FAMILY BARGAIN CORP, S-2, 1996-08-09

FAMILY BARGAIN CORP
S-2, 1996-08-09
FAMILY CLOTHING STORES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1996

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FAMILY BARGAIN CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5651 51-0299573
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

315 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 980-9670
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
- -----------

JOHN A. SELZER
CHIEF EXECUTIVE OFFICER
FAMILY BARGAIN CORPORATION
315 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 980-9670
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C>
JOEL M. HANDEL, ESQ. DAVID W. BERNSTEIN, ESQ.
Baer Marks & Upham LLP Rogers & Wells
805 Third Avenue 200 Park Avenue
New York, New York 10022 New York, New York 10166
(212) 702-5700 (212) 878-8000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
--------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/

If the registrant elects to deliver its latest annual report to
securityholders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SECURITY OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
% Convertible Subordinated Debentures
due 2006 (1)............................. $46,000,000 $46,000,000 $15,862
Common Stock, $.01 par value (1).......... [ ] -- -- (1)
Total Registration Fee.................... $15,862
</TABLE>

(1) This Registration Statement also relates to such additional number of shares
of Common Stock as may be issued upon conversion of the Convertible
Subordinated Debentures in accordance with the terms thereof to prevent
dilution. Pursuant to Rule 457(i), no filing fee is required.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FAMILY BARGAIN CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY FORM S-2

<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-2 ITEM CAPTION IN FORM S-2 LOCATION IN PROSPECTUS
- ------------ ------------------------------------------------- -------------------------------------------------

<C> <S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Facing Page; Outside Front Cover Page

2 Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front Cover Page; Incorporation of Certain
Documents by Reference; Available Information;
Outside Back Cover Page

3 Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Summary; Risk Factors; Summary Consolidated
Financial and Other Data; Selected Consolidated
Historical and Pro Forma Financial Data

4 Use of Proceeds.................................. Use of Proceeds

5 Determination of Offering Price.................. Outside Front Cover Page; Underwriting

6 Dilution......................................... Inapplicable

7 Selling Security Holders......................... Inapplicable

8 Plan of Distribution............................. Outside Front Cover Page; Underwriting

9 Description of Securities to be Registered....... Summary; Price Range of Common Stock; Dividend
Policy; Description of Debentures; Description
of Capital Stock

10 Interests of Named Experts and Counsel........... Inapplicable

11 Information With Respect to the Registrant....... Outside Front Cover Page; Summary; Risk Factors;
Use of Proceeds; Price Range of Common Stock;
Capitalization; Dividend Policy; Selected
Consolidated Historical and Pro Forma Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Description of Capital
Stock; Index to Consolidated Financial
Statements; Consolidated Financial Statements

12 Incorporation of Certain Information by
Reference....................................... Incorporation of Certain Documents by Reference

13 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Inapplicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 9, 1996

PRELIMINARY PROSPECTUS
$40,000,000

FAMILY BARGAIN CORPORATION

% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
------------------

The % Convertible Subordinated Debentures due 2006 (the "Debentures")
being offered (the "Offering") by Family Bargain Corporation, a Delaware
corporation (the "Company"), will be convertible, at the option of the holders,
at any time on or prior to maturity, unless previously redeemed, into shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock"), at a
conversion price of $ . per share (equivalent to a conversion rate of
shares per $1,000 principal amount of Debentures), subject to adjustment to
prevent dilution. See "Description of Debentures -- Conversion." The Company has
applied to have the Debentures quoted on the Nasdaq SmallCap Market under the
symbol " ." The Common Stock is quoted on the Nasdaq SmallCap Market under
the Symbol "FBAR" and on the Chicago Stock Exchange under the Symbol "FBA." On
August 1, 1996, the closing sale price of the Common Stock as reported on the
Nasdaq SmallCap Market was $2.25 per share.

Interest on the Debentures is payable semi-annually in arrears on January 31
and July 31 of each year, commencing on January 31, 1997. The Debentures will be
redeemable at the Company's option, in whole at any time on or after September
, 1998 if the closing price of the Common Stock on 20 out of 30 consecutive
trading days ending not more than 10 days prior to the date of the notice of
redemption is at least 137.5% of the conversion price then in effect, and in
whole or in part at any time after September , 1999, at the redemption prices
set forth under "Description of Debentures." The Debentures will be unsecured
obligations of the Company, and will be subordinated to all existing and future
Senior Indebtedness (as defined) of the Company and may be effectively
subordinated to existing and future liabilities of the Company's subsidiaries.
The Indenture (as defined) will not restrict the incurrence of any other
indebtedness or liabilities by the Company or its subsidiaries. See
"Capitalization" and "Description of Debentures."

FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE DEBENTURES, SEE "RISK FACTORS" COMMENCING
ON PAGE 11 HEREOF.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
<S> <C> <C> <C>
Per Debenture............................... % 6.0% %
Total (4)................................... $ $ $
</TABLE>

(1) Plus accrued interest, if any, from .

(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(3) Before deducting expenses payable by the Company estimated at $1.1 million,
including the Representatives' non-accountable expense allowance of $400,000
or $460,000 if the Underwriters' over-allotment option is exercised in full,
all of which are payable by the Company. See "Underwriting."

(4) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional $6,000,000 aggregate principal amount of Debentures on the terms
set forth above to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount, and
Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------------------------

The Debentures are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Debentures will be made in New York, New York on or about
September , 1996.

RODMAN & RENSHAW, INC. CRUTTENDEN ROTH
INCORPORATED

The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AND/OR DEBENTURES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
SMALLCAP MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

[GRAPHIC DEPICTING LOCATIONS OF STORES
ON MAP OF WESTERN U.S.; STORE PHOTOS]
[LISTING-RELATED LEGENDS]

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES ACT OF 1934. SEE "UNDERWRITING."

2
<PAGE>
CONCURRENT REGISTRATION STATEMENT

On August , 1996, the Company filed a Registration Statement (No.
333- ) on Form S-2 (the "Concurrent Registration Statement") covering an
aggregate of 153,846 shares of Series A Preferred Stock (including shares of
Common Stock issuable upon conversion of such shares). The Company filed the
Concurrent Registration Statement on behalf of certain holders of securities of
the Company, whose shares may be offered and sold from time to time pursuant to
Rule 415 under the Securities Act of 1933, as amended (the "Securities Act").
See "Description of Capital Stock -- Preferred Stock."

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have heretofore been filed by the Company
with the Commission pursuant to the Exchange Act, are incorporated by reference
into this Prospectus and shall be deemed to be a part hereof as of their
respective dates:

1. The annual report of the Company on Form 10-K and, as amended in part,
on Form 10-K/A for the fiscal year ended January 27, 1996.

2. The quarterly report of the Company, as amended, on Form 10-Q/A for the
fiscal quarter ended April 27, 1996.

In addition, all reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of this Offering shall be deemed
to be incorporated herein by reference and to be a part hereof from the date of
filing of such reports and documents.

Any statement contained in a document incorporated by reference herein or
deemed to be incorporated by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which is deemed to be
incorporated herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written request
of any such person, a copy of any or all documents incorporated by reference
into this Prospectus (other than exhibits to such documents). Requests should be
directed to: John A. Selzer, Chief Executive Officer and President, Family
Bargain Corporation, 315 East 62nd Street, New York, New York 10021; Telephone
(212) 980-9670; Facsimile (212) 593-4586.

3
<PAGE>
SUMMARY

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS.

Family Bargain Corporation (the "Company") operates 138 off-price retail
apparel and housewares stores under the names "Family Bargain Center" and
"Factory 2-U" in California, Arizona, Washington, New Mexico, Oregon, Nevada and
Texas. The Company purchased Factory 2-U, Inc. ("Factory 2-U") in November 1995.

Typical customers of the Company's stores are low-income families, including
agricultural, service and other blue collar workers, a significant portion of
whom are of Hispanic origin or are members of other ethnic groups. The Company's
store merchandising selection, everyday low price strategy and store format are
designed to reinforce the concept of value and enhance the customers' shopping
experience, while maximizing inventory turns.

Family Bargain Center stores, which average 11,000 square feet, and Factory
2-U stores, which average 19,000 square feet, are designed in a self-service
format that affords easy access to merchandise displayed on bargain tables,
hanger racks and open shelves. Stores are stocked with new merchandise at least
weekly. Prices are clearly marked, often with a comparable full retail price.
Most stores display signs in English and Spanish and are staffed with bilingual
personnel. Store atmosphere is enhanced by the playing of locally popular music,
the use of brightly colored pennants and occasional festive outdoor promotions.

The Company plans to open new stores in the seven western states in which it
currently operates. During the fiscal year ended January 27, 1996, the Company
opened eight new Family Bargain Center stores and, through the acquisition of
Factory 2-U, acquired an additional 29 stores. The Company plans to open up to
19 new stores (which may increase to as many as 25 new stores if the Offering is
completed) in fiscal 1997, of which eight have been opened as of July 1, 1996,
and up to 19 new stores (which may increase to as many as 45 new stores if the
Offering is completed) in fiscal 1998. In addition, the Company has closed one
store during its current fiscal year.

The Company also is continuing a program under which it renovates existing
stores or relocates them as superior sites become available in their markets.
During fiscal 1996, the Company renovated 21 stores and relocated one store. In
fiscal 1997, the Company plans to renovate and/or relocate up to five stores.
Some of the new or relocated Family Bargain Center stores will adopt the Factory
2-U store format by expanding store size and selling housewares and domestic
items. The Company also intends to purchase new store fixtures for all of its
stores to add to the appearance, accessibility and quantity of merchandise
displayed to its customers.

RECENT UNAUDITED RESULTS

The Company historically has realized seasonally low sales in its first
quarter (February through April), resulting in first quarter losses. Net sales
(gross sales less sales tax and sales returns) for the three months ended April
27, 1996 increased to $49.8 million from $31.0 million for the corresponding
period in the prior year, representing a 60.6% increase. Net losses (prior to
payment of dividends on the Company's Series A 9 1/2% Cumulative Convertible
Preferred Stock ("Series A Preferred Stock")) for the three months ended April
27, 1996 decreased to $1.6 million from $3.6 million for the corresponding
period in the prior year,

4
<PAGE>
representing a 55.6% reduction. The substantial improvement in net sales was
attributable to sales at Factory 2-U stores, which were acquired in November
1995, as well as to increases in comparable store sales (sales at stores open
throughout both periods) and sales at newly opened stores. The substantial
reduction in net losses was attributable, in addition to increased sales, to
improved gross margins resulting from reduced markdown activity and a decrease
in selling and administrative expenses as a percentage of sales due to improved
economies of scale. Comparable store sales increased by 7.3% for June 1996, and
by 10.0% for the year to date through the end of June 1996.

For the twelve months ended April 27, 1996, the Company had net sales of
$198.6 million, compared to net sales of $148.8 million for the twelve months
ended April 29, 1995, representing a 33.5% increase. Net income before
extraordinary items, loss on disposal of discontinued operations and payment of
dividends on Series A Preferred Stock for the twelve months ended April 27, 1996
increased to $3.5 million from a net loss of $3.0 million for the twelve months
ended April 29, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

For the twelve months ended April 27, 1996, the Company had EBITDA (earnings
before interest, taxes, depreciation, amortization, extraordinary items and
results of discontinued operations) of $11.1 million compared to EBITDA of $2.3
million for the twelve months ended April 29, 1995, an increase of $8.8 million
or 382.6%. This increase resulted from sales at Factory 2-U stores, increases in
comparable store sales, sales at newly opened stores, reduced markdown activity
and a decrease in selling and administrative expenses as a percentage of sales
due to the improved economies of scale achieved as a result of the growth in the
Company's sales.

The Company's principal executive office is located at 315 East 62nd Street,
New York, New York 10021 and its telephone number is (212) 980-9670. The
principal executive office of the Company's operating subsidiaries, General
Textiles and Factory 2-U, Inc. (the "Operating Subsidiaries"), is located at
4000 Ruffin Road, San Diego, California 92123 and its telephone number is (619)
627-1800.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
The Debentures............. $40,000,000 aggregate principal amount of % Convertible
Subordinated Debentures ($46,000,000 aggregate principal amount
if the Underwriters' over-allotment option is exercised in
full).

Maturity Date.............. , 2006

Payment of Interest........ The Debentures will bear interest at the rate of % per annum.
Interest will be payable semi-annually in arrears on January 31
and July 31 of each year, commencing January 31, 1997. See
"Description of Debentures."

Conversion Rights.......... The Debentures are convertible, at the option of the holder, at
any time on or prior to maturity, unless previously redeemed,
into shares of Common Stock at a conversion price of $ per
share (equivalent to a conversion rate of shares per
$1,000 principal amount of Debentures), subject to antidilution
adjustments (the "Conversion Price"). See "Description of
Debentures -- Conversion."

Optional Redemption by the The Company may redeem all, but not less than all, of the
Company................... Debentures upon 30 days written notice at % of their
principal amount, plus accrued and unpaid interest, at any time
after September , 1998, provided the closing price of the
Common Stock on at least 20 out of 30 consecutive trading days
ending not more than 10 days prior to the date the notice of
redemption is given is at least 137.5% of the Conversion Price
then in effect. In addition, the Company may redeem all or any
portion of the Debentures on or after September , 1999 upon
30 days written notice at the following prices (expressed as
percentages of the principal amount plus accrued and unpaid
interest to the date fixed for redemption):
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS
BEGINNING SEPTEMBER , PERCENTAGE
---------------------- ----------
<S> <C> <C>
1999.................. 107%

2000.................. 105%

2001.................. 103%

2002 -- thereafter.... 100%
</TABLE>

<TABLE>
<S> <C>
See "Description of Debentures -- Optional Redemption."

Subordination............. The Debentures will be subordinated to all existing and future
Senior Indebtedness (as defined) of the Company and may be
effectively subordinated to existing and future liabilities of its
subsidiaries. At April 27, 1996, the aggregate principal amount of
Senior Indebtedness was $2.1 million and liabilities of the
Operating Subsidiaries totalled $64.5 million. The Indenture (as
defined) will not restrict the incurrence of Senior Indebtedness by
the Company, or the incurrence of other indebtedness or liabilities
by the Company or its subsidiaries. See "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital Resources" and
"Description of Debentures General" and "-- Subordination."
</TABLE>

6
<PAGE>

<TABLE>
<S> <C>
Use of Proceeds........... The net proceeds of the Offering will be used as follows: (i)
approximately $ million will be loaned by the Company to the
Operating Subsidiaries and used by them as working capital,
including repayment of the outstanding indebtedness under the
Revolving Credit Facilities (as defined), (ii) up to $4.0 million
will be used to purchase new fixtures for existing stores, and (ii)
the balance of approximately $ million will be used by the
Company and the Operating Subsidiaries for general working capital
purposes. The Operating Subsidiaries may reborrow funds under the
Revolving Credit Facilities. Uses of additional working capital may
include the purchase of existing indebtedness of the Operating
Subsidiaries or shares of outstanding Series A Preferred Stock in
the open market from time to time. In addition, the Company may use
at least part of the additional working capital and additional
borrowing availability under the Revolving Credit Facilities to
accelerate its store opening schedule, obtain lower prices from
certain suppliers, obtain credit from a greater number of suppliers,
and obtain overseas merchandise at lower prices by using letters of
credit to purchase directly from overseas vendors). The Company
believes that these latter steps, if implemented, will result in
either higher gross margins or increased pricing flexibility, or
both. See "Use of Proceeds."

Listing................... The Company has applied to have the Debentures quoted on the Nasdaq
SmallCap Market under the symbol " ." The Common Stock is
currently traded on the Nasdaq SmallCap Market under the symbol
"FBAR" and on the Chicago Stock Exchange under the symbol "FBA."

Risk Factors.............. The Offering involves substantial risks. See "Risk Factors."
</TABLE>

7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

Set forth below is (i) summary consolidated historical financial data for
the twelve months ended January 28, 1995 and January 27, 1996 and the twelve and
three months ended April 29, 1995 and April 27, 1996 and (ii) summary
consolidated pro forma financial data for the twelve months ended January 27,
1996 and three months ended April 27, 1996. The summary consolidated financial
data includes the Company and General Textiles for all periods and Factory 2-U
commencing November 11, 1995. All of the summary consolidated historical
financial data are derived from audited financial information except for
operating data and the summary consolidated historical financial data for the
twelve and three months ended April 29, 1995 and April 27, 1996. The audited
financial information for the twelve month periods ended January 28, 1995 and
January 27, 1996 is included elsewhere in this Prospectus. The summary
consolidated historical and pro forma financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Consolidated Financial Statements."

8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL RESULTS
-------------------------------------------------------------------------
MOST RECENT TWELVE MOST RECENT THREE
MOST RECENT FISCAL MONTH PERIOD MONTH PERIOD PRO FORMA
YEAR RESULTS UNAUDITED RESULTS UNAUDITED RESULTS UNAUDITED RESULTS
------------------------- --------------------- --------------------- --------------------------
TWELVE TWELVE TWELVE TWELVE THREE THREE TWELVE
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED THREE MONTHS
JANUARY 28, JANUARY 27, APRIL 29, APRIL 27, APRIL 29, APRIL 27, JANUARY 27, ENDED APRIL
1995 1996 (1) 1995 1996 (1) 1995 1996 1996 (2) 27, 1996 (2)
----------- ----------- --------- --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales................ $146,520 $179,820 $148,831 $198,607 $31,038 $49,825 $179,820 $ 49,825
Gross Profit............. 49,435 62,632 49,086 70,578 9,537 17,483 62,632 17,483
Operating Income
(Loss).................. 2,608 5,153 (131) 7,524 (2,890) (519) 5,153 (519)
Income (Loss) from
Continuing Operations... (354) 1,478 (2,994) 3,474 (3,554) (1,558) (504) (1,911)
Loss from Discontinued
Operations.............. (2,241) (500) (2,199) (500) -- -- -- --
Extraordinary Gain....... 5,251 -- 5,251 -- -- -- -- --
Net Income (Loss)........ 2,656 978 58 2,974 (3,554) (1,558) (504) (1,911)
Dividends on Preferred
Stock................... 2,030 3,040 2,790 3,134 760 854 3,040 854
Net Income (Loss)
Applicable to Common
Stock................... 626 (2,062) (2,732) (160) (4,314) (2,412) (3,544) (2,765)
Net Income (Loss) from
Continuing Operations
Applicable to Common
Stock per Common
Share................... (0.59) (0.39) (1.44) 0.08 (1.08) (0.60) (0.88) (0.68)
Net Income (Loss)
Applicable to Common
Stock Per Common Share:
(3)
Primary................ 0.16 (0.51) (0.68) (0.04) (1.08) (0.60) (0.88) (0.68)
Fully Diluted.......... 0.16 (0.51) (0.68) (0.04) (1.08) (0.60) (0.88) (0.68)

OPERATING DATA
EBITDA (4)............... 4,837 8,438 2,258 11,148 (2,220) 490 8,438 490
No. of Stores at End of
Period.................. 97 131 98 135 98 135 131 135
Gross Profit
Percentage.............. 33.7% 34.8% 33.0% 35.5% 30.7% 35.1% 34.8% 35.1%
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends (5)........... -- -- -- 1.0x -- -- -- --
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
-----------------------
JANUARY 27, APRIL 27, JANUARY 27, APRIL 27,
1996 1996 1996 (7) 1996 (7)
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working Capital (Deficiency).... $ (186) $ 7,931 $ 21,476 $ 20,999
Total Assets.................... 87,152 95,821 111,993 112,068
Long-Term Debt, Less Current
Portion........................ 25,023 34,753 49,864 51,000
Preferred Stock................. 26,981 29,841 26,981 29,841
Common Stockholders' Equity
(Deficiency)................... 736 (1,321) 736 (1,321)
Common Stockholders' Equity
(Deficiency) per Share (6)..... 0.18 (0.32) 0.18 (0.32)
</TABLE>

9
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

(1) The results of Factory 2-U have been consolidated with the Company's results
since the acquisition of Factory 2-U on November 11, 1995. Therefore, the
Company's consolidated results for the twelve months ended January 27, 1996
and April 27, 1996 include Factory 2-U's results for 2.5 months and 5.5
months, respectively. See Note 3 to the Notes to the "Consolidated Financial
Statements."

(2) The pro forma results give effect to the sale of $40.0 million of Debentures
offered hereby and the application of the net proceeds by the Company. The
pro forma adjustments reflect those adjustments necessary to (i) eliminate
the loss on discontinued operations, (ii) eliminate interest on the
Company's revolving credit notes (in the amounts of $1,672,000 and $561,000
for the twelve months ended January 27, 1996 and the three months ended
April 27, 1996, respectively), which are assumed to be unused during such
periods because of the availability of the Offering proceeds, and (iii) give
effect to the increase in interest expense arising from the Debentures (in
the amounts of $3,300,000 and $825,000 for the twelve months ended January
27, 1996 and the three months ended April 27, 1996, respectively) and the
amortization of the debt issuance costs related thereto (in the amounts of
$353,000 and $88,000 for the twelve months ended January 27, 1996 and the
three months ended April 27, 1996, respectively), with all transactions
treated as though the Offering occurred on January 29, 1995 and January 28,
1996, respectively. See Note 7 to the Notes to Summary Consolidated
Financial and Other Data.

(3) Net income (loss) per common share on both a primary and fully diluted basis
is calculated by dividing net income (loss) applicable to Common Stock by
the weighted average number of shares outstanding for each respective
period. See Note 1 to the Notes to the "Consolidated Financial Statements."

Weighted average shares and earnings per share amounts have been restated
for 1995 to give retroactive effect to the cancellation of contingent shares
during 1996. See Note 2 to the Notes to the "Consolidated Financial
Statements."

(4) EBITDA (earnings before interest, taxes, depreciation and amortization,
extraordinary items and results of discontinued operations) data is
presented to reflect operating income from continuing operations before
non-cash items, and approximates the cash available from continuing
operations to cover interest expense and other debt service. Such data is
not an alternative to operating income as an indication of operating
performance or liquidity under generally accepted accounting principles.

(5) Earnings for the twelve months ended January 28, 1995 and January 27, 1996,
for the twelve and three months ended April 29, 1995 and for the three
months ended April 27, 1996 were insufficient to cover fixed charges and
preferred stock dividends by $2.2 million, $1.6 million, $5.6 million, $4.3
million and $2.4 million, respectively. However, earnings for the twelve
months ended April 27, 1996 were sufficient to cover fixed charges and
preferred stock dividend payments. Pro forma earnings for the twelve months
ended January 27, 1996 and the three months ended April 27, 1996 were
insufficient to cover fixed charges and preferred stock dividends by $3.5
million and $2.8 million, respectively.

(6) Common Stockholders' equity per common share is determined by dividing
stockholders' equity, net of equity related to preferred stock, by the
common shares outstanding at the date presented.

(7) The pro forma balance sheet data gives effect to the sale of $40.0 million
of Debentures offered hereby and the application of the net proceeds by the
Company as if the same had occurred on January 27, 1996 and April 27, 1996,
respectively. The pro forma adjustments give effect to the estimated current
portion of debt issuance costs added to current assets ($353,000 at both
January 27, 1996 and April 27, 1996), the net increase in cash following the
payment of the revolving credit facilities ($21,309,000 and $12,715,000 at
January 27, 1996 and April 27, 1996, respectively), the estimated long-term
portion of debt issuance costs added to noncurrent assets ($3,179,000 at
both January 27, 1996 and April 27, 1996), the principal amount of the
Debentures ($40,000,000 at both January 27, 1996 and April 27, 1996) and the
use of the Offering proceeds to repay the outstanding indebtedness under the
revolving credit facilities ($15,159,000 and $23,753,000 at January 27, 1996
and April 27, 1996, respectively).

10
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE DEBENTURES OFFERED HEREBY INVOLVES SUBSTANTIAL RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS ALL THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE
PURCHASING ANY DEBENTURES:

RESTRICTIONS ON PAYMENTS BY OPERATING SUBSIDIARIES TO THE COMPANY. The
Company is a holding company and relies on its cash reserves and payments from
General Textiles and Factory 2-U to finance its ongoing operating expenses, to
pay its outstanding indebtedness, to pay its dividends on the Series A Preferred
Stock and, in the future, to pay its principal and interest obligations on the
Debentures. The Company receives payments from General Textiles pursuant to a
tax sharing agreement and with regard to subordinated debt and secured term debt
of General Textiles held by the Company. The Company receives payments from
Factory 2-U pursuant to a management agreement and a guaranty fee agreement. The
General Textiles Plan of Reorganization (the "GT Reorganization Plan") and
certain of General Textiles' outstanding debt instruments (including the GT
Revolving Credit Facility (as defined)) restrict General Textiles from paying
dividends or making other distributions to the Company without the consent of
certain holders of indebtedness. In addition, payments by Factory 2-U to the
Company are limited under the Factory 2-U Revolving Credit Facility (as defined)
to payments pursuant to a management agreement, a guarantee fee agreement and
payments with regard to a loan of a portion of the proceeds of the sale of the
Debentures. The Company will lend at least $ million of the proceeds of
the sale of the Debentures to General Textiles and at least $ million
of the proceeds to Factory 2-U. The Company will be entitled to receive interest
and principal under these loans with interest rates and payment dates
substantially similar to those under the Debentures. The Company anticipates
that, despite the restrictions on payments from General Textiles and Factory
2-U, the funds it is entitled to receive from the Operating Subsidiaries will be
sufficient to enable it to meet its expenses and debt service (including
required payments of interest and principal with regard to the Debentures) and
to pay the dividends on its Series A Preferred Stock, although there can be no
assurance of this.

OPERATING RESULTS; ABILITY TO MAKE DEBENTURE INTEREST PAYMENTS AND COVER
FIXED CHARGES. The Company generated $1.5 million of net income from continuing
operations for its fiscal year ended January 27, 1996 (which includes two and
one-half months of Factory 2-U operating results), but incurred a net loss from
continuing operations of $354,000 for its fiscal year ended January 28, 1995.
There can be no assurance that the Company will operate profitably in the
future. Earnings for the fiscal year ended January 27, 1996 were insufficient to
cover fixed charges and preferred stock dividends by $1.6 million (a ratio of
earnings to fixed charges of 0.8 to 1) and on a pro forma basis, after giving
effect to the issuance of the Debentures and the application of the Offering
proceeds, by $3.5 million (a ratio of earnings to fixed charges of 0.6 to 1). In
addition, the Operating Subsidiaries may reborrow under the Revolving Credit
Facilities, resulting in additional interest expense. In fiscal 1996, dividends
on the then outstanding shares of Series A Preferred Stock were paid out of a
combination of that year's earnings and additional paid-in capital. To the
extent that income is not sufficient to cover such fixed charges, interest and
dividends may be paid out of a combination of earnings and additional paid-in
capital. See "Dividend Policy", "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Capital Stock."

COMPOSITION OF GENERAL TEXTILES' BOARD; RIGHTS OF CREDITORS IN EVENT OF
NON-PAYMENT. In connection with the GT Reorganization Plan, General Textiles
issued Subordinated Notes. The Subordinated Notes provide that if General
Textiles fails to make certain minimum payments thereunder the holders of
certain of the notes and the official creditors' committee appointed in
connection with the Chapter 11 Reorganization (the "Creditors Committee") will
be entitled to elect a minority of General Textiles' directors in certain
circumstances and all of General Textiles' directors in other circumstances. The
Company currently owns $15.0 million of the $19.1 million principal amount of
outstanding Subordinated Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

11
<PAGE>
SUBORDINATION OF DEBENTURES. The Debentures will be unsecured and
subordinated obligations of the Company and will be subordinate to the prior
payment in full of all existing and future Senior Indebtedness (as defined in
the Indenture) of the Company. In addition, they may, as discussed below,
effectively be subordinated to all indebtedness and other liabilities of the
Company's subsidiaries. At April 27, 1996, the Company's Senior Indebtedness
totaled approximately $2.1 million and the liabilities of its Operating
Subsidiaries aggregated approximately $64.5 million. The Debentures are
obligations exclusively of the Company and not of any of its subsidiaries. The
Indenture will not restrict the incurrence of any other indebtedness or
liabilities by the Company or its subsidiaries.

The Company is a holding company, and all its businesses are conducted by
its Operating Subsidiaries, General Textiles and Factory 2-U. If an Operating
Subsidiary were to become insolvent, the Company, as the shareholder, would not
receive any distributions in a resulting insolvency proceeding until all the
subsidiary's creditors were paid. However, the Company owns $15.0 million face
value of subordinated debt and $3.0 million face value of secured term debt of
General Textiles as of both April 27, 1996 and July 1, 1996. In addition, the
Company expects to lend at least $ million of the proceeds of the sale
of the Debentures to General Textiles and at least $ million of the
proceeds to Factory 2-U. Therefore, in addition to being the sole shareholder of
the Operating Subsidiaries, the Company is a significant creditor of General
Textiles and will be a significant creditor of Factory 2-U. This could entitle
the Company to participate in the same manner as other creditors with similar
priorities in any distributions of assets of either of those subsidiaries if
they became insolvent. However, if it were determined that the Company was
responsible for the insolvency of a subsidiary, the Bankruptcy Court or other
court overseeing the insolvency proceeding might direct that some or all of the
subsidiary's indebtedness to the Company be subordinated to some or all of the
subsidiary's obligations to other creditors. If this occurred, it would
essentially have the effect of subordinating the Debentures to the debts and
other obligations of the subsidiary.

MARKET FOR THE DEBENTURES. Prior to the Offering, there has been no public
market for the Debentures. Although the Company has applied to have the
Debentures quoted on the Nasdaq SmallCap Market, there can be no assurance that
an active trading market will develop for the Debentures or that, if such market
develops, the market price will equal or exceed the public offering price set
forth on the cover page of this Prospectus. The Representatives of the
Underwriters have advised the Company that they currently intend to make a
market in the Debentures. However, the Representatives are not obligated to do
so and any market making may be discontinued at any time without notice. The
initial public offering price of the Debentures will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may not be indicative of the future market price of the Debentures after the
offering of the Debentures hereby. See "Underwriting."

BANKRUPTCY FILINGS OF COMPANIES CONTROLLED BY SELZER/EIGER; CREDIT AND
CONTINUED FINANCING. Benson A. Selzer and Joseph Eiger, senior executive
officers, directors and through various ownership interests principal
stockholders of the Company (together with entities which they own or control or
of which members of their families are beneficiaries, "Selzer/Eiger") have been
active in acquiring and restructuring financially and operationally troubled
companies since 1973. Companies controlled by Selzer/Eiger have sometimes
commenced Chapter 11 proceedings pursuant to U.S. bankruptcy laws, under which
holders of subordinated debt of the companies involved were required to
renegotiate their debt, sometimes resulting in the full or partial loss of their
investment. Since 1991, five companies affiliated with Selzer/Eiger have filed
for bankruptcy (the most recent being in February 1996) or have been liquidated,
including General Textiles, Mandel-Kahn Industries and C-B Murray Corporation,
Inc., which are former subsidiaries of the Company. Selzer/Eiger controls less
than 30% of the fully-diluted equity of the Company and does not control a
majority of the Board of Directors of the Company. However, Benson A. Selzer,
Joseph Eiger and John A. Selzer are the sole members of the executive committee
of the Company's Board of Directors. See "Management."

Since emerging from bankruptcy in 1993, General Textiles has been granted
normal credit availability by most vendors and other material sources of supply.
However, if cash flow problems arise in the future, General Textiles' history of
a prior bankruptcy reorganization might cause lenders and vendors to withdraw
credit availability more quickly than they otherwise might have done. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

12
<PAGE>
COMPETITION. The Company's stores compete with large discount retail chains
(such as Wal-Mart, K-Mart, Mervyn's and Target) and regional off-price chains
(such as MacFrugal's), many of which have substantially greater resources than
those of the Company. While the Company's off-price marketing strategy differs
from the strategy of many of its competitors, if such competitors were to adopt
an off-price approach that targeted Family Bargain Center's and Factory 2-U's
typical customers, the Company's business could be adversely affected. See
"Business -- Operations -- Competition."

EXPANSION. The Company may accelerate its store opening plan following
completion of the Offering. Expansion involves increased risks and costs and may
cause the quarterly results of the Company to fluctuate. See "Use of Proceeds"
and "Business -- Expansion Plans."

SEASONALITY. The Company's business is seasonal in nature and historically
has realized its highest level of sales in the "Back-to-School" (August and
September) and Christmas (November and December) seasons. In addition, working
capital requirements fluctuate during the year and are highest between mid-
summer and the beginning of the Christmas season because significantly higher
inventory levels are necessary at those times. Such seasonality may make interim
period results of operations not necessarily indicative of full-year results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operation and Seasonality."

PART-TIME STATUS OF CERTAIN EXECUTIVE OFFICERS. While William Mowbray,
President and Chief Executive Officer of the Operating Subsidiaries, serves on a
full-time basis, the other executive officers of the Company also serve as
officers and directors of other companies and devote to the Company's affairs
such portion of their business time and attention as they and its Board of
Directors deem necessary to fulfill their obligations. Depending upon the
demands of the other companies with which they are involved, conflicts of
interest could arise relating to the allocation of their time or with respect to
their fiduciary obligations to the Company and such other businesses.

POTENTIAL ANTI-TAKEOVER EFFECTS OF RIGHTS PLAN, CLASSIFIED BOARD OF
DIRECTORS AND DELAWARE LAW; POSSIBLE ISSUANCES OF PREFERRED STOCK. The Company
has adopted a Shareholders' Rights Plan. If (i) a public announcement is made
that any person (other than the Company), together with all affiliates and
associates of such person, is the beneficial owner of 15% or more of the shares
of the Common Stock outstanding or (ii) any person (other than the Company)
makes a tender or exchange offer, if upon consummation of such offer such person
would beneficially own 15% or more of the shares of the Company's Common Stock,
certain rights will be triggered under the Company's Shareholders' Rights Plan
which may have the effect of deterring or delaying mergers, tender offers, or
other possible takeover attempts, even if they are favored by some or a majority
of the Company's stockholders. Any shares of its Common Stock issued by the
Company during the term of the plan (10 years), including the Common Stock
issuable on conversion of the Debentures, will be subject to the Shareholders'
Rights Plan. See "Description of Capital Stock -- Shareholders' Rights Plan."

Certain provisions of Delaware law could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interests of stockholders. Such provisions could limit the price that
investors might be willing to pay in the future for securities of the Company,
including the Common Stock. In addition, the Company's Board of Directors is a
"classified board," with only one-third of its directors coming up for election
each year. The existence of a classified board may in certain circumstances
deter or delay mergers, tender offers or other possible takeover attempts which
may be favored by some or a majority of the holders of the Common Stock.

13
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the issuance and sale of
the Debentures offered hereby are estimated to be $36.4 million ($41.9 million
if the Underwriters' over-allotment option is exercised in full). The net
proceeds of the Offering will be used as follows: (i) approximately
$ million will be loaned by the Company to the Operating Subsidiaries and
used by them as working capital, including repayment of the outstanding
indebtedness ($23.8 million as of April 27, 1996 and $ million as of August
, 1996) under the Revolving Credit Facilities (consisting of the GT Revolving
Credit Facility and the Factory 2-U Revolving Credit Facility, each as defined),
(ii) up to $4.0 million will be used to purchase new fixtures for existing
stores, and (ii) the balance of approximately $ million will be used by the
Company and the Operating Subsidiaries for general working capital purposes. The
Operating Subsidiaries may reborrow funds under the Revolving Credit Facilities.
Uses of additional working capital may include the purchase of existing
indebtedness of the Operating Subsidiaries or shares of outstanding Series A
Preferred Stock in the open market from time to time. In addition, the Company
may use at least part of the additional working capital and additional borrowing
availability under the Revolving Credit Facilities to accelerate its store
opening schedule, obtain lower prices from certain suppliers, obtain credit from
a greater number of suppliers, and obtain overseas merchandise at lower prices
by using letters of credit to purchase directly from overseas vendors). The
Company believes that these latter steps, if implemented, will result in
either higher gross margins or increased pricing flexibility, or both.

The GT Revolving Credit Facility is a $25.0 million facility which bears
interest at between prime plus 2% and prime plus 3%, which expires in November
1998, and under which General Textiles may borrow up to varying percentages of
the value of its eligible inventory. The Factory 2-U Revolving Credit Facility
is a $10.0 million facility which bears interest at prime plus 2%, which expires
in November 1998, and under which Factory 2-U may borrow up to varying
percentages of the value of its eligible inventory. The Operating Subsidiaries
may reborrow funds under the Revolving Credit Facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

14
<PAGE>
PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded over-the-counter and is quoted on the
Nasdaq SmallCap Market. The Common Stock is also listed on the Chicago Stock
Exchange. The table below sets forth certain information with respect to the
high and low closing bid prices (rounded to the nearest hundredth) of the
Company's Common Stock during the twelve months ended January 28, 1995 and
January 27, 1996 and the subsequent interim period, as quoted by Nasdaq. These
quotations represent inter-dealer prices without retail markups, markdowns or
commissions and may not represent actual transactions. They are also adjusted
for a reverse stock split of the Common Stock which occurred in fiscal 1995.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED JANUARY 28, 1995
First Quarter............................................................... $ 6.94 $ 3.75
Second Quarter.............................................................. $ 5.50 $ 3.50
Third Quarter............................................................... $ 3.50 $ 2.25
Fourth Quarter.............................................................. $ 3.50 $ 1.43

YEAR ENDED JANUARY 27, 1996
First Quarter............................................................... $ 1.75 $ 1.19
Second Quarter.............................................................. $ 1.25 $ .63
Third Quarter............................................................... $ 1.63 $ .88
Fourth Quarter.............................................................. $ 2.00 $ .75

YEAR ENDED FEBRUARY 1, 1997
First Quarter............................................................... $ 3.22 $ 1.56
Second Quarter (through August 1, 1996)..................................... $ 3.13 $ 1.75
</TABLE>

The closing bid price of the Common Stock on August 1, 1996 as reported on
the Nasdaq SmallCap Market was $2.25 per share.

Other than the Common Stock and the Series A Preferred Stock, none of the
Company's securities is publicly traded on any established securities market.

As of June 30, 1996, there were approximately 333 record holders of Common
Stock. This number does not include an indeterminate number of beneficial
holders of these securities whose shares are held by financial institutions in
"street name."

15
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (as well as
indebtedness of the Operating Subsidiaries) as of April 27, 1996, and as
adjusted to give effect to the sale by the Company of $40.0 million principal
amount of Debentures offered hereby and the application of a portion of the
estimated net proceeds to repay the indebtedness under the Revolving Credit
Facilities as described under "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and the "Consolidated Financial Statements" and the
notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED (1)
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
COMPANY DEBT (2):
Current portion of Company long-term debt................................................ $ 1,147 $ 1,147
Installment notes payable................................................................ 918 918
---------- -----------
Convertible Subordinated Debentures...................................................... 0 40,000
Total.................................................................................... 2,065 42,065
---------- -----------
OPERATING SUBSIDIARY DEBT (2):
Current portion of Operating Subsidiary long-term debt................................... 4,016 4,016
Operating Subsidiary long-term debt, net of current portion:
General Textiles revolving credit facility............................................. 17,864 0
Factory 2-U revolving credit facility.................................................. 5,889 0
Installment notes payable.............................................................. 1,788 1,788
Subordinated notes..................................................................... 8,294 8,294
---------- -----------
Total Operating Subsidiary debt...................................................... 37,851 14,098
---------- -----------
Total consolidated long-term debt.................................................... $ 39,916 $ 56,163
---------- -----------
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.01 par value; 4,500,000 shares authorized,
3,939,050 (3) shares issued and outstanding, aggregate liquidation preference of
$39,390,500............................................................................. 29,841 29,841
Common stock, $.01 par value; 80,000,000 shares authorized, 4,114,389 shares issued and
outstanding............................................................................. 7 7
Additional paid-in capital............................................................... 20,118 20,118
Accumulated deficit...................................................................... (21,446) (21,446)
---------- -----------
Total stockholders' equity....................................................... 28,520 28,520
---------- -----------
---------- -----------
Total consolidated capitalization.................................................... $ 68,436 $ 84,683
Total debt to consolidated capitalization............................................ 58% 66%
</TABLE>

- ------------------------
(1) As adjusted for the sale of $40.0 million of Debentures in the Offering
(assuming no exercise of the over-allotment option by the Underwriters) and
the use of a portion of the net proceeds to repay borrowings under the
Revolving Credit Facilities. See "Use of Proceeds."

(2) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity Capital Resources" and Note 11 to the Notes to
"Consolidated Financial Statements" of the Company for a detailed
description of the debt instruments outstanding.

(3) Includes additional paid-in capital attributable to the Series A Preferred
Stock.

16
<PAGE>
DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The declaration and payment of any cash dividends on its Common Stock in the
future will be determined by the Board of Directors in light of conditions then
existing, including the Company's earnings and its financial condition and
requirements. The Company paid $3.0 million and $2.0 million in dividends on its
Series A Preferred Stock during the fiscal years ended January 27, 1996 and
January 28, 1995, respectively. The payment of dividends and cash distributions
from the Company's Operating Subsidiaries to the Company are subject to certain
restrictions. See "Risk Factors Restrictions on Payments by Operating
Subsidiaries to the Company."

17
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA

Set forth below is (i) selected consolidated historical financial data for
the Company for the twelve months ended December 31, 1991, the four months ended
April 30, 1992, the twelve months ended April 30, 1993, the nine months ended
January 29, 1994, each of the twelve months ended January 28, 1995 and January
27, 1996 and the twelve and three months ended April 29, 1995 and April 27, 1996
and (ii) selected consolidated pro forma financial data for the twelve months
ended January 27, 1996 and three months ended April 27, 1996. All of the
selected consolidated historical financial data are derived from audited
financial information except for operating data and the selected consolidated
historical financial data for the twelve and three months ended April 29, 1995
and April 27, 1996. The audited financial information for the nine months ended
January 29, 1994 and each of the twelve months ended January 28, 1995 and
January 27, 1996 is included elsewhere in this Prospectus. The results of
General Textiles have been consolidated with the Company's results since May 30,
1993. The results of Factory 2-U have been consolidated with the Company's
results since November 11, 1995. The selected consolidated historical and pro
forma financial data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements."

18
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL RESULTS
------------------------------------------------------------------------------
TWELVE FOUR TWELVE NINE TWELVE TWELVE
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, APRIL 30, APRIL 30, JANUARY 29, JANUARY 28, JANUARY 27,
1991 1992 1993 1994 (1) 1995 1996 (1)
------------ --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales......................................... $-- $-- $ -- $96,496 $146,520 $179,820
Gross Profit...................................... -- -- -- 32,582 49,435 62,632
Operating Income (Loss)........................... -- (55) (2,139) 4,547 2,608 5,153
Income (Loss) from Continuing Operations.......... -- (111) (3,239) 1,113 (354) 1,478
Income (Loss) from Discontinued Operations........ (294) 242 (16,147) 87 (2,241) (500)
Extraordinary Gain................................ -- -- -- 682 5,251 --
Net Income (Loss)................................. (294) 131 (19,386) 1,882 2,656 978
Dividends on Preferred Stock...................... -- -- 25 200 2,030 3,040
Net Income (Loss) Applicable to Common Stock...... (294) 131 (19,411) 1,682 626 (2,062)
Net Income (Loss) from Continuing Operations
Applicable to Common Stock per Common Share...... -- (0.12) (2.03) 0.30 (0.59) (0.39)
Net Income (Loss) Applicable to Common Stock per
Common Share (3)
Primary......................................... (0.53) 0.14 (12.07) 0.55 0.16 (0.51)
Fully Diluted................................... (0.53) 0.14 (12.07) 0.55 0.16 (0.51)

OPERATING DATA
EBITDA (4)........................................ -- (55) (2,519) 5,732 4,837 8,438
No. of Stores at End of Period.................... -- -- -- 81 97 131
Gross Profit Percentage........................... -- -- -- 33.8% 33.7% 34.8%
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (5).................... -- -- -- 1.3x -- --

MOST RECENT MOST RECENT
TWELVE MONTH THREE MONTH
PERIOD UNAUDITED PERIOD UNAUDITED PRO FORMA
RESULTS RESULTS UNAUDITED RESULTS
--------------------- --------------------- -----------------------

TWELVE TWELVE THREE THREE TWELVE THREE
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
APRIL 29, APRIL 27, APRIL 29, APRIL 27, JANUARY 27, APRIL 27,
1995 1996 (1) 1995 1996 1996 (2) 1996 (2)
--------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales......................................... $148,831 $198,607 $31,038 $49,825 $179,820 $49,825
Gross Profit...................................... 49,086 70,578 9,537 17,483 62,632 17,483
Operating Income (Loss)........................... (131) 7,524 (2,890) (519) 5,153 (519)
Income (Loss) from Continuing Operations.......... (2,994) 3,474 (3,554) (1,558) (504) (1,911)
Income (Loss) from Discontinued Operations........ (2,199) (500) -- -- -- --
Extraordinary Gain................................ 5,251 -- -- -- -- --
Net Income (Loss)................................. 58 2,974 (3,554) (1,558) (504) (1,911)
Dividends on Preferred Stock...................... 2,790 3,134 760 854 3,040 854
Net Income (Loss) Applicable to Common Stock...... (2,732) (160) (4,314) (2,412) (3,544) (2,765)
Net Income (Loss) from Continuing Operations
Applicable to Common Stock per Common Share...... (1.44) 0.08 (1.08) (0.60) (0.88) (0.68)
Net Income (Loss) Applicable to Common Stock per
Common Share (3)
Primary......................................... (0.68) (0.04) (1.08) (0.60) (0.88) (0.68)
Fully Diluted................................... (0.68) (0.04) (1.08) (0.60) (0.88) (0.68)
OPERATING DATA
EBITDA (4)........................................ 2,258 11,148 (2,220) 490 8,438 490
No. of Stores at End of Period.................... 98 135 98 135 131 135
Gross Profit Percentage........................... 33.0% 35.5% 30.7% 35.1% 34.8% 35.1%

Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (5).................... -- 1.0x -- -- -- --
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
-----------------------
JANUARY 27, APRIL 27, JANUARY 27, APRIL 27,
1996 1996 1996 (7) 1996 (7)
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working Capital (Deficiency)............ $ (186) $ 7,931 $ 21,476 $ 20,999
Total Assets............................ 87,152 95,821 111,993 112,068
Long-Term Debt, Less Current Portion.... 25,023 34,753 49,864 51,000
Preferred Stock......................... 26,981 29,841 26,981 29,841
Common Stockholders' Equity
(Deficiency)........................... 736 (1,321) 736 (1,321)
Common Stockholders' Equity (Deficiency)
per Share (6).......................... 0.18 (0.32) 0.18 (0.32)
</TABLE>

19
<PAGE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA

(1) The results of General Textiles have been consolidated with the
Company's results since May 30, 1993. Therefore, the Company's
consolidated results for the nine months ended January 29, 1994 include
General Textiles' results for eight months ended January 29, 1994. The
results of Factory 2-U have been consolidated with the Company's results
since November 11, 1995. Therefore, the Company's consolidated results
for the twelve months ended January 27, 1996 and April 27, 1996 include
Factory 2-U's results for 2.5 months and 5.5 months, respectively. See
Note 3 to the Notes to the "Consolidated Financial Statements."

(2) The pro forma results give effect to the sale of $40.0 million of
Debentures offered hereby and the application of the net proceeds by the
Company. The pro forma adjustments reflect those adjustments necessary to
(i) eliminate the loss on discontinued operations, (ii) eliminate
interest on the Company's revolving credit notes (in the amounts of
$1,672,000 and $561,000 for the twelve months ended January 27, 1996 and
the three months ended April 27, 1996, respectively), which are assumed
to be unused during such periods because of the availability of the
Offering proceeds, and (iii) give effect to the increase in interest
expense arising from the Debentures (in the amounts of $3,300,000 and
$825,000 for the twelve months ended January 27 ,1996 and the three
months ended April 27, 1996, respectively), and the amortization of the
debt issuance costs related thereto (in the amounts of $353,000 and
$88,000 for the twelve months ended January 27, 1996 and the three months
ended April 27, 1996, respectively), with all transactions treated as
though the Offering occurred on January 29, 1995 and January 28, 1996,
respectively. See Note 7 to the Notes to Selected Consolidated Historical
and Pro Forma Financial Data.

(3) Net income (loss) per common share on both a primary and fully diluted
basis is calculated by dividing net income (loss) applicable to Common
Stock by the weighted average number of shares outstanding for each
respective period. See Note 1 to the Notes to the "Consolidated Financial
Statements."

Weighted average shares and earnings per share amounts have been
restated for 1994 and 1995 to give retroactive effect to the cancellation
of contingent shares during 1995 and 1996. See Note 2 to the Notes to the
"Consolidated Financial Statements."

(4) EBITDA (earnings before interest, taxes, depreciation and amortization,
extraordinary items and results of discontinued operations) data is
presented to reflect operating income from continuing operations before
non-cash items, and approximates the cash available from continuing
operations to cover interest expense other debt service. Such data is not
an alternative to operating income as an indication of operating
performance or liquidity under generally accepted accounting principles.

(5) Earnings for the twelve months ended January 28, 1995 and January 27,
1996, for the twelve and three months ended April 29, 1995 and for the
three months ended April 27, 1996 were insufficient to cover fixed
charges and preferred stock dividends by $2.2 million, $1.6 million, $5.6
million, $4.3 million and $2.4 million, respectively. However, earnings
for the twelve months ended April 27, 1996 were sufficient to cover fixed
charges and preferred stock dividend payments. Pro forma earnings for the
twelve months ended January 27, 1996 and the three months ended April 27,
1996 were insufficient to cover fixed charges and preferred stock
dividends by $3.5 million and $2.8 million, respectively.

(6) Common Stockholders' equity per common share is determined by dividing
stockholders' equity, net of equity related to preferred stock, by the
common shares outstanding at the end of the date presented.

20
<PAGE>
(7) The pro forma balance sheet data gives effect to the sale of $40.0
million of Debentures offered hereby and the application of the net
proceeds by the Company as if the same had occurred on January 27, 1996
and April 29, 1996, respectively. The pro forma adjustments give effect
to the estimated current portion of debt issuance costs added to current
assets ($353,000 at both January 27, 1996 and April 27, 1996), the net
increase in cash following the payment of the revolving credit facilities
($21,309,000 and $12,715,000 at January 27, 1996 and April 27, 1996,
respectively), the estimated long-term portion of debt issuance costs
added to noncurrent assets ($3,179,000 at both January 27, 1996 and April
27, 1996), the principal amount of the Debentures ($40,000,000 at both
January 27, 1996 and April 27, 1996) and the use of the Debenture
proceeds to repay the outstanding indebtedness under the revolving credit
facilities ($15,159,000 and $23,753,000 at January 27, 1996 and April 27,
1996, respectively).

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
information set forth under "Selected Consolidated Historical and Pro Forma
Financial Data" and "Consolidated Financial Statements."

GENERAL

Family Bargain Corporation (the "Company") operates 138 off-price retail
apparel and housewares stores (135 at April 27, 1996) under the names "Family
Bargain Center" and "Factory 2-U" in California, Arizona, Washington, New
Mexico, Oregon, Nevada and Texas. The Company is a holding company and relies on
its cash reserves and payments from its Operating Subsidiaries, General Textiles
and Factory 2-U, to finance its ongoing operating expenses, to pay its
outstanding indebtedness, to pay the dividends on its Series A Preferred Stock
and, in the future, to meet its principal and interest obligations on the
Debentures. In July 1992, affiliates of the Company acquired General Textiles
and immediately caused it to commence Chapter 11 Reorganization proceedings. In
December 1992, the Company purchased a majority interest in General Textiles.
Since May 1993, when the GT Reorganization Plan was declared effective and the
Company's equity ownership of General Textiles increased to 100%, the assets,
liabilities and results of operations of General Textiles have been consolidated
with those of the Company. In November 1995, the Company acquired Factory 2-U,
whose results have been consolidated with those of the Company since then.

In January 1994, the Company changed its fiscal year end to the Saturday
closest to January 31.

The Company's 109 Family Bargain Center stores and 29 Factory 2-U stores
sell primarily first quality, in-season clothing for men, women and children,
including nationally recognized brand name products, at prices which generally
are lower than the prices of competing discount and regional off-price stores.
Factory 2-U stores sell, in addition to clothing and apparel, housewares and
domestic items. The average selling price per item is approximately $6.00 and
the price of the most expensive item rarely exceeds $35.00. The Company's stores
sell merchandise at bargain prices by purchasing in-season, excess inventory and
close-out merchandise at substantially discounted wholesale prices and set
retail prices at mark-ups which pass along the savings to its customers. Family
Bargain Center stores average 11,000 square feet and Factory 2-U stores average
19,000 square feet. The Company plans to open new stores in the seven western
states in which it currently operates. During the fiscal year ended January 27,
1996, the Company opened eight new Family Bargain Center stores and, through the
acquisition of Factory 2-U, acquired an additional 29 stores. In fiscal 1997,
the Company plans to open up to 19 new stores, of which eight have been opened
as of July 1, 1996. In addition, the Company has closed one store during its
current fiscal year.

The Company is also continuing a program under which it renovates existing
stores or relocates them as superior sites become available in their markets.
During fiscal 1996, the Company renovated 21 stores and relocated one store. In
fiscal 1997, the Company plans to renovate and/or relocate up to five stores.
Some of the new or relocated Family Bargain Center stores will adopt the Factory
2-U store format by expanding store size and selling housewares and domestic
items.

RESULTS OF OPERATIONS

THREE MONTHS ENDED APRIL 27, 1996 COMPARED TO THE THREE MONTHS ENDED APRIL
29, 1995

Net sales (gross sales less sales tax and sales returns) were $49.8 million
for the three months ended April 27, 1996 compared to $31.0 million for the
three months ended April 29, 1995, an increase of $18.8 million. Of the total
increase, $12.6 million was attributable to sales at Factory 2-U stores, which
were acquired in November 1995, $2.9 million was attributable to a 9.7% increase
in comparable store sales (sales at stores open throughout both periods) and the
remaining $3.3 million increase in sales was attributable to sales at newly
opened stores. As of April 27, 1996, there were 135 stores in operation compared
to 98 stores as of April 29, 1995.

22
<PAGE>
Gross profit was $17.5 million for the three months ended April 27, 1996
compared to $9.5 million for the three months ended April 29, 1995, an increase
of $8.0 million. As a percentage of sales, gross profit was 35.1% for the three
months ended April 27, 1996 compared to 30.7% for the three months ended April
29, 1995. The increase in gross profit as a percentage of sales resulted from
reduced markdown activity during the three months ended April 27, 1996 as
compared to markdown activity during the three months ended April 29, 1995
arising from management's decision, during that period, to take markdowns in
response to reduced prices in the general wholesale market.

Selling and administrative expenses were $17.5 million for the three months
ended April 27, 1996 compared to $12.1 million for the three months ended April
29, 1995, an increase of $5.4 million. Of the total increase, $4.2 million was
attributable to increased overhead resulting from the acquisition of Factory 2-U
stores and $1.2 million was due to increased overhead related to new store
openings and the upgrading of equipment in existing stores since April 29, 1995.
As a percentage of sales, selling and administrative expenses decreased to 35.2%
for the three months ended April 27, 1996 from 39.0% for the three months ended
April 29, 1995. The decrease in selling and administrative expenses as a
percentage of sales was attributable to the improved economies of scale achieved
following the acquisition of Factory 2-U, comparable store sales increases, and
new store results.

Amortization of goodwill was $462,000 for the three months ended April 27,
1996 compared to $315,000 for the three months ended April 29, 1995. The
increase of $147,000 was attributable to increased goodwill arising from the
acquisition of Factory 2-U.

Interest expense was $1.0 million for the three months ended April 27, 1996
compared to $664,000 for the three months ended April 29, 1995. The increase of
approximately $375,000 was attributable to the interest related to the
additional working capital as a result of the expansion of the Company and debt
assumed in the acquisition of Factory 2-U.

Net loss was $1.6 million for the three months ended April 27, 1996 compared
to $3.6 million for the three months ended April 29, 1995. The net loss
applicable to Common Stock was $2.4 million for the three months ended April 27,
1996 compared to $4.3 million for the three months ended April 29, 1995.

TWELVE MONTHS ENDED JANUARY 27, 1996 COMPARED TO THE TWELVE MONTHS ENDED
JANUARY 28, 1995

Net sales were $179.8 million for the twelve months ended January 27, 1996
compared to $146.5 million for the twelve months ended January 28, 1995, an
increase of $33.3 million. Of the total increase, $13.3 million was attributable
to the acquisition of Factory 2-U, $3.6 million was due to a 2.8% increase in
comparable Family Bargain Center store sales, and the remaining $16.4 million
increase in sales was due to the opening of new Family Bargain Center stores. As
of January 27, 1996, the Company operated 102 Family Bargain Center stores
(compared to 97 stores as of January 28, 1995) and 29 Factory 2-U stores.

Gross profit was $62.6 million for the twelve months ended January 27, 1996
compared to $49.4 million for the twelve months ended January 28, 1995, an
increase of $13.2 million. Of the total increase, $4.6 million was attributable
to the acquisition of Factory 2-U. The remaining increase in gross profit was
due to the opening of new Family Bargain Center stores, an increase in
comparable Family Bargain Center store sales and improved gross profit as a
percentage of sales. As a percentage of sales, the gross profit was 34.8% for
the twelve months ended January 27, 1996 compared to 33.7% for the twelve months
ended January 28, 1995.

Selling and administrative expenses were $57.5 million for the twelve months
ended January 27, 1996 compared to $46.8 million for the twelve months ended
January 28, 1995, an increase of $10.7 million. Of the total increase, $4.4
million was attributable to the acquisition of Factory 2-U. As a percentage of
sales, selling and administrative expenses were 32.0% for both the twelve months
ended January 27, 1996 and January 28, 1995.

Amortization of goodwill was $1.4 million for the twelve months ended
January 27, 1996 compared to $1.2 million for the twelve months ended
January 28, 1995. The increase of $.2 million was attributable to the
acquisition of Factory 2-U.

Interest expense and financing fees were $3.7 million for the twelve months
ended January 27, 1996 compared to $2.8 million for the twelve months ended
January 28, 1995, an increase of $900,000. Of the total

23
<PAGE>
increase, $100,000 was attributable to the acquisition of Factory 2-U. Of the
remaining increase, $500,000 was due to an adjustment to increase amortization
of debt discount associated with the subordinated notes issued in connection
with the GT Reorganization Plan, which resulted from the settlement of
additional claims and further acceleration of excess cash flow payments, as
defined, during the twelve months ended January 27, 1996.

