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: