fraction of the number of Warrant Shares the Warrant Holder would have received if it had exercised this Warrant in full of which the numerator is the number of Warrant Shares as to which this Warrant is exercised and the denominator is the total number of Warrant Shares issuable on exercise of this Warrant. 92 If any adjustment in the Exercise Price or in the number of shares or type of securities to be issued upon exercise of this Warrant becomes effective as of a record date for a specified event, and this Warrant is exercised between that record date and the date the event occurs, the Company may elect to defer, until the event occurs, issuing to the Warrant Holder the shares of Common Stock or other securities to which the Warrant Holder is entitled solely by reason of that event. However, if the Company does that, when this Warrant is exercised, the Company will deliver to the Warrant Holder a due bill or other instrument evidencing the Warrant Holder's right to receive the additional shares or other securities upon occurrence of the event. Section 3.02. Whenever the Exercise Price or the number of Warrant Shares are adjusted as provided in this Section, the Company will send to the Warrant Holder a certificate signed by its principal accounting officer setting forth the adjusted Exercise Price, the adjusted number of Warrant Shares and the date the adjustment became effective, and containing a brief description of the events which caused the adjustment. Section 3.03. If at any time after April 15, 1998: the Company declares a dividend or other distribution on its Common Stock, other than a dividend payable in cash out of its undistributed net income in an amount per share which, together with all other cash dividends paid within 12 months before the record date for the dividend, does not exceed five percent of the Exercise Price in effect on that record date; or the Company authorizes the granting or issuance to the holders of its Common Stock as a class of rights, warrants or options to subscribe for or purchase any shares of any class or any other securities; or there is any reclassification of the Common Stock (other than a subdivision or combination of its outstanding Common Stock), or any consolidation or merger to which the Company is a party and for which approval of the holders of the Common Stock is required, or a sale or transfer of all or substantially all the assets of the Company; or there is a voluntary or involuntary dissolution, liquidation or winding up of the Company; 93 in each case, the Company will mail to the Warrant Holder at least 20 days before the applicable record date a notice stating (i) the record date for the dividend, distribution or rights, or, if there will not be a record date, the date as of which the holders of record of Common Stock who will be entitled to the dividend, distribution or rights will be determined, or (ii) the date on which the reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected the holders of record of Common Stock who will be entitled to receive securities or other property with respect to their Common Stock as a result of the reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up will be determined. Failure to give any notice or any defect in the notice will not affect the validity of the action which should have been the subject of the notice. Section 3.04. The form of Warrant need not be changed because of any change in the Exercise Price or in the number of Warrant Shares which may be purchased by exercising Warrants and Warrants issued after the change may state the same Exercise Price and the same number of Warrant Shares as are stated in Warrants issued before the change. However, the Company may at any time make any change in the form of Warrant that it deems appropriate to reflect a change in the Exercise Price or in the Warrant Shares which may be purchased by exercising Warrants (provided the change in the form of Warrant does not otherwise affect the substance of the Warrant), and any Warrant issued after the form of Warrant is changed may be in the changed form. ARTICLE IV Other Provisions Relating to Rights of Warrant Holder Section 4.01. The Warrant Holder will not, as such, be entitled to vote, to receive dividends or to have any other of the rights of a shareholder of the Company, except that after this Warrant is exercised in accordance with the terms of this Warrant, the persons in whose names the Warrant Shares purchased through exercise of this Warrant are to be issued will be deemed to become the holders of record of those Warrant Shares for all purposes even if certificates representing those Warrant Shares are not issued. Section 4.02. The Company will at all times reserve and keep