Net income was $1.0 million for the twelve months ended January 27, 1996
compared to $2.7 million for the twelve months ended January 28, 1995. The net
loss applicable to Common Stock was $2.1 million for the twelve months ended
January 27, 1996 compared to net income applicable to Common Stock of $626,000
for the twelve months ended January 28, 1995. However, net income and net loss
applicable to Common Stock for the twelve months ended January 28, 1995 were
impacted by an extraordinary gain of $5.3 million partly offset by a loss from
discontinued operations of $2.2 million. There was no extraordinary gain in the
twelve months ended January 27, 1996, but the loss from discontinued operations
was $500,000. The Company and its Operating Subsidiaries had consolidated income
from continuing operations of $1.5 million in the twelve months ended January
27, 1996 compared with a loss from continuing operations of $354,000 for the
twelve months ended January 28, 1995.

TWELVE MONTHS ENDED JANUARY 28, 1995 COMPARED TO NINE MONTHS ENDED JANUARY
29, 1994

Net sales for the twelve months ended January 28, 1995 were $146.5 million
compared to $96.5 million for the nine months ended January 29, 1994. Comparable
store sales increased approximately 2%.

Gross profit was $49.4 million for the twelve months ended January 28, 1995
compared to $32.6 million for the nine months ended January 29, 1994. As a
percentage of sales, gross profit for the twelve months ended January 28, 1995
was 33.7%, virtually the same as for the nine months ended January 29, 1994 of
33.8%.

Selling and administrative expenses were $46.8 million for the twelve months
ended January 28, 1995 compared to $28.0 million for the nine months ended
January 29, 1994. As a percentage of sales, selling and administrative expenses
were 32.0% for the twelve months ended January 28, 1995 compared to 29.0% for
the nine months ended January 29, 1994. The increase in selling and
administrative expense as a percentage of sales was due primarily to the
accelerated store expansion, renovation and relocation program. During the
twelve months ended January 28, 1995, 21 new stores were opened, 18 stores were
renovated and 6 stores were relocated.

Amortization of goodwill was $1.2 million for the twelve months ended
January 28, 1995 compared to $796,000 for the twelve months ended
January 29, 1994. The increase of $392,000 was attributable to the
consolidation of General Textiles due to the acquisition of control of General
Textiles by the Company upon General Textiles' emergence from reorganization in
May, 1993.

Interest expense was $2.8 million for the twelve months ended January 28,
1995 compared to $3.4 million for the nine months ended January 29, 1994. The
decrease in interest expense resulted from (i) the Company's purchase of certain
General Textiles' indebtedness during the twelve months ended January 28, 1995
with a portion of the proceeds of the 1994 Offering and (ii) the fact that the
interest expenses incurred during the nine months ended January 29, 1994 in
connection with debt securities sold in private placements between May through
September 1993 was not incurred during the twelve months ended January 28, 1995
(see "Liquidity and Capital Resources" below).

Loss from discontinued operations was $2.2 million for the twelve months
ended January 28, 1995 compared to income of $87,000 for the nine months ended
January 29, 1994. The increase in disposal costs resulted from increased legal
expenses and other costs related to discontinued operations.

There was an extraordinary gain of $5.3 million for the twelve months ended
January 28, 1995 compared to an extraordinary gain of $682,000 for the nine
months ended January 29, 1994.

Net income was approximately $2.7 million for the twelve months ended
January 28, 1995 compared to $1.9 million for the twelve months ended January
29, 1994. The net income applicable to Common Stock was $626,000 for the twelve
months ended January 28, 1995 compared to $1.7 million for the nine months ended
January 29, 1994.

24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY

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
October and January) as a result of the "Back to School" (August and September)
and Christmas (November and December) seasons. The Company incurred a net loss
in the quarter ended April 27, 1996, and based on historical second quarter
results, management believes the Company may incur a net loss for the quarter
ending July 27, 1996.

The following table sets forth selected unaudited quarterly results of
operations of the Company. The operating results for any quarter are not
necessarily indicative of results of operations for any subsequent period.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
JULY OCT. JAN. APRIL JULY OCT. JAN. APRIL
1994 1994 1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.......................... 31,295 39,370 47,128 31,038 37,312 47,322 64,148 49,825
Cost of sales...................... 20,841 25,915 31,488 21,501 24,284 30,393 41,010 32,342
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit..................... 10,454 13,455 15,640 9,537 13,028 16,929 23,138 17,483
Selling and administrative
expenses.......................... 10,271 11,446 14,182 12,112 12,163 14,024 17,798 17,540
Amortization of goodwill........... 297 297 297 315 315 314 438 462
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss).......... (114) 1,712 1,161 (2,890) 550 2,591 4,902 (519)
Interest expense and financing
fees.............................. (871) (553) (626) (664) (786) (852) (1,373) (1,039)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes,
discontinued operations and
extraordinary gain (loss)....... (985) 1,159 535 (3,554) (236) 1,739 3,529 (1,558)
Income taxes....................... -- -- (149) -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations...................... (985) 1,159 386 (3,554) (236) 1,739 3,529 (1,558)
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

THE COMPANY

The Company itself has relatively little debt. However, each of the
Operating Subsidiaries has a secured revolving credit facility. In addition,
General Textiles has a substantial amount of debt which was issued in connection
with the GT Reorganization Plan and in order to provide funds at the time it
emerged from reorganization in 1993.

At April 27, 1996, the Company itself had outstanding indebtedness of $2.1
million, comprised of $1.1 million related to the acquisition of Factory 2-U and
approximately $965,000 incurred in connection with the settlement of a lawsuit
arising from a previously discontinued distribution business (the "Mandel-Kahn
Settlement"). The Company also has annual dividend obligations of $3.7 million
on its Series A Preferred Stock (based on the shares outstanding on April 27,
1996).

Because the Company does not operate any business itself, it must rely on
payments from its Operating Subsidiaries and cash reserves to service its
indebtedness, pay the dividends on its Series A Preferred Stock and meet its
operating expenses. The GT Reorganization Plan and certain of General Textiles'
outstanding debt instruments (including the GT Revolving Credit Facility)
restrict General Textiles from paying dividends or making other distributions to
the Company without the approval of certain holders of indebtedness. In
addition, payments by Factory 2-U to the Company are limited under the Factory
2-U Revolving

25
<PAGE>
Credit Facility to payments pursuant to a management agreement and a guarantee
fee agreement. The Company receives payments from General Textiles under a tax
sharing agreement and under $15.0 million of subordinated debt and $3.0 million
of secured term debt. The Company also receives payments from Factory 2-U under
a management agreement (providing for a fee of $46,667 per month, plus expenses,
and additional amounts to the extent Factory 2-U's EBITDA exceeds certain
levels) and a guarantee fee agreement (providing for a fee of $26,000 per month
during fiscal 1997, $24,000 per month during fiscal 1998 and, thereafter,
monthly amounts declining over time to $5,000 in fiscal 2009). During the
quarter ended April 27, 1996, payments to the Company from these sources
totalled $1.1 million. The Company believes the funds it is entitled to receive
from the Operating Subsidiaries will be sufficient to enable the Company to meet
its expenses and debt service and pay the dividends on the Series A Preferred
Stock.

General Textiles has a $25.0 million revolving credit facility (the "GT
Revolving Credit Facility"), under which it may borrow up to 65% of the value of
its eligible inventory (calculated at the lower of cost or market value) until
December 31, 1996 and, thereafter, up to 50%, 55% or 60%, based on the season,
of eligible inventory, plus a special purchase overadvance of up to $1.0
million. The GT Revolving Credit Facility expires in November 1998, bears
interest at prime plus 2% with regard to borrowings based on inventory and prime
plus 3% with regard to special purpose overadvances, and is secured by all the
assets of General Textiles. At January 27, 1996 and April 27, 1996, borrowings
under this facility were $9.9 million and $17.9 million, respectively. The GT
Revolving Credit Facility is secured by a lien on all the assets of General
Textiles and is guaranteed by the Company.

The Company will lend at least $ of the proceeds of the Offering
to General Textiles to be used by General Textiles as working capital, including
the repayment of the GT Revolving Credit Facility. General Textiles may reborrow
funds under this facility. See "Use of Proceeds."

General Textiles also has a total of $2.7 million of equipment borrowing
facilities, under which borrowings of $1.9 million were outstanding at April 27,
1996. On April 27, 1996, General Textiles also had $19.1 million of outstanding
Subordinated Notes, of which $15.0 million was owned by the Company, a $3.0
million secured term note, which was owned by the Company, and $4.9 million of
Subordinated Reorganization Notes and $17.3 million of Junior Subordinated
Reorganization Notes, both of which had been issued to creditors under the GT
Plan of Reorganization or to a lender at the time the GT Reorganization Plan was
consummated. The equipment facilities and the Secured Term Note (which is held
by the Company) are payable in installments and bear interest at prime plus 2%.
The Subordinated Notes (of which $15.0 million are owned by the Company and $4.1
million are held by third persons) and the Subordinated Reorganization Notes
mature in 2003 and do not bear interest. A portion of the Subordinated Notes
are amortized through annual contingent payments based on a percentage of excess
cash flow (as defined). The Junior Subordinated Reorganization Notes mature in
2005 and bear interest at the lesser of 6% per annum or 80% of General Textiles'
yearly EBITDA in excess of $10 million. The carrying value of the Subordinated
Notes, the Subordinated Reorganization Notes and the Junior Subordinated
Reorganization Notes is less than their face value since the carrying value
reflects discounts due to the non-interest bearing character of the Subordinated
Reorganization Notes and the currently non-interest bearing character of the
Junior Subordinated Reorganization Notes. No principal or interest payments on
the Junior Subordinated Reorganization Notes may be made until the Subordinated
Notes and the Secured Term Note are paid in full. Under certain circumstances,
General Textiles may be required to redeem the Junior Subordinated
Reorganization Notes for the lesser of their principal balance or 19% of the
market equity value (as defined) of General Textiles, payable at the option of
General Textiles in cash or General Textiles common shares. The carrying value
of the Subordinated Notes, the Subordinated Reorganization Notes and the Junior
Subordinated Reorganization Notes is less than their face value since the
carrying value reflects discounts due to the non-interest bearing character
of the Subordinated Notes and the currently non-interest bearing character of
the Junior Subordinated Reorganization Notes. The discounts on these
instruments are amortized to interest expense over their respective terms.

In addition, in July 1996, General Textiles borrowed $2.0 million under a
term loan bearing interest at prime plus 3% and maturing in July 2001.

26
<PAGE>
Factory 2-U finances its operations through credit provided by its suppliers
(usually net 30 days) and a $10.0 million revolving credit facility (the
"Factory 2-U Revolving Credit Facility," together with the GT Revolving Credit
Facility, the "Revolving Credit Facilities"). Factory 2-U may borrow up to the
same varying percentages of the value of its eligible inventory under this
facility as General Textiles may borrow under the GT Revolving Credit Facility.
The facility expires in November 1998, bears interest at prime plus 2%, is
secured by all the assets of Factory 2-U, and is guaranteed by the Company. At
January 27, 1996 and April 27, 1996, borrowings under this facility were $5.2
million and $5.9 million, respectfully.

The Company will lend at least $ of the proceeds of the Offering
to Factory 2-U to be used by Factory 2-U as working capital, including the
repayment of the Factory 2-U Revolving Credit Facility. Factory 2-U may reborrow
funds under this facility. See "Use of Proceeds."

On July 9, 1996, Factory 2-U sold its former office and warehouse facility
in Nogales, Arizona and repaid in full a $2.3 million mortgage note which was
secured by the property. In connection with the Company's acquisition of Factory
2-U in November 1995, approximately $5.0 million of trade debt was rescheduled
to be payable in 24 monthly installments, without interest. Of this,
approximately $3.9 was outstanding at April 27, 1996.

The Company believes the Revolving Credit Facilities, together with cash
from operations, are sufficient to enable the Operating Subsidiaries to operate
at current levels and meet their debt service obligations (including those with
regard to debt held by the Company). Proceeds of the Offering, together with
cash from operations and borrowing availability under the Revolving Credit
Facilities, will provide funds with which to finance expansion of, the Family
Bargain Center and Factory 2-U retail store chains, and the Company believes
such funds therefore will satisfy the Company's and its subsidiaries' currently
anticipated long term needs.

CAPITAL EXPENDITURES

The Company's planned future capital expenditures include costs to open new
Family Bargain Center and Factory 2-U stores, and to renovate and/or relocate
existing stores. Management believes that future expenditures will be financed
from internal cash flow, working capital (possibly including a portion of the
proceeds of the Offering) and the Revolving Credit Facilities. As of April 27,
1996, the Company had $1.9 million outstanding under the equipment facilities
for capital expenditures related to the acquisition of point-of-sale systems.

INFLATION

In general, the Company believes that it will be able to offset the effects
of inflation by increasing operating efficiency, by monitoring and controlling
expenses and by increasing prices to the extent permitted by competitive
factors.

27
<PAGE>
BUSINESS

OPERATING STRATEGY

The Company seeks to be the leading off-price apparel and housewares
retailer to lower income customers in the markets it serves. The major elements
of its operating strategy include:

PROVIDE FIRST QUALITY MERCHANDISE AT BARGAIN PRICES: The Company's
stores sell first quality merchandise at bargain prices by purchasing
in-season, excess inventory and close-out merchandise at substantially
discounted wholesale prices and set retail prices at mark-ups which pass
along the savings to their customers.

TARGET UNDERSERVED MARKET SEGMENTS, INCLUDING THE HISPANIC MARKET: The
Company's stores target customers who are underserved in many markets.
Typical customers are low-income families, including agricultural, service
and other blue collar workers, a significant portion of whom are of Hispanic
origin or members of other ethnic groups. The Company's store merchandise
selection and purchasing and marketing programs are tailored to the
purchasing patterns of customers in each store.

MAXIMIZE INVENTORY TURNS: General Textiles and Factory 2-U emphasize
inventory turn in their merchandise and marketing strategies. Merchandise
presentation, an everyday low price strategy, frequent store deliveries, and
advertising programs are designed to maximize inventory turns.

LOW OPERATING COSTS: The Company's stores maintain low operating costs
primarily through their self-service formats, use of part-time labor,
selection of locations with low rental expenses and overall focus on cost
controls.

IMPROVE GROSS MARGINS AND PRICING FLEXIBILITY: Management believes that
the availability of the net proceeds of the Offering and the resulting
additional borrowing availability under the Revolving Credit Facilities will
enable the Company to obtain lower prices from suppliers, obtain credit from
a greater

28
<PAGE>
number of suppliers, and obtain overseas merchandise at lower prices by
using letters of credit to purchase directly from overseas vendors. The
Company believes that these latter steps, if implemented, will result in
either higher gross margins or increased pricing flexibility, or both. See
"Use of Proceeds."

EXPANSION PLANS

OPENING OF NEW STORES: The Company plans to open new stores in the seven
western states in which General Textiles and Factory 2-U currently operate.
During the fiscal year ended January 27, 1996, General Textiles opened eight new
stores. The November 1995 acquisition of Factory 2-U resulted in the addition of
29 stores. In fiscal 1997, the Company plans to open up to 19 new stores (which
may increase to as many as 25 stores if the Offering is completed), of which
eight have been opened as of July 1, 1996. In addition, the Company has closed
one store during its current fiscal year. In fiscal 1998, the Company plans to
open up to an additional 19 stores (which may increase to as many as 45 stores
if the Offering is completed). Average store opening expenses for fixtures,
leasehold improvements and grand opening costs are approximately $100,000. The
Company's cost for the initial inventory in an average new store is
approximately $240,000.

RENOVATION AND RELOCATION PROGRAM: The Company is continuing a program
under which it renovates existing stores or relocates them as superior sites
become available in their markets. Some of the new or relocated Family Bargain
Center stores will adopt the Factory 2-U store format by expanding store size
and selling housewares and domestic items. Store renovations generally include
installing new fixtures, redesigning layouts and refurbishing floors and walls.
The average expenditure per store renovation or relocation is $50,000. During
the 1996 fiscal year, the Company renovated 21 stores and relocated one store.
In fiscal 1997, the Company plans to renovate and/or relocate up to five stores.
In addition, the Company intends to purchase new store fixtures for all of its
stores to add to the appearance, accessibility and quantity of merchandise
displayed to its customers. See "Use of Proceeds."

CUSTOMERS

The Company's primary customers are families with annual household income of
under $25,000, many of whom are employed in the agricultural sector or are blue
collar workers. A significant portion of the Company's customers are of Hispanic
origin or members of other ethnic groups including African-Americans, Asians and
Native Americans. According to the U.S. Bureau of the Census, the Hispanic
population in the states where the Company's stores are located (California,
Oregon, Washington, Arizona, New Mexico, Nevada, and Texas) grew from 5.7
million in 1980 to 9.4 million in 1990, a 65% increase. The overall population
for these states grew by 24% in the same period. The Hispanic population in the
states where the Company's stores are located is projected to grow by 25%, from
10.6 million to 13.2 million, in the period from 1993 to 2000 (according to the
U.S. Bureau of Census). The overall population for these states is projected to
grow by 12% in the same period. The Census projections through 2020 reflect the
Hispanic population in these states continuing to grow at approximately twice
the rate of the total population.

PURCHASING

The Company purchases merchandise from approximately 1,000 domestic
manufacturers, jobbers, importers and other vendors. Payment terms are typically
net 30 days. The 10 largest vendors supply approximately 13% of the Company's
merchandise. The Company continually adds new vendors and does not maintain
long-term or exclusive purchase commitments or agreements with any vendor. The
Company has generally not had difficulty locating and purchasing appropriate
apparel and other merchandise for its stores. The Company's two merchandise
managers and twelve buyers, who average over 10 years of apparel and housewares
industries experience, seek to purchase in-season goods and first-run and
last-run merchandise at substantial discounts to normal wholesale pricing.
Management believes that there are a substantial number of additional sources of
supply of first quality, off-price apparel goods and expects that it will be
able to meet its increased inventory needs as the Company expands.

Following completion of the Offering, Management believes it will be able to
obtain lower prices from certain suppliers, obtain credit from a greater number
of suppliers, and obtain overseas merchandise at lower prices by using letters
of credit to purchase directly from overseas vendors.

29
<PAGE>
IN-SEASON GOODS. Unlike traditional department stores and discount
retailers, which primarily purchase merchandise in advance of the selling season
(for example, back-to-school clothing is purchased by March), the Company
purchases approximately 70% of its merchandise in-season. In-season purchases
generally represent close-outs of vendors' excess inventories remaining after
the traditional wholesale selling season and are often created by other
retailers' order cancellations. Such merchandise is typically available at
prices below wholesale. Management believes that such in-season buying practices
are well suited to the Company's customers, who tend to make purchases on an
as-needed basis later into a season. The Company's in-season buying practice is
facilitated by its ability to process and ship merchandise through its
distribution center to its stores, usually within two or three days of receipt
from the vendor, and to process a large number of relatively small purchase
orders. Management believes that General Textiles and Factory 2-U are desirable
customers for vendors seeking to liquidate inventory because they can take
immediate delivery of large quantities of in-season goods. Furthermore, the
Company rarely requests markdown concessions, advertising allowances or special
shipping and packing procedures, insisting instead on the lowest possible price.

FIRST-RUN AND LAST-RUN MERCHANDISE. Approximately 10% of the Company's
purchases consist of "first-run" and "last-run" merchandise. To ensure product
consistency, manufacturers typically produce a preliminary or "first-run" of an
item. Additionally, manufacturers will produce "last-runs" of certain items to
fill out production schedules, maintain stock for potential customers' reorders,
convert excess fabric to finished goods and keep machinery in use. Manufacturers
occasionally designate such first and last runs as "irregulars" to differentiate
such goods from full price merchandise or to indicate that such merchandise may
contain minor imperfections (which do not affect the wearability of the items),
and typically such merchandise may be purchased at prices below wholesale.

Manufacturers ship goods directly to the Company's San Diego distribution
center or, in the case of east coast vendors, to the Company through its east
coast freight consolidator. Goods received at the Company's distribution center
are generally shipped to its stores using independent trucking companies within
two to three days of their arrival. The Company generally does not store goods
from season to season.

MERCHANDISING AND MARKETING

The Company's merchandise selection, pricing practices and store formats are
designed to reinforce the concept of value and maximize customer enjoyment of
the shopping experience. The Company's stores offer their customers a diverse
selection of primarily first quality, in-season merchandise at prices which
generally are lower than those of competing discount and regional off-price
stores in their local markets. Nearly all of their merchandise carries brand
name labels, including nationally recognized brands. The Company uses an
everyday low price strategy with an average selling price per item of
approximately $6.00 and with the prices of the most expensive goods rarely
exceeding $35.00. For Family Bargain Center stores, men's, women's and
children's apparel each account for approximately 30% of sales, with the
remainder, approximately 10%, consisting of footwear and domestic items. For
Factory 2-U stores, men's, women's and children's apparel each account for
approximately 20% of sales, domestic items (such as sheets, towels and blankets)
account for approximately 22% of sales, with the remainder, approximately 18% of
sales, consisting of footwear, housewares and toys.

The Company delivers new merchandise to its stores at least once per week to
encourage frequent shopping trips by its customers and to maximize the rate of
inventory turn. As a result of its purchasing practices, store inventory may not
always include a full range of colors, sizes and styles in a particular item.
Management believes, however, that price, quality and product mix are more
important to the Company's customers than the availability of a specific item at
a given time.

The Company emphasizes inventory turn in its merchandising and marketing
strategy. Merchandise presentation, everyday low prices, frequent store
deliveries, staggered vendor shipments, promotional

30
<PAGE>
advertising, store-tailored distribution and prompt price reductions on slower
moving items all target rapid inventory turn. The Company believes that the pace
of its inventory turn leads to increased profits, reduced inventory markdowns
and efficient use of capital.

The Company's San Diego administrative headquarters receives daily store
sales and inventory information from point-of-sale computers located at each of
its 138 stores. This data is reported by S.K.U. (stock keeping unit), enabling
management to tailor purchasing and distribution decisions. A chain-wide
computer network also facilitates communications between the administrative
headquarters and stores, enabling management to provide store management with
immediate pricing and distribution information.

The Company's stores are characterized by easily accessible merchandise
displayed on bargain tables, hanger racks and open shelves, brightly colored
pennants and signage and the playing of locally popular music. Prices are
clearly marked, usually displayed in whole dollars. A comparable full retail
price is often noted on price tags. Most stores display signs in Spanish and
English and are staffed with bilingual store personnel. Stores have "gala" grand
openings and, on occasion, feature outdoor sidewalk promotions with live music
and other festive activities. To reach potential customers, in 1995 management
initiated a major shift in its advertising program from use of extensive radio
to the development of full-color insert tabs showing actual photos of its
merchandise. These tabs, which are delivered to the consumer as newspaper
inserts and marriage-mail drops, have attracted a new and broader base of
customers into the stores. Other advertising programs include television and
outdoor promotional activities.

The Company's stores emphasize customer satisfaction to develop customer
loyalty and generate repeat sales. If a customer is not completely satisfied
with any purchase, the Company's stores will unconditionally make a full refund
or exchange. Virtually all sales are for cash, although checks and credit cards
are accepted. The Company does not issue its own credit card, but does offer a
no-cost, full-refund layaway program. Upon the acquisition of Factory 2-U, the
Company discontinued the Factory 2-U credit card. During the fiscal year 1997,
management intends to implement the layaway program in the Factory 2-U stores.
The layaway program is an important means for the Company's customers, many of
whom do not possess credit cards, to purchase goods over time. Layaways account
for approximately 10% of the Company's sales.

Approximately 59% of the Company's sales occur in its third and fourth
quarters, during the back-to-school (August and September) and Christmas
(November and December) seasons. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Quarterly Results of
Operations and Seasonality."

THE STORES

The Company currently operates 138 stores located in seven western states.
Stores are primarily located in rural and lower income suburban communities and,
to a lesser extent, in metropolitan areas. Most stores are located in strip
shopping centers, where occupancy costs are most favorable. As of July 1, 1996,
store locations were as follows:

<TABLE>
<CAPTION>
STRIP
STATE CENTER DOWNTOWN OTHER TOTAL
------------------------------------ ------ -------- ----- -----
<S> <C> <C> <C> <C>
California.......................... 54 13 8 75
Arizona............................. 28 4 0 32
Washington.......................... 3 3 1 7
New Mexico.......................... 8 0 1 9
Nevada.............................. 4 0 0 4
Oregon.............................. 7 0 1 8
Texas............................... 2 1 0 3
------ -------- ----- -----
106 21 11 138
------ -------- ----- -----
------ -------- ----- -----
</TABLE>

31
<PAGE>
Family Bargain Center stores range in size from approximately 2,650 square
feet to approximately 35,000 square feet, with the average being approximately
11,000 square feet. Factory 2-U stores range in size from approximately 11,000
square feet to 41,000 square feet, averaging approximately 19,000 square feet.
Management continually reviews the ability of stores to provide positive
contributions to the Company's operating results and may elect to close stores
which do not meet performance criteria. Costs associated with closing stores,
consisting primarily of the recognition of remaining lease obligations and
provisions to reduce assets to net realizable value, are charged to operations
during the fiscal year in which the determination is made to close a store.

The Company's stores typically employ one store manager, two assistant store
managers, and seven to ten sales associates, most of whom are part-time
employees. New store managers are trained in all aspects of store operations
through a Management Training Program on location at stores. The average annual
compensation for store managers is approximately $25,000, including a bonus of
$2,000. The Company often promotes experienced assistant store managers to fill
open manager positions. Other store personnel are trained on site. Training
films and seminars are also utilized periodically to cover various topics,
including merchandising, loss prevention and customer relations.

The Company's store employees participate in an employee bonus pool under
which they are awarded bonuses upon achieving productivity and efficiency
objectives. For the twelve months ended January 27, 1996, approximately 1,168
eligible employees earned an aggregate of approximately $803,000 under the bonus
program. The Company believes that the employee bonus program is an important
incentive for its employees, helps reduce employee turnover and lowers costs.
Employees become eligible to participate in the bonus pool after 90 days of
employment.

Management believes store opening and operating costs are low compared to
those of similar retailers due to the selection of low rent store locations, a
self-service format, use of basic fixtures and use of part-time employees
whenever possible. The Company generally leases previously occupied sites on
terms which it believes are more favorable than those available for newly
constructed facilities. After signing a store lease, a store opening team
prepares the store for opening by installing fixtures, signs, bargain tables,
racks, dressing rooms, checkout counters, cash register systems and other items.
The district manager and store manager arrange the merchandise according to the
standard store layout and train new personnel before and after the store is
opened. The Company selects store sites based on demographic analysis of the
market area, sales potential, local competition, occupancy expense, operational
fit and proximity to existing store locations. Store opening preparations
generally take up to two weeks. Typical new store opening expenses for fixtures,
leasehold improvements and grand opening are approximately $100,000. The
Company's cost for the initial inventory in an average new store is
approximately $240,000.

The Company has an ongoing program to renovate and relocate stores. A store
is renovated when management believes that an improvement to the store's
physical appearance will enhance sales. Store renovations include installing new
fixtures, redesigning layout and refurbishing floors and walls. Renovated stores
have historically experienced increased sales, enabling the Company to rapidly
recover renovation costs. A store is considered for relocation when a superior
location becomes available in its market area. The average expenditure for a
store renovation or relocation is $50,000.

The Company, General Textiles and Factory 2-U maintain commercial liability,
fire, theft, business interruption and other insurance policies.

COMPETITION

The Company operates in a highly competitive marketplace. The Company's
stores compete with large discount retail chains such as Wal-Mart, K-Mart,
Target and Mervyn's, and with regional off-price chains, such as 50-Off Stores
and MacFrugal's, some of which have substantially greater resources than the
Company. They also compete with independent and small chain retailers and flea
markets (also known as

32
<PAGE>
"swap meets") which serve the same low and low-middle income market as the
Company. Management believes that the principal competitive factors in the
Company's markets are price, quality and site location and that the Company is
well positioned to compete on the basis of these factors.

EMPLOYEES

As of January 27, 1996, General Textiles and Factory 2-U employed 2,951
persons, consisting of 2,772 store employees and store field management (2,018
were part-time), 126 executives and administrative employees and 53 warehouse
employees. The Company also employs 13 people in its New York executive offices
who provide strategic and financial planning for the Company and corporate
oversight of General Textiles and Factory 2-U.

None of the Company's employees is subject to any collective bargaining
agreements and management considers its relations with its employees to be good.

TRADEMARKS

Except for the trade names "Family Bargain Center" and "Factory 2-U," which
are federally registered trademarks, the Company, General Textiles and Factory
2-U do not utilize any other material trademarks in their business.

GOVERNMENT REGULATION

The Company's operations are subject to various federal, state and local
laws, regulations and administrative practices affecting its business, and the
Company must comply with provisions regulating various matters, including equal
employment and minimum wages. The Company believes that the compliance burdens
and risks relating to such laws and regulations do not materially adversely
affect the Company.

Congress has approved legislation to increase the minimum wage established
by Federal law. The likely effect of such legislation, if it becomes law, would
be to increase the payroll expense associated with certain employees of the
Company. While the Company may be able to raise prices to offset any increases
in the minimum wage, there is no assurance that it will be able to do so.
Nonetheless, should a rise in the minimum wage occur, any increases in payroll
expense may be offset in whole or in part by a resulting increase in purchasing
power available to certain customers of the Company.

DISCONTINUED OPERATIONS

In January 1992, the Company purchased C-B/Murray Corporation, Inc.
("C-B/Murray") and Mandel-Kahn Industries, Inc. ("Mandel-Kahn"), both wholesale
distribution companies, from Bastian Holdings, Inc. ("Bastian Holdings") and
Kabushi Investments Limited ("Kabushi") in exchange for a controlling interest
in the Company. Bastian Holdings was then owned by Benson A. Selzer, Chairman
and a Director of the Company and Kabushi is owned by a trust whose
beneficiaries include the children of Joseph Eiger, Executive Vice President and
a Director of the Company. As a result of unexpected losses, in November 1992,
C-B/Murray filed for Chapter 11 Reorganization and was liquidated. Mandel-Kahn
was sold to an affiliate in June 1993 and was liquidated. The Company has no
remaining involvement in the distribution business.

From April 1992 until March 1993, the Company, through its wholly-owned
subsidiary, DRS Real Estate, Inc. ("DRE"), was engaged in real estate
development. The Company has no remaining involvement in the real estate
business.

PROPERTIES

The Company operates 138 retail stores located in California, Arizona,
Washington, New Mexico, Oregon, Nevada and Texas, under various operating leases
with third parties. The leases are separately negotiated and are not uniform.
The store locations include strip centers, downtown business districts, and
stand alone sites. Family Bargain Center store sizes range from approximately
2,650 square feet to approximately 35,000 square feet, averaging 11,000 square
feet, while Factory 2-U store sizes range from approximately 11,000 square feet
to approximately 41,000 square feet, averaging 19,000 square feet. Typical lease

33
<PAGE>
terms are for five years with renewal options. Approximately two-thirds of the
leases are "triple net leases" under which the Company is required to pay
insurance, real estate taxes and maintenance costs. Most stores have a fixed
rent, although certain leases require the Company to pay minimum monthly rents
and a percentage of sales in excess of a certain sales level. The current annual
rent expense for the 138 stores is approximately $12.0 million.

The headquarters of General Textiles and Factory 2-U is located in a 168,000
square foot facility at 4000 Ruffin Road, San Diego, California. This facility
consists of 11,500 square feet of office space, a 6,500 square foot retail store
and a 150,000 square foot warehouse and distribution center. This facility is
leased for a term of 12 years expiring in September 2005. The lease provides for
annual base rent at an average of $606,000 over the lease term. The 168,000
square feet currently leased includes approximately 59,000 square feet added
during March 1996 and incorporated into the original lease on the same terms and
conditions as the former lease.

The executive offices of the Company are located at 315 East 62nd Street,
New York, New York in space leased by the Company pursuant to a lease which
expires December 31, 1998. The annual base rent under that lease is
approximately $184,000.

34
<PAGE>
MANAGEMENT

The following table sets forth the executive officers and directors of the
Company, General Textiles, and Factory 2-U as of July 1, 1996. The Company has a
classified Board of Directors, under which its nine members are divided into
three classes. The term of office of each Director in a given class expires at
the third annual meeting of stockholders following his election. The
classification of the Board of Directors was implemented by the Company in 1994
and, accordingly, the initial terms of six of the nine directors were for less
than three years.

<TABLE>
<CAPTION>
DIRECTOR'S
TERM
NAME AGE PRINCIPAL POSITION EXPIRES
- ------------------------------ --- ---------------------------------------- -----------
<S> <C> <C> <C>
John A. Selzer 41 Chief Executive Officer, President, 1996(1)
Assistant Secretary and Director
William W. Mowbray 56 Chief Financial Officer and Director; 1997
President and Chief Executive Officer
of General Textiles and Factory 2-U
Benson A. Selzer 75 Chairman and Director 1997
Joseph Eiger 65 Vice Chairman, Executive Vice President, 1996
Secretary and Director
John J. Borer III 39 Director 1997
Edwin C. Nevis 70 Director 1996(1)
Francis G. Warburton 67 Director 1996
Barton P. Ferris, Jr. 56 Director 1996(1)
H. Jurgen Schlichting 59 Director 1996
James M. Baker 42 Chief Financial Officer of General
Textiles and Factory 2-U
William F. Cass 47 Vice President of Planning and Logistics
of General Textiles and Factory 2-U
Denis LeClair 46 Vice President and Divisional
Merchandising Manager of General
Textiles and Factory 2-U
Mary McNabb 47 Senior Vice President and General
Merchandising Manager of General
Textiles and Factory 2-U
</TABLE>

- ------------------------
(1) Although the terms of Messrs. J. Selzer, Nevis and Ferris were through 1995,
in the absence of an annual meeting and their re-election or replacement,
they have remained as directors until re-elected or replaced at the 1996
Annual Meeting of Shareholders, which the Company intends to hold in the
Fall of 1996.

The business experience of each of the directors and executive officers is
as follows:

JOHN A. SELZER, Chief Executive Officer, President and Director. For more
than the past five years, Mr. Selzer has been engaged in merchant and investment
banking and corporate management activities. His activities have concentrated on
situations involving financially and/or operationally troubled companies. He has
been a Director of the Company since January 1992, its Chief Executive Officer
since March 1992, and its President since January 1993. He has been a Director
of General Textiles since its acquisition in July 1992 (at which time it filed
for Chapter 11 Reorganization and emerged from Chapter 11 Reorganization on May
28, 1993). He served as Secretary and a Director of Tyco Toys, Inc. ("Tyco"), a
publicly held company, from December 1988 until July 1991. Mr. Selzer served in
various capacities as an officer and director of the

35
<PAGE>
following companies or their affiliates, in addition to General Textiles, which
filed for Chapter 11 Reorganization within the past five years: C-B/Murray
Corporation, Inc. ("C/B Murray"), Mandel-Kahn, American Specialty Equipment
Corp. ("American Specialty"), and Canadian's Corp. John A. Selzer is the son of
Benson A. Selzer.

WILLIAM W. MOWBRAY, Chief Financial Officer and Director of the Company and
President and Chief Executive Officer of General Textiles and Factory 2-U. Mr.
Mowbray has served as Chief Financial Officer of the Company since May 1994 and
as a Director since November 1995. Mr. Mowbray has served as President and Chief
Executive Officer of General Textiles since June 1995. Prior to being named
President of General Textiles, he served as Executive Vice President and Chief
Financial Officer of General Textiles since July 1991. General Textiles filed
for Chapter 11 Reorganization in July 1992 and emerged from Chapter 11
Reorganization on May 28, 1993. Prior to joining General Textiles, Mr. Mowbray
was employed from July 1990 to July 1991 as Chief Financial and Operating
Officer for Casfam, Inc., an off-price lingerie retailer. From June 1986 through
June 1990, he was an independent management consultant to retail clients. From
November 1981 to June 1986, Mr. Mowbray was Senior Vice President and Chief
Financial Officer of Clothestime, Inc.

BENSON A. SELZER, Chairman and Director. Mr. Selzer has for more than the
past five years been engaged in merchant and investment banking and corporate
management activities. His activities have concentrated on situations involving
financially and/or operationally troubled companies. He has been Chairman and a
Director of the Company since January 1992. He has been a Director of General
Textiles since its acquisition in July 1992 (at which time it filed for Chapter
11 Reorganization and emerged from Chapter 11 Reorganization on May 28, 1993).
He was Chairman of the Board and a Director of Tyco from September 1988 until
July 1991. Mr. Selzer served in various capacities as an officer and director of
the following companies or their affiliates, in addition to General Textiles,
which filed for Chapter 11 Reorganization within the past five years:
C-B/Murray, American Specialty, and Canadian's Corp. Benson A. Selzer is the
father of John A. Selzer. Benson A. Selzer and Joseph Eiger have been business
associates in a number of business ventures during the past 20 years.

JOSEPH EIGER, Vice Chairman, Executive Vice President and Director. Mr.
Eiger has been engaged, for more than the past five years, as a corporate
manager and entrepreneur who has been involved in numerous acquisitions,
divestitures and financings. His activities have concentrated on situations
involving financially and/or operationally troubled companies. He has been Vice
Chairman, Executive Vice President and a Director of the Company since January
1992. He has been a Director of General Textiles since its acquisition in July
1992 (at which time it filed for Chapter 11 Reorganization and emerged from
Chapter 11 Reorganization on May 28, 1993). Mr. Eiger served in various
capacities as an officer and director of the following companies or their
affiliates, in addition to General Textiles, which filed for Chapter 11
Reorganization within the past five years: C-B/Murray, American Specialty and
Canadian's Corp.

JOHN J. BORER III has been a Director of the Company since July 1994. Since
October 1991, Mr. Borer has been a Managing Director of Rodman & Renshaw, Inc.,
one of the Representatives of the Underwriters of this Offering and the
representative of the Underwriters of the 1994 Preferred Stock Offering. Prior
to October 1991, Mr. Borer was a Senior Vice President of Security Pacific
Business Credit Inc.

EDWIN C. NEVIS has been a Director of the Company since July 1994. Since
1991, Dr. Nevis has been the Director of Special Studies, Organizational
Learning Center Systems Dynamics Group, at the Sloan School of Management at the
Massachusetts Institute of Technology. From 1986 to 1991, Dr. Nevis was the
Director of Executive Program Development at the Sloan School of Management.
Since 1969, Dr. Nevis has also been President of Wellfleet House, Inc., a
management education and development and organization development consulting
firm. Dr. Nevis received his Ph.D in Industrial and Organizational Psychology
from Western Reserve University in 1954.

36
<PAGE>
FRANCIS G. WARBURTON, Director. Mr. Warburton has been a Director of the
Company since March 1992 and a Director of General Textiles since February 1994.
He served as a Director of Nasta International Inc. from May 1987 until
September 1990. He has been President of Warburton & Associates, Inc., a
consulting firm specializing in mergers and acquisitions, since December 1985.

BARTON P. FERRIS, JR. has been a Director of the Company since July 1994.
Since October 1995, Mr. Ferris has been a Managing Director of Commonwealth
Associates, an investment banking firm which was the Placement Agent for the
1996 Preferred Stock Offering. From 1990 to October 1995, Mr. Ferris was a
Managing Director of Lepercq, De Neuflize & Co. Incorporated, a merchant banking
firm, and a member of its Board of Directors. Mr. Ferris is presently a Director
of Ronson Corporation.

H. JURGEN SCHLICHTING has been a Director of the Company since November
1995. From 1986 to 1993, Mr. Schlichting served as Managing Director and Chief
Executive -- North America for Westdeutsche Landesbank. Mr. Schlichting also
serves as a strategic and financial advisor to the Company pursuant to an
Advisory Agreement dated November 1, 1995 which expires in November 1996.

JAMES M. BAKER has been the Chief Financial Officer of General Textiles
since November, 1995 and of Factory 2-U since its acquisition by the Company in
November 1995. Mr. Baker joined General Textiles in May 1991 and served as
Director of Budgeting and Planning responsible for budgeting, warehousing, loss
prevention, inventory control and administration. Prior to joining General
Textiles, Mr. Baker was Controller for Oshman's Sporting Goods.

WILLIAM F. CASS, has been Vice President of Planning & Logistics of General
Textiles and Factory 2-U since March 1996. Prior to joining the Company Mr. Cass
held positions of Managing Director and Director of New Business Development for
Clothestime and also served in the capacity of Senior Vice President of
Merchandising. Mr. Cass has over 25 years of retail experience in Merchandising,
Planning, Distribution and General Management.

DENIS LeCLAIR, Vice President and Divisional Merchandising Manager of
General Textiles and Factory 2-U, joined General Textiles in 1991 as a buyer and
since 1992 has held his current position. Mr. LeClair has over 25 years of
experience in retail and has served in various buying and merchandise management
positions for several department store and specialty chains.

MARY McNABB, Senior Vice President and General Merchandising Manager of
General Textiles and Factory 2-U, joined General Textiles in 1990 and before
then was employed by One Price Clothing. Ms. McNabb has over 26 years of
experience in retail buying and merchandising.

RECENT DEVELOPMENTS IN MANAGEMENT COMPENSATION

In May, 1996, the Company adopted certain additions and changes to its
management compensation arrangements, including among other things (i) grants of
additional stock options; (ii) changes to the terms of the employment agreements
with senior management; (iii) adoption of a stock appreciation bonus program as
additional incentive to senior management; and (iv) adoption of an executive
split dollar life insurance plan and a supplemental executive retirement plan:

MANAGEMENT OPTIONS. The Company granted options to acquire 1,750,000 shares
of Common Stock to directors, officers and other management. The exercise price
of the options is $3.64 per share of Common Stock; the options vest 20% per year
over five years commencing May 13, 1997 and are exercisable until five years
after vesting. If a participant retires while employed by the Company, vesting
will accelerate with respect to all unvested options granted to such
participant.

EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION. The employment agreements of
Benson A. Selzer, Joseph Eiger and William W. Mowbray were amended to (i)
increase the automatic annual renewal period from three to five years, (ii)
increase the eligibility of the bonus provisions for senior officers to 100% of
base

37
<PAGE>
salary from 70% and (iii) provide for certain payments upon the death or
disability of the executive. In addition, John A. Selzer's employment agreement
was similarly amended to increase the automatic annual renewal period to five
years and to increase the bonus eligibility to 100% of base salary.

The Company entered into an employment agreement with William W. Mowbray
replacing his previous employment agreement with General Textiles, providing for
a term expiring on August 1, 2000, subject to automatic one year extensions each
August unless terminated by either party. Under the agreement, Mr. Mowbray
receives an adjusted base salary of $321,000 per year subject to an annual
increase of 5% plus any increase in the Consumer Price Index.

Upon Benson A. Selzer, Joseph Eiger, or William W. Mowbray reaching the ages
of 78, 70 and 65, respectively, they will be entitled to enter into a consulting
agreement with the Company which will run for five years providing for
compensation based on 50% of the annual average of all compensation received by
the consultant for the three years prior to the consultancy, but not to exceed
$250,000 per annum per participant. Upon the death or disability of the
executive, he or his estate will be paid an amount equal to the greater of (a)
the amount of compensation that the executive would have been entitled to
receive under the consulting agreement for the 12 months commencing on the date
of such death or disability, or (b) the annual bonus payment that the executive
would have been entitled to receive under his employment agreement for the
fiscal year in which such death or disability occurs (on a prorated basis).

STOCK APPRECIATION BONUS. The stock appreciation bonus plan for senior
management provides for a bonus payable at the conclusion of every two fiscal
years, with the first period commencing January 23, 1996 and concluding on
January 31, 1998. The bonus will be payable in Common Stock based on the
increase in the market value (based on the closing price) of the Common Stock
between the opening day of the period and the last day of the period. Benson A.
Selzer and Joseph Eiger will each receive a bonus equal to 2.2% of the increase
and William W. Mowbray and John A. Selzer will receive a bonus equal to 1.6% and
1%, respectively, of the increase. The bonus will be payable in unregistered
Common Stock. To be eligible for this bonus, the participant must be employed
under an employment agreement with the Company on the last day of the bonus
period (except in the event of a change of control, in which case the bonus will
be calculable and payable as of the consummation of such event).

LIFE INSURANCE AND RETIREMENT PLANS. The executive split dollar life
insurance plan and supplemental executive retirement plan provides for $1.5
million split dollar life insurance policies to be purchased on the lives of
Benson A. Selzer, Joseph Eiger, John A. Selzer and William W. Mowbray. The
Company will pay a premium not to exceed approximately $125,000 per year under
each of the policies for a period of eight years. The Company will recover the
premium payments from the cash value in the policies at the end of 20 years or
at the death of the insured if earlier.

The supplemental executive retirement plan for Benson A. Selzer, Joseph
Eiger and William W. Mowbray provides for an annual retirement income payment of
$200,000 for life plus one year, with the first payment occurring no sooner than
the later of (i) December 31, 2003 and (ii) five years after the retirement of
the beneficiary (at which time such person's consulting agreement with the
Company shall have expired). Vesting will be at the rate of 20% ($40,000 of the
annual benefit) per year commencing on the first anniversary of the adoption of
the plan; however, if the executive is employed under an employment agreement as
of his retirement date, he will become fully vested at that time.

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<PAGE>
DESCRIPTION OF DEBENTURES

GENERAL

The Debentures will be general obligations of the Company issued under an
Indenture (the "Indenture") between the Company and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee").

The Company will pay interest on the Debentures at the rate per annum shown
on the cover page of this Prospectus to the persons who are registered holders
of Debentures at the close of business on the or
------------- -------------
next preceding each interest payment date. Interest will initially accrue from
, 1996 and the first interest payment date will be January 31,
- ------------
1997. Thereafter, interest will be payable semiannually in arrears on January 31
and July 31 of each year. The Company may pay principal and interest by its
check and may mail an interest check to a holder's registered address. The
Debentures mature on , 2006 and will be issued only in registered
-----------
form, without coupons, in the aggregate principal amount of not more than
$40,000,000 ($46,000,000 if the Underwriters' overallotment option is exercised
in full) in denominations of $1,000 and integral multiples thereof.
Debentureholders must surrender Debentures to the Paying Agent to collect
principal payments.

The Debentures are subordinate in right of payment to Senior Indebtedness of
the Company, as described under "-- Subordination," are convertible into Common
Stock, as described under "-- Conversion" and are redeemable, as described under
"-- Optional Redemption." The Indenture does not limit Senior Indebtedness or
any other Indebtedness, secured or unsecured.

The terms of the Debentures include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Act") as in effect on the date of the Indenture. The Debentures are subject to
all such terms, and Debentureholders are referred to the Indenture and the Act
for statement of them. This summary makes use of terms defined in the Indenture
and is qualified in its entirety by reference to the Indenture. All references
to "Section," "Article" or "Paragraph" in this section refer to the applicable
Section or Article of the Indenture or the applicable Paragraph in the form of
Debenture included in the Indenture, as the case may be. A copy of the Indenture
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part.

The Company will enter into an appropriate agency agreement with any Paying
Agent or Registrar not a party to the Indenture; initially, IBJ Schroder Bank &
Trust Company will act as Paying Agent and Registrar (Section 2.03). The Company
may change the Paying Agent or Registrar without notice to the Debentureholders
(Section 2.03).

CONVERSION

The holder of any Debenture will be entitled at any time prior to the close
of business on the business day immediately preceding the maturity date of the
Debentures, to convert the Debenture, or portions thereof which are in
denominations of at least $1,000 or integral multiples thereof, into shares of
Common Stock, at the Conversion Price set forth on the cover page of this
Prospectus, subject to adjustment as described below. No payment or adjustment
will be made on conversion of any Debenture for interest accrued thereon or
dividends on any Common Stock issued on conversion (Section 11.01). The Company
is not required to issue fractional shares of Common Stock upon conversion of
Debentures and, in lieu thereof, will pay a cash adjustment based upon the
market price of the Common Stock on the day next preceding the day the Debenture
is submitted for conversion (Section 11.03). In the case of Debentures called
for redemption, conversion rights will expire at the close of business on the
fifth business day prior to the redemption date (Section 11.01). The Company
will at all times keep available the maximum number of shares of Common Stock
needed to effect conversion of the Debentures (Section 11.05).

The Conversion Price may be adjusted from time to time if any of the events
described below occur after . If the Company (i) pays a dividend or
makes a distribution on its Common Stock in shares of its Common Stock, (ii)
subdivides its outstanding Common Stock or (iii) combines its outstanding Common
Stock, the Conversion Price will be adjusted so that the holder of a Debenture
surrendered for conversion

39
<PAGE>
receives the number of shares of Common Stock which the holder would have owned
if the Debenture had been converted prior to the first such event. If the
Company issues rights or warrants to the holders of Common Stock to purchase
Common Stock within 60 days at less than the Conversion Price at the record date
for such rights or warrants, the Conversion Price will be reduced to give effect
to the issuance of the shares subject to the rights or warrants (but will be
readjusted to the extent that rights or warrants are not exercised). If the
Company distributes to the holders of its Common Stock any shares of capital
stock of the Company other than Common Stock, any assets, securities, rights or
warrants (other than rights or warrants which must be exercised within 60 days),
the Conversion Price will be reduced to take account of the fair market value of
the assets, securities, rights or warrants. If the Company issues any equity or
debt securities (other than upon exercise of warrants and options existing on
the date of this Prospectus and shares issued pursuant to Management stock
options) which are convertible into or exchangeable for shares of Common Stock
("Convertible Securities") at less than the Conversion Price when the
Convertible Securities are issued, the Company will be deemed to have issued the
maximum number of shares of Common Stock into which the Convertible Securities
may be converted and no further adjustment to the Conversion Price will be made
when the Convertible Securities are converted. If the Company issues or sells
any Common Stock (other than upon exercise of warrants and options existing on
the date of this Prospectus and shares issued pursuant to management stock
options) at a price per share less than the Conversion Price, the Conversion
Price will be adjusted. If the outstanding shares of Common Stock are
reclassified or as a result of a merger, the Debentures will become convertible
into the kind and amount of securities, cash or other assets which the holders
of the Debentures would have owned immediately after the transaction if the
holders had converted the Debentures immediately before the effective date of
the transaction (Section 11.04).

REDEMPTION

The Debentures are not entitled to be redeemed out of a sinking fund and
there is no other requirement of mandatory redemption before the Debentures
mature. The Company, at its option, may redeem all, but not less than all, of
the Debentures upon 30 days written notice at % of their principal amount,
plus accrued and unpaid interest, at any time after September , 1998, provided
the closing price of the Common Stock on 20 out of 30 consecutive trading days
ending not more than 10 days prior to the date the notice of redemption is given
is at least 137.5% of the Conversion Price then in effect. In addition, the
Company may redeem all or any portion of the Debentures on or after September
, 1999 upon 30 days written notice at the following prices (expressed as
percentages of the principal amount):

<TABLE>
<CAPTION>
TWELVE MONTHS
BEGINNING SEPTEMBER PERCENTAGE
------------------- ----------
<S> <C>
1999............... 107%
2000............... 105%
2001............... 103%
2002-thereafter.... 100%
</TABLE>

SELECTION. In the event of redemption of less than all of the Debentures,
selection of the Debentures for redemption will be made by the Trustee by a
method the Trustee considers fair and appropriate (Section 3.02).

SUBORDINATION

The payment of the principal of, premium, if any, and interest on, the
Debentures, is subordinated in right of payment, as set forth in the Indenture,
to the prior payment when due of the principal of and premium, if any, and
interest on all Senior Indebtedness. Upon maturity of any Senior Indebtedness,
payment in full must be made on such Senior Indebtedness before any payment is
made on or in respect of the Debentures (Section 10.02). During the continuance
of any event of default with respect to Senior Indebtedness entitling the
holders thereof to accelerate the maturity thereof, no payment may be made by
the Company upon or in respect of the Debentures, unless the holders of the
Senior Indebtedness fail to accelerate its maturity within 120 days after the
event of default occurs (Section 10.03). Upon any distribution of the assets of
the Company as a result of dissolution or liquidation, all Senior Indebtedness
will be paid

40
<PAGE>
before any payment is made or any assets distributed to the Debentureholders. If
the Trustee or the Debentureholders receive any such distribution before all
Senior Indebtedness is paid, that payment will be held in trust and paid over to
the holders of Senior Indebtedness (Section 10.04).

"Senior Indebtedness" of the Company means the principal of, premium, if
any, and unpaid interest and additional amounts due on (a) all indebtedness of
the Company for borrowed money (including any indebtedness secured by a mortgage
or other lien which is (i) given to secure all or part of the purchase price of
the property which is subject to the mortgage or lien, whether given to the
vendor of that property or to another, or (ii) existing on property at the time
it is acquired by the Company); (b) all indebtedness of the Company evidenced by
notes, debentures, bonds or other securities sold by the Company for money or
issued by the Company in exchange for Senior Indebtedness; (c) all lease
obligations of the Company which are capitalized on the books of the Company in
accordance with generally accepted accounting principles; (d) all indebtedness
of others of the kinds described in either clauses (a) or (b) and all lease
obligations of the kind described in clause (c) assumed or guaranteed in any
manner by the Company or in effect guaranteed by the Company through an
agreement to purchase (which may be contingent); and (e) all renewals,
extensions, refundings, deferrals, amendments or modifications of indebtedness
of the kinds described in clauses (a), (b) and (d) and all renewals or
extensions of lease obligations of the kinds described in clauses (c) or (d);
unless, the applicable instrument or lease, or document by which the Company
assumes or guarantees a particular indebtedness or lease obligation, expressly
states that the indebtedness or lease obligation is not Senior Indebtedness with
regard to the Debentures. Notwithstanding the foregoing, Senior Indebtedness
will not include any Indebtedness or lease obligations of the Company to a
subsidiary (Section 10.01).

Because the Company is a holding company that conducts business through the
Operating Subsidiaries, the Debentures are effectively subordinated to all
existing and future obligations of the Operating Subsidiaries. Any right of the
Company to participate in any distribution of the assets of any of the Operating
Subsidiaries upon liquidation, reorganization or insolvency of such subsidiary
(and the consequent right of the holders of the Debentures to participate in
those assets) will be subject to the claims of the creditors (including trade
creditors) of such subsidiary, except to the extent that claims of the Company
itself as a creditor of such subsidiary may be recognized, in which case the
claims of the Company would still be subordinate to any indebtedness of such
subsidiary which is secured by a prior lien, or otherwise is senior to, that
held by the Company. On April 27, 1996, approximately $64.5 million of
indebtedness, leases and other obligations (including trade payables) of the
Operating Subsidiaries (not including obligations held by the Company) was
outstanding.

Because the Company is a holding company, the Company's cash flow and
consequent ability to meet its debt obligations are primarily dependent upon the
earnings of the Operating Subsidiaries, and on payments from them to the
Company. The Operating Subsidiaries are not obligated to the Debentureholders to
pay any amounts due pursuant to the Debentures or to make funds available
therefor in the form of dividends or advances to the Company. The Operating
Subsidiaries do, however, have obligations with regard to that portion of their
indebtedness which is held by the Company.

SATISFACTION AND DISCHARGE OF THE INDENTURE

The Company at any time may terminate its obligations under the Indenture to
pay an installment of principal or interest if it deposits with the Trustee
money or U.S. Government Obligations sufficient to pay the installment when due.
The Company at any time may terminate all of its obligations (other than with
regard to conversion into Common Stock of the Debentures which have not been
redeemed or matured) under the Debentures and the Indenture if it deposits with
the Trustee money or U.S. Government Obligations sufficient to pay principal and
interest on the Debentures to redemption or maturity. "U.S. Government
Obligations" means (i) direct obligations of the United States for the payment
of which its full faith and credit is pledged, or (ii) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States. (Article 8).

41
<PAGE>
MERGER, CONSOLIDATION, OR SALE OF ASSETS

The Company may not consolidate or merge with, or transfer all or
substantially all of its assets to, another corporation, person or entity unless
the successor assumes all the obligations of the Company under the Debentures
and the Indenture and unless certain other conditions are met, including the
requirements that, after giving effect thereto, the resulting corporation shall
have a consolidated net worth which is not less than that of the Company
immediately prior to such merger, consolidation, or sale of assets. (Article 5).

CERTAIN OTHER COVENANTS

Subject to certain exceptions, the Company may not declare or pay any
dividend or make any distribution to the holders of its capital stock or redeem
or purchase any of its capital stock, warrants or options if an Event of Default
(as defined below) has occurred and is continuing, or if the dividend,
redemption or purchase would result in the total sum being expended since July
31, 1996 exceeding (a) 50% of the net income of the Company and its subsidiaries
since July 31, 1996, plus (b) the net proceeds from the sale of capital stock
and the principal amount of debt securities (including Debentures) converted
into capital stock of the Company after July 31, 1996 (Section 4.07); provided,
however that this provision will not restrict the Company from (i) paying
required dividends on its Series A Preferred Stock or (ii) using up to $ to
redeem or purchase shares of Series A Preferred Stock from time to time for not
more than the redemption price of the Series A Preferred Stock (or, before the
Series A Preferred Stock becomes redeemable, its liquidation value).

The Company will not, and will not permit any subsidiary (including the
Operating Subsidiaries) to, enter into any agreement which precludes the
subsidiary from paying dividends, making distributions, making payments with
regard to taxes or paying reasonable management or other fees to the Company
(collectively, the "Payments"), other than (i) agreements (including securities
or debt instruments) which existed on July 31, 1996, (ii) agreements regarding
extensions, refinancings, renewals or replacements of indebtedness which existed
on July 31, 1996, provided the terms of those agreements with respect to
Payments are not less favorable to the Debentureholders than the provisions of
the agreements in effect on July 31, 1996 relating to the indebtedness which is
being extended, refinanced, renewed or replaced, or (iii) agreements relating to
subsidiaries acquired after July 31, 1996 which are in effect when those
subsidiaries are acquired by the Company (or a subsidiary) and were not entered
into in anticipation of such acquisition ("New Subsidiary Agreements") or
agreements regarding extensions, refinancings, renewals or replacements of such
agreements, or new agreements, provided the terms of those agreements with
respect to Payments are not less favorable to the Debentureholders
than the least favorable of terms contained in any of the agreements referred to
in (i) or (ii) above, or in any New Subsidiary Agreement.

