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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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)
<PAGE> 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.
<PAGE> 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)
<PAGE> 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
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:
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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]
<PAGE> 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
<PAGE> 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
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.
<PAGE> 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
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").
<PAGE> 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.
<PAGE> 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)
<PAGE> 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,
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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).
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
- - ---------------------- --------------------------- ----------------------------
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.
<PAGE> 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.
<PAGE> 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:
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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;
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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:
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,
<PAGE> 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.
<PAGE> 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
<PAGE> 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
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,
<PAGE> 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.
<PAGE> 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
<PAGE> 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
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.
<PAGE> 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.
<PAGE> 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:
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
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.
<PAGE> 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
<PAGE> 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
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.
<PAGE> 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
<PAGE> 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
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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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;
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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)
<PAGE> 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)
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) $ -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000813775
<NAME> Family Bargain Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> MAY-2-1998
<CASH> 4,332
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 34,181
<CURRENT-ASSETS> 42,746
<PP&E> 23,066
<DEPRECIATION> 8,398
<TOTAL-ASSETS> 92,787
<CURRENT-LIABILITIES> 34,221
<BONDS> 0
0
36
<COMMON> 50
<OTHER-SE> 11,517
<TOTAL-LIABILITY-AND-EQUITY> 92,787
<SALES> 66,495
<TOTAL-REVENUES> 66,495
<CGS> 44,649
<TOTAL-COSTS> 44,649
<OTHER-EXPENSES> 23,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,279
<INCOME-PRETAX> (2,716)
<INCOME-TAX> 74
<INCOME-CONTINUING> (2,790)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,750)
<CHANGES> 0
<NET-INCOME> (7,107)
<EPS-PRIMARY> (1.44)
<EPS-DILUTED> (1.44)
</TABLE>