available for issuance upon exercise of this Warrant the number of authorized and unissued shares of Common Stock equal to the maximum number of shares of Common Stock the Company may be required to issue upon exercise of this Warrant. The Company will take all steps which are necessary so that all the shares of Common Stock (or other securities) which the Company may be required to issue on exercise of this Warrant will, upon issuance, be listed on each securities exchange and quoted on each automated quotation system on which the Common Stock is (or those other securities are) listed or quoted. All shares of Common Stock issued on exercise of this Warrant will, when they are issued, be validly issued, fully paid, nonassessable and free of preemptive rights. 94 Section 4.03. The Company will not be required to issue any fraction of a share upon exercise of this Warrant. In any case in which the Warrant Holder would, except for the provisions of this Section 4.03, be entitled to receive a fraction of a share upon exercise of this Warrant, the Company will, upon exercise of this Warrant, issue the maximum number of whole shares it is required to issue, but the Company will not be required to make any payment or give any other consideration with respect to a fraction of a share to which the Warrant Holder would be entitled except for this Section 4.03. Section 4.04. The Company will maintain a Warrant Register in which the name and address of each registered holder of Warrants will be recorded. Section 4.05. Notices or other communications to the Warrant Holder will be deemed given by the Company on the third Business Day after the day on which they are sent by first class mail addressed to the Warrant Holder at the Warrant Holder's last known address shown on the Warrant Register maintained by the Company. Section 4.06. Until this Warrant is properly presented for registration of transfer of this Warrant, the Company may treat the Warrant Holder as the absolute owner of this Warrant for all purposes, including for the purpose of determining the persons entitled to exercise this Warrant, despite any notice to the contrary. ARTICLE V Transfer of Warrants Section 5.01. This Warrant may not be sold, transferred, assigned, or hypothecated, except in a transaction registered under the Securities Act of 1933, as amended, (the "Securities Act") or which is exempt from the registration requirements of that Act. Section 5.02. Upon surrender of this Warrant to the Company at its principal office with the Form of Assignment (or another instrument of assignment) duly executed and accompanied by (i) evidence that any transfer tax has been paid, or funds sufficient to pay any transfer tax, and (ii) evidence reasonably satisfactory to the Company that the proposed assignment will not violate Section 5.01, the Company will, without charge, execute and deliver a new Warrant registered in the name of the assignee named in the Form of Assignment (or other instrument of assignment) and will promptly cancel this Warrant. This Warrant may be divided or combined with other Warrants by surrender of this Warrant and any other Warrants with which it is to be combined at the principal office of the Company together with a written notice, signed by the Warrant Holder, specifying the names and denominations in which new Warrants are to be issued. Section 5.03. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, or (in the case of mutilation) upon surrender of this Warrant, the Company will execute and deliver a new Warrant relating to the same number of Warrant Shares as this Warrant and the lost, stolen, destroyed or mutilated Warrant will become void. Any new Warrant executed and delivered in accordance with this Section 5.03 will constitute an additional contractual obligation of the Company, and will be valid and enforceable whether or not the Warrant which was believed to have been lost, stolen or destroyed is subsequently presented for exercise. 95 ARTICLE VI Registration Under the Securities Act of 1933 Section 6.01. The holders of the Warrants will be entitled to the benefits of a Registration Rights Agreement dated April 30, 1998 among the Company, American Endeavour Fund Limited and London Pacific Life & Annuity Company. Section 6.02. Unless the resale of Warrant Shares is the subject of a registration statement which has become effective under the Securities Act, the certificates representing Warrant Shares issued on exercise of this Warrant may bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THOSE SHARES MAY NOT BE OFFERED, SOLD OR TRANSFERRED, EXCEPT IN A TRANSACTION WHICH (i) IS REGISTERED UNDER THAT ACT OR (ii) IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THAT ACT." ARTICLE VII