EVENTS OF DEFAULT AND REMEDIES

An Event of Default is defined as (i) a default for 30 days in payment of
interest on the Debentures, (ii) a default in payment when due of principal and
premium, if any, (iii) failure by the Company for 90 days after notice to comply
with any of its other agreements in the Indenture or the Debentures, (iv)
certain events of bankruptcy or insolvency (Section 6.01). If an Event of
Default occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding Debentures may declare all the
Debentures to be due and payable immediately. Subject to certain limitations,
holders of a majority in principal amount of the outstanding Debentures may
waive an Event of Default and its consequences. (Section 6.04 and Section 9.02)
Holders of the Debentures may not enforce the Indenture or the Debentures except
as provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Debentures may direct the
Trustee in its exercise of any trust or power (Article 6). The Trustee may
refuse to take any action requested by the Debentureholders unless the Trustee
receives indemnity satisfactory to it (Section 7.01(e)).

AMENDMENTS, SUPPLEMENTS AND WAIVERS

The Indenture or the Debentures may be amended or supplemented by the
Company and such amendment or supplement may be signed by the Trustee, and
compliance with any provision of the Indenture or the Debentures may be waived
by the Trustee, without notice to or consent of any holder of Debentures if such
change or waiver would not adversely affect the rights of any holder (Section
9.01 and Section 9.06). In addition, the Indenture or the Debentures may be
amended or supplemented, and compliance with any provision of the Indenture or
the Debentures may be waived, without notice to any holder of Debentures if the
holders of a majority in principal amount of the outstanding Debentures consent
or waive compliance. Without the consent of each holder affected, however, an
amendment, supplement or waiver, may not: (i) reduce the amount of Debentures
whose holders must consent to an amendment, supplement or waiver; (ii) reduce
the rate or extend the time for payment of interest on any Debenture; (iii)
reduce the principal of or extend the fixed maturity of any Debenture; (iv)
reduce the redemption price; (v) make any Debenture payable in money other than
that stated in the Debenture; or (vi) impair the right to convert any Debenture
into Common Stock (Section 9.01).

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company is authorized to issue up to 80,000,000 shares of Common Stock,
$.01 par value per share. On July 30, 1996, there were 4,696,037 shares of
Common Stock issued and outstanding. All shares of Common Stock have equal
voting rights and have one vote per share on all matters to be voted upon by
stockholders. The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully paid and
nonassessable shares. Cumulative voting in the election of directors is not
allowed, which means that subject to the limited voting rights of the holders of
the Series A Preferred Stock, the holders of a majority of the outstanding
shares represented at any meeting at which a quorum is present will be able to
elect all the directors then subject to election if they choose to do so and, in
such event, the holders of the remaining shares will not be able to elect any
directors. On liquidation of the Company, each holder of Common Stock is
entitled to receive a pro rata share of the Company's assets, if any, available
for distribution to holders of Common Stock after payment of all liabilities of
the Company and subject to the prior distribution rights of the holders of any
of the Company's Preferred Stock that may be outstanding at that time. All
outstanding shares of Common Stock are, and all shares of Common Stock issued on
conversion of Series A Preferred Stock will be, fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue 7,500,000 shares of Series A Preferred
Stock, $.01 par value per share, and has authorized the issuance of up to
4,500,000 shares of Series A Preferred Stock and 25,000 shares of Series A
Junior Participating Preferred Stock (the "Junior Preferred"). The only
outstanding shares of Preferred Stock of the Company as of July 30, 1996 were
3,727,415 shares of Series A Preferred Stock, not including 153,846 shares of
Series A Preferred Stock which have been pledged by the Company to secure
certain obligations of the Company under the Mandel-Kahn Settlement and which
the Company has agreed to sell to non-affiliates by September 30, 1996 for an
aggregate purchase price of $807,690. The proceeds of this sale will be used to
satisfy the obligation which they secure.

Holders of shares of Series A Preferred Stock are not entitled to vote
except (i) with respect to the creation, authorization or issuance of capital
stock ranking senior to or in parity with the Series A Preferred Stock (on which
they vote separately as a single class), (ii) in the event that the Company
shall have failed to pay any four quarterly dividend payments in full, (iii) on
certain mergers and sales of assets and (iv) as otherwise required by law. The
holders of the Series A Preferred Stock are entitled to receive when, as and if
declared by the Board of Directors out of funds legally available as prescribed
by statute, cumulative dividends at the rate of $.95 per share per year, payable
quarterly on April 30, July 31, October 31 and the last Friday of January of
each year, to the holders of record. Each share of Series A Preferred Stock is
convertible at any time prior to redemption, into that number of shares equal to
the liquidation preference of the share of Series A Preferred Stock ($10.00)
divided by the adjusted conversion price ($3.6396 as of the date of this
Prospectus, so that each share of Series A Preferred Stock is convertible into
2.748 shares of Common Stock). The Company may, at its option, redeem all, but
not less than all, of the shares of Series A Preferred Stock upon 30 days
written notice at any time on or after July 21, 1997, at a redemption price of
$10.00 per share, plus accumulated and unpaid dividends, provided that for 20
consecutive trading days ending not more than 10 days prior to the date of the
notice of redemption, the closing sale price of the Common Stock is at least
137.5% of the conversion price then in effect. In addition, on or after July 21,
1998, the Company may redeem all or any portion of the shares of Series A
Preferred Stock at per share prices commencing at $10.70 from July 21, 1998 to
July 20, 1999 and declining over time to $10.00 commencing July 21, 2003.

Shares of Preferred Stock issued in the future could have conversion rights
which may result in the issuance of additional shares of Common Stock which
could dilute the interests of the holders of Common Stock, Series A Preferred
Stock and Debentures. Such shares could also have voting rights and liquidation
preferences which are senior to the rights and preferences of the Series A
Preferred Stock and Common

43
<PAGE>
Stock. Additionally, such shares could have dividend rates and redemption or
other provisions which could adversely affect the Company's ability to pay
dividends on the Series A Preferred Stock and Common Stock or prohibit payment
of such dividends. Such shares could also be issued, under certain
circumstances, in an attempt to prevent a takeover of the Company, and such
issuance could adversely impact holders of Common Stock, Series A Preferred
Stock and Debentures who might convert and vote in favor of a proposed merger,
tender offer or similar transaction.

OPTIONS AND WARRANTS

As of July 30, 1996, there were outstanding 2,571,500 Redeemable Class D
Common Stock Purchase Warrants (assuming the separation of the 4,200 warrants
not yet separated from the Units in which they were originally issued) ("Class D
Warrants"). Each Class D Warrant entitles the holder to purchase one-sixth of
one share of Common Stock at a price of $15.00 per share of Common Stock at any
time until September 15, 1996 (unless earlier redeemed by the Company).

The Class D Warrants are redeemable by the Company at a redemption price of
$.06 per Warrant, upon 30 days notice given at any time if the last sale price
per share of the Common Stock for 20 consecutive trading days ending not more
than 10 days prior to the date notice of redemption is given equals or exceeds
120% of the exercise purchase price therefor (i.e., $18.00). If the Company
gives a redemption notice, a holder would be forced either to exercise his
Warrant within 30 days of the notice of redemption or accept the redemption
price.

In addition, as of July 30, 1996, there were outstanding 298,925 additional
warrants (collectively with the Class D Warrants, the "Warrants") of the Company
expiring between July 1996 and December 1998 at exercise prices ranging from
$9.00 to $16.20 per share; 15,000 warrants expiring in 1998 may be exercised at
the market price of the Company's Common Stock at the time such warrants are
exercised.

The Warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price in certain events, such as stock dividends and
distributions, stock splits and recapitalizations. The holder of a Warrant will
not possess any rights as a stockholder of the Company unless and until such
holder exercises the Warrant.

In addition, as of July 30, 1996, options to purchase up to 844,918 shares
of Common Stock have been granted to officers, directors and employees of the
Company and the Operating Subsidiaries and are outstanding and vested (or will
vest within three months of the date of this Prospectus). Options to purchase an
additional 1,764,668 shares of Common Stock have been granted but do not vest
until between May 1997 and May 2001. All but 64,584 of the options (which have
higher exercise prices) have exercise prices of between $1.375 and $3.64 per
share of Common Stock.

SHAREHOLDERS' RIGHTS PLAN

In December 1995, the Company distributed a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock of the
Company. All shares of Common Stock issued between that date and November 27,
2000 (or an earlier Distribution Date, as defined) (including Shares of Common
Stock issued upon conversion of Debentures) will be accompanied by Rights.
Except as set forth below, each Right, when it becomes exercisable, entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Junior Preferred at a price of $9.00 per one one-thousandth of a Junior
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement"), between the Company and Corporate Stock Transfer, Inc. (the "Rights
Agent").

Currently, the Rights are included in the certificates representing
outstanding shares of Common Stock, and no separate Right Certificates (as
hereinafter defined) have been distributed. The Rights will separate from the
Common Stock on the earliest to occur of (i) the first date of public
announcement that a person or "group" has acquired beneficial ownership of 15%
or more of the outstanding shares of Common Stock (except pursuant to a
Permitted Offer, as hereinafter defined); or (ii) 10 business days (or such
later date as

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<PAGE>
the Board may determine) following a person's or group's ("Acquiring Person")
commencement of, or announcement of an intention to commence, a tender offer or
exchange offer for 15% or more of the outstanding shares of Common Stock (the
earliest of such dates being called the "Distribution Date"). The first date of
public announcement that a person or group has become an Acquiring Person is the
"Shares Acquisition Date."

The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with shares of Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Record Date, even without such notation or a
copy of a summary of rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Stock
issued after the Distribution Date), and such separate Right Certificates alone
will evidence the Rights.

The Rights are not exercisable until the Distribution Date and will expire
at 5:00 P.M., New York City time, on November 27, 2000, unless earlier redeemed
by the Company as described below.

In the event that any person becomes an Acquiring Person (except pursuant to
a Permitted Offer), each holder of a Right will have (subject to the terms of
the Rights Agreement) the right (the "Flip-in Right") to receive upon exercise
the number of shares of Common Stock, or, in the discretion of the Board of
Directors, one one-thousandths of a Junior Preferred Share (or, in certain
circumstances, other securities of the Company) having a value equal to two
times the exercise price of the Right. Notwithstanding the foregoing, following
the occurrence of the event described above, all Rights that are, or (under
certain circumstances) were, beneficially owned by any Acquiring Person or any
affiliate or associate thereof will be null and void. A "Permitted Offer" is a
tender or exchange offer for all outstanding Common Stock which is at a price
and on terms determined, prior to the purchase of shares under such tender or
exchange offer, by a majority of Disinterested Directors (as defined) to be
adequate and otherwise in the best interests of the Company, its stockholders
and its other relevant constituencies.

In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding shares of Common Stock immediately
prior to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any affiliate or associate, if in such transaction all
holders of Common Stock are not treated alike, then each holder of a Right
(except for voided Rights) shall have the right (the "Flip-Over Right") to
receive, upon exercise, Common Stock of the acquiring company having a value
equal to two times the exercise price of the Right.

The Purchase Price payable, and the number of one-thousandths of a Junior
Preferred Share or other securities issuable, upon exercise of the Rights are
subject to adjustment from time to time upon the occurrence of certain events to
prevent dilution.

Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but, if greater, will
be entitled to an aggregate dividend per share of 1000 times the dividend
declared per Common Stock. In the event of liquidation, the holders of Junior
Preferred Shares will be entitled to a minimum preferential liquidation payment
of $1.00 per share; thereafter, and after the holders of the Common Stock
receive a liquidation payment of $0.001 per share, holders of the Junior
Preferred Shares and the holders of the Common Stock will share the remaining
assets in the ratio of one thousand to 1 (as

45
<PAGE>
adjusted) for each Junior Preferred Share and share of Common Stock so held,
respectively. Finally, in the event of any merger, consolidation or other
transaction in which Common Stock is exchanged, each Junior Preferred Share will
be entitled to receive one thousand times the amount received per share of
Common Stock.

The Company has the right to redeem the Rights at any time prior to the
earlier to occur of (i) a person becoming an Acquiring Person or (ii) the
expiration of the Rights, and, in addition, under certain circumstances, after
the triggering of the Flip-in Right.

Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the company, including, without limitation, the right to
vote or to receive dividends . While the distribution of the Rights will not be
taxable to stockholders of the Company, stockholders may, depending upon the
circumstances, recognize taxable income should the Rights become exercisable or
upon the occurrence of certain events thereafter.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 of the Delaware General Corporation law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to such date the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder is approved by the Board of
Directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the Board of Directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.

TRANSFER AGENT, REGISTRAR AND WARRANT AGENT

Corporate Stock Transfer, Inc., 370 Seventeenth Street, Suite 2350, Denver,
Colorado 80202, is transfer agent and registrar for the Common Stock and the
Series A Preferred Stock.

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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of certain material United States federal
income tax considerations relevant to the purchase, ownership, disposition and
conversion of Debentures to the purchasers thereof and the ownership and
disposition of the Common Stock received upon the conversion of the Debentures.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), final, temporary and proposed United States Treasury regulations
promulgated thereunder, Internal Revenue Service ("IRS") rulings, official
pronouncements and judicial decisions, all as in effect on the date hereof and
all of which are subject to change, possibly with retroactive effect, or
different interpretations. This summary does not address the considerations that
may be applicable to particular classes of holders, including financial
institutions, broker-dealers, tax-exempt organizations, banks and insurance
companies. In addition, this summary is limited to persons that will hold the
Debentures and the Common Stock as "capital assets" within the meaning of
Section 1221 of the Code. In addition, this summary does not address any state,
local or foreign tax considerations that may be relevant to a holder's decision
to purchase the Debentures.

ALL POTENTIAL PURCHASERS OF DEBENTURES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE OF DEBENTURES, OF THE OWNERSHIP, CONVERSION AND DISPOSITION OF
DEBENTURES AND THE OWNERSHIP AND DISPOSITION OF COMMON STOCK RECEIVED UPON THE
CONVERSION OF THE DEBENTURES IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.

U.S. HOLDERS

INTEREST AND ORIGINAL ISSUE DISCOUNT ON DEBENTURES. Payments of interest on
the Debentures will be taxable to holders thereof at the time that such payments
are accrued or received, depending on whether the holder uses the accrual or
cash method of accounting for federal income tax purposes.

In accordance with Sections 1271 through 1275 of the Code and the final
Treasury Regulations promulgated thereunder, a debt instrument bears original
issue discount ("OID") if its "stated redemption price at maturity" exceeds its
"issue price" by more than a de minimis amount. The "issue price" of the
Debentures for federal income tax purposes will be the first price at which a
substantial amount of the Debentures are sold for money. The Company believes
that the issue price of the Debentures will not be less than its "stated
redemption price at maturity" and thus there should be no OID with respect to
the Debentures.

PREMIUM AND MARKET DISCOUNT. A U.S. Holder of a Debenture purchased at a
premium (i.e., a cost greater than its principal amount), excluding any amount
attributable to the conversion privilege, may amortize such premium. Special
rules may require the amount of premium and the amortization thereof to be
determined with reference to the optional redemption price and date.

If a U.S. Holder of a Debenture purchases the Debenture at an amount that is
less than its principal amount, the Debenture generally will be considered to
bear "market discount" in the hands of such U.S. Holder. In such case, gain
realized by the U.S. Holder on the sale, exchange, or retirement, and unrealized
appreciation on certain nontaxable dispositions, of the Debenture generally will
be treated as ordinary interest income to the extent of the market discount that
accrued on the Debenture while held by such U.S. Holder and to the extent it has
not previously been included in income (pursuant to an election by the U.S.
Holder to include such market discount in income as it accrues). In general
terms, market discount on a Debenture will be treated as accruing on a
straight-line basis over the term of such Debenture, or, at the election of the
U.S. Holder, under a constant yield method. However, market discount is deemed
not to exist if the market discount is less than a statutorily defined de
minimis amount.

CONVERSION OF DEBENTURES. A U.S. Holder of a Debenture will not recognize
gain on the conversion of Debentures into Common Stock except to the extent cash
is received in lieu of a fractional share. The tax basis for the Common Stock
received upon such conversion will be equal to the tax basis of the Debentures

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<PAGE>
converted (reduced by the portion of such basis allocable to any fractional
Common Stock interest paid in cash). A holder generally will recognize gain (or
loss) upon a conversion to the extent that any cash paid in lieu of a fractional
share of Common Stock exceeds (or is less than) its tax basis in such fractional
share. The holding period for the Common Stock generally will include the
holding period of the Debentures converted.

If a Debenture as to which there is accrued market discount is converted
into shares of Common Stock, such accrued market discount will carry over to the
shares of Common Stock (to the extent that such accrued market discount has not
been included in income), and any gain realized upon the subsequent disposition
of such shares of Common Stock will, to the extent of such accrued market
discount, be taxable as ordinary interest income.

DIVIDENDS ON SHARES OF COMMON STOCK. Distributions with respect to the
shares of Common Stock will be treated as dividends and taxable as ordinary
income to the extent that the distributions are made out of either the Company's
(i) current or (ii) accumulated earnings and profits. To the extent that a
distribution is not made out of the Company's current or accumulated earnings
and profits, the distribution will first constitute a nontaxable return of
capital reducing the holder's adjusted tax basis in the shares of Common Stock
held and then, to the extent the distribution exceeds such basis, will result in
a gain from the sale or exchange of such stock.

In calculating their taxable income, corporate stockholders will generally
be eligible to claim a dividend received deduction (currently 70% of the amount
of the dividend for most corporate stockholders) with respect to distributions
that are treated as dividends on the shares of the Common Stock. However,
complex rules apply which may cause disallowance or limitation of the dividends
received deduction under circumstances described in the Code.

In addition, because the Company presently has a deficit in accumulated
earnings and profits for United States federal income tax purposes, in general,
unless the Company generates earnings and profits each year in an amount at
least equal to the amount of dividends payable on the shares of Common Stock
(and all other stock ranking senior thereto or pari passu therewith), all or
part of the distributions made by the Company on the shares of Common Stock will
be treated as returns of capital rather than dividends eligible for the
dividends-received deduction available to corporations. Moreover, in computing
the alternative minimum tax, corporation stockholders may be required to make
certain adjustments in calculating their alternative minimum taxable income.
Corporate stockholders should consult their own tax advisors as to the possible
application of these provisions, including recent proposed legislation which, if
enacted, could reduce the dividend received deduction to 50% and modify certain
other requirements.

SALE OR EXCHANGE OF DEBENTURES OR SHARES OF COMMON STOCK. In general, the
U.S. Holder of a Debenture (or the shares of Common Stock into which it was
converted) will recognize gain or loss upon the sale, redemption, retirement or
other disposition of the Debenture or on the sale or other disposition of shares
of Common Stock measured by the difference between the amount realized and the
U.S. Holder's tax basis in the Debenture or shares of Common Stock. A U.S.
Holder's tax basis in a Debenture generally will equal the cost of the Debenture
to the U.S. Holder increased by the amount of market discount, if any,
previously taken into income by the U.S. Holder or decreased by any premium
theretofore amortized by the U.S. Holder with respect to the Debenture. For the
basis and holding period of shares of Common Stock, see "U.S. Holders --
Conversion of Debentures." Except to the extent treated as ordinary income under
the market discount rules, the gain or loss on such disposition of the
Debentures or shares of Common Stock will be capital gain or loss; the capital
gain or loss will be long-term capital gain or loss if the holding period of the
Debentures or shares of Common Stock is more than one year at the time of such
disposition.

ADJUSTMENT OF CONVERSION PRICE. Pursuant to Treasury Regulations
promulgated under Section 305 of the Code, a holder of a Debenture will be
treated as having received a constructive distribution from the Company upon an
adjustment in the conversion price of the Debentures if (i) as a result of such
adjustment, the proportionate interest of such holder in the assets or earnings
and profits of the Company were increased

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<PAGE>
and (ii) the adjustment was not made pursuant to a bona fide, reasonable
antidilution formula. An adjustment in the conversion price would not be
considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the stock into
which the Debentures are convertible. Thus, under certain circumstances, a
decrease in the conversion price for the Debentures may be taxable to a holder
as a dividend to the extent of the current or accumulated earnings and profits
of the Company. In addition, the failure to adjust fully the conversion price of
the Debentures to reflect distributions of stock dividends with respect to the
Common Stock (or rights to acquire Common Stock) may result in a taxable
dividend to the holders of the Common Stock and holders of rights to acquire
Common Stock.

BACKUP WITHHOLDING. A holder of a Debenture or Common Stock issued upon
conversion of a Debenture may be subject to backup withholding at a rate of 31%
with respect to dividends or interest on, or the proceeds of a sale, exchange,
or redemption of, such Debenture or Common Stock, as the case may be, unless (i)
such holder is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable backup withholding rules.

FOREIGN HOLDERS

As used herein, "Foreign Holders" means persons who are not, for U.S.
federal income tax purposes, citizens or residents of the United States or who,
as to the United States, are foreign corporations, foreign partnerships or
foreign estates or trusts.

ALL FOREIGN HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE OF
DEBENTURES, OF THE OWNERSHIP, CONVERSION AND DISPOSITION OF THE DEBENTURES AND
THE OWNERSHIP AND DISPOSITION OF COMMON STOCK RECEIVED UPON THE CONVERSION OF
THE DEBENTURES IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.

PAYMENTS ON DEBENTURES. Subject to the discussion of backup withholding
below, payments of principal and interest on a Debenture by the Company or its
agent (in its capacity as such) to a beneficial owner that is a Foreign Holder
will not be subject to United States federal withholding tax; provided that (a)
such person does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) such person is not a controlled foreign corporation that is related to the
Company actually or constructively through stock ownership, (c) such person is
not a bank that acquired its Debenture in consideration of an extension of
credit made pursuant to a loan agreement entered into in the ordinary course of
business and (d) either (i) the beneficial owner certifies to the Company or its
agent, under penalties of perjury, in a suitable form that it is a Foreign
Holder and provides its name and address or (ii) a qualifying securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds the
Debenture certifies to the Company or its agent under penalties of perjury that
such statement has been received from the beneficial owner in a suitable form by
it or by a qualifying intermediary and furnishes the payor with a copy thereof.

If a beneficial owner of a Debenture who is a Foreign Holder is engaged in a
trade or business within the United States and interest on the Debenture is
effectively connected with the conduct of such trade or business, such
beneficial owner may be subject to United States federal income tax on such
interest at ordinary federal income tax rates on a net basis (in which case the
branch profits tax may also apply if the holder is a foreign corporation).

CONVERSION OF DEBENTURES. A Foreign Holder will generally receive the
treatment described above under "U.S. Holders -- Conversion of Debentures". To
the extent such a holder receives cash in lieu of fractional shares of Common
Stock, such payment may be subject to the rules described below under "Sale or
Exchange of Debentures or Shares of Common Stock".

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<PAGE>
DIVIDENDS ON SHARES OF COMMON STOCK. Generally, any dividends paid on
shares of Common Stock received upon the conversion of a Debenture (including
any constructive dividends, if any, as a result of an adjustment of the
conversion price, see the "U.S. Holders -- Adjustment of Conversion Price") will
be subject to United States federal withholding tax at a rate of 30% of the
amount of the dividend, or at a lower rate provided in an applicable treaty.
However, if the dividend is effectively connected with a United States trade or
business of a Foreign Holder, it will be subject to United States income tax at
ordinary rates on a net basis (in which case the branch profits tax may also
apply if such holder is a foreign corporation), rather than the 30% withholding
tax.

Under current Treasury Regulations, a holder's status as a Foreign Holder
and eligibility for a tax treaty reduced rate of withholding will be determined
by reference to the holder's address and to any outstanding certificates or
statements concerning eligibility for a reduced rate of withholding, unless
facts and circumstances indicate that reliance is not warranted.

SALE OR EXCHANGE OF DEBENTURES OR SHARES OF COMMON STOCK. Subject to the
discussion of backup withholding below, any capital gain realized upon a sale or
exchange of a Debenture (including upon retirement of a Debenture) or Common
Stock issued upon conversion of a Debenture by a beneficial owner who is a
Foreign Holder ordinarily will not be subject to United States federal income
tax unless (i) such gain is effectively connected with a trade or business
conducted by such Foreign Holder within the United States (in which case the
branch profits tax may also apply if the holder is a foreign corporation), (ii)
in the case of a Foreign Holder that is an individual, such holder is present in
the United States for a period or periods aggregating 183 days or more in the
taxable year of the sale or exchange and certain other conditions are met or
(iii) the Company is or has been a "United States real property holding
corporation" for federal income tax purposes (which the Company does not believe
it has been or is currently) and such Foreign Holder has held, directly or
constructively, more than 5% of the outstanding Common Stock within the
five-year period ending on the date of the sale or exchange, and no treaty
exception is applicable.

ADJUSTMENT OF CONVERSION PRICE. A Foreign Holder of a Debenture will be
treated as having received a constructive distribution from the Company upon an
adjustment in the conversion price of the Debentures if (i) as a result of such
adjustment, the proportionate interest of such holder in the assets or earnings
and profits of the Company were increased and (ii) the adjustment was not made
pursuant to a bona fide, reasonable antidilution formula. An adjustment in the
conversion price would not be considered made pursuant to such formula if the
adjustment was made to compensate for certain taxable distribution with respect
to the stock into which the Debentures are convertible. Thus, under certain
circumstances, a decrease in the conversion price for the Debentures may be
taxable to a holder as a dividend to the extent of the current or accumulated
earnings and profits of the Company. In addition, the failure to adjust fully
the conversion price of the Debentures to reflect distributions of stock
dividends with respect to the Common Stock (or rights to acquire Common Stock)
may result in a taxable dividend to the holders of the Common Stock and holders
of rights to acquire Common Stock. Any constructive distribution to a Foreign
Holder of a Debenture or shares of Common Stock may be subject to the U.S.
withholding tax provisions discussed above with respect to payments of dividends
on Shares of Common Stock.

FEDERAL ESTATE TAXES. Debentures beneficially owned by an individual who at
the time of death is neither a citizen nor a resident of the United States will
not be subject to United States federal estate tax as a result of such
individual's death, provided that at the time of death the income from the
Debentures was not or would not have been effectively connected with the conduct
by such individual of a trade or business within the United States and that such
individual qualified for the exemption from United States federal withholding
tax (without regard to the certification requirements) interest that is
described above under "Payments on Debentures."

Common Stock that is beneficially owned by an individual who is neither a
citizen nor a resident of the United States at the time of death will be
included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.

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BACKUP WITHHOLDING AND INFORMATION REPORTING. Information reporting on IRS
Form 1099 and backup withholding at a rate of 31% will not apply to payments of
principal and interest made by the Company or a paying agent to a Foreign Holder
on a Debenture if the certification described in clause (d) under "-- Payments
on Debentures" above is received, provided that the payor does not have actual
knowledge that the holder is a United States person. However, interest on a
Debenture owned by a holder that is a non-United States person may be required
to be reported annually on IRS Form 1042S.

Payments of the proceeds from the sale by a Foreign Holder of a Debenture or
Common Stock issued upon conversion of a Debenture made to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is a United States person, a controlled
foreign corporation for United States tax purposes or a foreign person 50% or
more of whose gross income is effectively connected with a United States trade
or business for a specified three-year period, information reporting may apply
to such payments. Payments of the proceeds from the sale of a Debenture or
Common Stock to or through the United States office of a broker is subject to
information reporting and backup withholding unless the holder certifies as to
its non-United States status or otherwise establishes an exemption from
information reporting and backup withholding.

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UNDERWRITING

The underwriters named below (the "Underwriters"), represented by Rodman &
Renshaw, Inc. and Cruttenden Roth Incorporated, the representatives of the
Underwriters (the "Representatives"), have severally, and not jointly, agreed,
subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), between the Company and the Underwriters, to purchase
from the Company, and the Company has agreed to sell to each underwriter, the
respective principal amount of Debentures set forth opposite their names below.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF DEBENTURES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Rodman & Renshaw, Inc....................................................... $
Cruttenden Roth Incorporated................................................ $

TOTAL................................................................... $ 40,000,000
----------------
----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions and the approval of certain legal
matters by their counsel and various other conditions. The nature of the
Underwriters' obligations are such that they are committed to purchase all of
the Debentures if any are purchased.

The Underwriters have advised the Company that they propose initially to
offer the Debentures directly to the public at the offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of % of the
principal amount of the Debentures to certain other dealers. After the initial
public offering, the offering price concession and reallowance may be changed by
the Representatives. The Debentures are offered subject to receipt and
acceptance by the Underwriters and to certain other conditions, including the
right to reject orders in whole or in part.

The Company has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an additional $6,000,000
principal amount of Debentures to cover over-allotments, if any, at the initial
public offering price less the underwriting discount set forth on the cover page
of this Prospectus.

The Representatives of the Underwriters have advised the Company that they
currently intend to make a market in the Debentures; however, they are not
obligated to do so. Any market making may be discontinued at any time without
notice.

The Company has agreed to pay to the Representatives a non-accountable
expense allowance equal to 1% of the gross proceeds of the sale of the
Debentures ($400,000, or $460,000 if the Underwriters' over-allotment option is
exercised in full). As of the date of this Prospectus, the Company has paid the
Representatives $100,000 of this amount.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

Prior to this Offering, there has been no public trading market for the
Debentures of the Company. The initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors to be considered in such negotiations will be the Company's products,
results of operations, financial condition and future prospects, the experience
of management, the prevailing market conditions, the market prices of securities
for companies in businesses similar to that of the Company and other relevant
factors. The Company has applied to have the Debentures quoted on the Nasdaq
SmallCap Market under the symbol [" ".] There can be no assurance that an
active trading market will develop for the Debentures or that the Debentures
will trade in the public market subsequent to this Offering at or above the
initial public offering price. See "Risk Factors -- Market for the Debentures."

Rodman & Renshaw, Inc., one of the Representatives, acted as the
representative of the underwriters of the Company's 1994 public offering of
Series A Preferred Stock and has acted as a financial advisor to the Company.
John J. Borer III, a Director of the Company, is a Managing Director of Rodman &
Renshaw, Inc. See "Management." In his capacity as a Director of the Company,
Mr. Borer has received options entitling

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him to purchase up to a total of 72,500 shares of the Company's Common Stock at
prices ranging from $1.375 to $3.64 per share. See "Management -- Recent
Developments in Management Compensation Management -- Options."

LEGAL MATTERS

The validity of the issuance of the Debentures offered hereby and certain
legal matters with respect to United States federal income tax considerations
will be passed upon for the Company by Baer Marks & Upham LLP, New York, New
York. Rogers & Wells, New York, New York, will act as counsel to the
Underwriters.

EXPERTS

The financial statements of Family Bargain Corporation as of January 28,
1995 and January 27, 1996 and for the nine months ended January 29, 1994 and the
twelve months ended January 28, 1995 and January 27, 1996, have been included or
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

The financial statements of Capin Mercantile Corporation (the predecessor of
Factory 2-U) as of December 31, 1994, and for the year then ended, included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein (which report expresses an
unqualified opinion but includes an explanatory paragraph concerning Capin
Mercantile Corporation's ability to continue as a going concern) and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

The financial statements of Capin Mercantile Corporation as of December 31,
1993, and for each of the years in the two-year period ended December 31, 1993,
have been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission in the United States at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.

The Company has filed with the Commission a Registration Statement on Form
S-2 (the "Registration Statement") under the Securities Act, with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
securities, reference is hereby made to such Registration Statement, exhibits
and schedules which are available for inspection without charge at the principal
office of the Commission at Washington, D.C. Copies of the material containing
this information may be obtained from the Commission upon payment of the
prescribed fee. Statements contained in this Prospectus concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed in an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.

53
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FAMILY BARGAIN CORPORATION
Independent Auditors' Report to the Board of Directors and Stockholders of Family Bargain Corporation...... F-3
Family Bargain Corporation and Subsidiaries Consolidated Balance Sheets as of January 28, 1995 and January
27, 1996.................................................................................................. F-4
Family Bargain Corporation and Subsidiaries Consolidated Statements of Operations for the nine months ended
January 29, 1994 and the twelve months ended January 28, 1995 and January 27, 1996........................ F-5
Family Bargain Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) for
the nine months ended January 29, 1994 and the twelve months ended January 28, 1995 and January 27,
1996...................................................................................................... F-6
Family Bargain Corporation and Subsidiaries Consolidated Statements of Cash Flows for the nine months ended
January 29, 1994 and the twelve months ended January 28, 1995 and January 27, 1996........................ F-9
Family Bargain Corporation and Subsidiaries Notes to Consolidated Financial Statements..................... F-11
Family Bargain Corporation and Subsidiaries Consolidated Balance Sheets as of January 27, 1996 and April
27, 1996 (Unaudited)...................................................................................... F-29
Family Bargain Corporation and Subsidiaries Consolidated Statements of Operations for the three months
ended April 29, 1995 and April 27, 1996 (Unaudited)....................................................... F-30
Family Bargain Corporation and Subsidiaries Consolidated Statements of Cash Flows for the three months
ended April 29, 1995 and April 27, 1996 (Unaudited)....................................................... F-31
Family Bargain Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)......... F-32

F-1

<PAGE>

CAPIN MERCANTILE CORPORATION (PREDECESSOR TO FACTORY 2-U, INC.)
Independent Auditors' Report to the Board of Directors of Capin Mercantile Corporation..................... F-34
Capin Mercantile Corporation Balance Sheet as of December 31, 1994......................................... F-35
Capin Mercantile Corporation Statement of Operations for the year ended December 31, 1994.................. F-36
Capin Mercantile Corporation Statement of Changes in Stockholders' Equity (Deficiency) for the year ended
December 31, 1994......................................................................................... F-37
Capin Mercantile Corporation Statement of Cash Flows for the year ended December 31, 1994.................. F-38
Capin Mercantile Corporation Notes to Financial Statements for the year ended December 31, 1994............ F-39
Independent Auditors' Report to the Board of Directors of Capin Mercantile Corporation as of December 31,
1992 and 1993............................................................................................. F-47
Capin Mercantile Corporation Balance Sheets as of December 31, 1992 and 1993............................... F-48
Capin Mercantile Corporation Statements of Earnings for years ended December 31, 1992 and 1993............. F-49
Capin Mercantile Corporation Statements of Changes in Stockholders' Equity for years ended December 31,
1992 and 1993............................................................................................. F-50
Capin Mercantile Corporation Statements of Cash Flows for years ended December 31, 1992 and 1993........... F-51
Capin Mercantile Corporation Notes to Financial Statements for years ended December 31, 1992 and 1993...... F-52
</TABLE>

All other schedules are omitted because of the absence of conditions under
which they are required or because the required information is set forth in the
financial statements and notes thereto.

F-2

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Family Bargain Corporation:

We have audited the accompanying consolidated balance sheets of Family
Bargain Corporation and subsidiaries as of January 28, 1995 and January 27,
1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the nine months ended January 29, 1994 and
the twelve months ended January 28, 1995 and January 27, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Family
Bargain Corporation and subsidiaries as of January 28, 1995 and January 27,
1996, and the results of their operations and their cash flows for the nine
months ended January 29, 1994 and the twelve months ended January 28, 1995 and
January 27, 1996, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

SAN DIEGO, CALIFORNIA
APRIL 23, 1996

F-3
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 1995 AND JANUARY 27, 1996

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 2,522,000 1,958,000
Accounts receivable--non-trade................................. 742,000 887,000
Layaway receivables............................................ 411,000 695,000
Merchandise inventories (note 11).............................. 19,541,000 25,874,000
Prepaid expenses............................................... 1,124,000 776,000
----------- -----------
Total current assets....................................... 24,340,000 30,190,000
Real property held for sale (notes 8 and 11)..................... -- 4,500,000
Leasehold improvements and equipment, net (notes 7 and 12)....... 4,922,000 9,001,000
Deferred debt issuance costs, less accumulated amortization of
$291,000 in 1995 and $592,000 in 1996............................ 450,000 190,000
Other assets..................................................... 728,000 518,000
Excess of cost over net assets acquired (goodwill), less
accumulated amortization of $1,984,000 in 1995 and $3,366,000
in 1996 (notes 2 and 3)........................................ 29,465,000 42,753,000
----------- -----------
$59,905,000 87,152,000
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt and capital leases
(notes 11 and 12)............................................ $ 1,112,000 5,238,000
Current portion of revolving credit note (note 11)............. 2,000,000 --
Accounts payable............................................... 5,544,000 17,866,000
Accrued salaries, wages and bonuses............................ 2,169,000 1,758,000
Other accrued expenses (note 9)................................ 3,417,000 5,514,000
----------- -----------
Total current liabilities.................................. 14,242,000 30,376,000
Revolving credit notes, less current maturities (note 11)........ 5,943,000 15,159,000
Long-term debt, less current portion (note 11)................... 8,212,000 9,864,000
Deferred rent.................................................... 1,444,000 1,646,000
Capital lease and other long-term obligations (notes 3 and 12)... 252,000 2,390,000
----------- -----------
Total liabilities.......................................... 30,093,000 59,435,000
----------- -----------
Stockholders' equity (notes 13, 14, 15, 17 and 18):
Series A convertible preferred stock, $.01 par value, 4,500,000
shares authorized, 3,200,000 shares issued and outstanding,
aggregate liquidation preference of $32,000,000.................. 26,981,000 26,981,000
Common stock, $.01 par value, 80,000,000 shares authorized,
4,506,981 shares and 3,985,393 shares issued and outstanding
in 1995 and 1996, respectively............................... 7,000 7,000
Additional paid-in capital....................................... 19,796,000 19,763,000
Accumulated deficit.............................................. (16,972,000) (19,034,000)
----------- -----------
Net stockholders' equity................................... 29,812,000 27,717,000
----------- -----------
Commitments, contingencies and subsequent events (notes 2, 3, 4,
5, 6, 11, 12, 18 and 21)
Total liabilities and stockholders' equity................. $59,905,000 87,152,000
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 29, 1994 AND
THE TWELVE MONTHS ENDED JANUARY 28, 1995 AND JANUARY 27, 1996

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $96,496,000 146,520,000 179,820,000
Cost of sales....................................... 63,914,000 97,085,000 117,188,000
----------- ----------- -----------
Gross profit.................................. 32,582,000 49,435,000 62,632,000
General and administrative expenses................. 26,974,000 45,510,000 56,097,000
Amortization of excess of cost over net assets
acquired (goodwill) (notes 2 and 3)............... 796,000 1,188,000 1,382,000
Management fees to affiliate (note 19).............. 265,000 129,000 --
----------- ----------- -----------
Operating income.............................. 4,547,000 2,608,000 5,153,000
Interest expense and financing fees (note 11)....... (3,113,000) (2,813,000) (3,675,000)
Interest expense and financing fees--related parties
(note 11)........................................... (320,000) -- --
Other expenses, net................................. (1,000) -- --
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes, discontinued operations
and extraordinary gain...................... 1,113,000 (205,000) 1,478,000
Income taxes (note 10).............................. -- (149,000) --
----------- ----------- -----------
Income (loss) from continuing operations
before discontinued operations and
extraordinary gain.................................. 1,113,000 (354,000) 1,478,000
Discontinued operations (notes 4, 5 and 6):
Income (loss) on disposal, net of income tax
benefit............................................. 87,000 (2,241,000) (500,000)
----------- ----------- -----------
Income (loss) before extraordinary gain........... 1,200,000 (2,595,000) 978,000
Extraordinary gain, net of income taxes (note 11)... 682,000 5,251,000 --
----------- ----------- -----------
Net income.................................... 1,882,000 2,656,000 978,000
Preferred stock dividends (note 14)................. (200,000) (2,030,000) (3,040,000)
----------- ----------- -----------
Net income (loss) applicable to common
stock............................................... $ 1,682,000 626,000 (2,062,000)
----------- ----------- -----------
----------- ----------- -----------
Income (loss) applicable to common stock per common
share and common stock equivalents:
Income (loss) from continuing operations...... $0.30 (0.59) (0.39)
Income (loss) before extraordinary gain....... 0.33 (1.15) (0.51)
Net income (loss) applicable to common
stock............................................... 0.55 0.16 (0.51)
Income (loss) applicable to common stock per common
share assuming full dilution:
Income (loss) from continuing operations...... 0.30 (0.59) (0.39)
Income (loss) before extraordinary gain....... 0.33 (1.15) (0.51)
Net income (loss) applicable to common
stock............................................... 0.55 0.16 (0.51)
Weighted average shares outstanding:
Primary........................................... 3,067,464 4,008,311 4,006,420
Fully diluted..................................... 3,069,885 4,008,311 4,006,420
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED JANUARY 29, 1994 AND THE TWELVE MONTHS ENDED JANUARY
28, 1995 AND JANUARY 27, 1996

<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------------
RETAINED
SERIES C SERIES D COMMON STOCK EARNINGS
------------------ ------------------ ----------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ---------- ------ ---------- --------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April
30, 1993.......... -- $ -- -- $ -- 2,939,452 $5,000 $ 9,987,000 $(19,280,000) $(9,288,000)
Conversion of notes
and accrued
interest to common
stock............. -- -- -- -- 28,857 -- 324,000 -- 324,000
Common stock issued
in connection with
private placement
debt.............. -- -- -- -- 13,333 -- 80,000 -- 80,000
Repurchase of
common stock...... -- -- -- -- (13,333) -- (80,000) -- (80,000)
Accrued preferred
stock dividends... -- -- -- -- -- -- -- (8,000) (8,000)
Issuance of common
stock, net........ -- -- -- -- 1,100,995 2,000 6,874,000 -- 6,876,000
Conversion of MKI
guarantee to
preferred stock
(note 4).......... 25,000 2,500,000 -- -- -- -- -- -- 2,500,000
Conversion of notes
to preferred
stock, net........ -- -- 64,987 6,406,000 -- -- -- -- 6,406,000
Common stock issued
for consulting
services (note
15)............... -- -- -- -- 17,833 -- 107,000 -- 107,000
Common stock issued
in exchange for
option to purchase
debt (note 11).... -- -- -- -- 66,667 -- 400,000 -- 400,000
Common stock issued
in connection with
purchase of
subordinated notes
(note 11).......... -- -- -- -- 125,632 -- 971,000 -- 971,000
Other.............. -- -- -- -- -- -- (81,000) -- (81,000)
Net income for the
nine months ended
January 29, 1994.. -- -- -- -- -- -- -- 1,882,000 1,882,000
------ ---------- ------ ---------- --------- ------ ----------- ------------ -----------
Balance at January
29, 1994.......... 25,000 $2,500,000 64,987 $6,406,000 4,279,436 $7,000 $18,582,000 $(17,406,000) $10,089,000
------ ---------- ------ ---------- --------- ------ ----------- ------------ -----------
</TABLE>

F-6
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE NINE MONTHS ENDED JANUARY 29, 1994 AND THE TWELVE MONTHS ENDED JANUARY
28, 1995 AND JANUARY 27, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------------------------------------------------
SERIES A SERIES C SERIES D COMMON STOCK
----------------------- --------------------- ---------------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- ------- ----------- -------- ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 29,
1994....... -- $ -- 25,000 $ 2,500,000 64,987 $ 6,406,000 4,279,436 $7,000 $18,582,000
Redemption
of
preferred
stock (note
14)........ -- -- (25,000) (2,500,000) (64,987) (6,406,000) -- -- --
Preferred
stock
dividends
(note
14)........ -- -- -- -- -- -- -- -- --
Issuance of
preferred
stock, net
(note 14).. 3,200,000 26,981,000 -- -- -- -- -- -- --
Cancellation
of
incentive
shares
(note 2)... -- -- -- -- -- -- (249,335) -- --
Issuance of
shares in
lieu of
earnout
shares
related to
the
acquisition
of General
Textiles
(note 2)... -- -- -- -- -- -- 500,000 -- 1,750,000
Repurchase
of warrants
(note
18)........ -- -- -- -- -- -- -- -- (53,000)
Adjustment
to common
stock
issued in
connection
with
purchase of
subordinated
notes (note
11)........ -- -- -- -- -- -- (23,120) -- (483,000)
Net
income..... -- -- -- -- -- -- -- -- --
--------- ----------- ------- ----------- -------- ----------- --------- ------ -----------
Balance at
January 28,
1995....... 3,200,000 $26,981,000 -- $ -- -- $ -- 4,506,981 $7,000 $19,796,000
--------- ----------- ------- ----------- -------- ----------- --------- ------ -----------

RETAINED
EARNINGS
(ACCUMU-
LATED
DEFICIT) TOTAL
------------ -----------
<S> <C> <C>
Balance at
January 29,
1994....... $(17,406,000) $10,089,000
Redemption
of
preferred
stock (note
14)........ -- (8,906,000)
Preferred
stock
dividends
(note
14)........ (2,222,000) (2,222,000)
Issuance of
preferred
stock, net
(note 14).. -- 26,981,000
Cancellation
of
incentive
shares
(note 2)... -- --
Issuance of
shares in
lieu of
earnout
shares
related to
the
acquisition
of General
Textiles
(note 2)... -- 1,750,000
Repurchase
of warrants
(note
18)........ -- (53,000)
Adjustment
to common
stock
issued in
connection
with
purchase of
subordinated
notes (note
11)........ -- (483,000)
Net
income..... 2,656,000 2,656,000
------------ -----------
Balance at
January 28,
1995........ $(16,972,000) $29,812,000
------------ -----------
</TABLE>

F-7
<PAGE>

<TABLE>
<CAPTION>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE NINE MONTHS ENDED JANUARY 29, 1994 AND THE TWELVE MONTHS ENDED JANUARY
28, 1995 AND JANUARY 27, 1996

PREFERRED STOCK
-----------------------
RETAINED
SERIES A COMMON STOCK EARNINGS
----------------------- ------------------ PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
--------- ----------- --------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 28,
1995................. 3,200,000 $26,981,000 4,506,981 $7,000 $19,796,000 $(16,972,000) $29,812,000
Preferred stock
dividends (note
14).................. -- -- -- -- -- (3,040,000) (3,040,000)
Purchase of treasury
shares............... -- -- (22,916) -- (33,000) -- (33,000)
Cancellation of
incentive shares
(notes 2 and 13)..... -- -- (498,672) -- -- -- --
Net income............ -- -- -- -- -- 978,000 978,000
--------- ----------- --------- ------ ----------- ------------ -----------
Balance at January 27,
1996................. 3,200,000 $26,981,000 3,985,393 $7,000 $19,763,000 $(19,034,000) $27,717,000
--------- ----------- --------- ------ ----------- ------------ -----------
--------- ----------- --------- ------ ----------- ------------ -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 29, 1994 AND
THE TWELVE MONTHS ENDED JANUARY 28, 1995 AND JANUARY 27, 1996

<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations....... $ 1,113,000 (354,000) 1,478,000
Adjustments to reconcile income (loss) to net
cash provided by (used in) continuing
operations:
Depreciation and amortization................ 1,186,000 2,229,000 3,285,000
Amortization of debt discount................ 1,281,000 1,167,000 1,555,000
Interest payable converted to preferred
stock...................................... 423,000 -- --
Loss on disposal of equipment................ 5,000 232,000 74,000
Gain on revaluation of subordinated notes.... -- -- (822,000)
Excess of straight-line rent over cash
payments................................... 243,000 796,000 202,000
Decrease (increase) in merchandise
inventories................................ (2,766,000) (4,064,000) 124,000
Decrease (increase) in non-trade accounts
receivable, prepaid expenses, other current
assets and other assets.................... (116,000) (945,000) (7,647,000)
Decrease (increase) in layaway receivables... 178,000 124,000 (284,000)
Increase (decrease) in accounts payable...... 696,000 (690,000) 5,365,000
Increase (decrease) in accrued salaries,
wages and bonuses.......................... (17,000) 463,000 (1,431,000)
Increase (decrease) in other accrued expenses
and other current liabilities.............. (1,229,000) (1,558,000) 2,377,000
------------ ------------ ------------
Net cash provided by (used in) continuing
operations............................. 997,000 (2,600,000) 4,276,000
------------ ------------ ------------
Income (loss) from discontinued operations..... 87,000 (2,241,000) (500,000)
Adjustments to reconcile income (loss) to net
cash provided by (used in) discontinued
operations:
Income taxes allocated to discontinued
operations................................. -- (346,000) --
Decrease (increase) in net assets of
distribution business...................... -- 1,775,000 (287,000)
------------ ------------ ------------
Net cash provided by (used in)
discontinued operations................ 87,000 (812,000) (787,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of leasehold improvements and
equipment..................................... (1,833,000) (2,169,000) (3,889,000)
Investment in and purchase of General Textiles,
net of cash acquired............................. (1,486,000) -- --
Investment in and purchase of Factory 2-U, net
of cash acquired............................. -- -- (520,000)
Purchase of subordinated notes................. (557,000) -- --
Purchase of option to retire debt at a
discount..................................... (400,000) -- --
------------ ------------ ------------
Net cash used in investing activities.... (4,276,000) (2,169,000) (4,409,000)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings on revolving credit notes........... 113,381,000 165,750,000 210,613,000
Payments on revolving credit notes............. (115,825,000) (162,927,000) (207,022,000)
Proceeds from issuance of long-term note....... -- -- 1,500,000
Payments of long-term debt..................... (3,656,000) (11,046,000) (1,455,000)
Proceeds from issuance of notes payable and
debentures................................... 4,067,000 -- --
Proceeds from issuance of common and preferred
stock, net................................... 6,783,000 26,981,000 --
</TABLE>

(Continued)

F-9
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE NINE MONTHS ENDED JANUARY 29, 1994 AND
THE TWELVE MONTHS ENDED JANUARY 28, 1995 AND JANUARY 27, 1996

<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Purchase of subordinated notes................. $ -- -- (57,000)
Payment of deferred debt issuance costs........ (647,000) (94,000) (40,000)
Purchase of stock and warrants................. (80,000) (8,959,000) (33,000)
Payments of capital lease obligations.......... -- (214,000) (110,000)
Payments of preferred stock dividends.......... -- (2,222,000) (3,040,000)
------------ ------------ ------------
Net cash provided by financing
activities............................. 4,023,000 7,269,000 356,000
------------ ------------ ------------
Net increase (decrease) in cash.................. 831,000 1,688,000 (564,000)
Cash at the beginning of the period.............. 3,000 834,000 2,522,000
------------ ------------ ------------
Cash at the end of the period.................... $ 834,000 2,522,000 1,958,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest..... $ 1,536,000 1,669,000 1,783,000
Cash paid for income taxes................... -- 502,000 --
Supplemental disclosures of non-cash investing
and financing activities:
Conversion of preferred stock and accrued
dividends to private placement notes....... $ 958,000 -- --
Conversion of notes and accrued interest to
common stock............................... 324,000 -- --
Conversion of promissory notes to debt....... 1,250,000 -- --
Conversion of Batra note to debt............. 775,000 -- --
Conversion of private placement notes and
accrued interest to preferred stock........ 6,499,000 -- --
Conversion of subordinated debentures to
private placement notes.................... 498,000 -- --
Conversion of bank guaranty to note payable
(note 4)................................... 1,000,000 -- --
Conversion of bank guaranty to preferred
stock (note 4)............................. 2,500,000 -- --
Issuance of common stock for consulting
services (note 15)......................... 107,000 -- --
Issuance of common stock for option to retire
debt at a discount (note 11)............... 400,000 -- --
Issuance of common stock for General
Textiles' debt (note 11)................... 971,000 -- --
Accrued interest exchanged for preferred
stock...................................... 423,000 -- --
Refinancing of General Textiles' long-term
debt (note 11)............................. 13,604,000 -- --
Investment in General Textiles financed by
issuance of note payable (note 2).......... 554,000 -- --
Acquisition of equipment financed by capital
leases (note 12)........................... -- 547,000 123,000
Common stock issued in lieu of contingent
common stock (note 2)...................... -- 1,750,000 --
Exercise of option to extinguish subordinated
debt and term note (note 11)............... -- 800,000 --
Issuance of note payable for Mandel-Kahn
settlement (note 21)....................... -- -- 1,000,000
Issuance of note payable to former
shareholders of Factory 2-U (notes 3 and
11)........................................ -- -- 625,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Family Bargain Corporation and subsidiaries (the Company) operates off-price
retail apparel and housewares stores in the western and southwestern United
States.

Principles of Consolidation

The accompanying consolidated financial statements as of January 27, 1996
and for the twelve months then ended include the accounts of Family Bargain
Corporation and subsidiaries which include its wholly-owned subsidiaries,
General Textiles, Factory 2-U, Inc. (Factory 2-U) (beginning November 10, 1995)
and DRS Real Estate, Inc. (DRE). As of and for the twelve months ended January
28, 1995, the wholly-owned subsidiaries included General Textiles and DRS Real
Estate, Inc. As of and for the nine months ended January 29, 1994, the
wholly-owned subsidiaries included General Textiles (beginning May 30, 1993),
DRS Real Estate, Inc., Diversified Retail Services, Inc., CB/Camelot Acquisition
Corp. and CB/Murray Corporation, Inc.

All significant intercompany accounts have been eliminated in consolidation.

Fiscal Year

The Company uses a 52/53 week year ending on the Saturday nearest January
31. The Company changed its reporting period from April 30 to the Saturday
nearest January 31, as of January 29, 1994. Accordingly, the Company is
reporting results of operations for the nine months ended January 29, 1994 and
the twelve months ended January 28, 1995 and January 27, 1996.

Merchandise Inventory

Inventory is stated at the lower of cost or market determined using the
retail inventory method on a first-in, first-out flow assumption. In addition,
consistent with industry practice, the Company capitalizes certain warehousing
and warehouse to store distribution costs. At both January 28, 1995 and January
27, 1996, such costs included in inventory were approximately $1,000,000.

Leasehold Improvements and Equipment

Leasehold improvements and equipment are stated at cost. Equipment under
capital leases is stated at the present value of minimum lease payments at the
date of acquisition. Depreciation and amortization are calculated using the
straight-line method over the shorter of the estimated useful lives of the
related asset or the lease term, generally five to seven years.

Deferred Debt Issuance Costs

Deferred debt issuance costs are amortized using the effective interest
method over the terms of the related debt.

Excess of Cost Over Net Assets Acquired (Goodwill)

Excess of cost over net assets acquired (goodwill) is amortized on a
straight-line basis over the expected periods to be benefited, generally 25
years. The Company assesses the recoverability of this intangible asset by
determining whether amortization of the goodwill balance can be recovered
through

(Continued)
F-11
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

undiscounted future operating cash flows of the acquired entity over its
remaining life. The amount of goodwill impairment, if any, is measured based on
projected discounted future results using the Company's average cost of funds.
The recoverability of goodwill could be impacted if estimated future operating
cash flows are not achieved.

Other Assets

Other assets consist principally of rental deposits on leased stores.

Store Closing Costs

Costs associated with closing stores, consisting primarily of lease
obligations and provisions to reduce assets to net realizable value, are charged
to operations upon the decision to close a store.

Pre-opening Costs

New stores' opening costs, including promotions, training and other direct
incremental store opening costs, are capitalized and amortized using the
straight-line method over the first twelve months of operation.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Fair Value of Financial Instruments

The carrying amounts of all receivables, payables and accrued balances
approximate fair value due to the short-term nature of such instruments. The
carrying amount of the revolving credit notes approximates fair value due to the
floating rate on such instruments. Because the remainder of the long-term debt
is evaluated each year based on expected debt repayment (Note 11), it is not
practical to estimate the fair value of such instruments due to the potential
volatility in repayment amounts.

Use of Estimates

Management of the Company made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

Income (Loss) per Common Share

Income (loss) per common share is based on the weighted average number of
shares of common stock outstanding. Common stock equivalents, which include
outstanding warrants and options, were

(Continued)
F-12
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

not included when their effects would be anti-dilutive. Weighted average shares
and earnings per share amounts for 1994 have been restated to give retroactive
effect to the one-for-six reverse stock split (Note 13). Weighted average shares
and earnings per share amounts have been restated for 1994 and 1995 to give
retroactive effect to the cancellation of contingent shares during fiscal 1995
and 1996 (Note 2).

The following table presents information necessary to calculate earnings per
common share for the nine months ended January 29, 1994 and the twelve months
ended January 28, 1994 and January 27, 1996:

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding:
Primary............................................... 3,067,464 4,008,311 4,006,420
Fully diluted......................................... 3,069,885 4,008,311 4,006,420
Income (loss):
Income (loss) from continuing operation............... $1,113,000 (354,000) 1,478,000
Income (loss) from discontinued operations............ 87,000 (2,241,000) (500,000)
Extraordinary gain.................................... 682,000 5,251,000 --
---------- ---------- ----------
Net income.......................................... 1,882,000 2,656,000 978,000
Less preferred stock dividends.......................... (200,000) (2,030,000) (3,040,000)
---------- ---------- ----------
Income (loss) applicable to common stock.............. $1,682,000 626,000 (2,062,000)
---------- ---------- ----------
---------- ---------- ----------
Income (loss) applicable to common stock per common
share:
Continuing operations................................... $ 0.30 (0.59) (0.39)
Discontinued operations................................. 0.03 (0.56) (0.12)
Extraordinary gain...................................... 0.22 1.31 --
---------- ---------- ----------
Net income (loss) applicable to common stock per common
share................................................. $ 0.55 0.16 (0.51)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) applicable to common stock per common
share, fully diluted.................................. $ 0.55 0.16 (0.51)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Advertising Costs

Advertising costs are charged to expense as incurred.

Reclassifications

Certain prior period amounts have been reclassified to conform their
presentation to the 1996 consolidated financial statements.

(2) ACQUISITION OF GENERAL TEXTILES

On December 31, 1992, the Company purchased from Batra, Inc. (Batra), a
company controlled by the principal stockholders of the Company, approximately
79% of the common stock of FBS Holdings Inc. (FBS), the immediate parent of
General Textiles prior to bankruptcy, and 88% of the

(Continued)
F-13
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(2) ACQUISITION OF GENERAL TEXTILES--(CONTINUED)

Class B preferred stock of FBS, for the following consideration: (i) $775,000
for reimbursement of expenses incurred by Batra and the assumption of all of
Batra's obligations $554,000 in connection with its acquisition of FBS, (ii)
$2,000,000 face amount of the Company's old Series A Preferred Stock, which was
subsequently converted into 193,798 shares of common stock (the FBS Sales
Shares), and (iii) up to a maximum of $10,000,000 of additional consideration,
payable in shares of the Company's common stock, based on an average per share
trading price for 60 days prior to the calculation date, based on the earnings
of General Textiles before interest, taxes, depreciation and amortization, as
defined, during the twelve months ended April 30, 1995. Concurrent with the
offering of new Series A Preferred Stock (Note 14), which was completed in July
1994, the Batra stockholders agreed to waive rights to the additional
consideration payable in common stock in exchange for 500,000 shares of the
Company's common stock. This resolution increased the excess of cost over net
assets acquired (goodwill) and increased paid-in capital by $1,750,000.

Under the original stock purchase agreement, the principal stockholders of
the Company and a member of management received shares of common stock of the
Company which were subject to cancellation if certain earnings levels were not
achieved. Of the 997,342 shares granted, 498,670 shares were surrendered and
canceled as of January 28, 1995. The remaining 498,672 shares were surrendered
and canceled during fiscal 1996.

Because General Textiles was operating under the control of the Bankruptcy
Court, the Company was unable to exercise significant control over the financial
and business operations of General Textiles. Accordingly, the Company's
investment was accounted for using the cost method for the twelve months ended
April 30, 1993. The Company's investment in General Textiles was carried on the
cost basis pending effectiveness of the plan of reorganization (the Plan). On
May 28, 1993, the Plan was declared effective and General Textiles emerged from
Chapter 11. Under the terms of the Plan, the Company contributed $3,000,000 in
equity to General Textiles and the Company's ownership of General Textiles
increased to 100%. As a result, the consolidated financial statements at January
29, 1994 and for the nine months then ended, include the accounts of General
Textiles on a fully consolidated basis commencing on May 29, 1993, the date the
Company achieved control, and for the period from May 30, 1993 through January
29, 1994. For financial statement reporting purposes, the transaction is
considered to have occurred on May 29, 1993, the closest accounting period-end
to the confirmation date.

The acquisition was accounted for under the purchase method of accounting.
All acquired assets and liabilities were recorded at their estimated fair market
values on May 29, 1993, with the excess purchase price over the net fair market
value allocated to goodwill. Major classes of assets acquired included cash,
merchandise inventory, prepaid expenses, deposits, and property and equipment.
Major classes of liabilities assumed included accounts payable, accrued
compensation, accrued expenses, sales tax payable, and debt.

(3) ACQUISITION OF FACTORY 2-U

On November 13, 1995, the Company acquired Capin Mercantile Corporation, an
off-price clothing and housewares retailer operating in the southwestern United
States. The name of Capin Mercantile Corporation was changed to Factory 2-U. The
acquisition was accounted for under the

(Continued)
F-14
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(3) ACQUISITION OF FACTORY 2-U--(CONTINUED)

purchase method of accounting. The results of operations of Factory 2-U have
been included in these consolidated financial statements from November 11, 1995,
the end of the closest accounting period.

The purchase price consisted of the following:

Cash paid to former shareholders at closing.................... $ 625,000
Promissory notes issued to former shareholders................. 625,000
Estimated acquisition expenses................................. 1,050,000
----------
Total cost of acquisition...................................... $2,300,000
----------
----------

All acquired assets and liabilities of Factory 2-U have been recorded at
their estimated fair market values on November 10, 1995, with the excess of the
purchase price of $2,300,000 over the net tangible book deficit of $12,370,000
allocated to goodwill acquired of $14,670,000.

The Company issued three promissory notes to the former shareholders of
Factory 2-U, a $125,000 note (the Downpayment Note), a $500,000 note (the
Absolute Note) and a note with a settlement value contingent upon the net
proceeds or appraised value of certain real property acquired in connection with
the acquisition (Note 11). The Absolute Note remains outstanding at January 27,
1996 (Note 11).

In connection with the acquisition of Factory 2-U, trade accounts payable of
Factory 2-U were rescheduled to twenty-four monthly installments. The
rescheduled trade payables are reflected in the accompanying consolidated
balance sheet at net present value. The unpaid balance of the rescheduled trade
accounts payable at January 27, 1996 follows:

Rescheduled payables, gross................................... $ 4,455,000
Less discount, at 11.5%....................................... (425,000)
------------
4,030,000
Less current portion (included in accounts payable)........... (2,209,000)
------------
Rescheduled payables, long-term (included in other long-term
obligations).................................................. $ 1,821,000
------------
------------

The following table sets forth the Company's pro forma unaudited
consolidated statement of operations for the twelve-month periods ended January
28, 1995 and January 27, 1996. The pro forma consolidated statements of
operations give effect to the consolidation of Factory 2-U, elimination of sales
and cost of sales related to Factory 2-U stores no longer in operation,
elimination of Factory 2-U general and administrative expenses that have been
eliminated subsequent to acquisition, the adjustment of general and
administrative expenses to reflect additional expenses incurred to support the
Factory 2-U chain, the adjustment of interest expense and financing fees to
reflect the debt structure of the consolidated entity, and the recognition of
the amortization of the excess of cost over the fair value

(Continued)
F-15
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(3) ACQUISITION OF FACTORY 2-U--(CONTINUED)

of assets acquired with all transactions treated as though the acquisition had
occurred at January 30, 1994.

PRO FORMA PRO FORMA
1995 1996
------------ -----------

Net sales...................................... $214,583,000 220,084,000
Loss before extraordinary gain................. (3,794,000) (4,020,000)
Net income (loss).............................. 1,457,000 (4,020,000)
Loss applicable to common stock................ (573,000) (7,060,000)
Loss applicable to common stock per
common share................................. $ (0.14) (1.76)

(4) DISCONTINUED OPERATIONS--DISTRIBUTION BUSINESS

The Company divested its Distribution Business (Distribution Business),
which was comprised of the operations of MKI Acquisition, Mandel-Kahn,
CB/Camelot and CB/Murray, prior to April 30, 1993. Those operations have been
accounted for as discontinued operations in these consolidated financial
statements.

On December 7, 1993, the Company settled a $3,500,000 liability related to
the guaranty of certain Mandel-Kahn debt by issuing a $1,000,000 three-year term
note bearing interest at 8 1/2% per annum, payable quarterly, and $2,500,000 in
Series C Preferred Stock. At January 28, 1995 and January 27, 1996, $750,000 and
$250,000, respectively, was outstanding on the term note.

Since April 30, 1993, all of CB/Murray's remaining assets other than
accounts receivable and preference claims have been liquidated, collection of
unliquidated accounts receivable and pending preference claims have been
pursued. During the nine months ended January 29, 1994, CB/Murray collected
outstanding accounts receivable and preference claims, and reduced senior
secured bank debt by $692,000.

During 1995 and 1996, the Company continued to litigate the cases related to
the Distribution Business. Accordingly, the accompanying consolidated statements
of operations includes a loss on disposal of discontinued operations of
approximately $2,400,000 and $500,000 related to legal expenses and other costs
in 1995 and 1996, respectively (Note 21).

(5) DISCONTINUED OPERATIONS--RETIREMENT COMMUNITIES

The Company has discontinued operations of two retirement communities
projects, White Horse and Oakmont. The Company's only activity relating to these
entities has been the payment of legal expenses, the collection of remaining
receivables and the liquidation of remaining liabilities. The Company was
obligated for $368,000 at January 28, 1995 and $401,000 at January 27, 1996
under a line of credit collateralized by a priority lien on the marketing fee
due from White Horse and the development and marketing fees due from Oakmont.
Principal amounts are payable solely from proceeds of such marketing and
development fees.

(Continued)
F-16
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(5) DISCONTINUED OPERATIONS--RETIREMENT COMMUNITIES--(CONTINUED)

The net assets of the retirement communities businesses as of January 28,
1995 and January 27, 1996 are as follows:

1995 1996
-------- -------

Other receivables--fees................................ $368,000 401,000
-------- -------
Long-term debt......................................... 368,000 401,000
Other liabilities...................................... -- --
-------- -------
Total liabilities...................................... 368,000 401,000
-------- -------
Net assets......................................... $ -- --
-------- -------
-------- -------

Through January 28, 1995 and January 27, 1996, the Company maintained a
reserve for uncollectibility sufficient to reduce the net book value of the
retirement communities to zero.

(6) ERIN RENTALS LIMITED

In March 1993, DRE sold a beneficial interest in the stock of Erin Rentals
Limited (Erin), a British Virgin Islands corporation, back to its original
owner. In consideration, a $3,000,000 promissory note was canceled and DRE
received a secured three-year note for $327,000. The $327,000 note is secured by
a pledge of the beneficial interest in the stock of Erin and has priority over
all other debt obligations of Erin, except Erin's secured bank debt.

The Company is negotiating with Erin to extend repayment terms of the
promissory note. Management expects the note to be collected at the end of three
years with interest payments over that term.

(7) LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment consist of the following:

1995 1996
----------- ----------

Furniture, fixtures and equipment................. $ 3,294,000 7,718,000
Leasehold improvements............................ 1,775,000 2,928,000
Transportation and equipment...................... 140,000 175,000
Equipment under capital leases.................... 547,000 670,000
Construction in progress.......................... 250,000 187,000
----------- ----------
6,006,000 11,678,000
Less accumulated depreciation and amortization.... (1,084,000) (2,677,000)
----------- ----------
$ 4,922,000 9,001,000
----------- ----------
----------- ----------

(Continued)
F-17
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(8) LAND AND BUILDING HELD FOR SALE

In connection with the Factory 2-U acquisition, the Company acquired certain
real property. This property is held for sale and is carried at estimated fair
value, net of estimated disposition costs, of $4,500,000.

(9) OTHER ACCRUED EXPENSES

Other accrued expenses as of January 28, 1995 and January 27, 1996 consist
of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Sales tax payable................................... $ 430,000 2,402,000
Accrued acquisition expenses........................ -- 378,000
Other--current...................................... 368,000 1,027,000
Accrued advertising................................. 301,000 368,000
Litigation proceeds payable......................... -- 122,000
Deferred rent--current portion...................... 110,000 176,000
Accrued interest.................................... 93,000 163,000
Accrued legal and professional fees................. 2,057,000 765,000
Contingent rent..................................... 58,000 113,000
---------- ---------
$3,417,000 5,514,000
---------- ---------
---------- ---------
</TABLE>

(10) INCOME TAXES

The principal temporary differences that give rise to significant portions
of the consolidated deferred tax assets and liabilities, excluding the amount
attributable to net operating loss carryforwards, are presented below:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $6,090,000 6,090,000
Compensated absences and bonuses, principally due to
accruals for financial reporting purposes.............. 622,000 311,000
Assets held for sale and other purchased assets...... -- 603,000
Excess of deferred straight-line rent over amount
accruable for tax purposes............................. 624,000 729,000
Inventory sold on layaway and other reserves......... 111,000 184,000
Accrual for contingent liabilities related to
discontinued operations............................ 1,013,000 541,000
---------- ----------
Total gross deferred tax assets...................... 8,460,000 8,458,000
Less valuation allowance............................. (8,057,000) (8,121,000)
---------- ----------
Net deferred tax assets............................ $ 403,000 337,000
---------- ----------
---------- ----------
Deferred tax liabilities:
Inventory reserves, prepaid expenses and layaway
receivables............................................ $ 342,000 194,000
Leasehold improvements and equipment, principally due
to differences in depreciation recognized on fixed
assets................................................. 61,000 143,000
---------- ----------
Net deferred tax liabilities....................... $ 403,000 337,000
---------- ----------
---------- ----------
</TABLE>

(Continued)
F-18
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(10) INCOME TAXES--(CONTINUED)
The Company has established a valuation allowance attributable to lack of
historical earnings and annual limitations on the usage of net operating loss
carryforwards.

During the twelve months ended January 28, 1995 and January 27, 1996, the
valuation allowance, which represents deferred tax assets that may not be
realized by the reversal of future taxable temporary differences, decreased by
$1,424,000 and increased by $64,000, respectively.

Income taxes attributable to income from continuing operations, discontinued
operations and extraordinary item consist of:

<TABLE>
<CAPTION>
CONTINUING DISCONTINUED EXTRAORDINARY
OPERATIONS OPERATIONS ITEM TOTAL
---------- ------------ ------------- -------
<S> <C> <C> <C> <C>
Twelve months ended January 28, 1995:
U.S. Federal................................... $ 101,000 (276,000) 255,000 80,000
State and local................................ 48,000 (70,000) 337,000 315,000
---------- ------------ ------------- -------
$ 149,000 (346,000) 592,000 395,000
---------- ------------ ------------- -------
---------- ------------ ------------- -------
</TABLE>

Due to the full valuation of net deferred tax assets, there are no deferred
taxes allocable to loss from continuing operations, loss on disposal of
discontinued operations or the extraordinary gain for the twelve months ended
January 28, 1995 and January 27, 1996.

The difference between the "expected" income tax expense (benefit) computed
by applying the U.S. federal income tax rate of 34% to net income from
continuing operations for the nine months ended January 29, 1994 and the twelve
months ended January 28, 1995 and January 27, 1996 to actual expense is a result
of the following:

<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)................... $ 378,000 (70,000) 503,000
Amortization of goodwill.................................... 271,000 404,000 470,000
Change in valuation allowance............................... -- (273,000) 64,000
Impact of purchase accounting adjustments................... -- -- (603,000)
Debt forgiveness permanent difference....................... -- -- (279,000)
State income taxes, net of federal income tax benefit....... -- 48,000 --
Net operating loss carryforward utilization................. (664,000) -- --
Other, net.................................................. 15,000 40,000 (155,000)
--------- -------- --------
$ -- 149,000 --
--------- -------- --------
--------- -------- --------
</TABLE>

The difference between the "expected" income tax benefit computed by
applying the U.S. federal income tax rate of 34% to loss from discontinued
operations for the nine months ended January 29, 1994 and the twelve months
ended January 28, 1995 and January 27, 1996 to actual is a result of the
following:

(Continued)
F-19
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(10) INCOME TAXES--(CONTINUED)

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit............................... $30,000 (880,000) (170,000)
Change in valuation allowance................................. -- 604,000 --
State income taxes, net of federal income tax benefit......... -- (70,000) --
Net operating loss carryforward utilization................... (30,000) -- --
Income from continuing operations............................. -- -- 170,000
------- -------- --------
$ -- (346,000) --
------- -------- --------
------- -------- --------
</TABLE>

At January 27, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17.9 million, of which
approximately $3.2 million were available for use at fiscal year-end, and which
begins expiring in 2007.

The difference between the "expected" income tax expense computed by
applying the U.S. federal income tax rate of 34% to extraordinary gain for the
nine months ended January 27, 1994 and the twelve months ended January 28, 1995
to actual is a result of the following:

<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
Computed "expected" tax expense...................................... $232,000 1,987,000
Change in valuation allowance........................................ -- (1,755,000)
State income taxes, net of federal income tax benefit................ -- 337,000
Net operating loss carryforward utilization.......................... (232,000) --
Other, net........................................................... -- 23,000
-------- ----------
$ -- 592,000
-------- ----------
-------- ----------
</TABLE>

(11) LONG-TERM DEBT

Long-term debt at January 28, 1995 and January 27, 1996 consists of the
following:

<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Subordinated notes, non-interest bearing, discounted at rates
ranging from 8.5% to 25%, principal payments based on excess
cash flow, as defined........................................... $ 8,574,000 8,782,000

Revolving credit note, interest at prime plus 2% (10.5% at both
January 28, 1995 and January 27, 1996) payable monthly,
principal due in November 1998.................................. 7,943,000 9,948,000

Revolving credit note, interest at prime plus 2% (10.5% at January
27, 1996) payable monthly, principal due in November 1998....... -- 5,211,000

Installment mortgage note payable to a bank, interest at prime
plus 1.5% (10% at January 27, 1996) payable monthly, principal
payable monthly in installments of $11,250 with a balloon
payment of $2,284,000, due in May 1996.......................... -- 2,329,000

Installment note payable to a finance company, interest at prime
plus 2% (10.5% at January 27, 1996) payable monthly, principal
payable monthly in installments of $37,750, final payment due in
April 1998...................................................... -- 1,198,000
</TABLE>

(Continued)
F-20
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(11) LONG-TERM DEBT--(CONTINUED)

<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Installment note payable in settlement of lawsuit; interest at 10%
payable commencing in February 1996; principal payable in
installments of $41,667 per month from July 1996 to September
1996, $83,333 in October and November 1996, with a balloon
payment of $708,333 payable in December 1996, secured by 153,846
shares of Series A Convertible Preferred Stock issued to and
held in trust subsequent to January 27, 1996.................... $ -- 1,000,000

Installment note payable to the Commerce and Economic Development
Commission of Arizona, interest at 6%, principal and interest
payable in monthly installments of $4,232 with final installment
due in December 1999, secured by certain warehouse equipment.... -- 177,000

Installment note payable to the Economic Development
Administration of Arizona, interest at 5%, principal and
interest payable in monthly installments of $1,992 with final
installment due in March 1999, secured by certain warehouse
equipment....................................................... -- 70,000

Installment note payable to a finance company, interest at 8%,
principal and interest payable in installments of $13,648, final
balloon payment of $304,000, due in December 1998............... -- 655,000

Installment note payable to former shareholders of Factory 2-U,
interest at 8.75%, principal payments of $45,455 plus accrued
interest payable beginning in May 1996 and three months
thereafter until October 1998................................... -- 500,000

Note payable to a bank, interest at 8.5% payable quarterly, final
principal payment of $250,000, due on April 30, 1996.............. 750,000 250,000
----------- ----------
Total long-term debt.............................................. 17,267,000 30,120,000
Less current maturities........................................... (3,112,000) (5,097,000)
----------- ----------
Long-term debt, net of current maturities......................... $14,155,000 25,023,000
----------- ----------
----------- ----------
</TABLE>

Subordinated Notes

General Textiles' pre-bankruptcy unsecured claims were settled through the
issuance of New Subordinated Notes, Subordinated and Junior Subordinated
Reorganization Notes. At January 28, 1995 and January 27, 1996, these notes are
carried at $8,574,000 and $8,782,000, respectively, which are discounted at
$19,092,000 and $17,539,000, respectively, from face value, calculated using
discount rates ranging from 8.5% to 25%, resulting from the notes being
non-interest bearing. The discount to face value is based in part on future
excess cash flow projected in the Plan. The discount is amortized over the
estimated life of the notes and is recorded as a non-cash charge to interest
expense. Annual principal payments are due based on excess cash flow available,
as defined under the Plan, with final payments due on April 30, 2003 for the New
Subordinated Notes, November 28, 2003 for the Subordinated Reorganization Notes,
and May 28, 2005 for the Junior Subordinated Reorganization Notes.

In January 1994, the Company, in return for $400,000 in cash and 66,667
shares of common stock, valued at $400,000, obtained an option to repurchase
General Textiles' term note payable (Senior Note) and certain then outstanding
Subordinated Notes for $9,000,000 in cash.

(Continued)
F-21
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(11) LONG-TERM DEBT--(CONTINUED)

In July 1994, the Company exercised the option by using a portion of the
proceeds of its Series A Preferred Stock offering (Note 14) and extinguished
$15,544,000 of General Textiles' debt, including a $1,817,000 unamortized
deferred gain arising from a troubled debt restructuring, by paying $9,000,000
in cash and exercising the option, valued at $800,000, to extinguish the debt at
less than face value. The Company realized a pre-tax extraordinary gain on the
extinguishment of $5,744,000.

In January 1994, the Company purchased, for $558,000 in cash and 125,632
shares of common stock, with an estimated value at January 28, 1994 of $971,000,
$2,998,000 face amount of General Textiles' Subordinated Notes from the
pre-petition trade creditors with a carrying value of $2,210,000. $682,000 was
recognized as an extraordinary gain on the consolidated statement of operations
in 1994. Certain creditors subsequently declined their commitments to sell their
notes back to the Company. As a result, a pre-tax extraordinary gain of $99,000
was recognized during 1995, the notes are included as Subordinated Notes and the
23,120 common shares which these creditors had formerly committed to take as
satisfaction for their notes were canceled.

Revolving Credit Notes

Under General Textiles' Plan, pre-bankruptcy secured claims were settled
with the issuance of a revolving credit facility (the Facility) and the Senior
Note. The obligations are secured by the assets and stock of General Textiles.
The Facility currently consists of a $20,000,000 line of credit issued by a
lender. The Company also has established a revolving credit facility (together
with the General Textiles facility, the Facility) with the same lender for
Factory 2-U that consists of a $10,000,000 line of credit and is secured by the
assets of Factory 2-U. Borrowings on the Facilities are based on advances
against an inventory formula. A facility fee of .50% of the unused portion of
the Facilities is payable annually. The balances of the Facilities fluctuate
daily based on inventory levels and working capital requirements. The unused
portion of the Facilities totaled $1,472,000 and $665,000 for General Textiles
and Factory 2-U, respectively, at January 27, 1996.

A $2,000,000 line of credit owed to a lender was paid in March 1995.

(Continued)
F-22
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(11) LONG-TERM DEBT--(CONTINUED)
The future maturities of long-term debt include estimated principal payments
based on management's estimates of payments, based on future years' excess cash
flows, as defined by the Plan, on the General Textiles' New Subordinated Notes,
Subordinated Reorganization Notes, and Junior Subordinated Reorganization Notes.
The future maturities are:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- ------------
<S> <C>
1997......................................................... $ 5,097,000
1998......................................................... 2,696,000
1999......................................................... 2,423,000
2000......................................................... 49,000
2001......................................................... --
Thereafter................................................... 22,235,000
------------
32,500,000
Less portion representing interest........................... (17,539,000)
------------
14,961,000
Less current maturities...................................... (5,097,000)
------------
$ 9,864,000
------------
------------
</TABLE>

Interest expense for the nine months ended January 29, 1994 and the twelve
months ended January 28, 1995 and January 27, 1996, respectively, is summarized
as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Notes payable to related parties......................... $ 320,000 -- --
Notes payable--private placements........................ 581,000 12,000 --
Revolving credit facilities.............................. 476,000 1,027,000 1,671,000
General Textiles senior term notes....................... 426,000 111,000 --
Debentures............................................... 99,000 -- --
General Textiles subordinated notes...................... 1,281,000 1,362,000 1,555,000
Other debt............................................... 250,000 301,000 449,000
---------- --------- ---------
Total.................................................... $3,433,000 2,813,000 3,675,000
---------- --------- ---------
---------- --------- ---------
</TABLE>

The Company is also obligated under the Contingent Note (Note 3). The amount
payable under the Contingent Note is subject to adjustment consisting of an
increase (decrease) by fifty percent of the degree to which the net proceeds
from the sale, or appraised value at a future date, of the Factory 2-U Real
Property (Note 8) is greater than (less than) $6,700,000. As the Factory 2-U
Real Property is currently valued at $4,500,000, the Contingent Note has been
assigned a settlement value of zero at January 27, 1996.

(12) LEASE COMMITMENTS

The Company operates retail stores, warehouse facilities and executive
offices under various operating leases. Certain leases provide for abatement of
rent during the initial period or escalating rent payments during the term of
the lease. For financial reporting purposes, rent expense is recognized on a

(Continued)
F-23
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(12) LEASE COMMITMENTS--(CONTINUED)

straight-line basis over the term of the lease. Accordingly, rent expense
recognized in excess of cash rent paid is reflected as deferred rent. Deferred
rent, including current and long-term portions at January 28, 1995 and January
27, 1996 amounted to $1,554,000 and $1,806,000, respectively, and is included as
a component of other accrued expenses and deferred rent on the accompanying
consolidated balance sheet. Some leases provide for contingent rentals which are
recognized as expense. Total contingent rent expense for the nine months ended
January 29, 1994 and the twelve months ended January 28, 1995 and January 27,
1996 was $42,000 and $63,000, respectively. Total rent expense, inclusive of
deferred and contingent rentals, was $4,519,000, $7,771,000 and $10,128,000 for
the nine months ended January 29, 1994 and the twelve months ended January 28,
1995 and January 27, 1996, respectively.

The Company is also obligated under various capital leases for leasehold
improvements and equipment that expire at various dates during the next four
years. At January 28, 1995 and January 27, 1996, leasehold improvements and
equipment and related accumulated amortization recorded under capital leases
were as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Leasehold improvements................................ $129,000 129,000
Equipment............................................. 418,000 541,000
-------- --------
547,000 670,000
Less accumulated amortization......................... (50,000) (163,000)
-------- --------
$497,000 507,000
-------- --------
-------- --------
</TABLE>

At January 27, 1996, the future minimum lease payments, excluding executory
costs under noncancelable operating leases follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1997................................................................ $ 181,000 9,476,000
1998................................................................ 149,000 8,960,000
1999................................................................ 91,000 8,667,000
2000................................................................ -- 6,492,000
2001................................................................ -- 3,436,000
Thereafter.......................................................... -- 9,192,000
--------- ----------
421,000 46,223,000
Less amount representing interest (rates ranging from 9.0% to
14.8%).............................................................. (55,000) --
--------- ----------
Present value of capital lease obligation........................... 366,000 46,223,000
Less current maturities............................................. (141,000) --
--------- ----------
Long-term capital lease obligation.................................. $ 225,000 46,223,000
--------- ----------
--------- ----------
</TABLE>

(13) COMMON STOCK

In May 1994, a one-for-six reverse stock split of the issued and outstanding
shares of the Company's common stock became effective. The par value of the
common shares was increased from

(Continued)
F-24
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(13) COMMON STOCK--(CONTINUED)

$.0003 per share to $.01 per share and the par value of the preferred shares was
changed from $.001 to $.01. In addition, the Board of Directors also increased
the number of authorized shares of preferred stock from 5,000,000 to 7,500,000.
All common stock share amounts and per share data reflect the reverse stock
split.

During fiscal 1996, the Company canceled 498,672 shares of common stock held
in escrow (the Contingent Shares) upon failure to achieve after-tax earnings of
$5,000,000 for the twelve months ended April 30, 1995. Fully diluted earnings
per share for prior periods have been retroactively restated to reflect the
cancellation of these shares as though the shares were never outstanding.

(14) PREFERRED STOCK

The Company has 7,500,000 shares of preferred stock authorized.

In July 1994, the Company completed an offering (Preferred Offering) of
Series A 9 1/2% Cumulative Convertible Preferred Stock (Series A Preferred). The
Company has 4,500,000 shares of Series A Preferred Stock authorized. The Series
A Preferred ranks senior to the common stock with respect to dividends, upon
liquidation, dissolution or winding up. Cumulative dividends are payable
quarterly at the rate of $.95 per year on July 31, October 31, the last Friday
in January and April 30 when declared by the Board of Directors. Series A
Preferred is convertible, prior to redemption, at the option of the holder, into
shares of common stock at a conversion price of $3.719 per common share (so that
each Series A Preferred share is convertible into 2.69 shares of common stock).
If the Company fails to declare and pay dividends on the Series A Preferred
within 90 days after a quarterly divided date, the conversion price is reduced
by $.50 per share in each instance but not below the par value of the stock. The
Company also has 25,000 shares of Series A Junior Participating Preferred Shares
authorized.

The $32.0 million in gross proceeds of the Preferred Offering were used as
follows:

Purchase of secured term note and a portion of the
Subordinated Notes.......................................... $ 9,000,000

Redemption of Series D Convertible preferred stock and accrued
dividends................................................... 6,970,000

Repayment of General Textiles Revolving Credit Facility....... 3,900,000

Redemption of Series C Convertible preferred stock and accrued
dividends................................................... 2,632,000

Repayment of short-term debt and accrued interest............. 505,000

Cash to fund expansion........................................ 3,974,000

Underwriting discount, commissions and expense allowance...... 2,880,000

Offering expenses............................................. 2,139,000
-----------
Gross proceeds................................................ $32,000,000
-----------
-----------

(Continued)
F-25
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(15) EMPLOYMENT AND CONSULTING CONTRACTS

Benson A. Selzer, Chairman of the Company, is employed by the Company
pursuant to an employment agreement for an initial three-year term expiring on
June 1, 1996, that will be automatically extended each year for an additional
year unless either party gives a notice of termination to the other. The
agreement provides, among things, for an annual base salary of $232,000, life
insurance of $1,000,000, an automobile allowance, and incentive compensation
based on pre-tax operating income of the Company.

Joseph Eiger, Vice Chairman and Executive Vice President of the Company, is
employed by the Company pursuant to an employment agreement having substantially
the same terms as those of Mr. Benson A. Selzer's, except that his base salary
is $215,000.

John A. Selzer, Chief Executive Officer and President of the Company. is
employed by the Company pursuant to an employment agreement having substantially
the same terms as those of Benson A. Selzer, except that his base salary is
$193,000.

William Mowbray, Chief Executive Officer and President of GT, is employed by
the Company pursuant to an employment agreement having substantially the same
terms as those of Benson A. Selzer, except that his base salary is $300,000.

Kevin Frabotta, Senior Vice President of GT, is employed by the Company
pursuant to an employment agreement having substantially the same terms as those
of Benson A. Selzer, except that his base salary is $135,000.

In January 1996, the Company entered into a five-year consulting agreement
with Joel Mandel. Under this agreement, the Company will pay Mr. Mandel $125,000
per year for three years and $187,500 for two years. This agreement also
provides for the issuance of 60,000 shares of the Company's Series A Convertible
Preferred Stock. These shares were issued in February 1996 (Note 21).

The Company is also party to consulting and advisory contracts with certain
other parties which require annual payments of approximately $130,000.

On January 19, 1994, the Company entered into a consulting agreement with a
former executive of the Company. The former executive received 17,833 shares of
the Company's common stock and is to provide consulting services through
November 30, 1997.

(16) EMPLOYEE RETIREMENT PLAN

Effective January 1, 1994, by retroactive adoption, the Company initiated
sponsorship of a qualified defined contribution plan, under Internal Revenue
Code Section 401(k), covering employees who have completed twelve months of
service and who work a minimum of 1,000 hours during that twelve month period.
The Company contributes 20% of participants' voluntary contributions.
Participants may contribute from 1% to 15% of their compensation annually. The
Company's contribution expense was $37,000 and $116,000 for 1995 and 1996,
respectively.

(Continued)
F-26
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(17) STOCK OPTIONS

At January 28, 1995, an aggregate of 558,333 options to purchase common
stock were held by officers, former officers, employees and directors of the
Company at exercise prices ranging from $9.00 to $18.00 per share. During 1996,
the Company retired 264,582 options, repriced 235,417 options to an exercise
price of $1.375 per share and granted 560,833 options at $1.375 per share. At
January 27, 1996, 854,584 options were outstanding at exercise prices ranging
from $1.375 to $18.00 per share. The options become exercisable over a period
from the date of issuance to three years from the date of issuance. All options
were granted at prices equal to or greater than the fair market value of the
related stock on the date of grant. No options have been exercised as of January
27, 1996.

(18) WARRANTS

As of January 27, 1996, there are outstanding 2,571,500 Redeemable Class D
Common Stock Purchase Warrants (assuming the separation of the 4,903 warrants
not yet separated from the Units in which they were originally issued) (Class D
Warrants). Each Class D Warrant entitles the holder to purchase one-sixth of one
share of Common Stock at a price of $15.00 per share of Common Stock at any time
until September 15, 1996 (unless earlier redeemed by the Company).

In addition, as of January 27, 1996, there were also outstanding 328,831
additional warrants (collectively with the Class D Warrants, the Warrants) of
the Company expiring between May 1996 and December 1998 at exercise prices
ranging from $6.37 to $16.20 per share; 15,000 warrants expiring between June
and December 1998 may be exercised at the then market price of the Company's
common stock.

The Class A Warrants expired in June 1994. The Class C Warrants expired in
September 1995. The Company redeemed 125,000 Put Warrants, for which the option
to put the warrants back to the Company had expired, from a related party for
$53,000 in cash during 1995.

In conjunction with the Series A Preferred Stock offering, the Company
issued warrants to purchase 320,000 shares of its Series A Preferred Stock. The
warrants are exercisable at $16.50 per preferred share.

(Continued)
F-27
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 28, 1995 AND JANUARY 27, 1996

(19) GENERAL TEXTILES MANAGEMENT AGREEMENT

On May 28, 1993, General Textiles entered into a management agreement with
Transnational Capital Ventures, Inc. (TCV). TCV is a merchant banking and
management consulting company that is affiliated with Joseph Eiger, Vice
Chairman, Executive Vice President and a Director of the Company. Under the
agreement, TCV receives a monthly fee for merchant banking and management
consulting services of $30,000 per month plus reimbursement of up to $5,000 of
expenses per month. Also, to the extent General Textiles' operating income
exceeds an amount specified in the Plan, TCV will receive an amount equal to 10%
of such excess. Amounts payable to TCV would be reduced in the event of a
default under General Textiles' senior loan agreement, due to the subordinated
position of the agreement. On January 28, 1994, the agreement was assigned to
the Company.

(20) RELATED PARTY TRANSACTIONS

At January 27, 1996, accounts receivable of approximately $170,000 was
outstanding from an affiliated group.

(21) COMMITMENTS AND CONTINGENCIES

Mandel-Kahn. In January 1996, the Company settled a lawsuit commenced in
1993 by former owners of Mandel-Kahn Industries, Inc. (Mandel-Kahn), which was
purchased by the Company in 1992. Under the settlement (the Mandel-Kahn
Settlement), a payment of $230,000 has been made, a five-year consulting
agreement entered into with Joel Mandel and an obligation to pay $1.0 million
plus interest during 1996. The latter obligation is secured by 153,846 shares of
the Company's Series A Convertible Preferred Stock. The Company has the
obligation to register these shares with the Securities and Exchange Commission
and may sell such shares, with the proceeds of any such sale being used to
reduce such indebtedness.

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 affect on the financial position or
results of operations of the Company.

(22) SUBSEQUENT EVENTS

Regulation S Offering. During March 1996, the Company sold 726,000 shares of
Series A Preferred Stock for net proceeds of $3,221,000. In connection with this
offering, the Company issued five-year warrants to purchase up to 181,500 shares
of common stock for $1.875 per share. These warrants expire in March 2001.

Equipment Financing. In April 1996, the Company obtained financing for up to
$1,100,000 under an installment note with a financing company.

F-28
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 27, 1996 AND APRIL 27, 1996

<TABLE>
<CAPTION>
JANUARY 27, APRIL 27,
1996 1996
----------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 1,958,000 240,000
Accounts receivable--non-trade................................. 887,000 691,000
Layaway receivables............................................ 695,000 1,208,000
Merchandise inventories........................................ 25,874,000 34,567,000
Prepaid expenses............................................... 776,000 1,067,000
----------- -----------
Total current assets....................................... 30,190,000 37,773,000
Real property held for sale...................................... 4,500,000 4,500,000
Leasehold improvements and equipment, net........................ 9,001,000 10,019,000
Other assets..................................................... 708,000 637,000
Excess of cost over net assets acquired (goodwill), less
accumulated amortization of $3,366,000 and $3,827,000 at
January 27, 1996 and April 27, 1996, respectively.............. 42,753,000 42,892,000
----------- -----------
Total assets............................................... $87,152,000 95,821,000
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital leases........ $ 5,238,000 5,304,000
Accounts payable............................................... 17,866,000 19,147,000
Accrued salaries, wages and bonuses............................ 1,758,000 2,261,000
Other accrued expenses......................................... 5,514,000 3,130,000
----------- -----------
Total current liabilities.................................. 30,376,000 29,842,000
Revolving credit notes........................................... 15,159,000 23,753,000
Long-term debt, less current maturities.......................... 9,864,000 11,000,000
Deferred rent.................................................... 1,646,000 1,650,000
Capital lease and other long-term obligations.................... 2,390,000 1,056,000
----------- -----------
Total liabilities.......................................... 59,435,000 67,301,000
----------- -----------
Stockholders' equity:
Series A convertible preferred stock, $.01 par value, 4,500,000
shares authorized, 3,200,000 and 3,939,050 shares issued and
outstanding, aggregate liquidation preference of $32,000,000
and $39,391,000 at January 27, 1996 and April 27, 1996,
respectively................................................. 26,981,000 29,841,000
Common stock, $.01 par value, 80,000,000 shares authorized,
3,985,393 and 4,114,389 shares issued and outstanding at
January 27, 1996 and April 27, 1996, respectively............ 7,000 7,000
Additional paid-in capital....................................... 19,763,000 20,118,000
Accumulated deficit.............................................. (19,034,000) (21,446,000)
----------- -----------
Total stockholders' equity................................. 27,717,000 28,520,000
----------- -----------
Commitments, contingencies
Total liabilities and stockholders' equity................. $87,152,000 95,821,000
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 29, 1995 AND
APRIL 27, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
APRIL 29, 1995 APRIL 27, 1996
-------------- --------------
<S> <C> <C>
Net sales........................................................ $ 31,038,000 49,825,000
Cost of sales.................................................... 21,501,000 32,342,000
-------------- --------------
Gross profit............................................... 9,537,000 17,483,000
Selling and administrative expenses.............................. 12,112,000 17,540,000
Amortization of goodwill......................................... 315,000 462,000
-------------- --------------
Operating income........................................... (2,890,000) (519,000)
Interest expense and financing fees.............................. (664,000) (1,039,000)
Net loss................................................... (3,554,000) (1,558,000)
Preferred stock dividends........................................ (760,000) (854,000)
-------------- --------------
Net loss applicable to common stock........................ $ (4,314,000) (2,412,000)
-------------- --------------
-------------- --------------
Net loss per common share and common stock equivalents:
Primary...................................................... $ (1.08) (0.60)
Assuming full dilution....................................... (1.08) (0.60)
Weighted average shares outstanding:
Primary...................................................... 4,008,311 4,040,034
Fully diluted................................................ 4,008,311 4,040,034
</TABLE>

See accompanying notes to consolidated financial statements.

F-30
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 27, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
APRIL 29, 1995 APRIL 27, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (3,554,000) $ (1,558,000)
Adjustments to reconcile loss to net cash used in
operating activities:
Depreciation and amortization..................... 670,000 1,009,000
Amortization of debt discount..................... 248,000 263,000
Excess (deficiency) of straight-line rent over
cash payments................................... (122,000) 4,000
Increase in merchandise inventories............... (5,382,000) (8,693,000)
Increase (decrease) in accounts receivable-non
trade, prepaid expenses and other assets........ (199,000) 255,000
Increase in layaway receivables................... (536,000) (513,000)
Increase in accounts payable...................... 3,223,000 1,281,000
Increase in accrued salaries, wages and bonuses... 47,000 503,000
Increase (decrease) in other accrued expenses and
other current liabilities............................... 372,000 (3,713,000)
------------------ ------------------
Net cash used in operations............................. (5,233,000) (11,162,000)
------------------ ------------------
Cash flows used in investing activities:
Purchase of leasehold improvements and equipment...... (1,239,000) 1,485,000)
------------------ ------------------
Cash flows from financing activities:
Borrowings on revolving credit note................... 40,380,000 73,912,000
Payments on revolving credit note..................... (34,658,000) (65,318,000)
Payments on notes payable and capital lease
obligations............................................. (50,000) (482,000)
Proceeds from issuance of note payable................ -- 815,000
Net proceeds from issuance of preferred stock......... -- 2,856,000
Payment of dividends on preferred stock............... (760,000) (854,000)
------------------ ------------------
Net cash provided by financing activities......... 4,912,000 10,929,000
------------------ ------------------
Net decrease in cash.................................... (1,560,000) (1,718,000)
Cash at the beginning of the period..................... 2,522,000 1,958,000
------------------ ------------------
Cash at the end of the period........................... $ 962,000 240,000
------------------ ------------------
------------------ ------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.............. $ 345,000 $ 601,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-31
<PAGE>
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 27, 1996
included in the Family Bargain Corporation and Subsidiaries' (the Company) Form
10-K 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 three months ended April 27, 1996 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) FINANCING TRANSACTIONS

In March 1996, the Company issued 726,000 shares of its Series A Convertible
Preferred Stock (Preferred Stock) for net proceeds of $2,856,000 and, in
connection therewith, 181,500 five-year warrants to purchase common stock of the
Company at $1.875 per share.

In February 1996, the Company issued 153,846 shares of Preferred Stock to be
held in escrow to secure a $1.0 million obligation (the Obligation) arising from
the settlement of the Mandel-Kahn lawsuit. The Company is permitted to sell
these shares under the settlement agreement provided that the proceeds of the
sale are applied to reduce the Obligation. The escrowed shares have not been
reflected as outstanding in the accompanying balance sheet but are treated as
treasury shares. Dividends paid on the escrowed shares during the three months
ended April 27, 1996 are not reflected as dividends on the accompanying
statement of operations for the three months ended April 27, 1996 but are
reflected as a reduction in the outstanding principal balance of the obligation
on the accompanying balance sheet at April 27, 1996.

During the three months ended April 27, 1996, the Company borrowed $815,000
under an installment note payable to finance the acquisition of electronic
point-of-sale equipment. The note bears interest at a prime rate of interest
plus 2% (10.25% at April 27, 1996), allows for total borrowing of up to
$1,100,000 and is payable in installments of $30,556 over 36 months.

In connection with the execution of a contract for the sale of certain real
property (Note 3), the holder of a $2.3 million mortgage note (the Mortgage
Note) has agreed in principle to the extension of the due date of the Mortgage
Note from May 31, 1996 to July 15, 1996 plus an additional extension period to
August 15, 1996 in the event the closing of the sale of the real property
securing the Mortgage Note has not occurred by July 15, 1996. The Mortgage Note
is included in current maturities of long-term debt on the accompanying balance
sheets.

(3) LAND AND BUILDING HELD FOR SALE AND RELATED CONTINGENT NOTE

In May 1996, the Company entered into a contract for the sale of certain
real property (the Nogales Property) acquired in its acquisition of Factory 2-U,
Inc, (Factory 2-U). The property is

F-32
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

(3) LAND AND BUILDING HELD FOR SALE AND RELATED CONTINGENT NOTE--(CONTINUED)

carried as a noncurrent asset on the accompanying balance sheets in the amount
of $4.5 million, representing its estimated fair value, net of estimated costs
of disposition.

In connection with the Company's agreement to purchase Factory 2-U, the
Company is contingently obligated to the former shareholders of Factory 2-U
under a promissory note with a stated principal amount of $600,000 (the
Contingent Note). The stated principal amount of the Contingent Note is to be
adjusted by an amount equal to 50% of the difference between $6.7 million and
the net proceeds of the sale of the Nogales Property. There is no downward
adjustment however, if, by July 13, 1996, the Company enters into a contract to
sell the Nogales Property which results in a sale of the property. Accordingly,
the carrying value of the Contingent Note has been adjusted as of April 27, 1996
to $600,000, with a corresponding charge to goodwill, to reflect the expected
final principal amount of the Contingent Note based on the May 24, 1996 date of
the contract for the sale of the Nogales Property. Principal on the Contingent
Note and interest, to accrue at an annual rate of 8.75%, are due October 30,
1998.

(4) PROVISION FOR INCOME TAXES

No provision for income taxes has been reflected in the consolidated
statement of operations for the three months ended April 27, 1996 since the
Company generated tax losses during this period. While losses would increase the
Company's net operating loss carry forwards (NOLs), realization of such losses
is not assured 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 deferred tax assets arising from the NOLs and no benefit for income
taxes is reflected in the accompanying statement of operations for the three
months ended April 27, 1996.

F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Capin Mercantile Corporation

We have audited the accompanying balance sheet of Capin Mercantile
Corporation (the "Company") as of December 31, 1994, and the related statements
of operations, stockholders' equity (deficiency), and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's loss from operations, difficulties in
meeting its loan agreement covenants, and net working capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Deloitte & Touche LLP

Tucson, Arizona
April 20, 1995
(May 1, 1995 as to paragraph 4 of Note 6)

F-34
<PAGE>
CAPIN MERCANTILE CORPORTATION
BALANCE SHEET
DECEMBER 31, 1994

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 1,471,313
Receivables (note 6):
Trade accounts, less allowance for doubtful accounts and sales returns of
$58,000................................................................. 950,571
Other..................................................................... 562,716
Nonoperating affiliates (note 3).......................................... 11,281
-----------
Total receivables....................................................... 1,524,568
-----------
Merchandise inventories (note 6)............................................ 12,087,327
Prepaid expenses and supplies............................................... 486,628
-----------
Total current assets.................................................... 15,569,836
-----------
Land held for sale (note 4)................................................... 531,210
Property and equipment, net (notes 4 and 6)................................... 8,906,864
Other assets.................................................................. 298,959
-----------
Total................................................................... $25,306,869
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Trade accounts payable...................................................... $13,933,547
Accrued expenses (note 5)................................................... 2,614,179
Due to nonoperating affiliates (note 3)..................................... 183,889
Current portion of notes payable to related parties (note 3)................ 434,188
Long-term debt reclassified as current (note 6)............................. 2,716,241
-----------
Total current liabilities............................................... 19,882,044
-----------
Deferred income and liabilities (note 9)...................................... 783,455
Long-term debt, net of current portion (note 6)............................... 315,854
Notes payable to related parties, net of current portion (note 3)............. 1,943,016
Subordinated notes payable to stockholders (note 7)........................... 2,726,000
-----------
Total liabilities....................................................... 25,650,369
-----------
Commitments and contingencies (notes 3, 6, 9 and 10)
Stockholders' deficiency (note 8):
Common stock, $.01 par value, 1,000,000 shares authorized, 168,399 shares
issued and outstanding.................................................... 1,684
Additional paid-in capital.................................................. 4,803,015
Deficit..................................................................... (5,148,199)
-----------
Total stockholders' deficiency.......................................... (343,500)
-----------
Total................................................................... $25,306,869
-----------
-----------
</TABLE>

See notes to financial statements.

F-35
<PAGE>
CAPIN MERCANTILE CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
Net sales..................................................................... $93,875,685
Cost of sales................................................................. 69,055,122
-----------
Gross margin............................................................ 24,820,563
-----------
Operating expenses:
General and administrative expenses (Notes 3 and 9)......................... 13,935,074
Selling expenses (Note 9)................................................... 17,239,128
Restructuring expenses (Notes 1, 5 and 11).................................. 300,000
-----------
Total operating expenses................................................ 31,474,202
-----------
Loss from operations.......................................................... (6,653,639)
-----------
Other income (expense):
Interest income............................................................. 38,730
Interest expense............................................................ (661,663)
Gain on sale of assets...................................................... 407,644
Gain on foreign currency transactions....................................... 62,721
Net rental operations....................................................... 52,489
Miscellaneous............................................................... 106,801
-----------
Total other income...................................................... 6,722
-----------
Net loss...................................................................... $(6,646,917)
-----------
-----------
</TABLE>

See notes to financial statements.

F-36
<PAGE>
CAPIN MERCANTILE CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN EARNINGS EQUITY
STOCK CAPITAL (DEFICIT) (DEFICIENCY)
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, January 1, 1994.................... $1,684 $4,400,901 $ 1,723,718 $ 6,126,303
Distributions................................ -- -- (225,000) (225,000)
Contributions................................ -- 402,114 -- 402,114
Net loss..................................... -- -- (6,646,917) (6,646,917)
------ ---------- ----------- -------------
Balances, December 31, 1994.................. $1,684 $4,803,015 $(5,148,199) $ (343,500)
------ ---------- ----------- -------------
------ ---------- ----------- -------------
</TABLE>

See notes to financial statements.

F-37
<PAGE>
CAPIN MERCANTILE CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $(6,646,917)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................................. 669,303
Gain on sale of assets..................................................... (407,644)
Changes in assets and liabilities:
Increase in receivables.................................................. (488,028)
Increase in other receivables............................................ (317,199)
Decrease in merchandise inventories...................................... 716,912
Increase in prepaid expenses and supplies................................ (319,217)
Decrease in other assets................................................. 14,464
Increase in trade accounts payable....................................... 6,609,669
Increase in accrued expenses............................................. 496,771
Decrease in due to nonoperating affiliates............................... (36,616)
Decrease in deferred income and liabilities.............................. (132,195)
-----------
Net cash provided by operating activities.............................. 159,303
-----------
Cash flows from investing activities:
Proceeds from sale of property and equipment................................. 573,660
Increase in notes receivable from nonoperating affiliates.................... (4,259)
Collections of notes receivable.............................................. 28,858
Additions to property, plant and equipment................................... (936,145)
Decrease in cash value of officers' life insurance........................... 125,745
-----------
Net cash used in investing activities.................................. (212,141)
-----------
Cash flows from financing activities:
Decrease in cash surrender value policy loans................................ (32,676)
Borrowings on line of credit................................................. 19,335,000
Repayments of line of credit................................................. (19,335,000)
Net payments of long-term debt............................................... (171,966)
Net payments on notes payable to related parties............................. (177,809)
Cash contributions........................................................... 402,114
Cash distributions........................................................... (225,000)
-----------
Net cash used in financing activities.................................. (205,337)
-----------
Net decrease in cash........................................................... (258,175)
Cash and cash equivalents, beginning of year................................... 1,729,488
-----------
Cash and cash equivalents, end of year......................................... $ 1,471,313
-----------
-----------
</TABLE>

See notes to financial statements.

F-38
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994

(1) ORGANIZATION AND BASIS OF PRESENTATION

Capin Mercantile Corporation (the "Company") operated 38 retail stores
during 1994 in the Southwest United States located in Arizona, New Mexico and
Texas. The Company operates stores under the following trade names: Factory 2-U,
Capin's, Parisian and Robinson's True Value Hardware. The majority of stores are
Factory 2-U locations.

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a net loss for the year ended December 31, 1994
of approximately $6,600,000 and at December 31, 1994 the Company's current
liabilities exceeded its current assets by approximately $4,300,000. As a
result, the Company is in technical default of loan agreements with a bank (Note
6). These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.

The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms and covenants of its
debt agreements and to obtain additional financing or refinancing as necessary.
Management is continuing to negotiate the terms of its indebtedness and has
established a restructuring plan to generate cash to help relieve current cash
constraints. These plans include:

. Generating cash through the sale of non-essential assets.

. Reducing headcount, thus reducing wages and payroll taxes.

. Reducing average inventory levels and restructuring distribution center
operations.

. Geographically centralizing the chain and closing marginally profitable
stores. At December 31, 1994, the Company has recorded $300,000 of
restructuring charges in connection with the closing of stores (Note 11).

Although the results of these actions cannot be predicted, the Company
believes that these steps are appropriate and will help the Company effectively
reorganize its operations and ultimately to return to profitability.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents and Supplementary Cash Flow Information--The
Company considers all short-term investments purchased with an original maturity
of three months or less to be cash equivalents. At December 31, 1994, cash
equivalents include cash on hand and checking accounts held in banks.

Interest paid during 1994 was $661,663.

(Continued)
F-39
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Trade Accounts Receivable--Trade accounts receivable are recorded net of the
allowance for doubtful accounts and sales returns. The Company uses the
allowance method for recording bad debts for financial reporting purposes.

Merchandise Inventories--Inventories are stated at the lower of cost or
market (net realizable value). Cost is generally determined using the first-in,
first-out (FIFO) method for inventory held in the distribution center. Cost is
generally determined using the retail inventory method for inventory at the
retail stores.

Land Held for Sale--Land held for sale is recorded at the lower of cost or
estimated net realizable value. Costs incurred and capitalized in connection
with development include architectural, engineering and legal fees.

Property and Equipment--Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the straight-line and
declining-balance methods over the estimated useful lives of the respective
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease terms or the estimated useful lives of the related
improvements.

The estimated useful lives of the property and equipment follow:

LIVES
------------

Buildings and improvements.................................... 19-40 years
Store fixtures and equipment.................................. 10-20 years
Office furniture and equipment................................ 10-20 years
Transportation equipment...................................... 2-10 years
Computer equipment............................................ 4-7 years
Leasehold improvements........................................ 5-15 years

Income Taxes--With the consent of its stockholders, the Company has elected
S Corporation status. No provision for income taxes is made as S Corporations
are not generally subject to income taxes. All earnings or loss and income tax
credits flow through to the individual stockholders who are to report the
earnings or loss and income tax credits on their personal income tax returns.

Allocation of Profits and Losses--The profits and losses of the Company are
allocated to the stockholders based on their respective ownership percentages.

Deferred Lease Obligation--Rent expense is generally recognized on a
straight-line basis over the terms of the related leases. Deferred lease
obligation represents rent expense recognized in excess of scheduled cash
payments and is included in Deferred Income and Liabilities in the accompanying
balance sheet.

(3) TRANSACTIONS WITH AFFILIATES

The Company is a member of a group of affiliated, nonoperating entities by
virtue of common ownership. These entities primarily engage in the rental of
property. The Company incurred rent expense, included in selling expenses, from
rentals with affiliated, nonoperating entities of $447,920 during the year ended
December 31, 1994 (Note 9). Amounts payable, primarily for rent obligations, to

(Continued)
F-40
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994

(3) TRANSACTIONS WITH AFFILIATES--(CONTINUED)

nonoperating affiliates at December 31, 1994 totaled $183,889. Amounts
receivable from nonoperating affiliates arising in the ordinary course of
operations totaled $11,281 at December 31, 1994.

The Company has unsecured notes payable to stockholders and related parties
for advances to the Company. The Company is currently paying interest quarterly
at 6.88% on the notes payable. Interest payments associated with these notes
totaled $132,382 for the year ended December 31, 1994. The notes payable to
related parties totaled $2,377,204 of which $434,188 is classified as current at
December 31, 1994.

The Company as guarantor is contingently liable with respect to a mortgage
note held by a nonoperating affiliate. The mortgage note balance was $471,688 at
December 31, 1994.

Certain stockholders of the Company have personally guaranteed the
provisions of certain long-term debt and lease agreements (Notes 6 and 9).

(4) PROPERTY AND EQUIPMENT AND LAND HELD FOR SALE

During 1991, management subdivided its new headquarters and distribution
center land into two parcels with the intent of developing and selling the
parcel adjacent to the new building. At December 31, 1994, $531,210 was
classified as land held for sale and consists of the following:

Land............................................................ $432,389
Land development costs.......................................... 98,821
--------
$531,210
--------
--------

Property and equipment at December 31, 1994 consists of the following:

Land and improvements......................................... $ 383,901
Buildings and improvements.................................... 6,761,137
Furniture, fixtures and equipment............................. 4,521,541
Transportation equipment...................................... 539,799
Computer equipment............................................ 1,282,102
Leasehold improvements........................................ 1,160,434
Construction in progress...................................... 282,808
-----------
Total..................................................... 14,931,722
Less accumulated depreciation and amortization................ 6,024,858
-----------
Property and equipment, net............................... $ 8,906,864
-----------
-----------

(Continued)
F-41
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994

(5) ACCRUED EXPENSES

Accrued expenses at December 31, 1994 consists of the following:

Taxes other than income taxes.................................. $1,031,612
Salaries and related benefits.................................. 563,963
Advertising.................................................... 158,085
Freight........................................................ 179,457
Rent and utilities............................................. 108,259
Interest....................................................... 25,090
Restructuring.................................................. 300,000
Other.......................................................... 247,713
----------
$2,614,179
----------
----------

(6) LINES OF CREDIT AND LONG-TERM DEBT

The Company's $5,500,000 general line of credit is subject to renewal on
July 30, 1995. This line of credit bears interest at the bank's prime rate (8.5%
at December 31, 1994) and is payable monthly. The balance outstanding under this
line of credit was zero at December 31, 1994.

The Company's $2,000,000 seasonal line of credit is available between May
31, 1994 and December 31, 1994, and then between May 31, 1995 and July 30, 1995.
This line of credit bears interest at the bank's prime rate (8.5% at December
31, 1994) and is payable monthly. The balance outstanding under this line of
credit was zero at December 31, 1994.

The lines of credit are collateralized by accounts receivable and
inventories and are personally guaranteed by the Company's stockholders.

At December 31, 1994, the balance outstanding on the Company's installment
note payable to a bank was $2,475,000. This loan agreement as well as the
Company's general line of credit contain certain restrictive debt covenants. At
December 31, 1994, the Company was not in compliance with certain of such
covenants (current ratio, tangible net worth ratio, total liabilities to
tangible net worth and cash flow ratio); however, on May 1, 1995, the Company
received a forbearance letter from the bank through June 15, 1995. Management
has prepared projections that indicate that upon the expiration of the
forbearance letter described above and through December 31, 1995, the Company
may not be in compliance with their debt covenants. Consequently, approximately
$2,300,000 of such debt that would have been classified as long-term has been
classified as current in the December 31, 1994 balance sheet. The Company
intends to seek appropriate financial covenant waivers or amendments, although
no assurance can be given that such waivers or amendments will be obtained. Any
such failure to obtain covenant relief would result in a default under the
Company's credit agreement and the bank will be entitled to accelerate the
indebtedness owed by the Company.

(Continued)
F-42
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994

(6) LINES OF CREDIT AND LONG-TERM DEBT--(CONTINUED)

Long-term debt at December 31, 1994 consists of the following:

Installment note payable to the Commerce and Economic
Development Commission of Arizona maturing December 2000,
bearing interest at 6%, payable in monthly installments of
$3,652, personally guaranteed by certain stockholders........ $ 188,909

Prime plus 1/2% installment note payable to a bank; payable in
monthly installments of $11,250 plus interest through March
1998 when a balloon payment of approximately $2,000,000 is
due, collateralized by substantially all land, buildings and
improvements and personally guaranteed by certain
stockholders................................................. 2,475,000

Installment note payable to the Economic Development
Administration of Arizona, maturing April 1998, bearing
interest at 5%, payable in monthly installments of $1,376
with a balloon payment of approximately $32,000,
collateralized by certain equipment and personally guaranteed
by certain stockholders...................................... 76,086

Unsecured noninterest-bearing installment note payable to
Arizona Public Service Company maturing August 1996, payable
in monthly installments of $4,765............................ 142,941

Other notes payable to unrelated parties, payable in monthly
installments through January 1999............................ 149,159
----------
Total long-term debt....................................... 3,032,095

Less current portion........................................... 2,716,241
----------
Long-term debt................................................. $ 315,854
----------
----------

A summary of long-term debt maturities for the years ending December 31 are
as follows:

1995.............................................................. $2,716,241
1996.............................................................. 107,359
1997.............................................................. 85,310
1998.............................................................. 80,286
1999.............................................................. 42,899
----------
$3,032,095
----------
----------

(7) SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS

The Company has unsecured notes payable to certain stockholders. The notes
payable are subordinate to the lines of credit and note payable to a bank (Note
6). The notes require interest payments monthly at 6.88%. Subordinated notes
payable to stockholders totaled $2,726,000 at December 31, 1994.

(Continued)
F-43
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994

(8) STOCK PURCHASE AGREEMENT

The Company is obligated to repurchase the stock, equal to the book value at
the end of the preceding fiscal year, of any stockholder upon the stockholder's
resignation, termination or death. The Company, alternatively, may assign the
rights to repurchase the stock to other eligible stockholders, but the Company
remains contingently liable for payment of the purchase price of the stock.

(9) COMMITMENTS

The Company occupies various properties and operates an airplane under
operating lease agreements with affiliated, nonoperating entities and unrelated
parties. Existing lease agreements expire at various dates through 2014 and
include renewal options. The Company is responsible in most cases for occupancy
and maintenance costs including real estate taxes, insurance and utility costs.
Rent expense for the year ended December 31, 1994 totaled $3,524,217, of which
$447,920 was paid to affiliated, nonoperating entities. Rent expense is included
in general and administrative and selling expenses in the accompanying statement
of operations. Included in rent expense for the year ended December 31, 1994 are
rentals, contingent upon store revenues, of $529,391.