Other Matters Section 7.01. The provisions of this Warrant will bind, and inure to the benefit of, the Company and its successors and assigns. Section 7.02. Any notice or other communication to the Company relating to this Warrant will be deemed given on the day when it is delivered or sent by facsimile transmission (with a confirmation copy sent by mail), or on the third Business Day after the day on which it is sent by first-class mail, to the Company at the following address (or such other address as may be specified by the Company after the date of this Warrant): Family Bargain Corporation 4000 Ruffin Road San Diego, CA 92123 Attention: President Facsimile No.: (619) 637-4180 Any notice or other communication to the Warrant Holder will be deemed given when and as provided in Section 4.05. 96 Section 7.03. This Warrant will be governed by, and construed under, the laws of the State of New York relating to contracts made and to be performed in that state. Section 7.04. The Article headings in this Warrant are for convenience only, are not part of this Warrant and are not intended to affect the meaning or interpretation of any of the terms of this Warrant. IN WITNESS WHEREOF, this Warrant has been executed by the Company on April 30, 1998. FAMILY BARGAIN CORPORATION By /s/ Jonathan W. Spatz Name: Jonathan W. Spatz Title: Executive Vice President 97 FORM OF ASSIGNMENT (To Be Signed Only Upon Assignment) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the attached Warrant to __________________________________ to the extent of the right to purchase _________________ Warrant Shares, and the undersigned appoints ___________________________, with full power of substitution, to transfer that Warrant, with respect to the right to purchase that number of Warrant Shares, on the books of Family Bargain Corporation. Dated: ___________, ____ (Signature must conform to the name of the Warrant Holder specified on the face of the Warrant) 98 SUBSCRIPTION FORM To: FAMILY BARGAIN CORPORATION The undersigned irrevocably elects to purchase ________ Warrant Shares by exercising the Warrant to which this form is attached and tenders payment of the full Exercise Price with respect to those Warrant Shares. The undersigned requests that the certificates representing the Warrant Shares as to which the Warrant is being exercised be registered as follows: Name: Social Security or Employer Identification Number: Address: Deliver to: Address: If the Warrant Shares as to which the Warrant is being exercised are fewer than all the Warrant Shares to which the Warrant relates, please issue a new Warrant for the balance of those Warrant Shares registered in the name of the undersigned and deliver it to the undersigned at the following address: Address: Date: __________________ Signature _______________________________ (Signature must conform to the name of the Warrant Holder specified on the face of the Warrant) EX-11 14 EXHIBIT 11.1 13 Weeks Ended -------------------------- May 2, 1998 May 3, 1997 ----------- ----------- The computation of net (loss) available & adjusted shares outstanding follows: Net (loss) $ (2,790) $ (1,361) Less: Series A preferred stock dividends (864) (864) Series B preferred stock dividends (703) (656) -------------------------- A) Net (loss) used for basic computation $ (4,357) $ (2,881) Add (where dilutive): Series A preferred stock dividends - - Series B preferred stock dividends - - -------------------------- B) Net (loss) used for diluted computation $ (4,357) $ (2,881) C) Weighted average number of common shares outstanding, used for basic calculation 4,930,770 4,817,707 Add (where dilutive) assumed conversion of: Series A preferred stock - - Series B preferred stock - - Stock options - - Warrants for series A preferred stock - - Warrants for common stock - - -------------------------- D) Adjusted shares outstanding, used for fully diluted computation 4,930,770 4,817,707 Earnings per share: Basic (A divided by C) $ (0.88) $ (0.60) Diluted (B divided by D) $ (0.88) $ (0.60) E) Extraordinary item $ (2,750) $ - Extraordinary item per share (E divided by C) $ (0.56) $ - EX-27 15 FDS --
5 This schedule contains summary financial information extracted from the Balance Sheet and Statement of Operations as of and for the 13 weeks ended May 2, 1998 and is qualified in its entirety by reference to such financial statements as included in the Company's Quarterly Report on Form 10-Q. 0000813775 Family Bargain Corporation 1,000 3-MOS JAN-30-1999 FEB-1-1998 MAY-2-1998 4,332 0 0 0 34,181 42,746 23,066 8,398 92,787 34,221 0 0 36 50 11,517 92,787 66,495 66,495 44,649 44,649 23,283 0 1,279 (2,716) 74 (2,790) 0 (2,750) 0 (7,107) (1.44) (1.44)
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