In February 1995, the Company decided to terminate the airplane lease and
ceased making lease payments. The airplane is currently for sale by the leasing
company. The Company will be responsible for any difference between the selling
price of the airplane and the remaining lease payments. The Company anticipates
that any shortfall will be offset by deferred income recognized on the sale-
leaseback of the airplane of approximately $540,000.

A summary of future minimum lease payments, excluding contingent rentals and
the terminated airplane lease, required under operating leases that have
remaining noncancelable lease terms in excess of one year follows:

YEARS
ENDING TOTAL RELATED ENTITY
DECEMBER 31 RENTALS RENTALS
- ----------- ----------- --------------
<S> <C> <C>
1995............................................................. $ 2,548,371 $ 231,444
1996............................................................. 2,443,941 233,844
1997............................................................. 2,104,716 236,244
1998............................................................. 1,894,602 238,644
1999............................................................. 1,593,306 119,392
Thereafter....................................................... 5,581,174 --
----------- --------------
$16,166,110 $1,059,568
----------- --------------
----------- --------------
</TABLE>

The leases expire through 2014. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties; thus, it is anticipated that rent expense will be greater than the
future minimum lease payments shown above. Included in the above amounts is
$2,543,821 of total rentals related to 1995 store closures, a portion of which
the Company has accrued as of December 31, 1994 (see Notes 1 and 11).

(Continued)
F-44
<PAGE>
CAPIN MERCANTILE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994

(10) LITIGATION

Several former employees of the Company have filed claims against the
Company pertaining to termination of employment. The claims generally do not
state specific damage amounts. While the Company is unable to predict with
certainty the outcome of this litigation, it is management's opinion, that the
ultimate outcome will not have a material adverse effect on the financial
position or results of operations of the Company.

(11) RESTRUCTURING

As part of its restructuring plan, the Company closed four of its 38 stores
in 1995. Costs related to these store closures consisting primarily of committed
lease obligations, net of any estimated sublease revenue, and non-recoverable
fixtures and leasehold improvements were provided for in restructuring expenses
at December 31, 1994.

(12) SUBSEQUENT EVENT (UNAUDITED)

On November 13, 1995, Family Bargain Corporation, an unrelated company,
acquired all of the outstanding shares of common stock of the Company.

F-45
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Capin Mercantile Corporation:

We have audited the accompanying balance sheets of Capin Mercantile
Corporation as of December 31, 1992 and 1993, and the related statements of
earnings, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Capin Mercantile Corporation
as of December 31, 1992 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Phoenix, Arizona
March 29, 1994

F-47
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1992 AND 1993

<TABLE>
<CAPTION>
1992 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 3,091,613 1,729,488
Receivables (notes 7 and 11):
Trade accounts, less allowance for doubtful accounts and
sales returns of $58,000 in 1992 and 1993.................. 443,445 675,463
Nonoperating affiliates (note 3)............................. 25,479 7,022
Current installments of note from nonoperating affiliate
(note 4)................................................... 12,697 --

Current installments of notes receivable..................... 30,858 32,597
----------- -----------
Total receivables.......................................... 512,479 715,082
----------- -----------
Merchandise inventories (note 7)............................... 14,065,929 12,804,239
Prepaid expenses and supplies.................................. 92,146 167,411
Refundable income taxes........................................ 23,218 --
----------- -----------
Total current assets....................................... 17,785,385 15,416,220
----------- -----------
Note from nonoperating affiliate, excluding current installments
(note 4)....................................................... 18,262 --

Notes receivable, excluding current installments................. 97,208 72,686
Land held for development and sale (note 5)...................... 503,721 531,210
Property, plant and equipment, at cost (notes 5 and 7)........... 13,747,296 14,439,421
Less accumulated depreciation and amortization................. 5,246,206 5,697,419
----------- -----------
Net property, plant and equipment.......................... 8,501,090 8,742,002
----------- -----------
Other assets:
Cash value of officers' life insurance, net of policy loans of
$62,713 in 1992 and $579,140 in 1993......................... 626,799 244,321
Deposits....................................................... 39,233 47,010
Others, at cost................................................ 84,887 71,332
----------- -----------
Total other assets......................................... 750,919 362,663
----------- -----------
$27,656,585 25,124,781
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable......................................... $ 8,357,673 7,323,878
Accrued expenses (note 6)...................................... 2,522,557 2,117,408
Current installments of long-term debt (note 7)................ 494,138 262,440
Due to nonoperating affiliates (note 3)........................ 634,793 220,505
Income tax payable (note 10)................................... 96,744 --
Demand notes payable to related parties (note 3)............... 828,460 2,647,264
----------- -----------
Total current liabilities.................................. 12,934,365 12,571,495
Deferred payables.............................................. 890,876 915,650
Construction contract payable (note 5)......................... 535,098 --
Long-term debt, excluding current installments (note 7)........ 3,688,366 2,885,333
Subordinated notes payable to stockholders (note 8)............ 2,300,000 2,626,000
----------- -----------
Total liabilities.......................................... 20,348,705 18,998,478
----------- -----------
Stockholders' equity (note 9):
Common stock, $.01 par value; 1,000,000 shares authorized;
issued and outstanding 165,652 shares in 1992 and 168,399 in
1993......................................................... 1,656 1,684
Additional paid-in capital..................................... 4,224,003 4,400,901
Retained earnings.............................................. 3,082,221 1,723,718
----------- -----------
Total stockholders' equity................................. 7,307,880 6,126,303
Commitments and contingent liabilities (notes 3, 7 and 12).......
----------- -----------
$27,656,585 25,124,781
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-48
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1992 AND 1993

<TABLE>
<CAPTION>
1992 1993
------------ ----------
<S> <C> <C>
Net sales (note 11).............................................. $100,500,270 95,912,368
Cost of sales.................................................... 68,381,642 65,801,990
------------ ----------
Gross margin............................................... 32,118,628 30,110,378
------------ ----------
General and administrative expenses (notes 3, 6 and 12).......... 16,309,428 15,046,403
Selling expenses................................................. 15,173,242 14,651,498
------------ ----------
31,482,670 29,697,901
------------ ----------
Operating income........................................... 635,958 412,477
Other income (deductions):
Interest income................................................ 73,088 69,465
Interest expense (note 3)...................................... (312,665) (604,816)
Net rental operations.......................................... 288,772 178,409
Miscellaneous.................................................. 397,248 37,023
------------ ----------
446,443 (319,919)
------------ ----------
Earnings before income tax expense......................... 1,082,401 92,558
Income tax expense (note 10)..................................... 77,669 --
------------ ----------
Net earnings............................................... $ 1,004,732 92,558
------------ ----------
------------ ----------
</TABLE>

See accompanying notes to financial statements.

F-49
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992 AND 1993

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1991................. $38,600 3,834,312 4,739,808 8,612,720
Issuance of 5,620 shares of common stock as
a stock bonus............................. 56 389,691 -- 389,747
Cash dividends paid......................... -- -- (927,676) (927,676)
Distribution of investment in trading
association (note 1)........................ -- -- (1,496,681) (1,496,681)
Cash distributions from liquidation of stock
in non-operating affiliates (note 1)...... (37,000) -- (237,962) (274,962)
Net earnings................................ -- -- 1,004,732 1,004,732
------- ---------- ----------- -------------
Balances, December 31, 1992................. 1,656 4,224,003 3,082,221 7,307,880
Issuance of 2,747 shares of common stock as
a stock bonus............................. 28 176,898 -- 176,926
Cash distributions paid..................... -- -- (1,451,061) (1,451,061)
Net earnings................................ -- -- 92,558 92,558
------- ---------- ----------- -------------
Balances, December 31, 1993................. $ 1,684 4,400,901 1,723,718 6,126,303
------- ---------- ----------- -------------
------- ---------- ----------- -------------
</TABLE>

See accompanying notes to financial statements.

F-50
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992 AND 1993

<TABLE>
<CAPTION>
1992 1993
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................. $ 1,004,732 92,558
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization of property, plant and
equipment................................................. 483,965 605,857
(Gain) loss on disposal of property, plant and equipment.... (296,190) 21,970
Common stock bonus charged to general and administrative
expense................................................... 389,747 176,926
Changes in assets and liabilities:
Decrease (increase) in receivables........................ 143,366 (213,561)
Decrease in merchandise inventories....................... 26,939 1,261,690
Increase in prepaid expenses and supplies................. (3,873) (75,265)
Decrease in refundable income taxes....................... 27,988 23,218
Decrease (increase) in deposits........................... 286,715 (7,777)
(Increase) decrease in other assets....................... (29,316) 13,555
Decrease in trade accounts payable........................ (1,376,679) (1,116,366)
(Decrease) increase in accrued expenses................... (207,595) 106,265
Decrease in due to nonoperating affiliates................ (83,938) (414,288)
Decrease in income taxes payable.......................... (455,780) (96,744)
Increase (decrease) in deferred payables.................. 890,876 (109,533)
------------ -----------
Net cash provided by operating activities............... 800,957 268,505
------------ -----------
Cash flows from investing activities:
Decrease in unexpended construction funds..................... 211,301 --
Collections of notes receivable from nonoperating affiliate... 1,155 30,959
Collections of notes receivable............................... 4,980 22,783
Increase in notes receivable.................................. (133,046) --
Additions to land held for development and sale............... -- (27,489)
Additions to property, plant and equipment.................... (1,384,841) (668,880)
Proceeds from sale of property, plant and equipment........... 466,981 --
Increase in cash value of officers' life insurance............ (247,439) (133,949)
------------ -----------
Net cash used in investing activities................... (1,080,909) (776,576)
------------ -----------
Cash flows from financing activities:
Increase in cash surrender value policy loans................. -- 516,427
Borrowings on line of credit.................................. 26,180,000 19,934,944
Repayments on line of credit.................................. (26,180,000) (19,934,944)
Principal repayment of long-term debt......................... (31,875) (1,917,708)
Borrowings of demand notes payable to related parties......... 14,404,301 7,206,673
Repayment of demand notes payable to related parties.......... (13,575,841) (5,061,869)
Principal repayments of advance from related party............ -- (146,516)
Increase in notes payable to stockholders..................... 2,300,000 --
Cash distributions............................................ (1,202,638) (1,451,061)
------------ -----------
Net cash provided by (used in) financing activities..... 1,893,947 (854,054)
------------ -----------
Net increase (decrease) in cash and cash equivalents............ 1,613,995 (1,362,125)
Cash and cash equivalents at beginning of year.................. 1,477,618 3,091,613
------------ -----------
Cash and cash equivalents at end of year........................ $ 3,091,613 1,729,488
------------ -----------
------------ -----------
</TABLE>

See accompanying notes to financial statements.

F-51
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS

(1) ORGANIZATION AND PURPOSE

Capin Mercantile Corporation (Corporation) currently operates 36 retail
stores in the Southwest United States located in Arizona, New Mexico, and Texas.
The Corporation operates stores under the following trade names: Factory 2-U,
Capin's, Parisian, La Ville de Paris, and Robinson's True Value Hardware. The
majority of stores are Factory 2-U locations.

In March 1992, Capin's Duty-Free Warehouse, Inc. (CDFW) and the company in
which it had a 10.89% common stock ownership interest (UETA, Inc.) entered into
definitive Plans of Merger and Reorganization agreement with Duty-Free
International, Inc. (DFI), an unrelated party. Under the terms of the agreement,
DFI acquired substantially all of the net assets of UETA, Inc. solely in
exchange for DFI voting common stock. CDFW then distributed to its shareholders
the common stock of DFI with a cost of $1,496,681 along with its remaining
assets and liabilities in a tax-free reorganization.

During 1992, three nonoperating affiliates (Capin's Duty-Free Warehouse,
Inc., San Luis Imports-Exports, Inc., and Capin's Free Port, Inc.) were
dissolved resulting in the reduction of $37,000 of common stock, a reduction of
retained earnings of $237,962, and a distribution of $274,962 in cash to the
stockholders.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents and Supplementary Cash Flow Information

The Corporation considers all short-term investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1992 and 1993, cash equivalents include cash on hand, checking accounts held
in banks, overnight investments and commercial paper.

Interest paid was $366,390 in 1992 and income taxes paid were $533,449 in
1992. Income taxes paid in 1992 represent tax liabilities existing as of
December 31, 1991 from certain companies prior to their conversion from a C
corporation to an S corporation (note 10). During 1992, the Corporation
distributed its investment in a trading association to its stockholders in a
noncash transaction. During 1992, the Corporation sold a building in exchange
for cash and the buyer assuming a note payable with a remaining balance of
$552,500. Additionally, the Corporation constructed a new warehouse facility
primarily by executing two notes payable to a bank totaling $3,932,504 and
recording a construction contract payable of $535,098 relating to the accrual of
the final construction draw request and retention obligation in noncash
transactions.

Interest paid was $615,508 in 1993. During 1993 the Corporation purchased
certain equipment primarily by executing notes payable of $117,288 and
increasing accounts payable by $82,571. Income taxes paid in 1993 totaled
$96,744 related to built-in gains taxes accrued in 1992.

Trade Accounts Receivable

Trade accounts receivable are reflected net of the allowance for doubtful
accounts and sales returns. The Corporation uses the allowance method for
recording bad debts for financial reporting purposes and the direct write-off
method for income tax reporting purposes.

(Continued)
F-52
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Merchandise Inventories

Merchandise inventories are stated at the lower of cost or market (net
realizable value). Cost is generally determined using the first-in, first-out
(FIFO) method for inventory held in the warehouse. Cost is generally determined
using the retail inventory method for inventory at the retail stores.

Land Held for Development and Sale

Land held for development and sale is recorded at the lower of cost or
estimated net realizable value. Costs incurred in connection with development
are capitalized and include architectural, engineering, legal fees, real
property taxes and interest.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is calculated using the straight-line and declining-balance
methods for financial reporting purposes over the estimated useful lives of the
respective assets. Leasehold improvements are amortized using the straight-line
method over the lesser of the lease terms or the estimated useful lives of the
related improvements. The estimated useful lives of the property, plant and
equipment follow:

LIVES
------------

Income Taxes

With the consent of its stockholders, the Corporation has elected subchapter
S status. No provision for income taxes is made as S corporations are not
generally subject to income taxes. All earnings or loss and income tax credits
"flow-through" to the individual stockholders who are to report the earnings or
loss and income tax credits on their personal income tax returns.

Allocation of Profits and Losses

The profits and losses of the Corporation are allocated to the stockholders
based on their respective ownership percentages.

Deferred Rent Payable

Rent expense is generally recognized on a straight-line basis over the terms
of the related leases. Deferred rent payable represents rent expense recognized
in excess of scheduled cash payments.

(Continued)
F-53
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(3) TRANSACTIONS WITH AFFILIATES

The Corporation is a member of a group of affiliated, nonoperating entities
by virtue of common ownership. These entities primarily engage in the rental of
property. The Corporation incurred rent expense, included in general and
administrative expenses, from rentals with affiliated, nonoperating entities of
$1,005,530 and $719,659 during the years ended December 31, 1992 and 1993,
respectively (note 12). Amounts payable, primarily for rent obligations, to
nonoperating affiliates as of December 31, 1992 and 1993 totaled $634,793 and
$220,505, respectively. Amounts receivable from nonoperating affiliates arising
in the ordinary course of operations totaled $25,479 and $7,022 as of December
31, 1992 and 1993, respectively.

The Corporation executed unsecured demand notes payable to stockholders and
related parties for short-term advances to the Corporation. The Corporation is
currently paying interest quarterly at 5.0% on the notes payable. In 1992, the
Corporation paid quarterly interest payments at 1/4% over the prevailing prime
lending rate. Interest payments associated with these notes totaled $200,505 and
$163,829 for the years ended December 31, 1992 and 1993, respectively. The
demand notes payable to related parties totaled $828,460 and $2,647,264 at
December 31, 1992 and 1993, respectively.

The Corporation as guarantor is contingently liable with respect to a
mortgage note held by a nonoperating affiliate. The mortgage note balance was
$622,206 and $499,865 at December 31, 1992 and 1993, respectively.

Certain stockholders of the Corporation have personally guaranteed the
provisions of certain long-term debt and lease agreements (notes 7 and 12).

(4) NOTES RECEIVABLE FROM NONOPERATING AFFILIATE

During 1987, the Corporation received an $83,751 unsecured note receivable
from Potrero Realty, a nonoperating affiliate. The note bears interest at 8% and
is to be repaid in 94 monthly principal and interest installments of $1,202. The
balance outstanding on the note receivable was $30,959 at December 31, 1992. The
note was repaid in 1993.

(5) LAND HELD FOR DEVELOPMENT AND SALE AND PROPERTY, PLANT AND EQUIPMENT

During 1991, management subdivided its new headquarters and distribution
center land into two parcels with the intent of developing and selling the
parcel adjacent to the new building. At December 31, 1992 and 1993, $503,721 and
$531,210, respectively, were classified as land held for development and sale. A
summary of land held for development and sale follows:

1992 1993
-------- --------

Land.................................................. $432,389 432,389
Land development costs................................ 71,332 98,821
-------- --------
$503,721 531,210
-------- --------
-------- --------

(Continued)
F-54
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
(5) LAND HELD FOR DEVELOPMENT AND SALE AND PROPERTY, PLANT AND EQUIPMENT--(CONTINUED)

A summary of property, plant and equipment follows:

1992 1993
----------- -----------
<S> <C> <C>
Land and improvements........................... $ 212,617 309,334
Buildings and improvements...................... 7,082,903 7,091,670
Furniture, fixtures and equipment............... 3,691,334 4,127,719
Transportation equipment........................ 676,166 599,526
Computer equipment.............................. 1,015,147 1,077,555
Leasehold improvements.......................... 991,974 1,031,051
Construction in progress........................ 77,155 202,566
----------- -----------
$13,747,296 14,439,421
----------- -----------
----------- -----------
</TABLE>

The Corporation had a final construction balance of $535,098 on the new
headquarters and distribution center at December 31, 1992. The Corporation's
banking institution has committed to finance this balance on a long-term basis
and, therefore, the liability has been classified long-term on the accompanying
balance sheet at December 31, 1992.

Interest costs capitalized during 1992 totalled $193,969. There was no
interest capitalized during 1993, and no commitments have been executed with
respect to the construction in progress at December 31, 1993.

(6) ACCRUED EXPENSES

A summary of accrued expenses follows:

<TABLE>
<CAPTION>
1992 1993
---------- ----------
<S> <C> <C>
Taxes other than income taxes..................... $ 842,807 1,039,257
Vacation.......................................... 309,019 --
Salaries and related benefits..................... 204,099 236,259
Advertising....................................... 178,444 187,611
Freight........................................... 51,196 121,670
Rent and utilities................................ 310,482 115,267
Interest.......................................... 25,319 14,627
Other............................................. 601,191 402,717
---------- ----------
$2,522,557 2,117,408
---------- ----------
---------- ----------
</TABLE>

During 1993, the Corporation's Board of Directors amended its corporate
policy related to the accumulation of earned vacation. Under the new policy,
earned vacation not used by employees in the current fiscal year-end is
forfeited. Accordingly, the Company's accrued vacation in the amount of $309,019
was recorded as a reduction of general and administrative expenses in 1993.

(Continued)
F-55
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(7) LINES OF CREDIT AND LONG-TERM DEBT

The Corporation's $5,500,000 general line of credit is subject to renewal on
July 30, 1995. This line of credit bears interest at the bank's prime rate which
is payable monthly. The balance outstanding under this line of credit was zero
at December 31, 1992 and 1993.

The Corporation's $2,000,000 seasonal line of credit is available between
May 31, 1994 and December 31, 1994, and then between May 31, 1995 and July 30,
1995. This line of credit bears interest at the bank's prime rate and is payable
monthly. The balance outstanding under this line of credit was zero at December
31, 1993.

The lines of credit are secured by accounts receivable, inventory, and the
personal guarantees of the Corporation's stockholders. The Corporation's loan
agreement contains certain restrictive debt covenants. The Corporation was in
compliance with the restrictive debt covenants at December 31, 1992 and 1993.

A summary of long-term debt follows:

<TABLE>
<CAPTION>
1992 1993
---------- ----------
<S> <C> <C>
6% installment note payable to the Commerce and Economic
Development Commission of Arizona due in December 2000, monthly
principal and interest payments of $3,652; personally guaranteed
by certain stockholders.......................................... $ 250,000 220,368

Prime plus 1/2% installment note payable to a bank; payable in
monthly installments of $11,250 plus interest through March 1998
when a balloon payment of approximately $2,000,000 is due,
secured by substantially all land, buildings and improvements and
the personal guarantee of certain stockholders................... 2,161,077 2,610,000

Price plus 1/2% installment note payable to a bank; payable in
monthly installments of $12,438 including interest through March
1998 when a balloon payment of approximately $1,652,000 is due;
secured by substantially all land and buildings and improvements.
This note was repaid in 1993..................................... 1,771,427 --

5% installment note payable to the Economic Development
Administration of Arizona, monthly principal and interest
payments of $1,376, due in April 1998 when a balloon payment of
approximately $32,000 is due; secured by certain equipment and
with a depreciated cost of $96,519 and the personal guarantee of
certain stockholders............................................. -- 88,452

Unsecured noninterest-bearing installment note payable to Arizona
Public Service Company due August 1996, payable in monthly
payments of $4,765................................................. -- 200,118

12.5% installment note payable to an unrelated party, payable in
monthly installments of $2,581 including interest, through
January 1995; secured by certain vehicles with a depreciated cost
of $32,637......................................................... -- 28,835
---------- ----------
Total long-term debt........................................... 4,182,504 3,147,773

Less current installments of long-term debt........................ 494,138 262,440
---------- ----------
Long-term debt, excluding current installments..................... $3,688,366 2,885,333
---------- ----------
---------- ----------
</TABLE>

(Continued)
F-56
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(7) LINES OF CREDIT AND LONG-TERM DEBT--(CONTINUED)

A summary of long-term debt maturities after December 31, 1993 follows:

LONG-TERM
DEBT
YEARS ENDING DECEMBER 31 MATURITIES
-------------------------------------------------------- ----------

1994.................................................... $ 262,440
1995.................................................... 240,973
1996.................................................... 241,300
1997.................................................... 215,598
1998.................................................... 2,145,029
Thereafter.............................................. 42,433
----------
$3,147,773
----------
----------

(8) SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS

During 1992, the Corporation executed unsecured notes payable to certain
stockholders. The notes payable are subordinate to the lines of credit and notes
payable to a bank (note 7). The notes require interest payments quarterly at
1/4% over the prevailing prime lending rate through December 1997 when the
entire balance is due in full. Notes payable to stockholders totaled $2,300,000
and $2,626,000 at December 31, 1992 and 1993, respectively.

(9) STOCK REPURCHASE AGREEMENT

The Corporation is obligated to repurchase the stock, equal to the book
value at the end of the preceding fiscal year, of any stockholder upon the
stockholder's resignation, termination, or death. The Corporation,
alternatively, may assign the rights to repurchase the stock to other eligible
stockholders, but the Corporation remains contingently liable for payment of the
purchase price of the stock.

(10) INCOME TAXES

Income taxes in 1992 represent built-in gains taxes for the excess fair
market value over the book value of the Corporation's assets, computed as of the
date of conversion by the Corporation to an S corporation. Built-in gains taxes
are assessed upon disposal of the respective assets; however, payment of
built-in gains taxes is limited by the Corporation's taxable income during its
reporting periods. During 1992, the Corporation recognized $77,669 of built-in
gains taxes related to the disposal of a building and had remaining estimated
built-in gains taxes payable of $96,744 at December 31, 1992.

(11) BUSINESS AND CREDIT CONCENTRATIONS

The Corporation has 36 retail stores located in Arizona, New Mexico, and
Texas with customers residing in Arizona, New Mexico, Texas, and Mexico. No
account receivable from any customer exceeded 5% of the Corporation's total
stockholders' equity at December 31, 1992 and 1993.

(Continued)
F-57
<PAGE>
CAPIN MERCANTILE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(12) COMMITMENTS AND CONTINGENT LIABILITIES

The Corporation occupies various properties and operates an airplane under
operating lease agreements with affiliated, nonoperating entities and unrelated
parties. Existing lease agreements expire at various dates through 2014 and
include renewal options. The Corporation is responsible in most cases for
occupancy and maintenance costs including real estate taxes, insurance and
utility costs. Rent expense for the year ended December 31, 1992 totaled
$3,715,469 of which $1,005,530 was paid to affiliated, nonoperating entities.
Rent expense for the year ended December 31, 1993, totaled $3,504,687 of which
$719,659 was paid to affiliated, nonoperating entities. Rent expense is included
in general and administrative and selling expenses on the accompanying
statements of earnings. Included in rent expense for the years ended December
31, 1992 and 1993 is contingent rentals of $606,838 and $888,842, respectively.

A summary of future minimum lease payments, excluding contingent rentals,
required under operating leases that have remaining noncancelable lease terms in
excess of one year follows:

YEARS
ENDING TOTAL RELATED ENTITY
DECEMBER 31 RENTALS RENTALS
- ----------- ----------- --------------
<S> <C> <C>
1994............................................................. $ 2,585,326 229,044
1995............................................................. 2,607,520 231,444
1996............................................................. 2,329,184 233,844
1997............................................................. 1,965,783 236,244
1998............................................................. 1,839,199 238,644
Thereafter....................................................... 7,510,686 119,329
----------- --------------
Total future minimum lease payments required..................... $18,837,698 1,288,549
----------- --------------
----------- --------------
</TABLE>

All leases expire through 2014. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties; thus, it is anticipated that rent expense will be greater than the
future minimum lease payments shown for 1994.

The Corporation is liable with respect to claims incidental to the ordinary
course of its operations. In the opinion of management, based on consultation
with legal counsel, the ultimate outcome of such matters will not have a
materially adverse effect on the financial position of the Corporation.

F-58

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, OR AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Incorporation of Certain Documents by
Reference..................................... 3
Summary........................................ 4
Summary Consolidated Financial and Other
Data.......................................... 8
Risk Factors................................... 11
Use of Proceeds................................ 14
Price Range of Common Stock.................... 15
Capitalization................................. 16
Dividend Policy................................ 17
Selected Consolidated Historical and Pro Forma
Financial Data................................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 22
Business....................................... 28
Management..................................... 35
Description of Debentures...................... 39
Description of Capital Stock................... 43
Certain Federal Income Tax Considerations...... 47
Underwriting................................... 52
Legal Matters.................................. 53
Experts........................................ 53
Available Information.......................... 53
Index to Consolidated Financial Statements..... F-1
</TABLE>

$40,000,000

FAMILY BARGAIN
CORPORATION

% CONVERTIBLE
SUBORDINATED DEBENTURES
DUE 2006

[LOGO]

---------------------

PROSPECTUS
---------------------

RODMAN & RENSHAW, INC.

CRUTTENDEN ROTH
INCORPORATED

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts are estimated except the SEC
Registration Fee and NASD Filing Fee.

<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 15,862
NASD Filing Fee................................................... $ 5,100
Listing Fee....................................................... $ *
Printing and Engraving Expenses................................... $ *
Legal Fees and Expenses........................................... $ 350,000
Blue Sky Fees and Expenses........................................ $ *
Accounting Fees and Expenses...................................... $ 170,000
Trustee's Fees and Expenses....................................... $ 15,000
Underwriters' Non-accountable Expense Allowance................... $ 400,000
Miscellaneous..................................................... $ *
---------
Total......................................................... $ *
---------
---------
</TABLE>

- ------------------------
* To be filed by amendment

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by the Delaware General Corporation Law, the Company's Restated
Certificate of Incorporation provides that Directors of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for any breach
of the Director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, relating to prohibited dividends or distributions or the
repurchase of redemption of stock, or (iv) for any transaction from which the
Director derives an improper personal benefit.

Article Eighth of the Restated Certificate of Incorporation provides in part
that:

(a) Each person who was or is made a party or is threatened to be made a
party or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer, of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
Company or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in paragraph (b) hereof, the Company shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be

II-1
<PAGE>
paid by the Company the expenses incurred in defending any such proceeding in
advance of its final disposition: provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Company of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. the Company may, by action of its Board of Directors,
provide indemnification to employees and agents of the Company with the same
scope and effect as the foregoing indemnification of directors and officers.

(b) Notwithstanding any limitation to the contrary contained in paragraph
(a), the Company shall, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

(c) the Company may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Company would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.

The Underwriting Agreement also contains provisions under which the Company
and the Underwriters have agreed to indemnify each other (including officers and
directors of the Company and the Underwriters), and any person who may be deemed
to control any Underwriter or Company against certain liabilities under the
Securities Act of 1933, as amended.

Section 174 of the Delaware General Corporation Law provides that in case of
any willful or negligent violation of Section 160 or 173 of the Delaware General
Corporation Law, the directors under whose administration the same may happen
shall be jointly and severally liable, at any time within 6 years after paying
such unlawful dividend or after such unlawful stock purchase or redemption, to
the corporation, and to its creditors in the event of its dissolution or
insolvency, to the full amount of the dividend unlawfully paid, or to the full
amount unlawfully paid for the purchase or redemption of the corporation's
stock, with interest from the time such liability accrued. Any director who may
have been absent when the same was done, or who may have dissented from the act
or resolution by which the same was done, may exonerate himself from such
liability by causing his dissent to be entered on the books containing the
minutes of the proceedings of the directors at the time the same was done, or
immediately after he has notice of the same.

Any director against whom a claim is successfully asserted under Section 174
of the Delaware General Corporation Law shall be entitled to contribution from
the other directors who voted for or concurred in the unlawful dividend, stock
purchase or stock redemption.

Any director against whom a claim is successfully asserted under Section 174
of the Delaware General Corporation Law shall be entitled, to the extent of the
amount paid by him as a result of such claim, to be subrogated to the rights of
the corporation against stockholders who received the dividend on, or assets for
the sale or redemption of, their stock with knowledge of facts indicating that
such dividend, stock purchase or redemption was unlawful under this chapter, in
proportion to the amounts received by such stockholders respectively.

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code of FBS Holdings,
Inc. and General Textiles, d/b/a Family Bargain Centers ("Family Bargain") included in First
Amended Disclosure Statement (2-Exhibit 2.1)
3.1 Restated Certificate of Incorporation of the Registrant (1-Exhibit 3.1)
3.2 Amendments to the Restated Certificate of Incorporation of the Registrant (3-Exhibit 3.2)
3.3 Amended and Restated By-Laws of the Registrant (3-Exhibit 3.4)
4.1 Indenture, dated as of May 1993, between General Textiles and IBJ Schroder Bank & Trust Company
(included in Exhibit 2.1 above)
4.2 General Textiles Subordinated Notes Due 2003 (included in Exhibit 2.1 above)
4.3 Subordinated Reorganization Note Agreement, dated as of May 28, 1993, among General Textiles,
Berkeley Atlantic Income Limited, Govett American Endeavor Fund Limited and London Pacific Life &
Annuity Company (included in Exhibit 2.1 above)
4.4 Junior Subordinated Reorganization Note Agreement, dated as of May 1993, among General Textiles,
Berkeley Atlantic Income Limited, Govett American Endeavor Fund Limited and London Pacific Life &
Annuity Company (included in Exhibit 2.1 above)
4.5 Rights Agreement dated as of November 27, 1995 between the Registrant and Corporate Stock Transfer,
Inc. (5-Exhibit 1)
4.6 Certificate of Designations of the Series A Junior Participating Preferred Stock (included in
Exhibit 4.5 above)
4.7 Form of Indenture between the Registrant and IBJ Schroder Bank & Trust Company
4.8 Form of Debenture (included in 4.7 above)
*5.1 Opinion of Baer Marks & Upham LLP (re: legality)
*8.1 Opinion of Baer Marks & Upham LLP (re: tax matters)
10.1 Consulting Agreement, dated January 1, 1996, between Joel Mandel and General Textiles (6-Exhibit
10.6)
10.2 Employment Agreement, dated August 1, 1995, between General Textiles and William Mowbray (6-Exhibit
10.7)
10.3 Employment Agreement, dated August 21, 1995, between General Textiles and Kevin P. Frabotta
(6-Exhibit 10.8)
10.4 Advisory Agreement dated as of November 1, 1995 between the Registrant and H. Jurgen Schlichting
(6-Exhibit 10.8(a))
10.5 Management Agreement, dated May 28, 1993, among DRS Apparel, Inc., General Textiles and
Transnational Capital Ventures, Inc. (3-Exhibit 10.9 (a))
10.6 Assignment (of Management Agreement), dated January 28, 1994, among DRS Apparel, Inc., General
Textiles and Transnational Capital Ventures, Inc. (3-Exhibit 10.9(b))
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.7 Loan and Security Agreement, dated as of October 14, 1993, between General Textiles and Greyhound
Financial Capital Corporation (currently known as Finova Capital Corporation) (3-Exhibit 10.15)
10.8 Amendment No. 1 to Loan and Security Agreement, dated as of July 14, between General Textiles and
Finova Capital Corporation (4-10.15(3))
10.9 Amendment No. 2 to Loan and Security Agreement, dated as of March 31, 1995, between General Textiles
and Finova Capital Corporation
10.10 Amendment No. 3 to Loan and Security Agreement, dated as of July 27, 1995, between General Textiles
and Finova Capital Corporation
10.11 Amendment No. 4 to Loan and Security Agreement dated as of November 10, 1995, between General
textiles and Finova Capital Corporation
10.12 Amendment No. 5 to Loan and Security Agreement, dated as of April 18, 1996 between General Textiles
and Finova Capital Corporation (6-Exhibit 10.15(b))
10.13 Amendment No. 6 to Loan and Security Agreement, dated as of July 10, 1996, between General Textiles
and Finova Capital Corporation
10.14 Second Amended and Restated Senior Secured Term Note (3-Exhibit 10.16)
10.15 Intercreditor, Standstill and Subordination Agreement, dated as of October 14, 1993, among Greyhound
Financial Capital Corporation, Westinghouse Electric Corporation, Guilford Investments Inc. and
General Textiles (3-Exhibit 10.18)
10.16 Purchase and Sale Agreement, dated as of December 28, 1993, between Guilford Investments, Inc. and
Westinghouse Electric Corporation (3-Exhibit 10.20)
10.17 Assignment and Assumption Agreement, dated December 29, 1993, between Guilford Investments, Inc. and
Westinghouse Electric Corporation (3-Exhibit 10.21)
10.18 Stock Purchase Agreement, dated as of August 29, 1995, among the Registrant, certain shareholders of
Capin Mercantile Corporation and Sellers Agent ("Factory 2-U Sellers") (5-Exhibit 10.1)
10.19 Amendment to Stock Purchase Agreement, dated November 10, 1995, between the Registrant and Factory
2-U Sellers (5-Exhibit 10.2)
10.20 Loan and Security Agreement dated as of November 13, 1995 between Factory 2-U and Finova Capital
Corporation (6-Exhibit 10.30(a))
10.21 Amendment No. 1 to Loan and Security Agreement, dated April 18, 1996, between Factory 2-U and Finova
Capital Corporation (6-Exhibit 10.30(b))
10.22 Amendment No. 2 to Loan and Security Agreement, dated April 22, 1996, between Factory 2-U and Finova
Capital Corporation
10.23 Amendment No. 3 to Loan and Security Agreement dated as of July 10, 1996 between Factory 2-U and
Finova Capital Corporation
10.24 Stock Purchase Agreement dated as of June , 1996 among the Registrant, Morgana Holdings Inc. and
L'Ancresse Holdings Ltd.
10.25 Purchase and Sale Agreement dated as of May 24, 1996 between Factory 2-U and Nogales Property
Management, L.L.C.
12.1 Computation of Ratio of earnings to fixed charges
21.1 Subsidiaries of the Registrant
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of KPMG Peat Marwick LLP (Phoenix, Arizona)
23.2 Consent of KPMG Peat Marwick LLP (San Diego, California)
23.3 Consent of Deloitte and Touche LLP
23.4 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature pages to the Registration Statement)
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
</TABLE>

- ------------------------
* To be filed by amendment

(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, No. 33-47645 filed with the Commission on September 16, 1992.

(2) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
ended April 30, 1993.

(3) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, No. 33-77488 filed with the Commission on April 7, 1994.

(4) Incorporated by reference to General Textiles' Registration Statement on
Form S-4, No. 33-92176 filed with the Commission on May 11, 1995.

(5) Incorporated by reference to the Registrant's Form 8-K and 8-K/A dated
November 28, 1995.

(6) Incorporated by reference to the Registrant's Form 10-K/A for the fiscal
year ended January 27, 1996.

ITEM 16(b). SCHEDULES

None

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-5
<PAGE>
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(5) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(6) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 31st day of July,
1996.

FAMILY BARGAIN CORPORATION

By: /s/ John A. Selzer
-----------------------------------
John A. Selzer
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Benson A. Selzer, Joseph Eiger
and John A. Selzer, or any of them, his true and lawful attorney-in-fact and
agent, with full power and substitution and re-substitution, to sign in any and
all capacities any and all amendments and post-effective amendments to this
Registration Statement on Form S-2 and to file the same with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting to such attorneys-in-fact and agents, and each of
them, full power and authority to do all such other acts and execute all such
other documents as they, or any of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated below.

<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ John A. Selzer Chief Executive Officer,
------------------------------------------- President and Director July 31, 1996
John A. Selzer (Principal Executive Officer)

/s/ Benson A. Selzer
------------------------------------------- Chairman and Director July 31, 1996
Benson A. Selzer

/s/ Joseph Eiger
------------------------------------------- Vice Chairman, Executive Vice President July 31, 1996
Joseph Eiger and Director

/s/ Francis G. Warburton
------------------------------------------- Director July 31, 1996
Francis G. Warburton
</TABLE>

II-7
<PAGE>
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
Chief Financial Officer and Director
/s/ William W. Mowbray (Chief Financial and Accounting
------------------------------------------- Officer); President and Chief Executive July 31, 1996
William W. Mowbray Officer of General Textiles and Factory
2-U, Inc.

/s/ H. Jurgen Schlichting
------------------------------------------- Director July 31, 1996
H. Jurgen Schlichting

/s/ John J. Borer III
------------------------------------------- Director July 31, 1996
John J. Borer III

/s/ Edwin C. Nevis
------------------------------------------- Director July 31, 1996
Edwin C. Nevis

/s/ Barton P. Ferris, Jr.
------------------------------------------- Director July 31, 1996
Barton P. Ferris, Jr.
</TABLE>

II-8

<PAGE>

EHXIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code of FBS Holdings,
Inc. and General Textiles, d/b/a Family Bargain Centers ("Family Bargain") included in First
Amended Disclosure Statement (2-Exhibit 2.1)
3.1 Restated Certificate of Incorporation of the Registrant (1-Exhibit 3.1)
3.2 Amendments to the Restated Certificate of Incorporation of the Registrant (3-Exhibit 3.2)
3.3 Amended and Restated By-Laws of the Registrant (3-Exhibit 3.4)
4.1 Indenture, dated as of May 1993, between General Textiles and IBJ Schroder Bank & Trust Company
(included in Exhibit 2.1 above)
4.2 General Textiles Subordinated Notes Due 2003 (included in Exhibit 2.1 above)
4.3 Subordinated Reorganization Note Agreement, dated as of May 28, 1993, among General Textiles,
Berkeley Atlantic Income Limited, Govett American Endeavor Fund Limited and London Pacific Life &
Annuity Company (included in Exhibit 2.1 above)
4.4 Junior Subordinated Reorganization Note Agreement, dated as of May 1993, among General Textiles,
Berkeley Atlantic Income Limited, Govett American Endeavor Fund Limited and London Pacific Life &
Annuity Company (included in Exhibit 2.1 above)
4.5 Rights Agreement dated as of November 27, 1995 between the Registrant and Corporate Stock Transfer,
Inc. (5-Exhibit 1)
4.6 Certificate of Designations of the Series A Junior Participating Preferred Stock (included in
Exhibit 4.5 above)
4.7 Form of Indenture between the Registrant and IBJ Schroder Bank & Trust Company with respect to
to the Debentures
4.8 Form of Debenture (included in 4.7 above)
*5.1 Opinion of Baer Marks & Upham LLP (re: legality)
*8.1 Opinion of Baer Marks & Upham LLP (re: tax matters)
10.1 Consulting Agreement, dated January 1, 1996, between Joel Mandel and General Textiles (6-Exhibit
10.6)
10.2 Employment Agreement, dated August 1, 1995, between General Textiles and William Mowbray (6-Exhibit
10.7)
10.3 Employment Agreement, dated August 21, 1995, between General Textiles and Kevin P. Frabotta
(6-Exhibit 10.8)
10.4 Advisory Agreement dated as of November 1, 1995 between the Registrant and H. Jurgen Schlichting
(6-Exhibit 10.8(a))
10.5 Management Agreement, dated May 28, 1993, among DRS Apparel, Inc., General Textiles and
Transnational Capital Ventures, Inc. (3-Exhibit 10.9 (a))
10.6 Assignment (of Management Agreement), dated January 28, 1994, among DRS Apparel, Inc., General
Textiles and Transnational Capital Ventures, Inc. (3-Exhibit 10.9(b))
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.7 Loan and Security Agreement, dated as of October 14, 1993, between General Textiles and Greyhound
Financial Capital Corporation (currently known as Finova Capital Corporation) (3-Exhibit 10.15)
10.8 Amendment No. 1 to Loan and Security Agreement, dated as of July 14, between General Textiles and
Finova Capital Corporation (4-10.15(3))
10.9 Amendment No. 2 to Loan and Security Agreement, dated as of March 31, 1995, between General Textiles
and Finova Capital Corporation
10.10 Amendment No. 3 to Loan and Security Agreement, dated as of July 27, 1995, between General Textiles
and Finova Capital Corporation
10.11 Amendment No. 4 to Loan and Security Agreement dated as of November 10, 1995, between General
textiles and Finova Capital Corporation
10.12 Amendment No. 5 to Loan and Security Agreement, dated as of April 18, 1996 between General Textiles
and Finova Capital Corporation (6-Exhibit 10.15(b))
10.13 Amendment No. 6 to Loan and Security Agreement, dated as of July 10, 1996, between General Textiles
and Finova Capital Corporation
10.14 Second Amended and Restated Senior Secured Term Note (3-Exhibit 10.16)
10.15 Intercreditor, Standstill and Subordination Agreement, dated as of October 14, 1993, among Greyhound
Financial Capital Corporation, Westinghouse Electric Corporation, Guilford Investments Inc. and
General Textiles (3-Exhibit 10.18)
10.16 Purchase and Sale Agreement, dated as of December 28, 1993, between Guilford Investments, Inc. and
Westinghouse Electric Corporation (3-Exhibit 10.20)
10.17 Assignment and Assumption Agreement, dated December 29, 1993, between Guilford Investments, Inc. and
Westinghouse Electric Corporation (3-Exhibit 10.21)
10.18 Stock Purchase Agreement, dated as of August 29, 1995, among the Registrant, certain shareholders of
Capin Mercantile Corporation and Sellers Agent ("Factory 2-U Sellers") (5-Exhibit 10.1)
10.19 Amendment to Stock Purchase Agreement, dated November 10, 1995, between the Registrant and Factory
2-U Sellers (5-Exhibit 10.2)
10.20 Loan and Security Agreement dated as of November 13, 1995 between Factory 2-U and Finova Capital
Corporation (6-Exhibit 10.30(a))
10.21 Amendment No. 1 to Loan and Security Agreement, dated April 18, 1996, between Factory 2-U and Finova
Capital Corporation (6-Exhibit 10.30(b))
10.22 Amendment No. 2 to Loan and Security Agreement, dated April 22, 1996, between Factory 2-U and Finova
Capital Corporation
10.23 Amendment No. 3 to Loan and Security Agreement dated as of July 10, 1996 between Factory 2-U and
Finova Capital Corporation
10.24 Stock Purchase Agreement dated as of June , 1996 among the Registrant, Morgana Holdings Inc. and
L'Ancresse Holdings Ltd.
10.25 Purchase and Sale Agreement dated as of May 24, 1996 between Factory 2-U and Nogales Property
Management, L.L.C.
12.1 Computation of Ratio of earnings to fixed charges
21.1 Subsidiaries of the Registrant
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of KPMG Peat Marwick LLP (Phoenix, Arizona)
23.2 Consent of KPMG Peat Marwick LLP (San Diego, California)
23.3 Consent of Deloitte and Touche LLP
23.4 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature pages to the Registration Statement)
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
</TABLE>

- ------------------------
* To be filed by amendment

(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, No. 33-47645 filed with the Commission on September 16, 1992.

(2) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
ended April 30, 1993.

(3) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, No. 33-77488 filed with the Commission on April 7, 1994.

(4) Incorporated by reference to General Textiles' Registration Statement on
Form S-4, No. 33-92176 filed with the Commission on May 11, 1995.

(5) Incorporated by reference to the Registrant's Form 8-K and 8-K/A dated
November 28, 1995.

(6) Incorporated by reference to the Registrant's Form 10-K/A for the fiscal
year ended January 27, 1996.

EXHIBIT 1.1

[_________________ Debentures]

FAMILY BARGAIN CORPORATION

[____% Convertible Subordinated Debentures]

UNDERWRITING AGREEMENT
----------------------

[ , 1996]

Rodman & Renshaw, Inc.
[As Representative of the several
Underwriters named in Schedule I
120 South LaSalle Street
Chicago, Illinois 60603]

Dear Sirs:

The undersigned, Family Bargain Corporation, a Delaware corporation
(the "Corporation"), hereby confirms its agreement with you and the other
underwriters named in Schedule I (you and the other underwriters collectively
being the "Underwriters") as follows:

1. Introductory. The Corporation proposes to issue and sell to the
Underwriters [principal amount of [ %] Convertible Subordinated Debentures due
[ ] (the "Debentures") pursuant to an indenture dated [ ], 1996
(the "Indenture") between the Corporation and IBJ Schroder Bank & Trust Company,
as trustee (the "Trustee").]

2. Representations and Warranties of the Corporation. The
Corporation represents and warrants to, and agrees with, the several
Underwriters that:

(a) The Corporation has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 (Registration
No. [ ]), and may have filed one or more amendments to that registration
statement, for the purpose of registering under the Securities Act of 1933, as
amended (the "Act") (i) the Debentures, and (ii) common stock into which the
Debentures are convertible ("Conversion Common Stock"). If that registration
statement has not become effective, the Corporation will promptly file a further
amendment to the registration statement, which will enable the registration
statement to become effective. As used in this Agreement, the term
"Registration Statement" means that registration statement, as amended, in the
form in which it becomes effective (including the prospectus, exhibits, and
other documents filed as a part of the registration statement), except that if
the Registration Statement, at the time it becomes effective, omits information
as permitted by Rule 430A of the General Rules and Regulations promulgated under
the Act (the "Regulations"), the omitted information ("Rule 430A Information")
will be deemed to be included in the Registration Statement when a final
prospectus containing the Rule 430A Information is filed with the Commission in
accordance with Rules 430A and 424(b)(1) or (4) of the Regulations; the term
"Preliminary

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Prospectus" means each prospectus included in the Registration Statement, or any
amendment to it, before it becomes effective, including the form of prospectus
omitting Rule 430A Information included in the registration statement when it
becomes effective, if applicable (the "Rule 430A Prospectus"), and any
prospectus filed by the Corporation with your consent pursuant to Rule 424(a) of
the Regulations; and the term "Prospectus" means the final prospectus included
in the Registration Statement, except that if the prospectus relating to the
Debentures in the form first filed with the Commission pursuant to Rule 424(b)
of the Regulations differs from the final prospectus included in the
Registration Statement, from the time the prospectus filed pursuant to Rule
424(b) is first used, the term "Prospectus" means that prospectus. If the
Registration Statement has not been filed at the date of this Agreement, all
representations and warranties in this Section 2 with regard to the Registration
Statement and the Prospectus constitute commitments by the Corporation that the
facts that are represented and warranted will be true when the Registration
Statement and the Prospectus are filed with the Commission.

(b) The Registration Statement and the Prospectus comply in all
material respects with the Act, the Regulations and the Trust Indenture Act of
1939 (the "TIA") and (i) the Registration Statement does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(ii) the Prospectus does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made. No event has occurred that should have been set forth in
an amendment or supplement to the Registration Statement or the Prospectus that
has not been set forth in such an amendment or supplement. If a Rule 430A
Prospectus is included in the Registration Statement, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) will contain all the required Rule
430A Information and will comply in all material respects with the Act and the
Regulations. No amendment or supplement to the Registration Statement will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. No Preliminary Prospectus did, and no amendment or supplement
to the Prospectus will, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made. The representations and warranties in this Section 2(b) do not
apply to (i) statements or omissions made in reliance upon and in conformity
with written information furnished to the Corporation with respect to any
Underwriter by that Underwriter through you expressly for inclusion in any
Preliminary Prospectus, the Registration Statement, the Prospectus, or any
amendment or supplement to the Registration Statement or the Prospectus, or (ii)
information in the Statement of Eligibility and Qualification of the Trustee
under the TIA (the "Form T-1").

(c) The Commission has not issued an order suspending the
effectiveness of the Registration Statement, and neither the Commission nor any
state or other securities authority has issued an order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus or suspending the
registration or qualification of the Debentures (an order of that type by the
Commission or any state or other securities authority being a "Stop Order"), nor
has the Commission or any state or other securities authority instituted or
threatened to institute a proceeding seeking a Stop Order.

(d) The Corporation and each of its subsidiaries (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full power and authority to own its
properties and carry on its business in the manner described in the Prospectus,
(ii) is duly qualified to do business and is in good standing in every
jurisdiction in which it is required to be qualified, other than jurisdictions
in which the failure of the Corporation and its subsidiaries to qualify would
not, in total, have a material adverse effect upon the financial condition,
operations or business of the Corporation and its subsidiaries taken as a whole
("Material Adverse Effect

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on the Condition of the Corporation"). Complete and correct copies of the
certificate of incorporation and of the by-laws of the Corporation and each of
its subsidiaries have been delivered to you or your counsel.

(e) The authorized and the outstanding capital stock of the
Corporation, and the capitalization of the Corporation as of [ ], 1996, is
as described in Prospectus. The Company's common stock ("Common Stock") and
Series A 9 1/2% Cumulative Convertible Preferred Stock each conforms in all
material respects to the description of it contained in the Prospectus. Each
outstanding share of capital stock of the Corporation is duly authorized,
validly issued, fully paid and nonassessable, and is not subject to any
preemptive rights of stockholders. Except as described in the Prospectus, there
are no restrictions upon the voting or transfer of any shares of capital stock
pursuant to the Corporation's certificate of incorporation or by-laws or other
governing documents or any agreement or other instrument to which the
Corporation is a party or by which it may be bound. Except as described in the
Prospectus, there are no outstanding warrants, options, rights, convertible or
exchangeable securities or other agreements or arrangements under which anyone
is, or upon the payment of money, the passage of time or the occurrence of any
other event, may become, entitled to acquire from the Corporation any capital
stock of the Corporation. The Corporation has applied to have the Debentures
quoted on the Nasdaq Small Cap market and knows no reason which is likely to
result in an inability to have the Debentures quoted on that market.

(f) All of the outstanding shares of capital stock of each of
the Corporation's subsidiaries have been duly authorized and validly issued and
are fully paid and non-assessable, and are owned by the Corporation (or by the
Corporation's direct subsidiaries, as the case may be), except as described in
the Prospectus, free of any liens, encumbrances and adverse interests.

(g) The Debentures have been duly authorized, and when executed
and delivered by the Corporation, will be legal, valid and binding obligations
of the Corporation, enforceable against the Corporation in accordance with their
terms, except to the extent the binding nature and enforceability may be
affected by bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting rights of creditors generally, and except that the availability of
equitable remedies, including, but not limited to, specific performance, is
subject to equitable principles and the discretion of the court before which any
proceeding therefor may be brought (whether at law or in equity). No consent or
filing by the Corporation with any governmental authority is required in
connection with the execution and delivery by the Corporation of the Debentures
(except filings under the Act, the Exchange Act, the TIA and securities laws of
states or other jurisdictions).

(h) The Conversion Common Stock has been duly authorized and,
when issued upon conversion of Debentures will be duly and validly issued, fully
paid and non-assessable. Neither the issuance of the Debentures nor the
issuance of Conversion Common Stock upon conversion of Debentures will violate
preemptive rights of any stockholder of the Company. When Conversion Common
Stock is issued to holders of Debentures upon conversion of those Debentures,
the holders free of any liens, encumbrances or claims of other persons, except
those which are imposed as a result of actions of the holders to whom they are
issued.

(i) The consolidated financial statements and schedules
(including related notes) of the Corporation and its subsidiaries included in
the Registration Statement and the Prospectus have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the financial position and results of operations of the Corporation and
its subsidiaries at the respective dates and for the respective periods to which
they apply. KPMG Peat Marwick and

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Deloitte and Touche, each of which audited certain financial statements of the
Corporation or its subsidiaries included in the Prospectus, each is a firm of
certified public accountants and is independent as to the Corporation as
required by the Act and the Regulations.

(j) Since the date of the most recent audited financial
statements included in the Prospectus, the Corporation and its subsidiaries have
not suffered a material loss due to fire, weather or other calamity (whether or
not the loss was covered by insurance) or been subject to a material labor
disturbance, and, except as described in the Prospectus, there has not been a
material adverse change in the financial condition, results of operations,
business or prospects of the Corporation and its subsidiaries taken as a whole.

(k) The Corporation and each of its subsidiaries has (A) good
and marketable title to all assets that the Prospectus indicates are owned by
them, free and clear of all liens, claims, encumbrances, except such as are
described in the Prospectus or do not individually or in the aggregate have a
Material Adverse Effect on the Condition of the Corporation and do not
materially interfere with the current or proposed use of them by the
Corporation, and (B) valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by them, with such exceptions as are
described in the Prospectus or do not individually or in the aggregate
materially interfere with the current or proposed use of the leased properties
by the Corporation. No real property owned, leased or used by the Corporation
or any of its subsidiaries is subject to zoning, use, or building code
restrictions that prohibit the current or currently proposed use of that real
property, except for restrictions which would not in aggregate have a Material
Adverse Effect on the Condition of the Corporation.

(l) Each agreement or other document required to be described in
the Prospectus is properly described in it in all material respects. Each
contract and other document required to be filed as an exhibit to the
Registration Statement has been filed as an exhibit to the Registration
Statement.

(m) All litigation and all pending or threatened proceedings
before any governmental agencies, arbitration panels or similar bodies that are
required to be described in the Prospectus are properly described in it in all
material respects, and there is no other litigation, no other pending or, to the
best of the Corporation's knowledge, threatened, proceeding before any
governmental agency, arbitration panel or similar body, and no pending or, to
the best of the Corporation's knowledge, threatened, investigation by any
governmental agency, relating to the Corporation, any of its subsidiaries or any
of their properties, which litigation, proceedings or investigations present a
reasonable possibility of having a Material Adverse Effect on the Condition of
the Corporation.

(n) Neither the Corporation nor any of its subsidiaries is in
default, and no event has occurred which (with or without the giving of notice,
the passage of time or both) would constitute a default, under or with respect
to any agreements or understandings in a manner that individually or in the
aggregate may have a Material Adverse Effect on the Condition of the
Corporation. The manner in which the Corporation and its subsidiaries are
conducting, or expect to conduct, their respective businesses is authorized by
their respective certificates of incorporation and by-laws (or other governing
documents). The Corporation and each of its subsidiaries each holds all
licenses, permits and other governmental authorizations required for it to
conduct its business as it is currently being conducted, except for licenses,
permits and other governmental authorizations the absence of which do not or
will not have a Material Adverse Effect on the Condition of the Corporation, and
the Corporation and its subsidiaries are each in compliance in all material
respects with all laws and regulations relating to it or to the business in
which it is engaged, except laws and regulations the lack of compliance with
which do not or will not have a Material Adverse Effect on the Condition of the
Corporation.

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(o) All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises and other
intangible properties and assets ("Intangibles") that are material to the
Corporation (whether as owner or as licensee) are in good standing and
uncontested, except as is described in the Prospectus. The Corporation is not
infringing any Intangibles owned by other persons.

(p) Neither the Corporation nor anyone acting on behalf of the
Corporation has used any corporate funds of the Corporation for unlawful
political contributions or for unlawful payments to domestic or foreign
government officials, has violated the Foreign Corrupt Practices Act of 1977, as
amended, or has made any bribe or other unlawful payment to anyone (whether or
not a government official).

(q) The Corporation has all requisite power and authority to
enter into and perform its obligations under this Agreement, including but not
limited to its obligation to issue the Debentures. This Agreement has been duly
authorized, executed and delivered by the Corporation and is a valid and binding
obligation of the Corporation, enforceable against the Corporation in accordance
with its terms, except insofar as indemnification and contribution provisions
may be limited by applicable law or equitable principles and except to the
extent the binding nature and enforceability may be affected by bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting rights of
creditors generally, and except that the availability of equitable remedies,
including, but not limited to, specific performance, is subject to equitable
principles and the discretion of the court before which any proceeding therefor
may be brought (whether at law or in equity). No consent or filing with any
governmental authority or court is required by the Corporation in connection
with the execution and delivery by the Corporation of, or the performance by the
Corporation of its obligations under, this Agreement (except filings under the
Act or securities laws of states or other jurisdictions). No consent of any
party to any agreement or arrangement to which the Corporation or any of its
subsidiaries is a party, or to which any of their properties are subject, is
required for the execution and delivery by the Corporation of, or the
performance by the Corporation of its obligations under, this Agreement; and the
execution and delivery of, and the performance by the Corporation of its
obligations under, this Agreement will not violate, result in a breach of, or
constitute a default under (with or without the giving of notice, the passage of
time or both) (i) any such agreement or arrangement, (ii) any provision of
applicable law, (iii) the certificate of incorporation or by-laws or other
governing documents of the Corporation or any of its subsidiaries, or (iv) any
plan of reorganization, order, judgment or decree binding on the Corporation or
any of its subsidiaries, or to which any of their assets are subject.

(r) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
contemplated in the Prospectus, the Corporation has not (i) issued any
securities or incurred any liability for borrowed money, (ii) entered into any
transaction not in the ordinary course of business, or (iii) declared or paid
any dividend on its capital stock.

(s) Certain securityholders of the Corporation have the right to
require registration of securities of the Corporation because of the filing or
effectiveness of the Registration Statement or the sale by the Corporation of
the Debentures, and the Corporation has given the required notice to such
securityholders. Other than the securityholders to whom notice has been given
and those listed on Schedule II, there are no other persons having rights to
require registration of securities of the Corporation or any subsidiary.

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(t) Except as set forth in the Prospectus, the Corporation will
not be obligated to pay a fee or other compensation to a broker or finder in
connection with the transactions contemplated by this Agreement.

(u) The Corporation is not, and its proposed activities will not
cause it to be, an "investment company," as that term is defined in Section 3(a)
of the Investment Corporation Act of 1940 (the "Investment Corporation Act").

(v) The Corporation has not taken, directly or indirectly, any
action designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of the Corporation's common stock to facilitate the sale of
the Debentures.

3. Purchase and Sale of the Debentures. (a) On the basis of the
representations, warranties, and agreements of the Corporation contained in this
Agreement, and subject to the terms and conditions set forth below, the
Corporation agrees to issue and sell to the several Underwriters, and the
Underwriters, severally and not jointly, agree to purchase from the Corporation,
the respective principal amounts of Debentures set forth opposite the names of
the Underwriters on Schedule I. The purchase price the several Underwriters
will pay for the Debentures will be [$ per, $1,000 principal amount of
Debentures, plus accrued interest on the Debentures from [ ] to the Closing
Date.].

(b) The Corporation grants to the several Underwriters an option
to purchase all or a portion of $ principal amount of Debentures
(the "Additional Debentures"), solely to cover over-allotments in the sale of
the Debentures at the same purchase price per $1,000 principal amount to be paid
by the several Underwriters to the Company for the Debentures as provided in
Section 3(a). This option may be exercised at any time on or before the forty-
fifth day following the effective date of the Registration Statement, by a
written notice from you to the Company which sets forth the aggregate principal
amount of Additional Debentures as to which the option is being exercised, the
names in which the certificates representing the Additional Debentures are to be
registered, the respective principal amounts of Debentures to be represented by
those certificates, and the date, as determined by you, when those Additional
Debentures are to be delivered, which will not be earlier than the Closing Date
(defined below), and will not be earlier than two nor later than eight business
days after the day on which you give the notice of exercise. The principal
amount of Additional Debentures that the Company will sell to each Underwriter
will be the principal amount that bears the same ratio to the aggregate
principal amount of Additional Debentures being sold to all the Underwriters
that the principal amount of Debentures being sold to that Underwriter bears to
the principal amount of all the Debentures (subject to adjustments to eliminate
fractional Debentures)

4. Offering. The Underwriters propose to offer the Debentures to
the public as soon after the execution of this Agreement and the effectiveness
of the Registration Statement as you deem it advisable to do so. The Debentures
are initially to be offered to the public at the public offering price set forth
on the cover page of the Prospectus. However, you may from time to time
increase or decrease the public offering price, in your sole discretion.

5. Delivery and Payment for Debentures. Debenture certificates, in
such denominations and registered in such names as you may request on at least
forty-eight hours' prior written notice to the Corporation, evidencing the
Debentures being purchased by each Underwriter will be delivered by the
Corporation to you for the account of that Underwriter, against payment of the
purchase price for those Debentures in next day funds or, at the Corporation's
option, by certified or official bank

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checks payable to the Corporation in Chicago funds (with the amount reduced by
one day's interest), at the offices of Rodman & Renshaw, Inc., 120 South LaSalle
Street, Chicago, Illinois 60603, or at such other place in Chicago, Illinois or
New York, New York as you specify to the Corporation at least two full business
days in advance, at the time and date which, with respect to the Debentures will
be at 10:00 A.M., local time, on the third full business day following the date
of this Agreement (or, if the offering is priced after the market closes on the
date of this Agreement, on the fourth full business day after that date) or such
other time and date as the Corporation and you may agree upon in writing (the
"Closing Date") and with respect to the Additional Debentures will be at 10:00
A.M., local time, on the date specified in the notice of exercise, or such other
time and date as the Corporation and you may agree upon in writing (the
"Additional Closing Date"). The certificates representing the Debentures and
the Additional Debentures, if any, will be made available to you for checking
and packaging at the office of the Corporation's transfer agent, at least
twenty-four hours before the respective times they are to be delivered.

6. Covenants of the Corporation. The Corporation agrees that it
will:

(a) Use its best efforts to cause the Registration Statement to
become effective at the earliest possible time, and, if the Corporation is
required to file copies of the Prospectus under Rule 424(b) of the Regulations,
the Corporation will file those copies within the time required by that Rule.

(b) Notify you immediately, and confirm in writing, (i) when the
Registration Statement and any post-effective amendment to it becomes effective,
(ii) of the receipt of any comments or requests from the Commission or the
securities authority of any jurisdiction regarding the Registration Statement,
any post-effective amendment or supplement to the Registration Statement or the
Prospectus, (iii) of the receipt of any notification with respect to a Stop
Order or of the initiation or threat of any proceeding with respect to a Stop
Order (in which case the Corporation will use its best efforts to prevent the
issuance of any Stop Order and, if any Stop Order is issued, to cause it to be
withdrawn as promptly as possible), and (iv) of the happening of any event
during the time while a prospectus relating to the Debentures is required to be
delivered under the Act or the Regulations which makes any statement of material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any addition to or changes in the Registration Statement
or Prospectus in order to make the statements therein not misleading.

(c) Not file an amendment or supplement to the Registration
Statement or Prospectus at any time unless you have been advised of the filing
and furnished with a copy of it a reasonable time before it is filed and you
have not reasonably disapproved the filing.

(d) Comply with the Act and the Regulations during the time
which a prospectus relating to the Debentures is required to be delivered under
the Act and the Regulations, so far as is necessary to permit the continuance of
sales of or dealings in the Debentures as contemplated by this Agreement and the
Prospectus. If, at any time while a prospectus relating to the Debentures is
required to be delivered under the Act or the Regulations, any event occurs as a
result of which, in the reasonable opinion of counsel for the Corporation or
counsel for the Underwriters, the Registration Statement as then amended or
supplemented contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or the Prospectus as then amended or supplemented
contains any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made, or if,
in the opinion of either of those counsel, it is for any other reason necessary
to amend or supplement the Registration Statement or the Prospectus in order to
comply with the Act or the Regulations, the

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Corporation will promptly prepare and file with the Commission an appropriate
amendment or supplement, in form and substance reasonably satisfactory to you.

(e) Deliver to each of the several Underwriters without charge
such number of copies of the Preliminary Prospectus and, promptly after the
Registration Statement becomes effective and from time to time thereafter, such
number of copies of the Prospectus (and any amendment or supplement to the
Prospectus) as you and each Underwriter reasonably request; deliver to you
without charge (to the extent the Corporation has not already done so) two
signed copies of the registration statement as originally filed and all
amendments to it, in each case, including exhibits; and deliver to each of the
several Underwriters without charge such number of copies of the Registration
Statement as originally filed and all amendments to it, without exhibits.

(f) Promptly take all action that you request to qualify the
Debentures for offering and sale under the securities laws of such states and
other jurisdictions as you designate and to permit continued sales and dealings
in the Debentures in those jurisdictions for as long as is necessary to complete
the distribution of the Debentures; provided, however, that the Corporation will
not be required to qualify the Debentures in any jurisdiction where, in order to
do so, the Corporation would have to qualify to do business as a foreign
corporation or to file a general consent to service of process.

(g) Make generally available (within the meaning of Section
11(a) of the Act and Rule 158 of the Regulations) to its security holders, and
will deliver to you, as soon as practicable, but not later than [ ], an
earnings statement that satisfies Section 11(a) of the Act and Rule 158 of the
Regulations, covering a period of at least 12 months beginning after the
effective date (within the meaning of Section 11(a) of the Act and Rule 158 of
the Regulations) of the Registration Statement.

(h) For ___ days after the date of the Prospectus, not offer,
issue, sell, contract to sell or grant any option or warrant for the purchase
of, or otherwise dispose of, directly or indirectly, any shares of Common Stock
or Preferred Stock (or any securities or other instruments which are convertible
into, or exercisable or exchangeable for, shares of Common Stock or Preferred
Stock) without your prior written consent, except (i) as provided in Section 3,
(ii) the issuance of Conversion Common Stock upon conversion of the Debentures,
(iii) the issuance of Common Stock upon exercise of options and warrants
outstanding at the date of this Agreement or issued as permitted by this
paragraph, and (iv) the transactions contemplated by the Prospectus.

(i) Prior to any public offering of the Debentures by you, the
Corporation will cooperate with you and your counsel in connection with the
registration or qualification of the Debentures and the shares of the
Corporation's Common Stock, par value $.01 per share, issuable upon conversion
of the Debentures for offer and sale under the securities or Blue Sky laws of
such jurisdictions as you request; provided, that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject. The Corporation
will pay all fees and expenses (including fees and expenses of counsel) relating
to qualification of the Debentures and the Conversion Common Stock under such
securities or Blue Sky laws and in connection with the determination of the
eligibility of the Debentures for investment under the laws of such
jurisdictions as you may designate, including the expenses of obtaining any
opinion of local counsel required by any state securities or Blue Sky
authorities.

(j) Not take, directly or indirectly, any action designed to
cause or result in, or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Debentures or the
Corporation's Common Stock to facilitate the sale of the Debentures.

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(k) At all times keep a sufficient number of authorized but
unissued or treasury shares of Common Stock reserved to permit conversion of all
the outstanding Debentures into Conversion Common Stock.

(l) For five years after the effective date of the Registration
Statement, furnish to you without charge the following:

(i) as soon as practicable after they are sent to
stockholders of the Corporation or filed with the Commission, three copies
of each report or communication that the Corporation sends to its
stockholders or files with the Commission;

(ii) as soon as practicable, two copies of each press
release that is released by the Corporation and of each material news item
relating to the Corporation or any of its subsidiaries, or any of their
affairs, which comes to the attention of the Corporation; and

(iii) such additional documents and information with
respect to the Corporation, its subsidiaries and their respective affairs
as you may from time to time reasonably request, taking into account legal
restrictions on disclosure of material non-public information and
information subject to confidentiality agreements.

(m) Apply the net proceeds from the offering in the manner set
forth under "Use of Proceeds" in the Prospectus.

(n) Furnish to you at least two full business days before the
Closing Date a copy of the latest available unaudited interim consolidated
financial statements of the Corporation which have been read by the
Corporation's independent certified public accountants, as stated in their
letters described in Section 8(f).

(o) Comply with all registration, filing, and reporting
requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") which from time to time are applicable to the Corporation.

(p) To the extent it may lawfully do so, the Corporation will
not insist upon, or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws,
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding which may be brought by the Underwriters to enforce
any right or remedy under this Agreement or by any holder of any of the
Debentures in order to enforce any right or remedy or under the Debentures or
Indenture under which such Debentures are being issued.

(q) Use its best efforts to cause the Debentures to be, and the
Conversion Common Stock to continue to be quoted on the NASDAQ SmallCap Market
and to cause the Conversion Common Stock to be listed on the Chicago Stock
Exchange.

(r) For five years after the Closing Date, supply to the
appropriate parties such information and do such other things as may be
necessary so that during that five-year period the Company will be listed in one
or more of the securities manuals published by Standard & Poor's Corporation and
Moody's Investors Service, Inc. and that at all times during the five-year
period such listing will, at a minimum, contain the names of the Company's
officers and directors, a balance sheet

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as of a date within the preceding 18 months, and a statement of operations for a
fiscal year that ended within the preceding 18 months.

7. Payment of Expenses. Whether or not the Registration Statement
becomes effective or the sale of the Debentures to the Underwriters is
consummated, the Corporation will pay, or reimburse you for, (a) all expenses
(except fees and expenses of counsel for the Underwriters, except as described
below) in connection with (i) the preparation, printing, filing, distribution
and mailing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and the printing, filing, distribution, and mailing of this
Agreement, the Agreement Among Underwriters, any Selected Dealer or Selling
Agreement, and any related documents, including the cost of mailing or
delivering to the Underwriters the numbers of copies you request of the
Preliminary Prospectuses and of the Prospectus, (ii) the issuance and delivery
of the Debentures (other than transfer taxes) and the execution and delivery of
the Indenture, including fees and expenses of the Trustee, (iii) the
qualification of the Debentures and the Conversion Common Stock under state or
foreign securities laws (including the costs of printing and mailing preliminary
and final Blue Sky Surveys and a legal investment memorandum), (b) the
reasonable fees and expenses of counsel for the Underwriters in connection with
the qualification of the Debentures and the Conversion Common Stock under state
or foreign securities laws, (c) the filing fees payable to the Commission, the
National Association of Securities Dealers, Inc. (the "NASD"), and securities
authorities in the jurisdictions in which the Debentures are to be offered, (d)
all expenses in connection with the designation of the Debentures on the Nasdaq
Small Cap market and (e) the fees and disbursements of the Corporation's
counsel, the accountants and other experts retained by the Corporation.

In addition, the Corporation agrees to pay you an expense allowance,
for which you are not required to account, equal to 1% of the aggregate gross
proceeds received by the Corporation from the offering and delivery of the
Debentures, which amount (less amounts previously paid to you in respect of that
expense allowance) will be paid to you on the Closing Date.

8. Conditions to Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Debentures will be subject, in
their discretion, to the conditions that (i) all the representations and
warranties of the Corporation in this Agreement will be true and correct in all
material respects on the Closing Date with the same effect as though they were
made on that date and (ii) on or prior to the Closing Date, the Corporation will
have performed all the obligations under this Agreement which it has been
required to perform, and to the following additional conditions:

(a) The Registration Statement will have become effective not
later than 10:00 a.m., New York City time, on the date of this Agreement or on
such later date to which you consent, all post-effective amendments to the
Registration Statement which have been filed will have become effective, no Stop
Order will have been issued and no proceeding for that purpose will have been
instituted or threatened by the Commission or any state or foreign securities
authority, the Corporation will have complied with any requests by the
Commission or any state or foreign securities authority for additional
information, and all filings required by Rule 424 or Rule 430A of the
Regulations will have been made in a timely manner.

(b) On the Closing Date you will have received the favorable
opinion of Baer Marks & Upham, counsel for the Corporation, dated the date of
delivery, addressed to the Underwriters and in form and substance satisfactory
to you, to the effect that:

(i) The Corporation and each of its subsidiaries (x) is
a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction

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<PAGE>

of incorporation, with full power and authority to own its properties and
carry on its businesses in the manner described in the Prospectus, and (y)
is duly qualified to do business and is in good standing in every
jurisdiction in which it is required to be qualified, other than
jurisdictions in which the failure to qualify would not, in total, have a
Material Adverse Effect on the Condition of the Corporation.

(ii) The authorized and the outstanding capital stock of
the Corporation is as described in the Prospectus (except that counsel may
state that it expresses no opinion as to beneficial ownership). The Common
Stock and the Preferred Stock each conforms in all material respects to the
description of it in the Prospectus. Each outstanding share of capital
stock of the Corporation is duly authorized, validly issued, fully paid and
nonassessable, and is not subject to any preemptive rights of stockholders.
Except as described in the Prospectus, to the best of that counsel's
knowledge there are no outstanding warrants, options, rights, convertible
or exchangeable securities or other agreements or arrangements under which
anyone is, or upon the payment of money, the passage of time or the
occurrence of any other event may become, entitled to acquire from the
Corporation any capital stock of the Corporation.

(iii) All of the outstanding shares of capital stock of
each of the Corporation's subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by the
Corporation (or by the Corporation's direct subsidiaries, as the case may
be).

(iv) The Debentures have been duly authorized and, when
executed and authenticated in accordance with the terms of the Indenture
(assuming the due authorization, execution and delivery thereof by the
Trustee) and when delivered to and paid for by the Underwriters, and will
be legal, valid and binding obligations of the Corporation, enforceable
against the Corporation in accordance with their terms, and the terms of
the Indenture, except insofar as indemnification and contribution
provisions may be limited by applicable law or equitable principles and
except to the extent that the binding nature and enforceability may be
affected by bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting rights of creditors generally and except that the
availability of equitable remedies, including, but not limited to, specific
performance, is subject to equitable principles and the discretion of the
court before which any proceeding therefor may be brought (whether at law
or in equity). No consent or filing by the Corporation with any government
authority is required in connection with the execution and delivery by the
Corporation of the Debentures (except filings under the Act, the Exchange
Act, the TIA and state or other securities laws). The Debentures conform
to the descriptions of them contained in the Registration Statement and the
Prospectus.

(v) The Conversion Common Stock has been duly authorized
and, when issued in accordance with this Agreement, will be duly and
validly issued, fully paid and non-assessable.

(vi) Each contract or other document of which that
counsel is aware that is required to be described in the Prospectus is
properly described in it in all material respects. Each contract and other
document of which that counsel is aware that is required to be filed as an
exhibit to the Registration Statement has been filed as an exhibit to the
Registration Statement.

(vii) The Registration Statement and the Prospectus and
any amendment or supplement to the Registration Statement or Prospectus
(except for financial

11
<PAGE>

statements and related notes and other financial and statistical
information included therein, as to which no opinion is required) comply as
to form in all material respects with the Act and the Regulations.

(viii) All litigation and all pending or threatened
proceedings before any governmental agencies, arbitration panels or similar
bodies of which that counsel is aware, without independent investigation
other than inquiry of senior officers of the Corporation and review of
attorneys' letters delivered to the Corporation's accountants in connection
with their most recent audit of the Corporation's books and records, that
are required to be described in the Prospectus are properly described in it
in all material respects, and, without independent investigation other than
inquiry of senior officers of the Corporation and review of attorneys'
letters delivered to the Corporation's accountants in connection with their
most recent audit of the Corporation's books, that counsel is aware of no
other litigation, pending proceeding or other proceeding that has been
threatened in writing before any governmental agency, arbitration panel or
similar body, and no pending proceeding or threatened investigation by any
governmental agency, relating to the Corporation, or any of its properties,
other than litigation, proceedings or investigations which, if determined
adversely to the Corporation, is not likely, individually or in the
aggregate, to have a Material Adverse Effect on the Condition of the
Corporation.

(ix) The Corporation has all requisite corporate power
and authority to enter into and perform its obligations under this
Agreement, including but not limited to its obligation to issue the
Debentures. This Agreement has been duly authorized, executed and
delivered by the Corporation. No consent or filing by the Corporation with
any governmental authority or court is required in connection with the
execution and delivery by the Corporation of, or the performance by the
Corporation of its obligations under, this Agreement (except filings under
the Act, the Exchange Act, the TIA and securities laws of states or other
jurisdictions). No consent of any party to any agreement or arrangement of
which that counsel is aware to which the Corporation or any of its
subsidiaries is a party, or to which any of their properties are subject,
is required for the execution and delivery of, or the performance by the
Corporation of its obligations under, this Agreement; and the execution and
delivery of, and the performance by the Corporation of its obligations
under, this Agreement will not violate, result in a breach of, or
constitute a default under (with or without the giving of notice, the
passage of time or both) (i) any such agreement or arrangement, (ii) any
provision of applicable law, (iii) the certificate of incorporation or by-
laws or other governing documents of the Corporation or any of its
subsidiaries of which that counsel is aware, or (iv) any plan of
reorganization, order, judgment or decree of which that counsel is aware
which is binding on the Corporation or any of its subsidiaries or to which
any of their assets are subject.

(x) The Indenture fully complies with and has been duly
qualified under the TIA.

(xi) The Conversion Common Stock has been duly authorized
and reserved for issuance upon conversion of the Debentures and, when
issued upon conversion of Debentures in accordance with the terms of the
Indenture, will be validly issued, fully paid and nonassessable. The
Conversion Common Stock is free of preemptive rights.

(xii) The Registration Statement has become effective
under the Act, insofar as that counsel is aware, no Stop Order suspending
its effectiveness has been

12
<PAGE>

issued and no proceedings for that purpose are pending before or
contemplated by the Commission or any state securities authority and no
further action by the Commission or any state securities authority is
required to permit the offering and sale of the Debentures as contemplated
by this Agreement.

(xiii) The Corporation is not, and its proposed activities
as described in the Prospectus will not cause it to be, an "investment
company" required to register under the Investment Company Act of 1940.

(xiv) On the basis of the participation of such counsel in
conferences with officers and representatives of the Corporation and
representatives of the Underwriters and independent accountants of the
Corporation at which the contents of the Registration Statement and the
Prospectus and related matters were discussed, but without independent
verification by such counsel of the accuracy, completeness or fairness of
the statements contained in the Registration Statement, the Prospectus, or
any amendment or supplement to the Registration Statement or the
Prospectus, such counsel has no reason to believe that (A) when the
Registration Statement became effective, either the Registration Statement
or the Prospectus (or, when it was filed with the Commission, any amendment
or supplement to the Registration Statement or the Prospectus) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
(except that such counsel need not express a belief as to financial
statements and the related notes or financial or statistical data included
in the Registration Statement or the Prospectus); or (B) since the
effective date of the Registration Statement, any event has occurred that
should have been set forth in an amendment or supplement to the
Registration Statement or the Prospectus that has not been set forth in
such an amendment or supplement.

[As to matters of California law, the Corporation may provide an
opinion of [ ], California counsel to the Corporation.]

(c) On or before the Closing Date or the Additional Closing
Date, as the case may be, the Underwriters will have been furnished such
information, documents, certificates, and opinions as you reasonably request in
order to evidence the accuracy of the representations and warranties in this
Agreement and the performance by the Corporation of its obligations under this
Agreement.

(d) On the Closing Date you will have received a certificate of
the chief executive officer and of the chief financial officer of the
Corporation, dated the Closing Date, to the effect that the conditions set forth
in Article 8 have been satisfied, that as of the date of this Agreement and as
of the Closing Date or the Additional Closing Date, as the case may be, the
representations and warranties of the Corporation in this Agreement were and are
accurate, and that as of the Closing Date or the Additional Closing Date, as the
case may be, the Corporation has fulfilled all the obligations under this
Agreement that it has been required to fulfill.

(e) When this Agreement is executed, and on the Closing Date
(with respect to the Debentures) and the Additional Closing Date (with respect
to the Additional Debentures), you will have received a letter from KPMG Peat
Marwick, dated the date of delivery, addressed to the Underwriters and in form
and substance satisfactory to you:

(i) Confirming that they are independent certified
public accountants with respect to the Corporation, within the meaning of
the Act and the Regulations.

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<PAGE>

(ii) Stating that, in their opinion, the financial
statements and schedules of the Corporation examined by them and included
in the Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the applicable
published rules and regulations under the Act.

(iii) Stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Corporation and its subsidiaries included in the
Registration Statement and, if available, subsequent monthly financial
statements of the Corporation and its subsidiaries (stating the date of the
latest available unaudited interim financial statements), a reading of the
latest available minutes of meetings of the stockholders and the Boards of
Directors of the Corporation and its subsidiaries and committees of their
respective Boards, inquiries of officers and other employees of the
Corporation responsible for financial and accounting matters, and other
procedures and inquiries that are specified in the letter, which procedures
were carried out through a date no more than five business days prior to
the date of the letter, nothing has come to their attention that caused
them to believe that:

(A) the [unaudited] consolidated financial statements
and schedules of the Corporation and its subsidiaries included in the
Registration Statement and the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the Exchange Act and the related published rules and
regulations under them or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis consistent
with that used in preparing the audited financial statements appearing
in the Registration Statement;

(B) the [unaudited] consolidated financial statements
of the Corporation and its subsidiaries for the three months ended
[ ] are not stated on a basis substantially consistent
with that of the audited financial statements appearing in the
Registration Statement;

(C) there was any change in the capital stock or long-
term debt of the Corporation and its subsidiaries or any decrease in
the consolidated net current assets, total assets, or stockholders'
equity or increase in current liabilities of the Corporation as of the
date of the latest available monthly financial statements of the
Corporation and its subsidiaries or as of a specified date not more
than five business days prior to the date of the letter, each as
compared with the amounts shown in the [ ] [unaudited]
consolidated balance sheet included in the Prospectus, other than
changes or decreases that the Prospectus discloses have occurred or
may occur; or

(D) there was any decrease in consolidated net sales,
operating income, net income, or net income per share of Common Stock
of the Corporation, during the period from [ ] to the date of
the latest available monthly financial statements of the Corporation
or to a specified date not more than five business days prior to the
date of the letter, each as compared with the corresponding period in
the preceding year, other than decreases which the Prospectus
discloses have occurred or may occur.

(iv) Stating that they have compared specific numerical
data and financial information pertaining to the Corporation set forth in
the Registration Statement, which

14
<PAGE>

have been specified by you prior to the date of this Agreement, to the
extent that data and information is derived from the general accounting
records of the Corporation, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the letter, and
found them to be in agreement.

(f) All proceedings taken in connection with the issuance, sale
and delivery of the Debentures will be reasonably satisfactory in form and
substance to you and to counsel for the Underwriters, and the Underwriters will
have received from counsel for the Corporation a favorable opinion, dated as of
the Closing Date, with respect to such of the matters set forth in Section 8(b),
and such other matters, as you reasonably request.

(g) The Debentures will be qualified for sale in such
jurisdictions as you have requested.

(h) There shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the results of operations, business, earnings or prospects, of the Corporation
or any of its subsidiaries except for any such change or development described
in the Prospectus, that, in your judgment, is material and adverse and that
makes it, in your good faith judgment, impracticable to market the Debentures on
the terms and in the manner contemplated in the Prospectus.

(i) No Underwriter shall have been advised by the Corporation or
shall have discovered and disclosed to the Corporation that the Registration
Statement or the Prospectus or any amendment or supplement thereto, contains an
untrue statement of fact which in your opinion, or in the opinion of counsel to
the Underwriters, is material, or omits to state a fact which, in your opinion,
or in the opinion of counsel to the Underwriters, is material and is required to
be stated therein or is necessary to make the statement not misleading.

If any condition to the Underwriters' obligations under this Agreement
required to be fulfilled on or before the Closing Date is not fulfilled on or
before that date, at your election you may terminate this Agreement on behalf of
the Underwriters or you may waive the condition or extend the time for it to be
fulfilled. If any condition to the Underwriters' obligations under this
Agreement required to be fulfilled on or before the Additional Closing Date is
not fulfilled on or before that date, at your election you may terminate the
Underwriters' obligations to purchase the Additional Debentures or you may waive
the condition or extend the time for it to be fulfilled.

9. Indemnification and Contribution. (a) The Corporation agrees to
indemnify and hold harmless each Underwriter, each officer, director, partner,
employee and agent of, and counsel for, each Underwriter, and each other person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages or expenses (including, but not limited to, reasonable attorneys' fees
and expenses and costs of investigation) arising out of, or based upon, (i) any
actual or alleged untrue statement of a material fact or omission to state a
material fact required to be stated in order to make the statements therein not
misleading, in any Registration Statement or any amendment or supplement to the
Registration Statement and any actual or alleged untrue statement of material
fact or omission to state a material fact required to be stated in order to make
the statements therein not misleading in light of the circumstances under which
they were made in any Preliminary Prospectus, any Rule 430A Prospectus or the
Prospectus (as from time to time amended or supplemented), any amendment or
supplement to the Prospectus or any

15
<PAGE>

application or related document filed in any jurisdiction in order to qualify
the Debentures under the securities laws of that jurisdiction which was executed
by the Corporation, or based upon written information furnished by the
Corporation (an "application"), unless the statement or omission is with respect
to an Underwriter and was made in reliance upon and in conformity with written
information furnished to the Corporation by that Underwriter through you, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Corporation in this Agreement. The agreement to indemnify in this Section will
be in addition to any liability the Corporation may otherwise have, including
other liabilities arising under this Agreement.

(b) Each Underwriter severally agrees to indemnify and hold
harmless the Corporation, each director of the Corporation, each officer of the
Corporation who executes the Registration Statement, and each other person, if
any, who controls the Corporation within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, and each employee and agent of and counsel
for the Corporation, to the same extent that the Corporation agrees in Section
9(a) to indemnify and hold harmless the several Underwriters, but only with
respect to statements or omissions of material fact with respect to that
Underwriter that were made in reliance upon and in conformity with written
information furnished to the Corporation by that Underwriter through you
expressly for inclusion in the Preliminary Prospectus, Rule 430A Prospectus,
Registration Statement, Prospectus, amendment, supplement or application, as the
case may be; provided, however, that the obligation of an Underwriter to provide
indemnity under this Section 9(b) will be limited to the principal amount of
Debentures purchased by the Underwriter under this Agreement and the public
offering price per debenture set forth on the cover page of the Prospectus. The
Corporation acknowledges that [ ] in any Preliminary Prospectus or the
Prospectus constitute the only information furnished in writing by any
Underwriter expressly for inclusion in any Preliminary Prospectus, any Rule 430A
Prospectus, the Registration Statement or the Prospectus, any amendment or
supplement to the Registration Statement or the Prospectus, or any application.

(c) If an action is brought against a person entitled to
indemnification under Section 9(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 of the institution of the action (but failure give the notice will not
relieve the indemnifying parties from any liability they may have other than
under this Section 9) 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 two-thirds
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 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.
The Corporation will promptly notify the Underwriters of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of the Debentures, any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration Statement, the
Prospectus, any amendment or supplement to the Registration Statement or the
Prospectus, or any application.

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<PAGE>

(d) If the indemnification provided for in this Section 9 is
unavailable or is not sufficient to hold an indemnified party harmless from all
losses, liabilities, claims, damages or expenses of the type described in
subsections (a) and (b) of this Section, then each indemnifying party will
contribute to the amount paid or payable by the indemnified party as a result of
the losses, liabilities, claims, damages and expenses in proportion to the
relative benefits received by the Corporation on the one hand and the
Underwriters on the other from the offering of the Debentures. If applicable
law does not permit that allocation, then other relevant equitable
considerations such as the relative fault of the Corporation on the one hand and
the Underwriters on the other in connection with the statements or omissions
that resulted in the losses, liabilities, claims, damages and expenses will also
be considered. The relative benefits received by the Corporation on the one
hand and the Underwriters on the other will be deemed to be in the same
proportion as the total net proceeds from the offering bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Corporation on the one hand and of the Underwriters on the
other will be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Corporation on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
statement or omission. The Corporation and the Underwriters agree that it would
be unjust and inequitable if the respective obligations of the Corporation and
the Underwriters for contribution were determined by pro rata or per capita
allocation (even if the Underwriters were treated as one entity for that
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in this Section 9(d). In no case will any
Underwriter be required to contribute an amount in excess of the amount by which
the total price at which the Debentures underwritten by that Underwriter and
distributed or offered to the public exceeds the amount of any damages that
Underwriter was otherwise required to pay with respect to the untrue or alleged
untrue statement or omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) will be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The Underwriters' contribution obligations in this Section
9(d) are several, based upon the respective principal amounts of Debentures each
of them agreed to purchase, and not joint. Each officer, director, partner,
employee, agent and counsel of an Underwriter, and each other person, if any,
who controls that Underwriter, will have the same right to contribution as the
Underwriter. Each person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
director of the Corporation and each officer of the Corporation who signs the
Registration Statement, and each employee or agent of and counsel to the
Corporation, will have the same right to contribution as the Corporation.

10. Default by an Underwriter. (a) If one or more Underwriters
defaults in its or their obligation to purchase Debentures, and the total
principal amount of Debentures as to which Underwriters default does not exceed
10% of the total principal amount of all the Debentures, then the non-defaulting
Underwriters will purchase the Debentures that should have been purchased by the
defaulting Underwriters, in proportion to the respective principal amounts of
Debentures the respective non-defaulting Underwriters agreed to purchase, or in
such other proportion as you may specify, provided that in no event will the
maximum principal amount of Debentures that any Underwriter becomes obligated to
purchase be increased by more than [one-ninth] by this Section 10(a) without the
prior written consent of that Underwriter.

(b) If the total principal amount of Debentures as to which
Underwriters default exceeds 10% of the total principal amount of Debentures, as
the case may be, you may in your discretion arrange for parties (which may
include you or other Underwriters) to purchase the Debentures to which the
default relates. If you do not arrange for the purchase of those Debentures
within two

17
<PAGE>

business days after the default occurs, the Corporation will be entitled to a
further period of one business day within which to procure other parties
satisfactory to you to purchase the Debentures on the terms herein. If neither
you nor the Corporation arranges for the purchase of the Debentures to which the
default relates as provided in this Section 10(b), this Agreement may be
terminated by you or by the Corporation without liability on the part of the
Corporation or the several Underwriters (except that Sections 7 and 9 will
survive the termination), but nothing in this Section 10 will relieve a
defaulting Underwriter of any liability it may have to the Corporation or to the
non-defaulting Underwriters for any damages occasioned by its default.

(c) If the Debentures as to which Underwriters default are to be
purchased by the non-defaulting Underwriters, or by another party, you or the
Corporation will have the right to postpone the Closing Date for up to seven
days in order to effect any necessary changes in the Registration statement or
the Prospectus or in any other documents with respect to the Debentures. The
Corporation agrees to prepare and file promptly any amendment or supplement to
the Registration Statement or the Prospectus which in the reasonable opinion of
counsel for the Underwriters or counsel for the Corporation are necessary as a
result of the change in Underwriters. The term "Underwriter" as used in this
Agreement will include any person substituted under this Section 10 as if that
person had originally been a party to this Agreement and had been allocated the
principal amount of Debentures actually purchased by it as a result of its
original commitment to purchase Debentures under this Section 10.

11. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements of the Corporation in
this Agreement will be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and those representations, warranties, covenants,
and agreements, including the indemnity and contribution agreements in Section
9, will remain operative and in effect regardless of any investigation made by
or on behalf of any Underwriter, the Corporation or any other person who is
entitled to be indemnified under Section 9, and will survive termination of this
Agreement and the delivery of the Debentures to the several Underwriters. In
addition, the provisions of Sections 7, 9 and 16 will survive termination of
this Agreement, whether that termination occurs before or after the Closing Date
or Additional Closing Date.

12. Effective Date and Termination of This Agreement. (a) This
Agreement will become effective at 9:30 A.M., New York City time, on the first
full business day after the later of the day on which the Registration Statement
becomes effective or the day on which the purchase price (including the interest
rate and conversion price) per Debenture is determined for the purposes of
Section 3, or at such earlier time as you authorize the offering of the
Debentures by the Underwriters, except that Sections 7, 9 and 16 are effective
upon execution of Agreement. You or the Corporation may prevent this Agreement
from becoming effective without liability to any other party, except as noted
below in this Section 12, by giving the notice described in Section 12(d) before
the time this Agreement becomes effective.

(b) If the purchase price (including the conversion price) of
the Debentures is not determined for the purposes of Section 3 prior to 4:30
P.M., New York City time, on the fifth full business day after the effective
date of the Registration Statement, either you or the Corporation may terminate
this Agreement at any time after that by giving notice to the other before the
purchase price (including the interest rate and conversion price) of the
Debentures is determined. If the purchase price of the Debentures is not
determined for the purposes of Section 3 prior to 4:30 P.M., New York City time,
on the tenth full business day after the effective date of the Registration
Statement, this Agreement will automatically terminate at that time.

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<PAGE>

(c) In addition to having the right under some circumstances to
terminate this Agreement pursuant to Section 8, 10 or 12(b), you may terminate
this Agreement at any time prior to the Closing Date or the Additional Closing
Date, as the case may be, if (i) any domestic or international occurrence has
materially disrupted, or in your reasonable opinion will in the immediate future
materially disrupt, the securities markets; (ii) there has been a general
suspension of trading in securities on the New York Stock Exchange, the American
Stock Exchange, the NASDAQ or the over-the-counter market, or minimum prices
will have been established on either of those exchanges, on that system, or in
that market; (iii) there has been an outbreak or escalation of hostilities
involving the United States or other national or international calamity; (iv) a
banking moratorium has been declared by a state or Federal authority; (v) a
moratorium in foreign exchange trading by major international banks or persons
has been declared; or (vi) there has been a change in the market for the
Corporation's securities or securities in general or in political, financial, or
economic conditions that in your judgment makes it impractical or inadvisable to
proceed with the offering, sale and delivery of the Debentures on the terms
contemplated by the Prospectus.

(d) If you elect to prevent this Agreement from becoming
effective as provided in Section 12(a), or to terminate this Agreement under
Section 8, 10 or 12(b) or (c), you will notify the Corporation of that election
promptly by telephone or facsimile transmission, confirmed by letter. If the
Corporation elects to prevent this Agreement from becoming effective as provided
in Section 12(a) or to terminate this Agreement under Section 10 or 12(b), the
Corporation will notify you of that election promptly by telephone or facsimile
transmission, confirmed by letter.

(e) If this Agreement does not become effective because of an
election under Section 12(a), or if this Agreement is terminated under Section
8, 10 or 12(b) or (c), the Corporation will have no liability to the
Underwriters other than its obligations under Sections 7 and 9. If for any
other reason the Corporation fails to deliver the Debentures or to perform any
other of its obligations under this Agreement, the Corporation will reimburse
the Underwriters, through you, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) incurred by them in connection with the
proposed offer, sale, and delivery of the Debentures, but the Corporation will
not have any liability to the Underwriters other than under Sections 7 and 9 and
this Section 12.

[13. Notices. All notices and other communications under this
Agreement must, unless otherwise specifically provided, be in writing and if (a)
addressed to any Underwriter, be mailed, delivered or sent by facsimile
transmission and confirmed by letter, to the Underwriter, c/o Rodman & Renshaw,
Inc., 120 South Lasalle Street, Chicago, Illinois 60603, Attention: [Scott H.
Lang, Managing Director (Facsimile No. (312) 732-0272),] with a copy to Rogers &
Wells, 200 Park Avenue, New York, New York 10166, Attention: David W.
Bernstein, Esq. or (b) addressed to the Corporation, be mailed, delivered or
sent by facsimile transmission and confirmed by letter, to the Corporation, 315
East 62nd Street, 6th Floor, New York, New York 10021, Attention: John A.
Selzer, President (Facsimile No. (212) 593-4586), with a copy to Baer Marks &
Upham, 805 Third Avenue, New York, New York 10022, Attention: Joel M. Handel,
Esq.]

14. Parties. You represent you are authorized to act on behalf of
the Underwriters. Any party to this Agreement is entitled to act and rely on
any request, notice, consent, waiver or agreement given by you on behalf of any
Underwriter. This Agreement will inure solely to the benefit of, and will be
binding upon, the several Underwriters, the Corporation and the persons entitled
to indemnification or contribution under Section 9, and their respective
successors, legal representatives, and assigns. No other person will have to
have any right under or by virtue of this Agreement. A purchaser of Debentures
from an Underwriter will not be a successor or assign solely because of that
purchase. All the obligations of the Underwriters under this Agreement are
several and not joint.

19
<PAGE>

15. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
rules governing conflicts of laws.

16. Jurisdiction. The parties to this Agreement consent to the
jurisdiction of the courts of the State of Illinois located in Cook County, and
of any federal court located in that county, in any action or proceeding arising
out of or relating to this Agreement or the transactions that are the subject of
this Agreement, and the parties agree not to seek to have any action in any such
court moved to another court, whether because of inconvenience of the forum or
for any other reason (but nothing will prevent a party from removing an action
or proceeding from a state court located in Cook County to a federal court
located in that county). Each party agrees that process in any such action or
proceeding may be served in the manner provided in Section 13 for the giving of
notices or other communications under this Agreement, or in any other manner
permitted by the rules of the court in which the action or proceeding is
brought.

17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

If the foregoing correctly sets forth the understanding between you
and the Corporation, please indicate that in the space provided below for that
purpose, at which time this document will constitute a binding agreement between
each of the Underwriters and the Corporation.

Very truly yours,

FAMILY BARGAIN CORPORATION

By
------------------------------------------------
Name:
Title:

Accepted as of the date shown on the first page.

RODMAN & RENSHAW, INC.

By
---------------------------
Name:
Title:

On behalf of each of the Underwriters

20
<PAGE>

Schedule I

Underwriters
------------

Principal Amount of
[Name Debentures
---- ----------

Rodman & Renshaw, Inc. . . . . . . . . . . . . . . . . . . . . . . . 2,040,000
Janney Montgomery Scott, Inc. . . . . . . . . . . . . . . . . . . . . . . 60,000
Legg Mason Wood Walker, Inc. . . . . . . . . . . . . . . . . . . . . . . 60,000
McDonald & Co. Securities, Inc. . . . . . . . . . . . . . . . . . . . . . 60,000
Morgan Keegan & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Needham & Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Piper Jaffray, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Principal Financial Securities, Inc. . . . . . . . . . . . . . . . . . . 60,000
Rauscher Pierce Refsnes, Inc. . . . . . . . . . . . . . . . . . . . . . . 60,000
The Robinson Humphrey Co., Inc. . . . . . . . . . . . . . . . . . . . . . 60,000
Stifel Nicolaus & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . 60,000
Sutro & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Tucker Anthony, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Brean Murray, Foster Securities, Inc. . . . . . . . . . . . . . . . . . . 40,000
Crowell, Weeden & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Fahnestock & Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
First Albany Corporation . . . . . . . . . . . . . . . . . . . . . . . . 40,000
First Hanover Securities Inc. . . . . . . . . . . . . . . . . . . . . . . 40,000
Gruntal & Co., Incorporated . . . . . . . . . . . . . . . . . . . . . . . 40,000
Hamilton Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Mabon Securities Corporation . . . . . . . . . . . . . . . . . . . . . . 40,000
H.J. Meyers & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
The Seidler Cos., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Wedbush Morgan Securities . . . . . . . . . . . . . . . . . . . . . . . 40,000]

21
<PAGE>

Schedule II

Persons Having Rights to Require Registration of Securities
-----------------------------------------------------------

EXHIBIT 4.7

DRAFT DATED
August 2, 1996
FAMILY BARGAIN CORPORATION

and

IBJ SCHRODER BANK & TRUST COMPANY

TRUSTEE

_________________

Indenture

DATED AS OF , 1996

_________________

% CONVERTIBLE SUBORDINATED

DEBENTURES

Due ___________________, 2006

____________________________________________________________________
____________________________________________________________________

<PAGE>

CROSS-REFERENCE TABLE

TIA SECTION INDENTURE SECTION
- ----------- -----------------

310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 12.02
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
(b) 12.03
(c) 12.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 12.02
(d) 7.06
314(a) 4.05; 12.02
(b) N.A.
(c)(1) 12.04
(c)(2) 12.04
(c)(3) N.A.
(d) N.A.
(e) 12.05
(f) 4.04
315(a) 7.01(b)
(b) 7.05; 12.02
(c) 7.01(a)
(d) 7.01(c)
(e) 6.11
316(a)(last sentence) 12.06
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 12.01
_____________________

<PAGE>

N.A. means Not Applicable.

<PAGE>

ARTICLE ONE.

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01. DEFINITIONS.............................................. 1
SECTION 1.02. OTHER DEFINITIONS........................................ 2
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........ 2
SECTION 1.04. RULES OF CONSTRUCTION.................................... 3

ARTICLE TWO.

THE DEBENTURES

SECTION 2.01. FORM AND DATING.......................................... 3
SECTION 2.02. EXECUTION AND AUTHENTICATION............................. 3
SECTION 2.03. REGISTRAR AND PAYING AGENT............................... 4
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST...................... 4
SECTION 2.05. DEBENTUREHOLDER LISTS.................................... 4
SECTION 2.06. TRANSFER AND EXCHANGE.................................... 5
SECTION 2.07. REPLACEMENT DEBENTURES................................... 5
SECTION 2.08. OUTSTANDING DEBENTURES................................... 5
SECTION 2.09. TEMPORARY DEBENTURES..................................... 5
SECTION 2.10. CANCELLATION............................................. 6
SECTION 2.11. DEFAULTED INTEREST....................................... 6
SECTION 2.12. DEPOSIT OF MONEY......................................... 6

ARTICLE THREE.

REDEMPTION

SECTION 3.01. NOTICES TO TRUSTEE....................................... 6
SECTION 3.02. SELECTION OF DEBENTURES TO BE REDEEMED................... 6
SECTION 3.03. NOTICE OF REDEMPTION..................................... 7
SECTION 3.04. DEPOSIT OF REDEMPTION PRICE.............................. 7
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION........................... 7
SECTION 3.06. DEBENTURES REDEEMED IN PART.............................. 7

ARTICLE FOUR.

COVENANTS

SECTION 4.01. PAYMENT OF DEBENTURES.................................... 8
SECTION 4.02. CORPORATE EXISTENCE...................................... 8
SECTION 4.03. MAINTENANCE OF PROPERTIES................................ 8
SECTION 4.04. COMPLIANCE CERTIFICATE................................... 8

<PAGE>

SECTION 4.05. SEC REPORTS.............................................. 9
SECTION 4.06. NO LIEN CREATED.......................................... 9
SECTION 4.07. RESTRICTIONS ON SHAREHOLDER PAYMENTS..................... 9
SECTION 4.08. NO RESTRICTIONS ON SUBSIDIARY DIVIDENDS.................. 9

ARTICLE SIX.

DEFAULTS AND REMEDIES

SECTION 6.01. EVENTS OF DEFAULT........................................ 10
SECTION 6.02. ACCELERATION............................................. 11
SECTION 6.03. OTHER REMEDIES........................................... 12
SECTION 6.04. WAIVER OF PAST DEFAULTS.................................. 12
SECTION 6.05. CONTROL BY MAJORITY...................................... 12
SECTION 6.06. LIMITATION ON SUITS...................................... 12
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT..................... 13
SECTION 6.08. COLLECTION SUIT BY TRUSTEE............................... 13
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM......................... 13
SECTION 6.10. PRIORITIES............................................... 13
SECTION 6.11. UNDERTAKING FOR COSTS.................................... 14

ARTICLE SEVEN.

TRUSTEE

SECTION 7.01. DUTIES OF TRUSTEE........................................ 14
SECTION 7.02. RIGHTS OF TRUSTEE........................................ 15
SECTION 7.03. TRUSTEE'S DISCLAIMER..................................... 15
SECTION 7.04. INDIVIDUAL RIGHTS OF TRUSTEE, ETC........................ 16
SECTION 7.05. NOTICE OF DEFAULTS....................................... 16
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS............................ 16
SECTION 7.07. COMPENSATION AND INDEMNITY............................... 16
SECTION 7.08. REPLACEMENT OF TRUSTEE................................... 17
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC......................... 17
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION............................ 18
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST CORPORATION.... 18

ARTICLE EIGHT.

DISCHARGE OF INDENTURE

SECTION 8.01. TERMINATION OF CORPORATION'S OBLIGATIONS................. 18
SECTION 8.02. APPLICATION OF TRUST MONEY............................... 20
SECTION 8.03. REPAYMENT TO CORPORATION................................. 20

<PAGE>

ARTICLE NINE.

AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS............................... 21
SECTION 9.02. WITH CONSENT OF HOLDERS.................................. 21
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT...................... 22
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS........................ 22
SECTION 9.05. NOTATION ON OR EXCHANGE OF DEBENTURES.................... 22
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.......................... 22

ARTICLE TEN.

SUBORDINATION OF DEBENTURES

SECTION 10.01. SUBORDINATION TO SENIOR INDEBTEDNESS..................... 23
SECTION 10.02. PRIORITY OF SENIOR INDEBTEDNESS UPON MATURITY............ 24
SECTION 10.03. EFFECT OF DEFAULT IN PAYMENT OF SENIOR INDEBTEDNESS...... 24
SECTION 10.04. PRIORITY OF SENIOR INDEBTEDNESS UPON DISTRIBUTION OR
LIQUIDATION.............................................. 24
SECTION 10.05. SUBROGATION OF DEBENTUREHOLDERS TO RIGHTS OF SENIOR
INDEBTEDNESS............................................. 25
SECTION 10.06. CORPORATION OBLIGATION TO PAY UNCONDITIONAL.............. 26
SECTION 10.07. RELIANCE BY TRUSTEE UPON CERTIFICATE..................... 26
SECTION 10.08. AUTHORIZATION OF TRUSTEE TO EFFECT SUBORDINATION......... 26
SECTION 10.09. NOTICE TO TRUSTEE OF SENIOR INDEBTEDNESS................. 26
SECTION 10.10. INDENTURE PROVISIONS SUBJECT TO THIS ARTICLE............. 27
SECTION 10.11. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS................ 27

ARTICLE ELEVEN.

CONVERSION OF DEBENTURES

SECTION 11.01. CONVERSION PRIVILEGE AND CONVERSION PRICE................ 27
SECTION 11.02. ISSUANCE OF COMMON STOCK ON CONVERSION................... 28
SECTION 11.03. NO FRACTIONAL SHARES TO BE ISSUED. ...................... 28
SECTION 11.04. CONVERSION PRICE......................................... 29
SECTION 11.05. RESERVATION OF SHARES FOR CONVERSION; LEGALITY OF
SHARES................................................... 34
SECTION 11.06. ISSUE AND TRANSFER TAXES................................. 34
SECTION 11.07. NOTICE OF ADJUSTMENT OF CONVERSION....................... 35
SECTION 11.08. TRUSTEE UNDER NO RESPONSIBILITY FOR DUTIES OF
CORPORATION.............................................. 35

<PAGE>

ARTICLE TWELVE.

MISCELLANEOUS

SECTION 12.01. TRUST INDENTURE ACT CONTROLS............................. 35
SECTION 12.02. NOTICES.................................................. 35
SECTION 12.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.............. 36
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT....... 36
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............ 37
SECTION 12.06. WHEN TREASURY DEBENTURES DISREGARDED..................... 37
SECTION 12.07. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR................ 37
SECTION 12.08. LEGAL HOLIDAYS........................................... 37
SECTION 12.09. GOVERNING LAW............................................ 38
SECTION 12.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............ 38
SECTION 12.11. NO RECOURSE AGAINST OTHERS............................... 38
SECTION 12.12. SUCCESSORS............................................... 38
SECTION 12.13. DUPLICATE ORIGINALS...................................... 38

EXHIBIT A - FORM OF DEBENTURE

EXHIBIT B - FORM OF CONVERSION NOTICE

<PAGE>

INDENTURE dated as of , 1996 between FAMILY BARGAIN CORPORATION, a
Delaware corporation ("Corporation"), and IBJ SCHRODER BANK & TRUST COMPANY, a
New York banking corporation ("Trustee").

Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Corporation's % Convertible
Subordinated Debentures Due ("Debentures"):

ARTICLE ONE.

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01. DEFINITIONS.

"CORPORATION" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.

"COMMON STOCK" means the common stock, par value $.01 per share, of the
Corporation, as that common stock may be reconstituted from time to time.

"BOARD OF DIRECTORS" means the Board of Directors of the Corporation or any
committee of the Board.

"DEFAULT" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.

"HOLDER" or "DEBENTUREHOLDER" means the person in whose name a Debenture is
registered on the Registrar's books.

"INDENTURE" means this Indenture as amended or supplemented from time to
time.

"OFFICER" means the Chairman of the Board, the President, any
Vice-President, the Treasurer or the Secretary of the Corporation.

"OFFICERS' CERTIFICATE" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Corporation.

"OVER-ALLOTMENT OPTION" means the option of the underwriters to purchase
additional Debentures in the aggregate principal amount of up to $46,000,000 as
provided in Section 2.02.

"PRINCIPAL" of a Debenture means the amount stated as principal on the face
of the Debenture plus, when appropriate, the premium, if any, on the Debenture.

"SEC" means the Securities and Exchange Commission.

<PAGE>

"DEBENTURES" means the Debentures as amended or supplemented from time to
time.

"SUBSIDIARY" means a corporation of which a majority of the outstanding
stock entitled to vote with regard to election of a majority of the directors is
owned by the Corporation and its Subsidiaries.

"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa ET
SEQ.) as in effect on the date of this Indenture.

"TRUSTEE" means the party named as such in this Indenture until a successor
replaces it and thereafter means the successor.

"TRUST OFFICER" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.

SECTION 1.02. OTHER DEFINITIONS.

TERM DEFINED IN SECTION
---- ------------------

"BANKRUPTCY LAW".............................. 6.01
"CUSTODIAN"................................... 6.01
"DEBENTURE REGISTER".......................... 2.03
"EVENT OF DEFAULT"............................ 6.01
"LEGAL HOLIDAY"............................... 12.08
"PAYING AGENT"................................ 2.03
"REGISTRAR"................................... 2.03
"SENIOR INDEBTEDNESS"......................... 10.01
"U.S. GOVERNMENT OBLIGATIONS"................. 8.01

SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.

Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. In addition,
the provisions of Sections 3.10 to and including 3.17 of the TIA that impose
duties on any person are incorporated in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following meanings:

"COMMISSION" means the SEC.

"INDENTURE SECURITIES" means the Debentures.

"INDENTURE SECURITYHOLDER" means a Debentureholder.

"INDENTURE TO BE QUALIFIED" means this Indenture.

<PAGE>

"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee.

"OBLIGOR" on the indenture securities means the Corporation or a
successor.

All other TIA terms used in this Indenture that are defined in the TIA,
defined in the TIA by reference to another statute or defined in an SEC rule
under the TIA have the meanings assigned to them.

SECTION 1.04. RULES OF CONSTRUCTION.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles;

(3) "OR" is not exclusive; and

(4) words in the singular include the plural, and in the plural
include the singular.

ARTICLE TWO.

THE DEBENTURES

SECTION 2.01. FORM AND DATING.

The Debentures and the Trustee's certificate of authentication will be
substantially in the form of Exhibit A. The Debentures may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Corporation will approve the form of the Debentures and any notation, legend or
endorsement on them. Each Debenture will be dated the date of its
authentication.

SECTION 2.02. EXECUTION AND AUTHENTICATION.

Two Officers will sign the Debentures for the Corporation by facsimile
signature. The Corporation's seal will be reproduced on the Debentures.

If an officer who signed a Debenture no longer holds that office at the
time the Trustee authenticates the Debenture, the Debenture will be valid
nevertheless.

A Debenture will not be valid until the Trustee manually signs the
certificate of authentication on the Debenture. The Trustee's signature will be
conclusive evidence that the Debenture has been authenticated under this
Indenture.

<PAGE>

The Trustee will authenticate Debentures for original issue in the
aggregate principal amount of up to $40,000,000 (or up to $46,000,000 if the
Over-Allotment Option is exercised) upon a written order or orders of the
Corporation signed by two Officers or by an Officer and an Assistant Treasurer
or Assistant Secretary of the Corporation. The aggregate principal amount of
Debentures outstanding at any time may not exceed that amount, except as
provided in Section 2.07. The Trustee may appoint an authenticating agent to
authenticate Debentures. An authenticating agent may authenticate Debentures
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.

SECTION 2.03. REGISTRAR AND PAYING AGENT.

The Corporation will maintain an office or agency where Debentures may be
presented for registration of transfer or for exchange, an agent (which may be
the Corporation) to effect and record exchanges ("Registrar"), an office or
agency where Debentures may be presented for payment, and an agent (which may be
the Corporation) to make payments ("Paying Agent"). The Registrar will keep a
register ("Debenture Register") of the Debentures and of their transfer and
exchange. The Corporation may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent.

The Corporation will enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture. The
agreement will implement the provisions of this Indenture which relate to that
agent. The Corporation will notify the Trustee of the name and address of any
such agent. The Corporation may change the Registrar or Paying Agent without
notice to the Debentureholders. If the Corporation falls to maintain a
Registrar or Paying Agent, the Trustee will act as such. The Registrar or
Paying Agent may resign upon 30 days notice to the Corporation.

The Corporation initially appoints the Trustee as Registrar and Paying
Agent.

SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.

Each Paying Agent will hold in trust for the benefit of Debentureholders or
the Trustee all money received by the Paying Agent for the payment of principal
or interest on the Debentures, and will promptly notify the Trustee of any
default by the Corporation in making any such payment. If the Corporation or a
Subsidiary acts as Paying Agent, it will segregate the money and hold it as a
separate trust fund. The Corporation at any time may require a Paying Agent to
pay all money held by it to the Trustee together with a complete accounting of
such sums. Upon doing so, the Paying Agent will have no further liability for
the money.

SECTION 2.05. DEBENTUREHOLDER LISTS.

The Trustee will preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of the
Debentureholders. If the Trustee is not the Registrar, the Corporation will
furnish to the Trustee on or before each semiannual interest payment date and at
such other times as the Trustee may request in writing a list in such

<PAGE>

form and as of such date as the Trustee may reasonably require of the names and
addresses of the Debentureholders.

SECTION 2.06. TRANSFER AND EXCHANGE.

When Debentures are presented to the Registrar or a co-registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Debentures of other denominations, the Registrar will register the
transfer or make the exchange as requested. To permit transfers and exchanges,
the Trustee will authenticate Debentures at the Registrar's request. The
Corporation may charge a reasonable fee for any transfer or exchange, but not
for any exchange pursuant to Section 2.09, 3.06 or 9.05.

SECTION 2.07. REPLACEMENT DEBENTURES.

If the Holder of a Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Corporation will issue and the Trustee will
authenticate a replacement Debenture if the requirements of Section 8.405 of the
New York Uniform Commercial Code are met. An indemnity bond must be sufficient
in the judgment of the Corporation and the Trustee to protect the Corporation,
the Trustee, the Paying Agent, the Registrar or any co-registrar from any loss
which any of them may suffer if a Debenture is replaced. The Corporation may
charge the Debentureholders for its expenses in replacing a Debenture.

SECTION 2.08. OUTSTANDING DEBENTURES.

The Debentures treated as outstanding at any time are all the Debentures
authenticated by the Trustee which have not been cancelled by the Trustee,
except those described in this Section. Except as provided in Section 12.06,
the outstanding Debentures include those held by the Corporation or its
affiliates.

If a Debenture is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.

If the Paying Agent holds on a redemption date or maturity date money
sufficient to pay the Debentures which are payable on that date, then on and
after that date those Debentures will cease to be outstanding and interest on
them will cease to accrue. Those Debentures will carry no rights except the
right to receive payment.

SECTION 2.09. TEMPORARY DEBENTURES.

Until definitive Debentures are ready for delivery, the Corporation may
prepare and the Trustee will authenticate temporary Debentures. Temporary
Debentures will be substantially in the form of definitive Debentures, but may
have variations that the Corporation considers appropriate for temporary
Debentures. Without unreasonable delay, the Corporation will prepare and the
Trustee will authenticate definitive Debentures in exchange for temporary
Debentures.

<PAGE>

SECTION 2.10. CANCELLATION.

The Corporation at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and the Paying Agent will forward to the Trustee
any Debentures surrendered to them for transfer, exchange or payment. The
Trustee and no one else will cancel and destroy all Debentures surrendered for
transfer, exchange, payment or cancellation. The Corporation may not issue new
Debentures to replace Debentures it has paid or delivered to the Trustee for
cancellation.

SECTION 2.11. DEFAULTED INTEREST.

If and to the extent the Corporation defaults in a payment of interest on
the Debentures, it will pay the defaulted interest to the persons who are
Debentureholders on a subsequent special record date. The Corporation will fix
the special record date and payment date. At least 15 days before the special
record date, the Corporation will mail to each Debentureholder a notice that
states the special record date, the payment date, and the amount of defaulted
interest to be paid. The Corporation may also pay defaulted interest in any
other lawful manner.

SECTION 2.12. DEPOSIT OF MONEY.

One day prior to each interest payment date, maturity date or other date on
which a payment is due pursuant to this Indenture, the Corporation shall deposit
with the Paying Agent in immediately available funds sufficient to make the cash
payments, if any, due on such interest payment date, maturity date or other
payment date, as the case may be, which permits the Paying Agent to remit
payment to the Debentureholders on such date.

ARTICLE THREE.

REDEMPTION

SECTION 3.01. NOTICES TO TRUSTEE.

If the Corporation wants to redeem Debentures pursuant to paragraph 5 of
the Debentures, it will notify the Trustee of the redemption date, the
redemption price, and the principal amount of Debentures to be redeemed at least
45 days prior to the redemption date unless a shorter period of time is
satisfactory to the Trustee.

SECTION 3.02. SELECTION OF DEBENTURES TO BE REDEEMED.

If less than all the Debentures are to be redeemed, the Trustee will select
the Debentures to be redeemed by a method the Trustee considers fair and
appropriate. The Trustee will make the selection from the Debentures which have
not previously been called for redemption. The Trustee may select for
redemption portions of the principal of Debentures that have a denomination
larger than $1000. Portions of Debentures the Trustee selects will be in an
amount of $1000 or an integral multiple of $1000. Provisions of this Indenture
that apply to Debentures called for redemption also apply to portions of
Debentures called for redemption.

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SECTION 3.03. NOTICE OF REDEMPTION.

At least 30 days but not more than 60 days before a redemption date, the
Corporation will mail a notice of redemption by first class mail to each Holder
of Debentures to be redeemed.

The notice will identify the Debentures to be redeemed and will state :

(1) the redemption date;

(2) the redemption price as specified in the Debentures;

(3) the name and address of the Paying Agent;

(4) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price; and

(5) that interest on Debentures called for redemption ceases to
accrue on and after the redemption date.

At the Corporation's request, the Trustee will give the notice of
redemption in the Corporation's name and at its expense.

SECTION 3.04. DEPOSIT OF REDEMPTION PRICE.

Prior to the redemption date, the Corporation will deposit with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Debentures to be redeemed on that date.

SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION.

Once notice of redemption is mailed, the Debentures called for redemption
become due and payable on the redemption date and at the redemption price
specified in the Debentures plus accrued interest to the redemption date. Upon
surrender to the Paying Agent, those Debentures will be paid at the redemption
prices specified in the Debentures, plus accrued interest to the redemption
date.

SECTION 3.06. DEBENTURES REDEEMED IN PART.

Upon surrender of a Debenture that is redeemed in part only, the
Corporation will execute and the Trustee will authenticate a new Debenture equal
in principal amount to the unredeemed portion of the Debenture which is
surrendered.

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ARTICLE FOUR.

COVENANTS

SECTION 4.01. PAYMENT OF DEBENTURES.

The Corporation will promptly pay the principal of and interest on the
Debentures on the dates and in the manner provided in the Debentures and this
Indenture.

The Corporation will pay interest on overdue principal at the rate borne by
the Debentures; it will pay interest on overdue installments of interest at the
same rate to the extent lawful.

SECTION 4.02. CORPORATE EXISTENCE.

Subject to Article 5, the Corporation will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights and franchises; provided, however, that the Corporation will
not be required to preserve any right or franchise if it determines that the
preservation is no longer desirable in the conduct of the Corporation's business
and that the loss will not be disadvantageous in any material respect to the
Debentureholders.

SECTION 4.03. MAINTENANCE OF PROPERTIES.

The Corporation will cause all properties material to the business of the
Corporation and its Subsidiaries taken as a whole to be maintained and kept in
good condition, repair and working order and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements regarding them,
all as in the judgment of the Corporation may be necessary so that the business
carried on in connection with them may be properly and advantageously conducted
at all times; provided, however, that neither the Corporation nor any Subsidiary
will be prevented from discontinuing the operation and maintenance of any of its
properties or from omitting to make any repairs, renewals, replacements,
betterments or improvements if the discontinuance or omission is, in the
judgment of the Corporation, desirable in the conduct of the businesses of the
Corporation and its Subsidiaries taken as a whole and not disadvantageous in any
material respect to the Debentureholders.

SECTION 4.04. COMPLIANCE CERTIFICATE.

The Corporation will deliver to the Trustee within 120 days after the end
of each fiscal year of the Corporation an Officers' Certificate stating whether
or not the signers know of any default by the Corporation in performing its
covenants contained in this Article 4. If they do know of such a default, the
certificate will describe the default, its status, and what action the
Corporation is taking or proposes to take with respect thereto. The certificate
shall comply with Section 12.05. [The first certificate will be delivered to
the Trustee by MAY 31, 1997].

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SECTION 4.05. SEC REPORTS.

The Corporation will file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of them as the
SEC may by rules and regulations prescribe) which the Corporation is required to
file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. The Corporation also will comply with the other provisions of TIA
Section 314(a).

SECTION 4.06. NO LIEN CREATED.

Neither this Indenture nor the Debentures create a lien, charge or
encumbrance on any property of the Corporation or any Subsidiary.

SECTION 4.07. RESTRICTIONS ON SHAREHOLDER PAYMENTS.

The Corporation will not declare or pay any dividend or make any
distribution (other than a dividend or distribution payable solely in capital
stock of the Corporation) to the holders of any class of its capital stock, or
redeem or purchase (or permit any Subsidiary to purchase) any of its capital
stock or any warrants or options to acquire any of its capital stock, (a) at a
time when an Event of Default has occurred and is continuing, or (b) if, after
giving effect to the dividend, distribution, redemption or purchase, the total
sum expended since July 31, 1996 for all those purposes would exceed (i) 50% of
the cumulative consolidated net income of the Corporation and its subsidiaries
since July 31, 1996, plus (ii) the aggregate net proceeds received by the
Corporation from the sale of capital stock, and the aggregate principal amount
of convertible debt securities (including Debentures) converted into capital
stock of the Corporation, after July 31, 1996, except that this Section will not
prevent the Corporation from (A) paying the regularly scheduled dividend on its
Series A Stock at a time when no Event of Default has occurred and is
continuing, (B) paying a dividend within 60 days after it is declared if it
could have been paid on the date when it was declared or (C) paying a total of
up to $--------after July 31, 1996, to redeem or purchase Series A Stock at a
redemption or purchase price not in excess of (i) the price per share at which,
by the terms of the Series A Stock, the Corporation from time to time has the
option to redeem the Series A Stock without regard to the price of its Common
Stock or (ii) before the Corporation has the option to redeem the Series A Stock
without regard to the price of its Common Stock, the liquidation preference of
the Series A Stock.

SECTION 4.08. NO RESTRICTIONS ON SUBSIDIARY DIVIDENDS.

The Corporation will not, and will not permit any Subsidiary to, enter into
any agreement which precludes the Subsidiary from paying dividends, making
distributions, making payments with regard to taxes, paying reasonable
management or other fees to the Corporation or paying principal or interest on
indebtedness to the Corporation, other than (i) agreements (including debt
instruments) which exist on July 31, 1996, (ii) agreements regarding extensions
or refinancings of indebtedness which exists on July 31, 1996, provided the
terms of those agreements are not less favorable to the Debentureholders than
the provisions of the agreements in effect on July

<PAGE>

31, 1996 relating to the indebtedness which is being extended or refinanced, or
(iii) agreements relating to Subsidiaries acquired after July 31, 1996 which are
in effect when those Subsidiaries are acquired by the Corporation and were not
entered into in anticipation of the Subsidiaries' being acquired by the
Corporation.

ARTICLE FIVE.

SUCCESSOR CORPORATION

SECTION 5.01. WHEN CORPORATION MAY MERGE, ETC.

The Corporation will not consolidate with or merge into, or transfer all or
substantially all of its assets to, another corporation unless (a) the
resulting, surviving or transferee corporation assumes by supplemental indenture
in form and substance satisfactory to the Trustee all the obligations of the
Corporation under the Debentures and this Indenture, (b) the consolidated net
worth of the resulting, surviving or transferee corporation and its subsidiaries
immediately after the consolidation, merger or transfer will be at least as
great as the consolidated net worth of the Corporation and its subsidiaries
immediately before the consolidation, merger or transfer and (c) there is not
Event of Default at the time of the consolidation, merger or transfer and there
will not be one immediately following the consolidation, merger or transfer. At
the time of any such assumption, all the obligations of the predecessor
corporation will terminate. In connection with any consolidation, merger or
transfer contemplated by this Section 5.01, the Corporation shall deliver or
cause to be delivered to the Trustee, in form and substance satisfactory to the
Trustee, an Officer's Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this Section 5.01 and that all conditions precedent herein
provided for relating to such transaction have been complied with.

ARTICLE SIX.

DEFAULTS AND REMEDIES

SECTION 6.01. EVENTS OF DEFAULT.

An "Event of Default" occurs if:

(1) the Corporation defaults in the payment of interest on any
Debenture when it becomes due and payable and the default continues for a
period of 30 days;

(2) the Corporation defaults in the payment of the principal of any
Debenture when it becomes due and payable at maturity, upon redemption or
otherwise;

(3) the Corporation fails to comply with any of its other agreements
in the Debentures or this Indenture and the default continues for the
period and after the notice specified below;

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(4) the Corporation pursuant to or within the meaning of any
Bankruptcy Law:

(A) commences a voluntary case,

(B) consents to the entry of an order for relief against it in
an involuntary case,

(D) makes a general assignment for the benefit of its creditors;

(5) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:

(A) grants relief against the Corporation in an involuntary case
brought against it,

(B) appoints a Custodian of the Corporation or for any
substantial part of its property, or

(6) Default by the Corporation under any instrument relating to
Senior Indebtedness beyond any period of grace which is not cured or
waived.

The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.

A default under clause (3) is not an Event of Default until the Trustee or
the Holders of at least 25% in principal amount of the Debentures notify the
Corporation of the default and the Corporation does not cure the default within
90 days after receipt of the notice. The notice must specify the default,
demand that it be remedied and state that the notice is a "Notice of Default".

SECTION 6.02. ACCELERATION.

If an Event of Default occurs, while it is continuing the Trustee or the
Holders of at least 25% in principal amount of the outstanding Debentures by
notice to the Corporation may declare the principal of and accrued interest on
all the Debentures to be due and payable immediately. The Holders of a majority
in principal amount of the Debentures by notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default have been
cured or waived and if the rescission would not conflict with any judgment or
decree.

<PAGE>

SECTION 6.03. OTHER REMEDIES.

If an Event of Default occurs, while it is continuing the Trustee may
pursue any available remedy by proceeding at law or in equity to collect any
overdue payment of principal or interest on the Debentures or to enforce the
performance of whatever other defaulted provision of the Debentures or this
Indenture led to the Event of Default.

The Trustee may maintain a proceeding even if the Trustee does not possess
any of the Debentures or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Debentureholder in exercising any right
or remedy accruing by reason of an Event of Default will 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 available remedies are cumulative.

SECTION 6.04. WAIVER OF PAST DEFAULTS.

Subject to Section 9.02, the Holders of a majority in principal amount of
the outstanding Debentures may waive an existing Default or Event of Default and
its consequences. When a Default or Event of Default is waived, it is cured and
stops continuing.

SECTION 6.05. CONTROL BY MAJORITY.

The Holders of a majority in principal amount of the outstanding Debentures
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
it. However, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture, that is unduly prejudicial to the rights of other
Debentureholders, or that may involve the Trustee in personal liability.

SECTION 6.06. LIMITATION ON SUITS.

A Debentureholder may not pursue any remedy with respect to this Indenture
or the Debentures unless:

(1) the Holder gives the Trustee written notice of a continuing Event
of Default;

(2) the Holders of at least 25% in principal amount of the Debentures
make a written request to the Trustee to pursue the remedy;

(3) the Holders offer to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense; and

(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity.

<PAGE>

A Debentureholder may not use this Indenture to prejudice the right of
another Debentureholder or to obtain a preference or priority over another
Debentureholder.

SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.

Notwithstanding any other provision of this Indenture, the right of any
Debentureholder to receive payment of principal and interest on the Debenture,
on or after the respective due dates expressed in the Debenture, or to bring
suit for the enforcement of any such payment on or after those respective dates,
will not be impaired or affected without the consent of the Debentureholder.

SECTION 6.08. COLLECTION SUIT BY TRUSTEE.

If an Event of Default in payment of interest or principal specified in
Section 6.01(l) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the
Corporation for any principal or interest which is due but unpaid and such
further amounts as shall be sufficient to cover the costs and expenses of
collection, including the compensation, expenses, disbursements and allowances
of the Trustee, its agents and counsel.

SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.

The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and the
Debentureholders allowed in any judicial proceedings relative to the
Corporation, its including the compensation, expenses, disbursements and
advances of the Trustee its agents and counsel, creditors or its property and
shall be entitled and empowered to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute the same,
and the custodian in any such judicial proceedings is hereby authorized by each
Debentureholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Debentureholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07.

SECTION 6.10. PRIORITIES.

If the Trustee collects any money pursuant to this Article, it will pay out
the money in the following order:

First: to the Trustee for amounts due under Section 7.07;

Second: to Debentureholders for amounts due and unpaid on the
Debentures for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Debentures for principal and interest, respectively; and

<PAGE>

Third: to the Corporation.

The Trustee may fix a record date and payment date for any payment to
Debentureholders.

SECTION 6.11. UNDERTAKING FOR COSTS.

In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit; and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07,
or a suit by Holders of more than 10% in principal amount of the Debentures.

ARTICLE SEVEN.

TRUSTEE

SECTION 7.01. DUTIES OF TRUSTEE.

(a) If an Event of Default actually known to the Trustee has occurred and
is continuing, the Trustee will exercise its rights and powers and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.

(b) Except during the continuance of an Event of Default:

(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.

(2) In the absence of bad faith on its part, the Trustee may
conclusively rely upon certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture as to the truth of the
statements and the correctness of the opinions expressed in them. The
Trustee, however, will examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.

(c) The Trustee will not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct,except
that:

(1) This paragraph does not limit the effect of paragraph (b) of this
Section.

<PAGE>

(2) The Trustee will not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.

(3) The Trustee will not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.

(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.

(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.

(f) The Trustee will not be liable for interest on any money received by
it, except as the Trustee may otherwise agree with the Corporation.

SECTION 7.02. RIGHTS OF TRUSTEE.

(a) The Trustee may conclusively rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate and/or an opinion of counsel of the Corporation. The
Trustee will not be liable for any action it takes or omits to take in good
faith in reliance on the Certificate or opinion.

(c) The Trustee may act through agents and will not be responsible for the
misconduct or negligence of any agent appointed with due care.

(d) The Trustee will not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.

SECTION 7.03. TRUSTEE'S DISCLAIMER.

The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Debentures, it will not be accountable for the Corporation's
use of the proceeds from the Debentures or any money paid to the Corporation or
upon the Corporation's direction under any provision hereof, it will not be
responsible for the use or application of any monies received by any Paying
Agent other than the Trustee and it will not be responsible for any statement in
the Debentures, in this Indenture, or in any prospectus used in the sale of the
Debentures, other than its certificate of authentication.

<PAGE>

SECTION 7.04. INDIVIDUAL RIGHTS OF TRUSTEE, ETC.

The Trustee in its individual or any other capacity may become the owner or
pledgee of securities and may otherwise deal with the Corporation with the same
rights it would have if it were not Trustee. Any Paying Agent, Registrar or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.

SECTION 7.05. NOTICE OF DEFAULTS.

If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee will mail to each Debentureholder notice of the Default within 90
days after it occurs. Except in the case of a default in payment on any
Debenture, the Trustee may withhold the notice if and so long as a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of Debentureholders.

SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.

Within 60 days after each [ ] beginning with the [ ] following the
date of this Indenture, the Trustee will mail to each Debentureholder a brief
report dated as of the [ ] that complies with TIA Section 313(a). The
Trustee also will comply with TIA Section 313(b) and 313(c).

At the time each report is mailed to Debentureholders, the Trustee will
file a copy of it with the SEC and each stock exchange on which the Debentures
are listed.

SECTION 7.07. COMPENSATION AND INDEMNITY.

The Corporation will pay to the Trustee from time to time reasonable
compensation for its services. The Corporation will reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder (including, without limitation, settlement costs). Those expenses may
include the reasonable compensation and expenses of the Trustee's agents and
attorneys. The Corporation will indemnify the Trustee against any loss or
liability incurred by it. The Trustee will notify the Corporation promptly of
any claim for which it may seek indemnity. The Corporation need not reimburse
any expense or indemnify against any loss or liability incurred by the Trustee
as a result of its negligence or bad faith.

To secure the Corporation's payment obligations in this Section, the
Trustee will have a lien prior to the Debentures on all money or property held
or collected by the Trustee, except money or property held in trust to pay
principal and interest on particular Debentures.

When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(4) or (5) hereof occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.

<PAGE>

SECTION 7.08. REPLACEMENT OF TRUSTEE.

The Trustee may resign by so notifying the Corporation. The Holders of a
majority in principal amount of the outstanding Debentures may remove the
Trustee by so notifying the removed Trustee and may appoint a successor Trustee
with the Corporation's consent. The Corporation may remove the Trustee if:

(1) the Trustee fails to comply with Section 7.10;

(2) the Trustee is adjudged a bankrupt or an insolvent;

(3) a receiver or other public officer takes charge of the Trustee or
its property;

(4) the Trustee otherwise becomes incapable of acting; or

(5) the Trustee fails to perform its duties, obligations and
responsibilities under this Indenture in any material respect.

If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Corporation will promptly appoint a successor
Trustee.

A successor Trustee will deliver a written acceptance of its appointment to
the retiring Trustee and to the Corporation. Immediately after that, the
retiring Trustee will transfer all property held by it as Trustee to the
successor Trustee, the resignation or removal of the retiring Trustee will
become effective, and the successor Trustee will have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee will mail
notice of its succession to each Debentureholder.

If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of a majority in outstanding principal amount of the Debentures may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

If the Trustee fails to comply with Section 7.10, any Debentureholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.

Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Corporation's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.

<PAGE>

SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.

If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust assets to, another corporation, the
resulting, surviving or transferee corporation without any further act will be
the successor Trustee.

SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.

This Indenture will always have a Trustee who satisfies the requirements of
TIA Section 310(a)(1). The Trustee will have a combined capital and surplus of
at least $50,000,000 as set forth in its most recent published annual report of
condition. The Trustee will comply with TIA Section 310(b), including the
optional provision permitted by the second sentence of TIA Section 310(b)(9).

SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST CORPORATION.

The Trustee will comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed will be subject to TIA Section 311(a) to the extent indicated.

ARTICLE EIGHT.

DISCHARGE OF INDENTURE

SECTION 8.01. TERMINATION OF CORPORATION'S OBLIGATIONS.

The Corporation at any time may terminate its obligation to pay an
instalment of principal or interest if it deposits with the Trustee money or
U.S. Government Obligations sufficient to pay the instalment when due. The
Corporation will designate the instalment.

The Corporation at any time may terminate all of its obligations under the
Debentures and this Indenture if:

(1) The Corporation irrevocably deposits with the Trustee, in trust,
for the benefit of the Holders, money or U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of and interest on the Debentures on the stated date for payment
thereof or on the applicable redemption date, as the case may be PROVIDED that
the Trustee shall have received an irrevocable written order from the Company
instructing the Trustee to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Debentures.

(2) No Default or Event of Default with respect to the Debentures
shall have occurred and be continuing on the date of such deposit or insofar as
Sections 6.01(4) and 6.01(5) hereof are concerned, at any time in the period
ending on the 91st day after the date of such deposit.

<PAGE>

(3) Such deposit shall not result in a breach or violation of or
constitute a default under this Indenture or any other material agreement or
instrument to which the Corporation or any of its Subsidiaries is a party or by
which the Corporation or any of its Subsidiaries is bound.
(4) The Corporation shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Corporation with the
intent of preferring the Holders over any other creditors of the Corporation or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Corporation.

(5) The Corporation shall be delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the deposit have been complied with.

(6) The Corporation shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust funds will not be subject to any rights
of any holders of Senior Indebtedness ofthe Corporation, and (ii) assuming no
intervening bankruptcy or insolvency of the Company between the date of deposit
and the 91st day following the deposit and that no Holder is an insider of the
Corporation, after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable Bankruptcy Law.

(7) The Corporation shall have paid or duly provided for payment under
terms satisfactory to the Trustee all amounts otherwise due to the Trustee
pursuant to Section 7.07.

The Corporation's obligations, however, in paragraph 9 of the Debentures,
in Sections 2.03, 2.04, 2.05, 2.06, 2.07, and 7.07, and in Article 11 will
survive until the Debentures are no longer outstanding. Thereafter, the
Corporation's obligations in paragraph 9 of the Debentures and in Section 7.07
of the Indenture will survive.

Before or after a deposit the Corporation may make arrangements
satisfactory to the Trustee for the redemption of Debentures at a future date in
accordance with Article 3.

An instalment of principal or interest will be considered paid on the date
it is due if the Trustee or Paying Agent holds on that date money sufficient to
pay the instalment.

In order to have money available on payment dates to pay principal or
interest on the Debentures, all U.S. Government Obligations will be payable as
to principal or interest at least one day before the payment dates in amounts
sufficient to provide the necessary money. U.S. Government Obligations will not
be callable at the issuer's option.

"U.S. Government Obligations" means

(a) direct obligations of the United States for the payment of which
its full faith and credit is pledged, or

<PAGE>

(b) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States.

SECTION 8.02. APPLICATION OF TRUST MONEY.

The Trustee will hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It will apply the deposited money
and the money from U.S. Government Obligations through the Paving Agent and in
accordance with this Indenture to the payment of principal and interest on the
Debentures. The Trustee shall be under no obligation to invest said money or
proceeds of U.S. Government Obligations except as it may agree with the
Corporation.

The Corporation shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the money or U.S. Government
Obligations deposited pursuant to Section 8.01 hereof or the principal and
interest received in respect thereof.

SECTION 8.03. REPAYMENT TO CORPORATION.

The Trustee and the Paying Agent will promptly pay to the Corporation, upon
receipt by the Trustee or the Paying Agent, as the case may be, of an Officer's
Certificate, any excess money or Debentures held by them at any time. The
Trustee and the Paying Agent will pay to the Corporation any money held by them
for the payment of principal or interest that remains unclaimed for two years.
After payment to the Corporation, Debentureholders entitled to such money must
look to the Corporation for payment as general creditors unless an applicable
law specifies otherwise.

If the Trustee or Paying Agent is unable to apply any money or proceeds of
U.S. Government Obligations in accordance with this Article 8 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Corporations's obligations under this Indenture and the
Debentures shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article 8; PROVIDED that if the Corporation has made any payment of
interest on or principal of any Debentures because of the reinstatement of its
obligations, the Corporation shall be subrogated to the rights of the
Debentureholders to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.

<PAGE>

ARTICLE NINE.

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.01. WITHOUT CONSENT OF HOLDERS.

The Corporation may amend or supplement this Indenture or the Debentures
without notice to or consent of any Debentureholder:

(1) to cure any ambiguity, omission, defect or inconsistency;

(2) to comply with Article 3;

(3) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;

(4) to make any change that does not adversely affect the rights of
any Debentureholder; or

(5) to comply with the TIA.

The Trustee may waive compliance by the Corporation with any provision of
this Indenture or the Debentures without notice to or consent of any
Debentureholder if the waiver does not adversely affect the rights of any
Debentureholder.

SECTION 9.02. WITH CONSENT OF HOLDERS.

The Corporation may amend or supplement this Indenture or the Debentures
without notice to any Debentureholder upon the written consent of the Holders of
a majority in principal amount of the outstanding Debentures. The Holders of a
majority in principal amount of the outstanding Debentures may waive compliance
by the Corporation with any provision of this Indenture or the Debentures
without notice to any Debentureholder. Without the consent of each
Debentureholder affected, however, an amendment, supplement or waiver, including
a waiver pursuant to Section 6.04, may not:

(1) reduce the amount of Debentures whose Holders must consent to an
amendment, supplement or waiver;

(2) reduce the rate or extend the time for payment of interest on any
Debenture;

(3) reduce the principal of or extend the fixed maturity of any
Debenture;

(4) reduce the redemption price stated in any Debenture;

<PAGE>

(5) make any Debenture payable in money other than that stated in the
Debenture; or

(6) impair the right to convert any Debenture into Common Stock.

SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.

Every amendment to or supplement of this Indenture or the Debentures must
comply with the TIA as then in effect.

SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.

A consent to an amendment, supplement or waiver by a Holder of a Debenture
will bind the Holder and every subsequent Holder of a Debenture or portion of a
Debenture that evidences the same debt as the consenting Holder's Debenture,
even if notation of the consent is not made on any Debenture. Any such Holder
or subsequent Holder, however, may revoke the consent as to his or her Debenture
or portion of a Debenture. The Trustee must receive the notice of revocation
before the date the amendment, supplement or waiver becomes effective.

After an amendment, supplement or waiver becomes effective, it will bind
every Debentureholder unless it makes a change described in clause (2), (3),
(4), (5) or (6) of Section 9.02. In that case the amendment, supplement or
waiver will bind each Holder of a Debenture who has consented to it and every
subsequent Holder of a Debenture or portion of a Debenture that evidences the
same debt as the consenting Holder's Debenture.

SECTION 9.05. NOTATION ON OR EXCHANGE OF DEBENTURES.

If an amendment, supplement or waiver changes the terms of a Debenture, the
Trustee may require the Holder of the Debenture to deliver it to the Trustee.
The Trustee, as instructed in writing by the Corporation, may place an
appropriate notation on the Debenture about the changed terms and return it to
the Holder. Alternatively, if the Corporation or the Trustee so determines, the
Corporation will issue in exchange for the Debenture and the Trustee will
authenticate a new Debenture that reflects the changed terms. Failure to make
the appropriate notation or issue a new Debenture shall not affect the validity
and effect of such amendment, supplement or waiver.

SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.

The Trustee will sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights, duties, liabilities, or immunities of the Trustee.
If it does, the Trustee may, but need not, sign it. In signing or refusing to
sign such amendment, supplement or waiver, the Trustee shall be entitled to
receive, if requested, an indemnity satisfactory to it in its sole discretion
and to receive, and shall be fully protected in relying upon, an Officers'
Certificate and Opinion of Counsel stating that such amendment, supplement or
waiver is authorized and permitted by this Indenture. The

<PAGE>

Corporation may not sign an amendment or supplement until the Board of Directors
of the Corporation approves it.

ARTICLE TEN.

SUBORDINATION OF DEBENTURES

SECTION 10.01. SUBORDINATION TO SENIOR INDEBTEDNESS.

The indebtedness evidenced by the Debentures, including their principal,
premium, and the interest on them, will be subordinate and subject in right of
payment, to the extent and in the manner set forth in this Article, to the prior
payment in full of all Senior Indebtedness, and each Debentureholder by
accepting the Debentures agrees to and will be bound by the provisions of this
Article 10.

"Senior Indebtedness" means the principal of, premium, if any, and interest
on, and any other payment due with regard to, any of the following:

(a) all indebtedness of the Corporation for borrowed money (including
any indebtedness secured by a mortgage or other lien which is (i) given to
secure all or part of the purchase price of the property which is subject
to the mortgage or lien, whether given to the vendor of that property or to
another, or (ii) existing on property at the time it is acquired by the
Corporation);

(b) all indebtedness of the Corporation evidenced by notes,
debentures, bonds or other securities sold by the Corporation for money
or issued by the Corporation in exchange for Senior Indebtedness;

(c) all lease obligations of the Corporation which are capitalized on
the books of the Corporation in accordance with generally accepted
accounting principles;

(d) all indebtedness of others of the kinds described in either
clauses (a) or (b) and all lease obligations of the kind described in
clause (c) assumed or guaranteed in any manner by the Corporation or in
effect guaranteed by the Corporation through an agreement to purchase
(which may be contingent); and

(e) all renewals, extensions, refundings, deferrals, amendments or
modifications of indebtedness of the kinds described in clauses (a), (b)
and (d) and all renewals or extensions of lease obligations of the kinds
described in clauses (c) or (d);

unless, in the case of any particular indebtedness or lease obligation, the
applicable instrument or lease, or document by which the Corporation assumes or
guarantees the indebtedness or lease obligation, expressly states that the
indebtedness or lease obligation is not Senior Indebtedness

<PAGE>

with regard to the Debentures. Notwithstanding the foregoing, Senior
Indebtedness will not include any indebtedness or lease obligations of the
Corporation to a Subsidiary.

SECTION 10.02. PRIORITY OF SENIOR INDEBTEDNESS UPON MATURITY.

Upon the maturity of Senior Indebtedness by lapse of time, acceleration or
otherwise, all Senior Indebtedness which has matured will be paid in full in
cash, or provision made for its payment, before any payment is made on account
of the principal of, premium, if any, or interest on the indebtedness evidenced
by the Debentures.

SECTION 10.03. EFFECT OF DEFAULT IN PAYMENT OF SENIOR INDEBTEDNESS.

Subject to the provisions of Section 10.09, (a) no payment on account of
principal or interest on the Debentures will be made unless full payment of
amounts then due for principal, sinking funds, and interest on all Senior
Indebtedness has been made or duly provided for in money, and (b) no payment on
account of principal or interest on the Debentures will be made if, at the time
of the payment or immediately after giving effect to it (i) there will exist a
default in the payment of principal, sinking funds or interest with respect to
any Senior Indebtedness, or (ii) there will have occurred an event of default
(other than a default in the payment of principal, sinking funds or interest)
with respect to any Senior Indebtedness, as defined in the instrument under
which the Senior Indebtedness is outstanding, permitting the holders of the
Senior Indebtedness to accelerate its maturity, and that event of default will
not have been cured or waived or ceased to exist, and (iii) the holders of the
Senior Indebtedness will not have failed to accelerate the maturity of the
Senior Indebtedness because of the event of default within 120 days after the
event of default occurs.

SECTION 10.04. PRIORITY OF SENIOR INDEBTEDNESS UPON DISTRIBUTION OR LIQUIDATION.

Upon any distribution of the assets of the Corporation as a result of any
dissolution, winding up, liquidation or reorganization of the Corporation
(whether in bankruptcy, insolvency, reorganization or receivership proceedings,
or in connection with an assignment for the benefit of creditors, or any other
marshalling of the assets and liabilities of the Corporation, or otherwise),

(a) all Senior Indebtedness will first be paid in full in cash, or
provision made for its payment, before any payment is made on account of
the principal of and premium, if any, or interest on the indebtedness
evidenced by the Debentures;

(b) any payment or distribution of assets of the Corporation of any
kind or character, whether in cash, property or securities, to which the
Debentureholders or the Trustee would be entitled except for the provisions
of this Article 10, will be paid or delivered by the Corporation or by any
trustee in bankruptcy, receiver, assignee for benefit of creditors, or
other liquidating agent making the payment or distribution, directly to the
holders of Senior Indebtedness or their representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued,
ratably according to the

<PAGE>

aggregate amounts remaining unpaid on account of the Senior Indebtedness held or
represented by each, to the extent necessary to pay all Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness, or provision for payment or distribution to
them; and

(c) if, notwithstanding the foregoing, any payment or distribution of
assets of the Corporation of any kind or character, whether in cash, property or
securities, is received by the Trustee or the Debentureholders before all Senior
Indebtedness is paid in full, or provision made for its payment, that payment or
distribution will be held in trust for the benefit of, and will be paid over or
delivered to, the holders of the Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
ratably as described above, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness, or provision, for payment or
distribution to them. For purposes of Sections 10.02 and 10.04, the words
"cash, property or securities" will not be deemed to include shares of stock of
the Corporation as reorganized or readjusted, or securities of the Corporation
or any other corporation provided for by a plan of reorganization or
readjustment, the payment of which is subordinated at least to the extent
provided in this Article 10 with respect to the Debentures to the payment of all
Senior Indebtedness which may at the time be outstanding, provided that (i) the
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment, and (ii) the rights of the holders of
the Senior Indebtedness are not, without their consent, altered by the
reorganization or readjustment.

(d) The provisions of this Section will not apply to any payment by the
Corporation to the Trustee under any of the provisions of Section 7.07.

SECTION 10.05. SUBROGATION OF DEBENTUREHOLDERS TO RIGHTS OF SENIOR INDEBTEDNESS.

Subject to the payment in full of all Senior Indebtedness, the
Debentureholders will be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Corporation
made on the Senior Indebtedness until the principal of, premium, if any, and
interest on the Debentures is paid in full. For purposes of that subrogation,
no payments or distributions to the holders of Senior Indebtedness of cash,
property or securities which, except for the provisions of this Article 10 would
be payable or distributable to the Debentureholders, will, as between the
Corporation, its creditors other than the holders of Senior Indebtedness, and
the Debentureholders, be deemed to be payments by the Corporation to or on
account of the Senior Indebtedness, it being understood that the provisions of
this Article 10 are and are intended solely for the purpose of defining the
relative rights of the Debentureholders, on the one hand, and the holders of
Senior Indebtedness, on the other.

<PAGE>

SECTION 10.06. CORPORATION'S OBLIGATION TO PAY UNCONDITIONAL.

Nothing contained in this Article 10 or elsewhere in this Indenture, or in
the Debentures, is intended to or will impair, as between the Corporation, its
creditors other than the holders of Senior Indebtedness, and the
Debentureholders, the obligation of the Corporation, which is absolute and
unconditional, to pay to the Debentureholders the principal of (premium, if any,
on) and interest on the Debentures, as and when they become due and payable in
accordance with their terms, or to affect the relative rights of the
Debentureholders and creditors of the Corporation other than the holders of the
Senior Indebtedness, nor will anything in this Article 10 or elsewhere in this
Indenture prevent the Trustee or any Debentureholder from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article 10 of the holders
of Senior Indebtedness in respect of cash, property or securities of the
Corporation received upon the exercise of any such remedy.

SECTION 10.07. RELIANCE BY TRUSTEE UPON CERTIFICATE.

Upon any payment or distribution of assets of the Corporation referred to
in this Article 10, the Trustee, subject to the provisions of Section 7.01, will
be entitled to rely upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making the payment or distribution,
delivered to the Trustee, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Corporation, the amount of that indebtedness or
payable with regard to it, the amount or amounts paid or distributed with regard
to it and all other facts pertinent to it or to this Article 10.

SECTION 10.08. AUTHORIZATION OF TRUSTEE TO EFFECT SUBORDINATION.

Each Debentureholder by his or her acceptance of the Debentures authorizes
the Trustee in his or her behalf to take whatever action may be necessary or
appropriate to effectuate the subordination provided in this Article 10 and
appoints the Trustee his or her attorney-in-fact for any and all such purposes.
See Section 10.11.

SECTION 10.09. NOTICE TO TRUSTEE OF SENIOR INDEBTEDNESS.

The Corporation will give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Corporation and of
any fact known to the Corporation which could prohibit the making of any payment
to or by the Trustee in respect of the Debentures pursuant to the provisions of
this Indenture. The Trustee, subject to the provisions of Section 7.01, will be
entitled to assume that no such event has occurred unless the Corporation, or
any one or more holders of Senior Indebtedness or any trustee for them has given
that notice to the Trustee at its principal corporate trust office.
Notwithstanding any of the provisions of this Article 10 or any other provision
of this Indenture, the Trustee will not at any time be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
moneys to or by the Trustee, unless and until the Trustee has received written
notice of them at its principal corporate trust office from the Corporation or
from one or more holders of Senior Indebtedness or from any trustee for them;
and, prior to the receipt

<PAGE>

of any such written notice, the Trustee, subject to the provisions of Section
7.01, will be entitled in all respects to assume that no such facts exist;
provided, that, if on the earlier of (i) the date on which notice of redemption
of any Debentures is given in accordance with Article 3 or (ii) a date not less
than three business days prior to the date upon which moneys may become payable
under this Indenture or the Debentures for any purpose (including, without
limitation, the payment of the principal, premium, if any, or interest on any
Debenture) the Trustee has not received the notice described in this Section
10.09, then, anything in this Indenture to the contrary notwithstanding, the
Trustee will have full power and authority to receive the moneys and to apply
them to the purpose for which they were received, and will not be affected by
any notice to the contrary which may subsequently be received by it.

SECTION 10.10. INDENTURE PROVISIONS SUBJECT TO THIS ARTICLE.

All the provisions of this Indenture are subject to the provisions of this
Article 10.

SECTION 10.11. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.

The Trustee will be entitled to all the rights set forth in this Article 10
in respect of any Senior Indebtedness at any time held by it in its individual
capacity to the same extent as any other holder of Senior Indebtedness and
nothing in this Indenture will affect the right of the Trustee to retain for its
own account payments made on Senior Indebtedness held by the Trustee for its own
account. The Trustee will not have any duty to the holders of Senior
Indebtedness, and will not be liable to any of them, if the Trustee will pay
over or distribute to Debentureholders or the Corporation or any other person
moneys or assets or securities to which any holder of Senior Indebtedness is
entitled by virtue of this Article 10 or otherwise. The Trustee shall not be
deemed to have any fiduciary duty to any holder of Senior Debt. No implied
covenant, or obligation, with respect to any holder of Senior Debt shall be read
into this Indenture.

ARTICLE ELEVEN.

CONVERSION OF DEBENTURES

SECTION 11.01. CONVERSION PRIVILEGE.

Any Debentureholder will have the right, at his or her option, at any time
prior to the maturity of the Debentures (except that, with respect to any
Debentures called for redemption, the right will terminate at the close of
business on the fifth business day prior to the redemption date of Debentures
unless the Corporation defaults in the payment due upon the redemption), to
convert the principal amount of the Debentures, or any portion of the principal
amount which is $1000 or any integral multiple of that amount, into shares of
Common Stock at the conversion price in effect at the time of conversion.

The number of shares of Common Stock issuable upon a conversion will be
equal to the result of dividing the principal amount of the Debenture to be
converted by the conversion price. The Corporation will make no payment or
adjustment on account of accrued interest on

<PAGE>

Debentures surrendered for conversion or on account of dividends on Common Stock
issued on conversion.

SECTION 11.02. ISSUANCE OF COMMON STOCK ON CONVERSION.

(a) In order to exercise the conversion privilege with regard to a
Debenture, the Debentureholder must surrender the Debenture to the Trustee with
the conversion notice completed and executed. If the shares issuable on
conversion are to be issued in a name other than that of the Debentureholder,
the Debenture must be accompanied by an instrument of transfer in form
satisfactory to the Corporation duly executed by the Debentureholder. In
addition, if a Debenture is surrendered for conversion between the close of
business on the record date for a payment of interest and the opening of
business on the day the interest is to be paid (unless the redemption date as to
the Debenture is during that period), the Debenture must be accompanied by a
payment equal to the interest which will be payable on the interest payment date
with regard to the principal amount of the Debenture being exchanged.

(b) As promptly as practicable after the surrender of a Debenture for
conversion, the Corporation will issue and will deliver to the Debentureholder
at the address shown on the Debenture Register, or such other address as the
Debentureholder may specify when the Debenture is surrendered, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion. Any fractional interest in respect of a share of Common Stock
arising upon a conversion will be settled as provided in Section 11.03.

(c) Each conversion will be deemed to have been effected immediately prior
to the close of business on the date on which all the conditions specified in
Section 11.02(a) have been satisfied, and the person in whose name a certificate
for shares of Common Stock is to be issued upon a conversion will be deemed to
have become the holder of record of the shares of Common Stock represented by
that certificate at that time. All shares of Common Stock delivered upon
conversion of Debentures will upon delivery be duly and validly issued and fully
paid and nonassessable, free of all liens and charges and not subject to any
preemptive rights. Upon the surrender of Debentures for conversion and
compliance with all the other requirements of Section 11.02(a), the Debenture
will no longer be deemed to be outstanding and all rights of the Debentureholder
with respect to the Debenture will immediately terminate, except the right to
receive the Common Stock or other securities, cash or other assets to be issued
or distributed as a result of the conversion.

SECTION 11.03. NO FRACTIONAL SHARES TO BE ISSUED.

No fractional shares of Common Stock will be issued upon conversion of
Debentures. Any fractional interest in a share of Common Stock resulting from
conversion of a Debenture will be paid in cash (computed to the nearest cent)
based on the Current Market Price (as defined in Section 11.04(h)) of the Common
Stock on the Trading Day (as defined in Section 11.04(h)) next preceding the day
of conversion. If more than one Debenture is surrendered for conversion at
substantially the same time by the same Debentureholder, the number of full
shares of Common Stock issuable upon the conversion will be computed on the
basis of all the Debentures surrendered at that time by that Debentureholder.

<PAGE>

SECTION 11.04. CONVERSION PRICE.

The "Conversion Price" per share of Common will initially be $ , and
------
will be adjusted as follows from time to time if any of the events described
below occurs after .
-------
(a) If the Corporation (A) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock, (B) subdivides its outstanding
Common Stock into a greater number of shares, or (C) combines its outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to that event will be adjusted so that the holder of a
Debenture surrendered for conversion after that event will receive the number of
shares of Common Stock of the Corporation which the holder would have owned if
the Debenture had been converted immediately before the happening of the event
(or, if there is more than one such event, if the Debenture had been converted
immediately before the first of those events and the holder had retained all the
Common Stock or other securities or assets received after the conversion). An
adjustment made pursuant to this Section 11.04(a) will become effective
immediately after the record date in the case of a dividend or distribution,
except as provided in Section 11.04(k), and will become effective immediately
after the effective date in the case of a subdivision or combination. If a
dividend or distribution is declared but is not paid or made, the Conversion
Price then in effect will be appropriately readjusted. However, a readjustment
of the Conversion Price will not affect any conversion which takes place before
the readjustment.

(b) If the Corporation issues rights or warrants to the holders of its
Common Stock as a class entitling them (for a period expiring within 60 days
after the record date for issuance of the rights or warrants) to subscribe for
or purchase Common Stock at a price per share less than the Conversion Price at
the record date for the determination of stockholders entitled to receive the
rights or warrants (other than pursuant to a dividend reinvestment plan), the
Conversion Price in effect immediately before the issuance of the rights or
warrants will be reduced so that it will be the amount determined by multiplying
the Conversion Price in effect immediately before the record date for the
issuance of the rights or warrants by a fraction of which the numerator is the
number of shares of Common Stock outstanding on the record date for the issuance
of the rights or warrants plus the number of shares of Common Stock which the
aggregate exercise price of all the rights or warrants would purchase at the
Conversion Price at that record date, and of which the denominator is the number
of shares of Common Stock outstanding on the record date for the issuance of the
rights or warrants plus the number of additional shares of Common Stock issuable
on exercise of all the rights or warrants. The adjustment provided for in this
Section 11.04(b) will be made successively whenever any rights or warrants are
issued, and will become effective immediately, except as provided in Section
11.04(j) after each record date. In determining whether any rights or warrants
entitle the holders of the Common Stock to subscribe for or purchase shares of
Common Stock at less than the Conversion Price, and in determining the aggregate
sale price of the shares of Common Stock issuable on the exercise of the rights
or warrants, there will be taken into account any consideration received by the
Corporation for the rights or warrants, with the value of that consideration, if
other than cash, to be determined by the Board of Directors of the Corporation
(whose determination, if made in good faith, will be conclusive). If any rights
or warrants which lead to an adjustment of the Conversion Price expire or
terminate without having been

<PAGE>

exercised, the Conversion Price then in effect will be appropriately readjusted.
However, a readjustment of the Conversion Price will not affect any conversions
which take place before the readjustment.

(c) If the Corporation distributes to the holders of its Common Stock as a
class any shares of capital stock of the Corporation (other than Common Stock)
or evidences of indebtedness or assets (other than cash dividends or
distributions of cash paid from retained earnings of the Corporation) or rights
or warrants (other than those referred to in Section 11.04(b) to subscribe for
or purchase any of its securities, then, in each such case, the Conversion Price
will be reduced so that it will equal the price determined by multiplying the
Conversion Price in effect immediately prior to the record date for the
distribution by a fraction of which the numerator is the Current Market Price of
the Common Stock on the record date for the distribution less the then fair
market value (as determined by the Board of Directors, whose determination, if
made in good faith, will be conclusive) of the capital stock, evidences of
indebtedness, assets, rights or warrants which are distributed with respect to
one share of Common Stock, and of which the denominator is the Current Market
Price of the Common Stock on that record date. Each adjustment will, except as
provided in Subparagraph 5(d)(x), become effective immediately after the record
date for the determination of the stockholders entitled to receive the
distribution. If any distribution is declared but not made, or if any rights or
warrants expire or terminate without having been exercised, effective
immediately after the decision is made not to make the distribution or the
rights or warrants expire or terminate, the Conversion Price then in effect will
be appropriately readjusted. However, a readjustment will not affect any
conversions which take place before the readjustment.

(d) If the Corporation issues or sells any equity or debt securities which
are convertible into or exchangeable for shares of Common Stock ("Convertible
Securities") or any rights, options (other than stock options issued to
employees or directors of the Corporation or its subsidiaries under a plan
approved by the Corporation's stockholders) or warrants to purchase Common Stock
at a conversion, exchange or exercise price per share which is less than the
Conversion Price, unless the provisions of Section 11.04(b) or (c) are
applicable, the Corporation will be deemed to have issued or sold, on the later
of the date on which the Convertible Securities, rights, options or warrants are
issued or the date on which they first may be converted, exchanged or exercised,
the maximum number of shares of Common Stock into or for which the Convertible
Securities may be converted or exchanged or which are issuable upon the exercise
of the rights, options or warrants immediately prior to the close of business on
the later of the date on which the Convertible Securities, rights, options or
warrants are issued or the date on which they may first be converted, exchanged
or exercised, and no further adjustment of the Conversion Price will be made as
a result of the actual issuance of shares of Common Stock upon conversion,
exchange or exercise of the Convertible Securities, rights, options or warrants.
If any Convertible Securities, rights, options or warrants to which this
paragraph applies are redeemed, retired or otherwise extinguished or expire
without any shares of Common Stock having been issued upon conversion, exchange
or exercise of them, effective immediately after the Convertible Securities,
rights, options or warrants expire, the Conversion Price then in effect will be
readjusted to what it would have been if those Convertible Securities, rights,
options or warrants had not been issued. However, a readjustment will not
affect any conversion, exchange or exercise which takes place before the
readjustment.

<PAGE>

(e) For the purposes of this Section, (i) the price of shares of Common
Stock issued or sold upon conversion or exchange of Convertible Securities or
upon exercise of rights, options or warrants will be (A) the consideration paid
to the Corporation for the Convertible Securities, rights, options or warrants,
plus (B) the consideration paid to the Corporation upon conversion, exchange or
exercise of the Convertible Securities, rights, options or warrants, with the
value of the consideration, if other than cash, to be determined by the Board of
Directors of the Corporation (whose determination, if made in good faith, will
be conclusive) and (y) any change in the conversion or exchange price of
Convertible Securities or the exercise price of rights, options or warrants will
be treated as an extinguishment, when the change becomes effective, of the
Convertible Securities, rights, options or warrants which had the old
conversion, exchange or exercise price and an immediate issuance of new
Convertible Securities, rights, options or warrants with the new conversion,
exchange or exercise price.

(f) If the Corporation issues or sells any Common Stock (other than (i) on
conversion or exchange of Convertible Securities or exercise of rights, options
or warrants to which Section 11.04(b), (c) or (d) applies), (ii) on exercise of
warrants which are outstanding on July 31, 1996, or (iii) on exercise of stock
options issued to employees or directors of the Corporation or its subsidiaries
under a plan approved by the Corporation's stockholders) for a consideration per
share less than the Conversion Price on the date of the issuance or sale (or on
exercise of options or warrants, for less than the Conversion Price on the day
the options or warrants are issued), upon consummation of the issuance or sale,
the Conversion Price in effect immediately prior to the issuance or sale will be
adjusted so it will equal the amount determined by multiplying that Conversion
Price by a fraction of which the numerator is the number of shares of Common
Stock outstanding immediately prior to the issuance or sale plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation as a result of the issuance or sale could have purchased at the
Conversion Price in effect on the date of the issuance or sale, and of which the
denominator is the number of shares of Common Stock outstanding immediately
prior to the issuance or sale plus the number of additional shares of Common
Stock issued or sold.

(g) If there is a reclassification or change of outstanding shares of
Common Stock (other than a change in par value, or as a result of a subdivision
or combination), or a merger or consolidation of the Corporation 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 of the assets of the Corporation, upon any subsequent
conversion of a Debenture, the Debentureholder will be entitled to receive the
kind and amount of securities, cash and other property which the Debentureholder
would have received if the Debentureholder had converted the Debenture into
Common Stock immediately before the first of those events and had retained all
the securities, cash and other assets received as a result of all those events.

(h) For the purpose of any computation under this Section 11.04, the
"Current Market Price" of the Common Stock on a date will be the average of the
last reported sale prices per share of the Common Stock each a of the twenty
consecutive Trading Days (as defined below) preceding the date of the
computation. The last reported sale price of the Common Stock on a day will be
(i) the last reported sale price of the Common Stock on the principal stock

<PAGE>

exchange on which the Common Stock is listed, or (ii) if the Common Stock is not
listed on a stock exchange, the last reported sale price of the Common Stock on
the principal automated securities price quotation system on which sale prices
of the Common Stock are reported, or (iii) if the Common Stock is not listed on
a stock exchange and sale prices of the Common Stock are not reported on an
automated quotation system, the mean of the high bid and low asked price
quotations for the Common Stock as reported by National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for the Common Stock on at least five of the ten preceding Trading
Days. If the Common Stock is not traded or quoted as described in any of
clause (i), (ii) or (iii), the Current Market Price of the Common Stock on a day
will be the fair market value of the Common Stock on that day as determined by a
member firm of the New York Stock Exchange, Inc. selected by the Board of
Directors. As used with regard to the Debentures, the term "Trading Day" means
(x) if the Common Stock is listed on at least one stock exchange, a day on which
there is trading on the principal stock exchange on which the Common Stock is
listed, (y) if the Common Stock is not listed on a stock exchange, but sale
prices of the Common Stock are reported on an automated quotation system, a day
on which trading is reported on the principal automated quotation system on
which sales of the Common Stock are reported, or (z) if the Common Stock is not
listed on a stock exchange and sale prices of the Common Stock are not reported
on an automated quotation system, a day on which quotations are reported by
National Quotation Bureau Incorporated.

(i) No adjustment in the Conversion Price will be required unless the
adjustment would require a change of at least 3% in the Conversion Price;
PROVIDED, HOWEVER, that any adjustments which are not made because of this
paragraph will be carried forward and taken into account in any subsequent
adjustment; and PROVIDED, FURTHER, that any adjustment must be made in
accordance with this Section 11.04 (without regard to this paragraph not later
than the time the adjustment may be required in order to preserve the tax-free
nature of a distribution to the holders of shares of Common Stock. All
calculations under this Section 11.04 will be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be.

(j) Whenever the Conversion Price is adjusted, the Corporation will
promptly send each Debentureholder a notice of the adjustment of the Conversion
Price setting forth the adjusted Conversion Price, and the date on which the
adjustment becomes effective and containing a brief description of the events
which caused the adjustment.

(k) In any case in which this Section 11.04 provides that an adjustment
will become effective immediately after a record date for an event, the
Corporation may defer until the occurrence of the event (i) issuing to the
holder of any Debenture converted after the record date and before the
occurrence of the event the additional shares of Common Stock issuable upon the
conversion by reason of the adjustment over and above the Common Stock issuable
upon the conversion before giving effect to the adjustment and (ii) paying to
the Debentureholder any cash in lieu of a fractional share pursuant to Section
11.03.

(l) If:

(i) the Corporation declares a dividend (or any other distribution)
on the Common Stock (other than in cash out of retained earnings); or

<PAGE>

(ii) the Corporation authorizes the granting to the holders of the
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or any other rights or warrants; or

(iii) the Corporation issues, or changes the conversion, exchange or
exercise price of, any Convertible Securities, rights, options (other than stock
options issued to employees or directors of the Corporation or its subsidiaries
under a plan approved by the Corporation's stockholders) or warrants; or

(iv) the Corporation sells any Common Stock for less than the
Conversion Price on the date of the sale; or

(v) there is any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value, or from par value to no par value, or from no par value
to par value), or any consolidation, merger, or statutory share exchange to
which the Corporation is a party and for which approval of any stockholders of
the Corporation is required, or any sale or transfer of all or substantially all
the assets of the Corporation; or

(vi) there is a voluntary or an involuntary dissolution, liquidation
or winding up of the Corporation; then the Corporation will mail to the
Debentureholders with a copy to the Trustee at least 15 days before the
applicable date specified below, a notice stating the applicable one of (A) the
date on which a record is to be taken for the purpose of the dividend,
distribution or grant of rights or warrants, or, if no record is to be taken,
the date as of which the holders of Common Stock of record who will be entitled
to the dividend, distribution or rights or warrants will be determined, (B) the
date on which it is expected the Convertible Securities will be issued or the
date on which the change in the conversion, exchange or exercise price of the
Convertible Securities, rights, options or warrants will be effective, (C) the
date on which the Corporation anticipates selling Common Stock for less than the
Conversion Price on the date of the sale (except that no notice need be given of
the anticipated date of sale of Common Stock upon exercise of options or
warrants which have been described in a notice to the Debentureholders given at
least 15 days before the options or warrants are exercised), or (D) the date on
which the reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
Common Stock will be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon the reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up. Failure to give any such notice or any defect in the notice will
not affect the legality or validity of the reclassification, consolidation,
merger, share exchange, sale, transfer, dissolution, liquidation or winding up.

SECTION 11.05. RESERVATION OF SHARES FOR CONVERSION; LEGALITY OF SHARES.

(a) The Corporation will at all times reserve and keep available, free
from preemptive rights, out of the authorized but unissued shares of Common
Stock or the issued shares of Common Stock held in its treasury, or both, for
the purpose of effecting conversion of the

<PAGE>

Debentures the maximum number of shares of Common Stock which the Corporation
would be required to deliver upon the conversion of all the outstanding
Debentures. For the purposes of this Section 11.05 the number of shares of
Common Stock which the Corporation would be required to deliver upon the
conversion of all the outstanding Debentures will be computed as if at the time
of the computation all the outstanding Debentures were held by a single
Debentureholder.

(b) Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Debentures the Corporation will take all
corporate action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and non-assessable
shares of Common Stock at the adjusted Conversion Price.

(c) The Corporation will endeavor to list the shares of Common Stock
required to be delivered upon conversion of the Debentures, prior to the
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of delivery.

(d) Prior to the delivery of any securities which the Corporation will be
obligated to deliver upon conversion of the Debentures the Corporation will
endeavor, in good faith and as expeditiously as possible, to comply with all
federal and state laws and regulations requiring the registration of those
securities with, or any approval of or consent to the delivery of those
securities by, any governmental authority.

SECTION 11.06. ISSUE AND TRANSFER TAXES.

The Corporation will pay any documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock on
conversion of Debentures, PROVIDED, HOWEVER, that the Corporation will not be
required to pay any tax which may be payable in respect of any transfer involved
in the issue or delivery of shares of Common Stock in a name other than that of
the converting Debentureholder and no such issue or delivery will be made unless
and until the person requesting the issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that the tax has been paid.

SECTION 11.07. NOTICE OF ADJUSTMENT OF CONVERSION.

Whenever by reason of Section 11.02 there is a change in what the
Corporation will deliver on conversion of Debentures, the Corporation will
promptly (a) file with the Trustee an Officers' Certificate stating what a
Debentureholder will receive in conversion for each $1000 principal amount of
Debentures, and (b) cause a notice containing that information to be mailed to
each Debentureholder.

SECTION 11.08. TRUSTEE UNDER NO RESPONSIBILITY FOR DUTIES OF CORPORATION.

<PAGE>

Neither the Trustee nor any other conversion agent will at any time (a) be
under any duty to determine the correctness of the Corporation's determination,
expressed in an Officers' Certificate delivered in accordance with Section
11.07, as to the Common Stock or other securities or assets to be delivered on a
conversion, (b) be responsible for the Corporation's title to the Common Stock
or other securities or assets delivered on a conversion or the effectiveness of
the transfer of that title, or (c) any failure of the Corporation to fulfill its
obligations with regard to a conversion.

ARTICLE TWELVE.

MISCELLANEOUS

SECTION 12.01. TRUST INDENTURE ACT CONTROLS.

If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision will control.

SECTION 12.02. NOTICES.

Any and all notices, requests or communications required to be made under
this Indenture must be given in writing and will be sufficiently given if
delivered in person, by telex, by facsimile or mailed by first-class mail
addressed as follows:

if to the Corporation:

Family Bargain Corporation
315 East 62nd Street
New York, New York 10021
Attention: Chief Executive Officer

if to the Trustee:

IBJ Schroder Bank & Trust Company
1 State Street
New York, New York 10004
Attention: Corporate Trust Department
(212) 878-2952

Such notices, requests and communications shall be effective only when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.

The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.

<PAGE>

Any notice or communication mailed to a Debentureholder will be mailed to
the address which appears on the registration books of the Registrar and will be
sufficiently given if so mailed within the time prescribed.

Failure to mail a notice or communication to a Debentureholder or any
defect in it will not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.

SECTION 12.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.

Debentureholders may communicate pursuant to TIA Section 312(b) with other
Debentureholders with respect to their rights under this Indenture or the
Debentures. The Corporation, the Trustee, the Registrar and anyone else will
have the protection of TIA Section 312(c).

SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

In order to make any request or application to the Trustee to take any
action under this Indenture, the Corporation will furnish to the Trustee:

(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and

(2) an opinion of counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.

Each opinion of counsel will be in writing. The legal counsel who tenders
it may be an employee of or counsel to the Corporation. The legal counsel will
be acceptable to the Trustee.

SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture will include:

(1) a statement that the person making the certificate or opinion has
read the covenant or condition;

(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in the
certificate or opinion are based;

(3) a statement that, in the opinion of the person, he has made the
examination or investigation which is necessary to enable him to express an
informed opinion as to whether or not the covenant or condition has been
complied with; and

<PAGE>

(4) a statement as to whether or not, in the opinion of the person,
the condition or covenant has been complied with.

SECTION 12.06. WHEN TREASURY DEBENTURES DISREGARDED.

In determining whether the Holders of the required principal amount of
Debentures have concurred in any direction or consent, Debentures owned by the
Corporation or by any person directly or indirectly controlled by the
Corporation will be disregarded, except that for the purpose of determining
whether the Trustee will be protected in relying on any such direction or
consent, only Debentures which the Trustee knows are so owned will be
disregarded. Debentures which are to be disregarded because of this Section
will not be treated as outstanding in determining the principal amount of
Debentures which are required to concur in a direction or consent.

SECTION 12.07. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.

The Trustee may make reasonable rules for the administration of this
Indenture. Those rules may cover matters relating to action by, or a meeting of
Debentureholders. The Paying Agent or Registrar may make reasonable rules for
its functions.

SECTION 12.08. LEGAL HOLIDAYS.

A "Legal Holiday" is a Saturday, a Sunday, a legal holiday or a day on
which banking institutions are not required to be open in New York State. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest will accrue for the intervening period.

SECTION 12.09. GOVERNING LAW.

This Indenture and the Debentures will be governed by the laws of the State
of New York. The Corporation hereby consents to the jurisdiction of the courts
of the State of New York, and of any Federal Court, sitting in the Borough of
Manhattan, City and State of New York, in any suit to enforce rights under this
Indenture or the Debentures, and the Corporation agrees that process in any such
action may be served in the manner provided by New York law for service on
foreign corporations.

SECTION 12.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Corporation or a Subsidiary. No other indenture, loan or debt
agreement may be used to interpret this Indenture.

SECTION 12.11. NO RECOURSE AGAINST OTHERS.

As described in paragraph 16 of the Debentures, all liability of any
director, officer, employee or stockholder, as such, of the Corporation is
waived and released.

<PAGE>

SECTION 12.12. SUCCESSORS.

All agreements of the Corporation in this Indenture and the Debentures will
bind its successors. All agreements of the Trustee in this Indenture will bind
its successors.

SECTION 12.13. DUPLICATE ORIGINALS.

The parties may sign any number of copies of this Indenture. Each signed
copy will be an original, but all of them together represent the same agreement.

<PAGE>
SIGNATURES

Dated: FAMILY BARGAIN CORPORATION

Attest:

Secretary (SEAL)

Dated:

Attest:

Corporate Trust Officer (SEAL)

<PAGE>

EXHIBIT A
No. $

FAMILY BARGAIN CORPORATION

promises to pay to

or registered assigns,
the principal sum of

Dollars on

% CONVERTIBLE SUBORDINATED DEBENTURE DUE

INTEREST Payment Dates:
Record Dates:

Dated:
FAMILY BARGAIN CORPORATION

as Trustee, certifies that
this is one of the Debentures
referred to in the Indenture. By

(SEAL)

By By

Authorized Officer President

A-1

<PAGE>

FAMILY BARGAIN CORPORATION

% CONVERTIBLE SUBORDINATED DEBENTURE DUE

1. INTEREST.

FAMILY BARGAIN CORPORATION ("Corporation"), a Delaware corporation,
promises to pay interest on the principal amount of this Debenture at the rate
per annum shown above. The Corporation will pay interest semiannually on
and of each year. Interest on the Debentures will accrue from the
most recent date to which interest has been paid or if no interest has been paid
from .

2. METHOD OF PAYMENT.

The Corporation will pay interest on the Debentures (except defaulted
interest) to the persons who are registered holders of Debentures at the close
of business on the or next preceding the interest payment
date. Holders must surrender Debentures to a Paying Agent to collect principal
payments. The Corporation will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Corporation may pay principal and interest by
its check payable in such money by mailing such check to a holder's registered
address.

3. PAYING AGENT AND REGISTRAR.

Initially, IBJ Schroder Bank & Trust Corporation ("Trustee"), will act as
Paying Agent and Registrar. The Corporation may change any Paying Agent,
Registrar or co-registrar without notice. The Corporation or any of its
Subsidiaries may act as Paving Agent, Registrar or co-registrar.

4. INDENTURE.

The Corporation issued the Debentures under an Indenture dated as of
, 1996 ("Indenture"), between the Corporation and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
77aaa ET SEQ.) as in effect on the date of the Indenture. The Debentures are
subject to all those terms, and Debentureholders are referred to the Indenture
and the Act for a statement of them. Debentureholders may inspect the Indenture
at the principal executive office of the Corporation. They may obtain copies of
the Indenture upon written request to the Corporation.

5. REDEMPTION.

[After September ____, 1988, the Corporation may redeem all, but not less
than all, of the Debentures upon 30 days written notice at 100% of their
principal amount, plus accrued and unpaid interest, provided the closing price
of the Common Stock for a consecutive 20-day

A-2

<PAGE>

trading period ending not more than 10 days prior to the date the notice of
redemption is given is at least 137.5% of the Conversion Price at the time the
notice of redemption is given.]

On or after September____, 1999, the Corporation may redeem all the
Debentures at any time, or some of them from time to time, upon 30 days written
notice at the following redemption prices (expressed in percentages of principal
amount), plus accrued interest to the redemption date:

If redeemed during the 12-month period beginning September __:

Year Percentage Year Percentage
---- ---------- ---- ----------
1999 107% 2001 103%
2000 105% 2002 102%

and thereafter at 100%.

6. NOTICE OF REDEMPTION.

Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of Debentures to be redeemed at
his registered address. Debentures in a denomination larger than $1000 may be
redeemed in part. On and after the redemption date interest ceases to accrue on
Debentures or portions of them called for redemption.

7. DENOMINATIONS; TRANSFER; EXCHANGE.

The Debentures are in registered form without coupons in denominations of
$1000 and any integral multiple of $1000. A holder may transfer or convert
Debentures in accordance with the Indenture. The Registrar may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or convert any Debenture selected
for redemption. Also, it need not transfer or convert any Debentures for a
period of 15 days before a selection of Debentures to be redeemed.

8. PERSONS DEEMED OWNERS.

The registered holder of a Debenture may be treated as the owner of it for
all purposes.

9. UNCLAIMED MONEY.

If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent will pay the money back to the Corporation.
After that, holders entitled to the money must look to the Corporation for
payment unless an abandoned property law designates another person.

10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.

A-3

<PAGE>

If the Corporation at any time deposits with the Trustee money or U.S.
Government Obligations sufficient to pay principal and interest on the
Debentures to redemption or maturity, the Corporation will be discharged from
the Indenture and the Debentures (other than with regard to conversion of the
into Common Stock Debentures which have not been redeemed or matured), and
Debentureholders must look only to the deposited money and securities for
payment. U.S. Government Obligations are securities backed by the full faith
and credit of the United States.

11. AMENDMENT, SUPPLEMENT, WAIVER.

Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the Debentures, and any past default or compliance with
any provision may be waived with the consent of the holders of a majority in
principal amount of the Debentures. Without the consent of any Debentureholder,
the Corporation may amend or supplement the Indenture or the Debentures to cure
any ambiguity, omission, defect or inconsistency, to provide for uncertificated
Debentures in addition to or in place of certificated Debentures, to make this
Indenture and the Debentures comply with the Trust Indenture Act of 1939, as
amended, or to make any other change that does not adversely affect the rights
of any Debentureholder. Without the consent of any Debentureholder, the Trustee
may waive compliance with any provision of the Indenture or the Debentures if
the waiver does not adversely affect the rights of any Debentureholder.

12. SUBORDINATION OF DEBENTURES.

Payment of principal on (and premium, if any) and interest on the
Debentures is subordinate and subject to the prior payment in full of
indebtedness of the Corporation which constitutes Senior Indebtedness. By
accepting this Debenture, the holder agrees to that subordination.

13. CONVERSION RIGHTS.

This Debenture may be converted into common stock of the Corporation (or
other securities or assets issued with regard to that common stock) at the rate
of $ principal amount of Debentures per share, subject to adjustment in
certain events.

14. SUCCESSOR CORPORATION.

When a successor corporation assumes all the obligations of its predecessor
under the Debentures and the Indenture, the predecessor corporation will be
released from those obligations.

15. DEFAULTS AND REMEDIES.

Events of Default include: default for 30 days in payment of any interest
on the Debentures; default in payment of any principal on them; failure by the
Corporation for 90 days after notice to it to comply with any of its other
agreements in the Indenture or the Debentures;

A-4

<PAGE>

default by the Corporation under any instrument relating to Senior Indebtedness
beyond any period of grace which is not cured or waived; and certain events of
bankruptcy or insolvency. If an Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in principal amount of the Debentures may
declare the principal of all the Debentures to be due and payable immediately.
Debentureholders may not enforce the Indenture or the Debentures except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Debentures unless it receives indemnity satisfactory to it. Subject to
certain limitations, holders of a majority in principal amount of the Debentures
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Debentureholders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests.

16. NO RECOURSE AGAINST OTHERS.

A director, officer, employee or stockholder, as such, of the Corporation
will not have any liability for any obligations of the Corporation under the
Debentures or the Indenture or for any claim based on, in respect of or by
reason of those obligations or their creation. Each Debentureholder by
accepting a Debenture waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Debentures.

17. AUTHENTICATION.

This Debenture will not be valid until the Trustee signs the certificate of
authentication on the other side of this Debenture.

18. ABBREVIATIONS.

Customary abbreviations may be used in the name of a Debentureholder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entirety), JT TEN (= joint tenants with right of survivorship and not as tenants
in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

The Corporation will furnish to any Debentureholder upon written request and
without charge a copy of the Indenture. It also will furnish the text of this
Debenture in larger type. Requests may be made to: [ ].

A-5

<PAGE>

I or we assign and transfer to

Insert social security or other
identifying number of assignee

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
(print or type name, address and zip code of assignee)

this Debenture and irrevocably appoint
--------------------------------------

- -------------------------------------------agent to transfer this Debenture on
the books of the Corporation.

The agent may substitute another to act for him.

Dated:
-------------------------------------------------

Signed:
------------------------------------------------

(Sign exactly as name appears on the other side of this Debenture)

A-6

<PAGE>

CONVERSION NOTICE

To convert this Debenture into shares of common stock, par value $.01
per share, of the Corporation, check the box: / /

To convert only part of this Debenture, state the principal amount you
want to be converted (which must be a minimum of $1,000 or any multiple
thereof): $
-------------

If you want the certificate made out in another person's name, fill in
the form below:

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
(Print or type other person's name, address and zip code)

Dated:
----------------------------------------------------------------

Signed:
---------------------------------------------------------------

(Sign exactly as name appears on the other side of this Debenture)

A-7

EXHIBIT 10.9

AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------

THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 31st day of March, 1995, 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, effective as of December 31, 1994, Original Lender was
merged with and into Lender (then known as Greyhound Financial Corporation),
with Lender being the surviving corporation of such merger, and Lender succeeded
to all the rights and obligations of Original Lender under the Loan Agreement
and the Loan Documents; and

WHEREAS, Borrower has requested that Lender amend the Loan
Agreement to provide Borrower with the right to borrow additional sums from
Lender, up to a total amount of $1,600,000, for purposes of financing certain
Capital Expenditures to be incurred by Borrower; and

WHEREAS, Lender is willing to enter into this Amendment to so
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 consideration 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 shall
have the same meaning as set forth in the Loan Agreement.

2. LOAN AGREEMENT. Provided the conditions precedent
--------------
described in Section 4 of this Amendment are met to the satisfaction of Lender,
the Loan Agreement is modified as follows:

<PAGE>
2.1 The Loan Agreement is hereby amended by adding the following
definitions:

"Capex Advances" shall mean any portion of the Capital
Expenditure Line made available to Borrower pursuant to Paragraph
2(H) or, when stated in the singular, any individual disbursement
under the Capital Expenditure Line.

"Capex Note" shall mean that certain promissory note, in the
original principal amount of up to $1,600,000, dated as of the
Second Amendment Effective Date, which shall evidence the
obligations of Borrower to Lender in respect of amounts advanced
under the Capital Expenditure Line.

"Capital Expenditure Line" shall mean that portion of the Total
Facility, in the principal amount of up to $1,600,000, which
shall be made available to Borrower following the Second
Amendment Effective Date, in accordance with the terms and
conditions set forth in Paragraph 2(H).

"Second Amendment" shall mean that certain Amendment No. 2 to
Loan and Security Agreement between Lender and Borrower dated as
of March 31, 1995.

"Second Amendment Effective Date" shall mean April 26, 1995, the
date upon which the Second Amendment became effective.

2.2 All references in the Loan Agreement to the "Obligations"
shall be deemed to include, in addition to the Inventory Loans and the
Overlines, all obligations of Borrower to Lender in respect of Indebtedness
arising under the Capital Expenditure Line or evidenced by the Capex Note; all
references to the "Total Facility" shall be deemed to include the Inventory
Loans, the Capital Expenditure Line, and the Overlines; all references to the
"Loan Documents" shall be deemed to refer to any such Loan Document as the same
may be amended as of the Second Amendment Effective Date, or as the same may
subsequently be modified, amended, renewed or restated, and shall specifically
include the Capex Note. All references in the Loan Documents to the "Note" or
the "Notes" shall be deemed to include the Capex Note.

2.3 Paragraph 2(A) of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:

(A) Total Facility. Upon the terms and conditions set
--------------
forth herein and provided that no Event of Default or event which,
with the giving of notice or the passage of time, or both, would
constitute an Event of Default,

- 2 -

<PAGE>
shall have occurred and be continuing, Lender shall, upon Borrower's
request, make advances to Borrower from time to time (a) in an
aggregate outstanding principal amount not to exceed Sixteen Million
Three Hundred and Fifty Thousand Dollars ($16,350,000) through May 31,
1995 (inclusive of the Overline facility granted by that certain
letter from Original Lender to Borrower dated September 2, 1994), and
(b) on and after June 1, 1995, in an aggregate outstanding principal
amount of not to exceed Fifteen Million Six Hundred Thousand Dollars
($15,600,000) (in either case, as applicable, the "Total Facility"),
each instance of the Total Facility being subject to deduction of
reserves as Lender deems proper from time to time in exercise of its
reasonable credit judgment, which reserves may include, upon and
during the continuance of an Event of Default, accrued interest and
other reserves as Lender deems proper.

2.4 Paragraph 2 of the Loan Agreement is hereby amended to add a
new Paragraph 2(H) as follows:

(H) Capital Expenditure Line. The Capital Expenditure Line
------------------------
shall be made available to Borrower following the Second Amendment
Effective Date in one or more Capex Advances, subject to the following
terms and conditions: (a) Borrower shall have satisfied all
conditions precedent to Borrower's right to obtain subsequent advances
under the Inventory Loans, as set forth in Part II of Exhibit D to the
Loan Agreement, as referenced by Paragraph 12 hereof; (b) no Capex
Advances shall be made which, without giving effect to any
amortization or repayment of the Capex Note which has occurred
following the Second Amendment Effective Date, would cause the total
amount advanced by Lender under the Capital Expenditure Line to exceed
One Million Six Hundred Thousand Dollars ($1,600,000.00); (c) Borrower
must be in full compliance with all terms and conditions of the Loan
Documents at the time of each Capex Advance, and Borrower must
demonstrate that, after giving effect to the Capex Advance requested,
Borrower will continue to be in compliance with the covenants
described in Paragraph 22 hereof, as demonstrated on a pro-forma basis
for the preceding twelve (12) month period; (d) each Capex Advance
shall be applied by Borrower to finance Capital Expenditures for the
purchase of new equipment (including software applicable thereto) for
installation, training, supplies, and ancillary or accessory items
with respect to such equipment; (e) Borrower shall have notified
Lender in writing not less than one (1) Business Day prior to the date
upon which the Capex Advance is to be made, specifying the amount of
such advance and the Capital Expenditure to be financed thereby; (f)
each Capex Advance (other than a Capex Advance which makes the
aggregate of all Capex Advances equal to $1,600,000.00) shall be in
the amount of at least $100,000.00; (g) Lender

- 3 -

<PAGE>
shall be satisfied that it will receive a purchase money security
interest in the item being financed by the Capex Advance; (h) the
amount of any Capex Advance shall not exceed one hundred percent
(100%) of the purchase price or cost of the Capital Expenditures being
acquired; and (i) there shall be no limit on the number of Capex
Advances which Borrower may request during a particular calendar
month; provided that Borrower exercises reasonable discretion with
-------- ----
respect to the number of such advances and further provided that
------- -------- ----
Lender shall have no obligation to fund any Capex Advances after the
three (3) month anniversary of the Second Amendment Effective Date.
Lender reserves the right, at its discretion, to make any Capex
Advance by funding directly to the seller of the Capital Expenditure
being financed, and to require the filing of a UCC-1 financing
statement prior to such funding, if Lender deems such to be necessary
or appropriate in order to assure itself of a purchase money security
interest in the Capital Expenditure item.

2.5 Paragraph 3 of the Loan Agreement is hereby amended to add a
new paragraph 3(J) as follows:

(J) Lender shall be entitled to pay monthly amounts due
under the Capex Note, or any other amounts due and owing to Lender
pursuant to the Loan Documents, by making an advance and adding the
amount of such payment to the then outstanding principal balance of
the Inventory Loans. In the event Lender makes an advance for the
foregoing purposes, Lender shall notify Borrower in writing of such
advance within five (5) Business Days thereafter. Any amounts so
advanced shall continue to be secured by all the Collateral until the
same have been paid in full.

2.6 Paragraph 7 of the Loan Agreement is hereby amended to add a
new Paragraph 7(G) as follows:

(G) The principal balance of all outstanding Capex
Advances, and all accrued interest thereon (calculated at the interest
rate set forth in the Capex Note), shall be paid in accordance with
the provisions of the Capex Note. Any remaining principal and any
other sums due and owing in respect of amounts outstanding under the
Capital Expenditure Line, plus accrued and unpaid interest thereon,
shall be due and payable on the Maturity Date set forth in the Capex
Note.

2.7 Paragraph 15(I) of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:

(I) Capital Expenditures. Make or incur any Capital
--------------------
Expenditure except to the extent set forth in this paragraph.
Borrower shall be

- 4 -

<PAGE>
permitted to make or incur Capital Expenditures during each fiscal
year of Borrower in an aggregate amount not in excess of the sum of
(i) Two Million Dollars ($2,000,000.00), provided that all Capital
Expenditures incurred pursuant to this clause (i) are made only out of
Borrower's internally generated funds plus (ii) Three Million Seven
Hundred Thousand Dollars ($3,700,000.00) through Borrower's fiscal
year ending January 31, 1995 and Five Million Dollars ($5,000,000.00)
for each fiscal year thereafter, provided that all Capital
Expenditures incurred pursuant to this clause (ii) are made from (A)
the proceeds of capital contributions made by Guarantor to Borrower,
(B) the proceeds of Permitted Guarantor Indebtedness or (C) the
proceeds of Permitted Equipment Indebtedness. The foregoing
notwithstanding, all Capital Expenditures made pursuant to the
borrowings by Borrower under the Capital Expenditure Line shall be
excluded from the foregoing covenant, and Borrower shall be permitted
to make Capital Expenditures to the full extent permitted by this
Paragraph 15(I) in addition to any Capital Expenditures made through
borrowings under the Capital Expenditure Line.

2.8 Borrower and Lender hereby agree that Borrower shall only be
permitted to terminate the Loan Agreement provided that Borrower prepays
all of the outstanding Obligations, including all outstanding Capex
Advances. In the event Borrower chooses to terminate the Loan Agreement,
in addition to the Termination Fee required by Paragraph 17(D), Borrower
shall pay the prepayment premium applicable to the Capital Expenditure Line
as provided in Paragraph 17(E) which is hereafter set forth. Lender has
agreed that Borrower shall be entitled to prepay the Capital Expenditure
Line without prepaying the remaining Obligations or otherwise terminating
the Loan Agreement. Accordingly, Paragraph 17 of the Loan Agreement is
hereby amended to add the following additional provision as new Paragraph
17(E) thereof, which allows for prepayment of the Capital Expenditure Line
alone, and further provides the prepayment premium applicable to any
prepayment of the Capital Expenditure Line, whether such prepayment
accompanies a termination of the Loan Agreement or not:

(E) Borrower may voluntarily prepay the principal balance
of the Capital Expenditure Line in whole, but not in part, at any
time, subject to the following conditions:

(a) Not less than thirty (30) days prior to the date
upon which Borrower desires to make such prepayment, Borrower
shall deliver to Lender written notice of its intention to
prepay, which notice shall be irrevocable and state the
prepayment date; and

(b) Borrower shall pay to Lender concurrently with any
such prepayment (I) an amount equal to one percent (1.0%) of the

- 5 -

<PAGE>
then outstanding principal balance of the Capital Expenditure
Line as of the date of such prepayment, in the event such
prepayment occurs within the one year period following the Second
Amendment Effective Date, but without any obligation under this
clause (I) in the event any such prepayment occurs after the one
year anniversary of the Second Amendment Effective Date; (II)
accrued and unpaid interest through the date of such prepayment
on the principal balance being prepaid; and (III) any and all of
the Borrower's other Obligations in respect of the Capital
Expenditure Line which remain unpaid.

3. AMENDMENT FEE. Concurrently with the full execution hereof,
-------------
Borrower agrees to pay to Lender an amendment fee in the amount of $6,000.00
which Borrower acknowledges is fully earned by Lender upon execution by Lender
of this Agreement and which fee may be deducted from the first loan advance made
following the Second Amendment Effective Date.

4. CONDITIONS PRECEDENT. The modifications described in Section 2
--------------------
of this Amendment and the obligations of Lender set forth in 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:

(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 Second Amendment;

(ii) The Consent Agreement from the Guarantor;

(iii) Such amendments to the Affiliate Debt
Subordination Agreement as Lender shall require, which amendment
shall, without limitation, include provisions acknowledging that all
amounts advanced under the Capital Expenditure Line shall, for all
purposes, be included within the definition of "Senior Indebtedness"
as such term is used in the Affiliate Debt Subordination Agreement;

(iv) Such amendments to the Intercreditor Agreement as
Lender shall require, which amendment shall, without limitation,
include provisions acknowledging that all amounts advanced under the
Capital Expenditure Line shall, for all purposes be included within
the definition "Working Capital Loan" as such term is used in the
Intercreditor Agreement;

- 6 -

<PAGE>
(v) Such amendments to the Subordination Agreement as
Lender shall require, which amendment shall, without limitation,
include provisions acknowledging that all amounts advanced under the
Capital Expenditure Line shall, for all purposes, be included within
the definition "Working Capital Loan," as such term is used in the
Subordination Agreement;

(vi) Any consents deemed necessary by Lender;

(vii) A corporate resolution of Borrower approving the
transactions contemplated hereby to which it is a party;

(viii) A corporate resolution of Guarantor approving the
transactions contemplated hereby to which it is a party;

(ix) An opinion from Borrower's and Guarantor's
counsel, which counsel must be acceptable to Lender, with respect to
such matters as Lender shall require.

(x) Such other items as Lender may require.

(b) Lender shall have received a certificate of corporate status
with respect to each of Borrower and Guarantor, dated within ten (10) days of
the date hereof by the Secretary of State of the state of incorporation of
Borrower and Guarantor, respectively, which certificate shall indicate that
Borrower and Guarantor are in good standing in such state;

(c) 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.

(d) 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.

(e) Lender shall have reviewed and approved a current UCC search
on Borrower.

(f) Borrower shall have paid the amendment fee described in
Section 3 above, 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.

- 7 -

<PAGE>
5. INDEBTEDNESS ACKNOWLEDGED. Borrower acknowledges that the
-------------------------
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
the 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.

6. 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.

7. 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.

8. RATIFICATION OF TERMS AND CONDITIONS. All terms, conditions and
------------------------------------
provisions of the Loan Agreement, and of each of the other Loan Documents shall
continue 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.

9. 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.

10. BENEFIT OF THE AMENDMENT. The terms and provisions of this
------------------------
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.

11. CHOICE OF LAW. The Loan Documents and this Amendment shall be
-------------
performed and construed in accordance with the laws of the State of Arizona.

- 8 -

<PAGE>
12. ENTIRE AGREEMENT. Except as modified by this Amendment, the
----------------
Loan Documents remain in full force and effect. 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.

13. COUNTERPARTS; TELECOPY EXECUTION. This Amendment 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 affect of this Amendment.

14. EFFECTIVENESS OF AMENDMENT. This Amendment shall not be
--------------------------
effective until the same is executed and delivered by the parties hereto and all
conditions set forth in Section 4 hereof have been satisfied (such date being
hereinafter referred to as the "Second Amendment Effective Date").

FINOVA CAPITAL CORPORATION, A
Delaware corporation, successor-by-merger to
Greyhound Financial Capital Corporation, an
Oregon corporation

By: /s/ Carlos Villes
-----------------------------------------
Name: Carlos Villes
Title: Vice President

GENERAL TEXTILES, a California corporation

By: /s/ B Chris Schwartz
-----------------------------------------
Name: B Chris Schwartz
Title: President & CEO

- 9 -

<PAGE>

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 Amendment No. 2 to Loan and Security Agreement (the "Second 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 Second Amendment, and
shall further include all additional amounts which may be funded or advanced to
Borrower pursuant to the Loan Agreement as amended by the Second Amendment,
including, without limitation, all Capex Advances and all amounts evidenced by
the Capex Note, 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.

IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent
as of this 31st day of March, 1995.

FAMILY BARGAIN CORPORATION, A
Delaware corporation

By: /s/ John A. Selzer
-------------------------------
Name: John A. Selzer
Title: President

- 10 -

EXHIBIT 10.10

AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------

THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of this 27th day of July, 1995, 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 has asked Lender to modify the Loan Agreement
in accordance with the terms of, and subject to the conditions contained in,
this Amendment in order to, inter alia, increase the Total Facility and modify
----- ----
certain of the covenants binding upon Borrower; and

WHEREAS, Lender is willing to enter into this Amendment to so
amend the Loan Agreement, upon the terms and conditions set forth herein.

<PAGE>

2. LOAN AGREEMENT. Provided the conditions precedent
--------------
described in Section 4 of this Amendment are met to the satisfaction of Lender,
the Loan Agreement is modified as follows:

2.1 The Loan Agreement is hereby amended by adding the following
definitions:

"Special Purpose Line" shall have the meaning set forth in
Paragraph 2(D) of the Loan Agreement.

2.2 The following definition added to the Loan Agreement
pursuant to the First Amendment, shall be amended and restated in its
entirety to read as follows:

"Adjusted Total Facility" shall mean, at any given time, the
Total Facility (other than the portion of the Total Facility represented by
the Capital Expenditure Line).

2.3 Paragraphs 2(A) and 2(B) of the Loan Agreement are hereby
amended and restated in their entirety to read as follows:

2(A) Total Facility. Upon the terms and conditions set
--------------
forth herein and provided that no Event of Default or event which, with the
giving of notice or the passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing, Lender shall, upon
Borrower's request, make advances to Borrower from time to time in an
aggregate outstanding principal amount not to exceed Twenty-One Million Six
Hundred Thousand Dollars ($21,600,000) (the "Total Facility"), subject to
deduction of reserves as Lender deems proper from time to time in exercise
of its reasonable credit judgment, which reserves may include, upon and
during the continuance of an Event of Default, accrued interest and other
reserves as Lender deems proper.

2(B) Loans. Advances of the Total Facility shall be
-----
comprised of the following:

- 2 -

<PAGE>
Advance Rate to sixty percent (60%) at times mutually agreeable
to Lender and Borrower, based upon projections supplied by
Borrower and acceptable to Lender, in its sole discretion,
indicating that Borrower requires additional working capital for
seasonal purchases of inventory;

(ii) Capital Expenditure Line. The Capital
--------------------------
Expenditure Line in such amounts and on such terms as are set
forth in the Second Amendment and in the Capex Note.

2.4 The Loan Agreement shall be amended with the addition of a
Paragraph 2(D) reading as follows:

Provided that all conditions precedent to the
obligation of Lender to make an advance of the Inventory Loans have
been satisfied, Borrower shall have the right, from time to time, upon
written request to Lender, to obtain advances of the proceeds of the
Inventory Loans pursuant to the provisions of this Paragraph (such
advances, hereinafter the "Special Purpose Line"), the proceeds of
which shall be used by Borrower to finance special purchases of
inventory. Borrower shall not have the right to obtain an advance of
the Special Purpose Line if such advance would cause the aggregate
unpaid principal balance of the Inventory Loans to exceed $20,000,000.
Borrower shall, however, have the right to obtain an advance of the
Special Purpose Line even if such advance would cause the aggregate
unpaid principal balance of the Inventory Loans to exceed the amount
obtained when the Advance Rate is multiplied by the value of
Borrower's Eligible Inventory, calculated at the lower of cost or
market and determined on a first-in, first out basis.

2.5 Paragraph 3(A) of the Loan Agreement shall be amended and
restated in its entirety to read as follows:

- 3 -

<PAGE>
hereunder on the first day following the announcement of such change,
provided, that a cumulative change of less than one-fourth of one
--------
percent (0.25% shall not be considered. Interest charges and all
other fees and charges herein shall be computed on the basis of a year
of 260 days and actual days elapsed and will be payable to Lender in
arrears on the first day of each month hereafter at its address set
forth in Exhibit B of the Original Agreement.

2.6 The provisions of Paragraph 3(B) of the Original Agreement, which
were deleted from the provisions of the Original Agreement pursuant to the First
Amendment, shall be inserted into the Original Agreement and shall read as
follows:

(B) Minimum Interest Charge. With respect to each calendar
-----------------------
month or portion thereof during the term of this Agreement, Borrower
shall also pay to Lender on the first day of the next month, as a
minimum charge, the amount by which accrued interest paid pursuant to
Paragraph 3(A) for such month or portion thereof is less than $25,000
(the "Minimum Interest Charge"), provided, however, that during any
-------- -------
three calendar months selected by Borrower during each Loan Year, no
Minimum Interest Charge shall be due; and further provided that as of
------- -------- ----
the end of any Loan Year, if Lender has not received accrued interest
pursuant to paragraph 3(A) in an amount equal to at least $300,000,
with such payment to be due within 15 days following the end of such
Loan Year. With respect to the foregoing three calendar months in
which no Minimum Interest Charge shall be due, Borrower shall be
permitted to forego the payment of the Minimum Interest Charge during
a particular calendar month only if Borrower has given Lender written
notice to that effect on or before the 25th day of the previous month.
Notwithstanding the occurrence of any Event of Default hereunder or
termination of this Agreement by Lender as a result thereof, the
Minimum Interest Charge shall be paid by Borrower for the unexpired
portion of the Initial Term or any Renewal Term of this Agreement.
However, in the event Borrower terminates this Agreement pursuant to
the provisions of paragraph 17(D) hereof, not as a result of the
occurrence of any Event of Default, no Minimum Interest Charge shall
be due with respect to the period of time following the effective date
of such termination.

2.7 Paragraph 3 of the Original Agreement is hereby amended to
add a new Paragraph 3(K) as follows:

(K) Special Purpose Line Fee. During each month or portion
------------------------
thereof that all or any part of the Special Purpose Line is
outstanding, Borrower

- 4 -
<PAGE>

shall pay to Lender a fee in the amount of $1,000 which shall be due and
payable concurrently with the making of the first advance of the Special
Purpose Line made during such month and is fully earned by Lender upon
full execution of this Amendment in consideration of Lender's agreement
to hold itself willing and able to advance the proceeds of the Special
Purpose Line upon the terms and conditions herein set forth.

2.8 The provisions of Paragraph 17(C) of the Original Agreement
shall be amended with the addition of the following sentence to appear
immediately following the first sentence in that paragraph:

Notwithstanding the foregoing, unless this Agreement is sooner
terminated, the principal balance of each advance of the Special Purpose
Line and all accrued interest due and owing on such advance shall be due
and payable in full on a date which shall be mutually agreeable to
Borrower and Lender at the time of the making of such advance, not to
exceed, however, the date which is 120 days from the date of the making
of such advance.

2.9 The provisions of Paragraph 23 of the Addendum, as amended by
Paragraph 2.14 of the First Amendment, is hereby amended and restated in its
entirety to read as follows:

23. Unused Line Fee. To the extent that the average
---------------
unpaid balance of the Inventory Loans does not exceed the Adjusted
Total Facility, then Borrower shall pay to Lender a fee (the "Unused
Line Fee") at a rate equal to one quarter percent (1/4%) per annum on
the amount by which the Adjusted Total Facility exceeds such average
daily unpaid balance. Such fee shall be payable to Lender in arrears
on the first Business Day of each fiscal quarter of Borrower and shall
be deemed earned at the time such fee accrues.

2.10 The provisions of Paragraph 17(D) of the Original Agreement
as amended by Paragraph 2.11 of the First Amendment, shall be amended and
restated in its entirety to read as follows:

(D) Early Termination; Termination Fee. In addition to
----------------------------------
the procedures set forth in Paragraph 17(A), Borrower may terminate
this Agreement at any time upon sixty (60) days' prior written notice
and prepay the Obligations. Upon any such early termination by Borrower
or any termination of this Agreement by Lender upon the occurrence of
an Event of Default, then, and in any such event, Borrower shall pay to
Lender upon the effective date of such termination a fee ("Termination
Fee") in an amount equal to Twenty Thousand Dollars ($20,000.00)
multiplied by the number of full or partial calendar months between the
effective date of such termination and

-5-

<PAGE>

October 14, 1996. The Termination Fee shall be presumed to be the
amount of damages sustained by Lender as a result of the early
termination, and Borrower agrees that because it is difficult to
calculate such damages, the Termination Fee provided for herein is
reasonable under the circumstances.

2.11 The provisions of Paragraph 22 of the Addendum, as amended by
Paragraph 2.13 of the First Amendment, shall be amended and restated in its
entirety to read as follows:

22. Debt Service Coverage Ratio. Borrower covenants that,
---------------------------
so long as any Obligation remains outstanding and this Agreement is in
effect, it shall maintain a ratio of Operating Cash Flow to Senior
Contractual Debt Service of no less than 1.6 to 1.0. For purposes
hereof, the term Operating Cash Flow shall mean, for any period,
Borrower's net income or loss (excluding the effect of any extraordinary
gains or losses from sales of property not in the ordinary course of
business), determined in accordance with generally accepted accounting
principles, plus each of the following items to the extent deducted from
----
the revenues of Borrower in the calculation of net income or loss: (i)
depreciation; (ii) amortization; (iii) interest expense paid or accrued;
(iv) non-cash rent expense; (v) amortization of debt discount; (vi)
amortization of deferred finance costs; (vii) amortization of goodwill;
(viii) amortization of store operating costs; and (ix) nonrecurring non-
cash charges; less all actual Capital Expenditures made during such
----
period but only to the extent of those Capital Expenditures made out of
Borrower's internally generated funds; and plus any tax refunds received
----
by Borrower under the Tax Allocation Agreement (as defined in Paragraph
44 of the Addendum), to the extent not included in net income. For
purposes hereof, Senior Contractual Debt Service shall mean for any
period, the sum of payments made or required to be made by Borrower
during such period for interest and scheduled principal payments due on
each of (i) the Indebtedness owed to Lender, (ii) the Westinghouse Debt,
(iii) the Guilford Term Debt together with scheduled principal and
interest payments and lease payments due on Permitted Equipment
Indebtedness and on the Permitted Guarantor Indebtedness. Borrower
further covenants that, so long as any Obligation remains outstanding
and this Agreement is in effect, it shall, at all times after such time
as the Permitted Addition Indebtedness has been incurred, maintain a
ratio of Operating Cash Flow to Contractual Debt Service of no less than
1.4 to 1.0, in addition to the ratio set forth above. For purposes
hereof, Contractual Debt Service shall mean, for any period, the sum of
payments made or required to be made by Borrower during such period for
interest and scheduled principal payments due on any and all
Indebtedness of Borrower. The foregoing covenants shall be tested
monthly. The foregoing covenants shall be tested monthly, on a rolling
12-month basis.

-6-

<PAGE>

3. Amendment Fee. Concurrently with the full execution hereof,
-------------
Borrower agrees to pay to Lender an amendment fee in the amount of $40,000.00
which Borrower acknowledges is fully earned by Lender upon execution by
Lender of this Agreement and which fee may be deducted from the first loan
advance made following the date hereof.

4. Conditions Precedent. The modifications described in Section 2 of
--------------------
this Amendment and the obligations of Lender set forth in 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.

(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 Third Amendment;

(ii) The Consent Agreement from the Guarantor;

(iii) Such Amendments to the Affiliate Debt
Subordination Agreement as Lender shall require, which amendment shall,
without limitation, include provisions acknowledging that the increase
in the Total Facility shall, for all purposes, be included within the
definition of "Senior Indebtedness" as such term is used in the
Affiliate Debt Subordination Agreement;

(iv) Such amendments to the Intercreditor Agreement
as Lender shall require, which amendment shall, without limitation,
include provisions acknowledging that the increase in the Total Facility
shall, for all purposes be included within the definition "Working
Capital Loan" as such term is used in the Intercreditor Agreement;

(v) Such amendments to the Subordination Agreement
as Lender shall require, which amendment shall, without limitation,
include provisions acknowledging that the increase in the Total Facility
shall, for all purposes, be included within the definition "Working
Capital Loan", as such term is used in the Subordinate Agreement;

(vi) Any consents deemed necessary by Lender;

(vii) A corporate resolution of Borrower approving the
transactions contemplated hereby to which it is a party;

-7-

<PAGE>

(viii) A corporate resolution of Guarantor approving
the transactions contemplated hereby to which it is a party;

(ix) An opinion from Borrower's and Guarantor's
counsel, which counsel must be acceptable to Lender, with respect to
such matters as Lender shall require.

(x) Such other items as Lender may require.

(b) Lender shall have received a certificate of corporate
status with respect to each of Borrower and Guarantor, dated within ten
(10) days of the date hereof by the Secretary of State of the state of
incorporation of Borrower and Guarantor, respectively, which certificate
shall indicate that Borrower and Guarantor are in good standing in such
state;

(c) 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.

(d) 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.

(e) Lender shall have reviewed and approved a current UCC
search on Borrower

(f) Borrower shall have paid the amendment fee described in
Section 3 above, all closing costs, recording fees and taxes, appraisal
fees and expenses, travel expenses, fees and expenses of Lender's
counsel, and all others 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.

5. Indebtedness Acknowledged. Borrower acknowledges that the
-------------------------
indebtedness evidenced by the Loan Documents is just and owing and agrees to
pay the 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-

<PAGE>

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.

7. 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.

8. Ratification of Terms and Conditions. All terms, conditions
------------------------------------
and provisions of the Loan Agreement, and of each of the other Loan Documents
shall continue 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. Without limiting
the generality of the foregoing, Borrower reaffirms its obligation to deliver
to Lender Landlord's Consents with respect to all of Borrower's facilities in
which Collateral is or is intended to be kept or maintained and further
acknowledges that Lender has not waived its right to require the delivery of
such Landlord's Consents.

9. 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.

10. Benefit of the Amendment. The terms and provisions of this
------------------------
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the
prior written consent of Lender.

11. Choice of Law. The Loan Documents and this Amendment shall be
-------------
performed and construed in accordance with the laws of the State of Arizona.

12. Entire Agreement. Except as modified by this Amendment, the
----------------
Loan Documents remain in full force and effect. 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.

-9-

<PAGE>

13. Counterparts; Telecopy Execution. This Amendment 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 affect of this Amendment.

FINOVA CAPITAL CORPORATION, a
Delaware corporation, successor-by-merger to
Greyhound Financial Capital Corporation, an
Oregon corporation

By: /s/ CARLOS VALLES
-----------------------
Name: Carlos Valles
Title: Vice President

GENERAL TEXTILES, a California corporation

By: /s/ S. GERSTEL
-----------------------
Name: S. Gerstel
Title: S.V.P.

-10-

<PAGE>

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 Amendment NO. 3 to Loan and Security Agreement (the "Third
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 Third Amendment, and shall further include all additional amounts
which may be funded or advanced to Borrower pursuant to the Loan Agreement
as amended by the Third Agreement, 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.

IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent
as of this 27th day of July, 1995.

FAMILY BARGAIN CORPORATION, a
Delaware corporation

By: /s/ JOSEPH EIGER
-----------------------
Name: Joseph Eiger
Title: E.V.P.

-11-

Exhibit 10.11

AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------

THIS AMENDMENT NO 4 TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is entered into as of this 10th day of November, 1995, 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 ("Original Lender") entered into a Loan and Security.
Agreement dated as of October 14, 1993 (the "Original Agreement"), which was
amended by an Amendment No. I to Loan and Security Agreement dated as of July I
1, 1994 (the "First Amendment"), by an Amendment No. 2 to Loan and Security
Agreement dated as of March 31, 1995 (the "Second Amendment") and by an
Amendment No. 3 to Loan and Security Agreement dated as of July 27, 1995 (the
"Third Amendment"); the Original Agreement, as amended by the First Amendment,
the Second Amendment and the Third Amendment, being heremafter collectively
referred to as the "Loan Agreement") that evidences a loan from Lender to
Borrower; and

WHEREAS, effective as of December 31, 1994, Original Lender was merged
with and into Lender (then known as Greyhound Financial Corporation), with
Lender being the surviving corporation of such merger, and Lender succeeded to
all the rights and obligations of Original Lender under the Loan Agreement and
the Loan Documents; 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 in order to, inter alia, provide for seasonal advance rates; and
------------

WHEREAS, Lender is willing to enter into this Amendment to so amend
the Loan Agreement, upon the terms and conditions set forth herein.

1. Definitions. Unless otherwise defined in this Amendment, all
-------------
capitalized terms used herein which are defined in the Loan Agreement shall have
the same meaning as set forth in the Loan Agreement.

<PAGE>

2. Loan Agreement. Provided the conditions precedent described in
----------------
Section 3 of this Amendment are met to the satisfaction of Lender, the Loan
Agreement is modified as follows:

2.1 The Loan Agreement is hereby amended by adding the
following definition:

"Fourth Amendment Effective Date": means November 10 1995.
--

2.2 New Paragraph 14(P) is hereby added to the Loan Agreement
to read in its entirety. as follows:

(P) Installation of Point of Sale System. Borrower shall
--------------------------------------
have installed a point-of-sale register and inventory control system
at all Locations of Collateral described on Exhibit A-I hereto not
------------
later than June 30, 1996, and such point-of-sale system shall be
generating reports by that date.

2.3 Section 32 of the Addendum to the Loan Agreement ts hereby
amended to read in its entirety as follows:

32. Inventony Loans. Subparagraph 2(B)(ii) of the Loan
-----------------
Agreement shall be modified in its entirety to read as follows:

(ii) Inventory Loans: A revolving line of credit
-----------------
consisting of loans against Borrower's Eligible Inventory
("Inventory Loans") in an aggregate outstanding principal
amount not to exceed the positive amount obtained when the
Advance Rate is multiplied bv the value of Borrower's
Eligible Inventory, calculated at the lower of cost or
market and determined on a first-in, first-out basis. The
Advance Rate shall equal fifty percent (50%) during the
period commencing January 1 through March 31 of each year,
fifty-five percent (55%) during the period commencing April
I through May 31 of each year, and sixty percent (60%)
during the period commencing June I through December 31 of
each year.

2.4 Section 17(A) of the Loan Agreement is hereby amended to
read in its entirety as follows:

(A) Term. The initial term of this Agreement shall be three
-----
(3) years from the Fourth Amendment Effective Date (the "Initial
Term") and shall be automatically renewed at the discretion of Lender
for successive

- 2 -

<PAGE>

periods of one (1) year each (each, a "Renewal Term"), unless earlier
terminated as provided herein.

2.5 Section 17(D) of the Loan Agreement is hereby amended to
read in its entirety as follows:

(D) Early Termination; Termination Fee. In addition to the
------------------------------------
procedures set forth in Paragraph 17(A), Borrower may terminate this
Agreement at any time upon sixty (60) days' prior written notice and
prepay the Obligations. Upon any such early termination by Borrower or
any termmation of this Agreement by Lender upon the occurrence of an
Event of Default, then. and in any such event, Borrower shall pay to
Lender upon the effective date of such termination a fee ("Termination
Fee") in an amount equal to Twenty Thousand Dollars ($20.000.00)
multiplied by the number of full or partial calendar months between
the effective date of such termination and November 10 , 1998. The
---
Termination Fee shall be presumed to be the amount of damages
sustained by Lender as a result of the early termination, and Borrower
agrees that because it is difficult to calculate such damages, the
Termination Fee provided for herein is reasonable under the
circumstances.

3. Conditions Precedent. The modifications described in Section 2 of
----------------------
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:

(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) The Consent of Guarantor in the form attached hereto;

(iii) Such acknowledgments and reaffirmations of the
Affiliate Debt Subordination Agreement as Lender shall require;

(iv) Such acknowledgments and reaffirmations of the
Intercreditor Agreement as Lender shall require;

(v) Such acknowledgments and reaffirmations of the
Subordination Agreement as Lender shall require,

(vi) Any consents deemed necessary by Lender;

- 3 -

<PAGE>

(vii) A corporate resolution of Borrower approving the
transactions contemplated hereby to which it is a party;

(viii) A corporate resolution of Guarantor approving the
transactions contemplated hereby to which it is a party;

(ix) An opinion from Borrower's and Guarantor's counsel.
which counsel must be acceptable to Lender, with respect to such
matters as Lender shall require; and

(x) Such other items as Lender may require

(b) Lender shall have entered into a participation agreement
with one or more other lenders providing for the participation of not less
than one-third (1/3) of the Inventory Loans on terms acceptable to Lender
in its sole discretion.

(c) Lender shall have received a certificate of corporate status
with respect to each of Borrower and Guarantor, dated within ten (10) days
of the date hereof by the Secretary of State of the state of incorporation
of Borrower and Guarantor, respectively, which certificate shall indicate
that Borrower and Guarantor are in good standing in such state;

(d) 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;

(e) All the representations and warranties of the Loan Panics in
the Loan Documents shall be true and correct, in all material respects,
before and after giving effect to the making of this Amendment; and

(f) 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.

4. Indebtedness Acknowledged. Borrower acknowledges that the
---------------------------
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
the 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.

- 4 -

<PAGE>

5. 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.

6. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender
-----------------------------
each of the representations, warranties, covenants and agreements of Borrower as
set forth m 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.

7. Ratification of Terms and Conditions. All terms, conditions and
--------------------------------------
provisions of the Loan Agreement, and of each of the other Loan Documents shall
continue m 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. Without limiting the generality of
the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's
Consents with respect to all of Borrower's facilities in which Collateral is or
is intended to be kept or maintained and further acknowledges that Lender has
not waived its right to require the delivery of such Landlord's Consents.

8. 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.

9. Benefit of the Amendment. The terms and provisions of this
--------------------------
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.

10. Choice of Law. The Loan Documents and this Amendment shall be
---------------
performed and construed in accordance with the laws of the State of Arizona.

11. Entire Agreement. Except as modified by this Amendment, the Loan
------------------
Documents remain in full force and effect. The Loan Documents as modified by
this Amendment embody the entire agreement and understanding between Borrower
and Lender,

- 5 -

<PAGE>

and supersede all prior agreements and understandings between said parties
relating to the subject matter thereof.

12. Counterparts; Telecopy Execution. This Amendment 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 affect of this Amendment.

FINOVA CAPITAL CORPORATION, a Delaware
corporation, successor-by-merger to Greyhound
Financial Capital Corporation, an Oregon
corporation

By /s/ Carlos Valles
-----------------------------------
Name: Carlos Valles
Title: Vice President

GENERAL TEXTILES, a California corporation

By: /s/ William W. Mowbray
------------------------------
Name: William W. Mowbray
Title: President

- 6 -

<PAGE>

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 Amendment No. 4 to Loan and Security Agreement (the "Fourth 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 Fourth Amendment, and
shall further include all additional amounts which may be funded or advanced to
Borrower pursuant to the Loan Agreement as amended by the Fourth Amendment, and
(iv) ratying 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.

IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent
as of this 101h day of November, 1995.

FAMILY BARGAIN CORPORATION, a
Delaware corporation

By: /s/ J. Gerstel
-----------------------
Name: J. Gerstel
Title: VP

- 7 -

Exhibit 10.13

AMENDMENT NO. 6 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------

THIS AMENDMENT NO. 6 TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is entered into as of this 10th day of July, 1996, 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 ("Original Lender") entered into a Loan and Security
Agreement dated as of October 14, 1993 (the "Original Agreement"), which was
amended by an Amendment No. 1 to Loan and Security Agreement dated as of July
11, 1994 (the "First Amendment"), by an Amendment No. 2 to Loan and Security
Agreement dated as of March 31, 1995 (the "Second Amendment"), by an Amendment
No. 3 to Loan and Security Agreement dated as of July 27, 1995 (the "third
Amendment"), by an Amendment No. 4 to Loan and Security Agreement dated as of
November 10, 1995 (the "Fourth Amendment"), and by an Amendment No. 5 to Loan
and Security Agreement dated as of April 18, 1996 (the "Fifth Amendment"; the
Original Agreement, as amended by the First Amendment, the Second Amendment, the
Third Amendment, the Fourth Amendment and the Fifth Amendment being hereinafter
collectively referred to as the "Loan Agreement"), that evidences a loan from
Lender to Borrower; and

WHEREAS, effective as of December 31, 1994, Original Lender was merged
with and into Lender (then known as Greyhound Financial Corporation), with
Lender being the surviving corporation of such merger, and Lender succeeded to
all the rights and obligations of Original Lender under the Loan Agreement and
the Loan Documents; 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

WHEREAS, Lender is willing to enter into this Amendment so as 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:

<PAGE>

1. Definitions. Unless otherwise defined in this Amendment, all
-----------
capitalized terms used herein which are defined in the Loan Agreement shall have
the same meaning as set forth in the Loan Agreement.

2. Loan Agreement. Provided the conditions precedent described
--------------
in Section 4 of this Amendment are met to the satisfaction of Lender, the Loan
Agreement is modified, as of the Sixth Amendment Effective Date, as follows:

2.1 Section 1(A) of the Loan Agreement is hereby amended by
inserting the following new defined terms:

"Additional Term Loan" shall mean the term loan made by
--------------------
Lender to Borrower in the amount of $2,000,000 pursuant to the
terms of the Sixth Amendment.

"Additional Term Note" shall mean the promissory note
--------------------
of Borrower made payable to Lender to evidence the Additional
Term Loan, repayable in accordance with the terms set forth
therein and in this Agreement.

"Factory 2-U Loan Agreement" means that certain Loan
--------------------------
and Security Agreement dated as of November 10, 1995, by and
between Factory 2-U and Lender, as from time to time heretofore
or hereafter amended, modified, supplemented or renewed.

"Sixth Amendment" means that certain Amendment No. 6 to
---------------
Loan and Security Agreement between Lender and Borrower dated as
of July 10, 1996.

"Sixth Amendment Effective Date" means July 10, 1996,
------------------------------
the date on which the Sixth Amendment became effective.

2.2. Section 2(A) of the Loan Agreement is hereby amended to
read in its entirety as follows:

2(A) Total Facility. Upon the terms and conditions set
--------------
forth herein and provided that no Event of Default or event
which, with the giving of notice or the passage of time, or both,
would constitute an Event of Default, shall have occurred and be
continuing, Lender shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding
principal amount not to exceed Twenty-Nine Million Seven Hundred
Thousand Dollars ($29,700,000) (the "Total Facility"), subject to
deduction of reserves as Lender deems

- 2 -

<PAGE>

proper from time to time in exercise of its reasonable credit
judgment, which reserves may include, upon and during the
continuance of an Event of Default, accrued interest and other
reserves as Lender deems proper.

2.3 Section 2(B) of the Loan Agreement is hereby amended to
read in its entirety as follows:

"2(B) Loans. Advances of the Total Facility shall be
-----
comprised of the following:

(i) Inventory Loans: A revolving line of credit
---------------
consisting of loans against Borrower's Eligible Inventory
("Inventory Loans") in an aggregate outstanding principal
amount not to exceed the lesser of (a) the amount obtained
when the Advance Rate is multiplied by the value of
Borrower's Eligible Inventory, calculated at the lower of
cost or market and determined on a first-in, first-out
basis; or (b) Twenty-Five Million Dollars ($25,000,000). The
Advance Rate shall equal (i) sixty-five percent (65%) during
the period commencing on the Sixth Amendment Effective Rate
through December 31, 1996, and (ii) fifty percent (50%)
during the period commencing January 1 through March 31 of
each year thereafter, fifty-five percent (55%) during the
period commencing April 1 through May 31 of each year
thereafter, and sixty percent (60%) during the period
commencing June 1 through December 31 of each year
thereafter; and

(ii) Capital Expenditure Line. The Capital
------------------------
Expenditure Line in such amounts and on such terms as are
set forth in the Second Amendment and in the Capex Note;

(iii) Term Loan. The Term Loan on such terms as
---------
are set forth in the Fifth Amendment and in the Term Note;
and

(iv) Additional Term Loan. The Additional Term
--------------------
Loan on such terms as are set forth in the Sixth Amendment
and in the Additional Term Note.

2.4 Section 2 of the Loan Agreement is hereby amended to
add a new Section 2(J), to read in its entirety as follows:

- 3 -

<PAGE>

(J) Additional Term Loan. Upon satisfaction of each
--------------------
condition precedent contained in the Sixth Amendment, Lender
shall make the Additional Term Loan to Borrower. Lender shall
advance the Additional Term Loan in a single advance credited to
Borrower; Borrower shall advance the entire proceeds of the
Additional Term Loan to Factory 2-U in reduction of Factory 2-U's
obligations to Borrower under the Merchandising Note. The
additional Term Loan shall be evidenced by, and repaid in
accordance with, the Additional Term Note.

2.5 Section 3(A) of the Loan Agreement is hereby amended to
read in its entirety as follows:

(A) Interest. Borrower shall pay Lender interest on
--------
the daily outstanding balance of Borrower's loan account at a per
annum rate of two percent (2%) in excess of the rate of interest
announced publicly by Citibank, NA., from time to time as its
"base rate" (or any successor thereto), which may not be such
institution's lowest rate (the "Base Rate"); provided, however,
------------------
that the portion of the Inventory Loans that constitutes the
Special Purpose Line shall accrue interest on the daily
outstanding balance of the Special Purpose Line at a per annum
rate of three percent (3%) in excess of the Base Rate; provided,
---------
further, that the Additional Term Loan shall accrue interest on
--------
the daily outstanding balance of the Additional Term Loan at a
per annum rate of three percent (3%) in excess of the Base Rate.
The interest rate chargeable hereunder shall be increased or
decreased, as the case may be, without notice or demand of any
kind, upon the announcement of any change in the Base Rate. Each
change in the Base Rate shall be effective hereunder on the first
day following the announcement of such change, provided, that a
---------
cumulative change of less than one-fourth of one percent (0.25%)
shall not be considered. Interest charges and all other fees and
charges herein shall be computed on the basis of a year of 360
days and actual days elapsed and will be payable to Lender in
arrears on the first day of each month hereafter at its address
set forth in Exhibit B of the Original Agreement.

2.6 Paragraph 36 of the Loan Agreement, modifying Paragraph
15 (B) of the Loan Agreement, is hereby amended to read in its
entirety as follows:

36. Loans. Paragraph 15 (B) of the Loan Agreement is
-----
hereby modified in its entirety to read as follows:

- 4 -

<PAGE>

(B) Loans. Make any advances, loans or extensions of
-----
credit to, or investment in, any Person, other than;

(i) loans or other extensions of credit to its
employees on the condition that such loans do not exceed
$1,000 to any one employee or $50,000 in aggregate to all
employees at any one time outstanding;

(ii) advances of inventory to Factory 2-U to be
held by Factory 2-U for sale in the ordinary course of
Factory 2-U's business, provided (x) Factory 2-U's
obligation to reimburse Borrower is evidenced by the
Merchandising Note, (y) each such advance which is made on
or after June 30, 1996 is repaid within thirty (30) days of
Factory 2-U's receipt of the corresponding inventory, and
(z) all such obligations of Factory 2-U to Borrower do not
exceed to $6,000,000.00 at any one time outstanding;

(iii) advances of point-of-sale equipment
acquired with proceeds of the Term Loan to Factory 2-U,
provided (x) each such advance shall be treated as a loan
--------
from Borrower to Factory 2-U on terms identical to the Term
Loan such that Factory 2-U shall pay to Borrower that
portion of each installment of the Term Loan which is
proportionate to the share of point-of-sale equipment
purchased with Term Loan proceeds advanced by Borrower to
Factory 2-U, and (y) the failure of Factory 2-U to make any
such payment shall not excuse the full and timely payment of
any installment of the Term Loan by Borrower when and as
due;

(iv) the advance of the net proceeds of the
Additional Term Loan to Factory 2-U, provided (x) such
--------
advance shall be treated as a loan by Borrower to
Factory 2-U on terms identical to the Additional Term Loan,
and (y) the failure of Factory 2-U to make any payment
thereon to Borrower shall not excuse the full and timely
payment of any installment of the Additional Term Loan by
Borrower when and as due; and

(v) payment to Lender of the Factory 2-U Fee, as
defined in the Sixth Amendment and as

- 5 -

<PAGE>

required under the terms of the Factory 2-U Loan Agreement,
on behalf of Factory 2-U, provided Factory 2-U shall have
--------
reimbursed Borrower in the amount of the Factory 2-U Fee no
later than July 31, 1996.

2.7 Section 17 of the Loan Agreement is hereby amended to add a
new Section 18(F), to read in its entirety as follows:

(F) Additional Term Loan. Borrower may voluntarily prepay
--------------------
that portion of the Obligations evidenced by the Additional Term Note
at any time, in whole or in part, without premium or penalty;
provided, however, any such funds received from Borrower shall be
-----------------
applied first to any Obligations then due and payable, second, to all
sums other than principal and interest then due and payable in respect
of the Additional Term Loan, third to interest due on the Additional
Term Loan and fourth, the balance to reduction of the principal
balance of the Additional Term Loan.

2.8 The Term Note is hereby amended in accordance with an Allonge
to Term Note, in the form attached to this Amendment as Exhibit A (the
---------
"AIIonge").

3. Fees. In consideration of Lender's agreement to enter into this
----
Amendment and to the modification to the Loan Documents described herein,
Borrower agrees to pay the following fees:

(a) $100,000 in consideration of Lender's willingness to extend
the Additional Term Loan (the "Additional Term Loan Fee");

(b) $18,750 in consideration of Lender's agreement to increase
the Advance Rate on Inventory Loans (the "Increased Availability Fee");

(c) $50,000 in consideration of Lender's agreement to increase
the amount of Borrower's line of credit for Inventory Loans (the "Line
Increase Fee"); and

(d) $31,250 paid by Borrower on behalf of Factory 2-U in
satisfaction of the "Refinancing Fee," as that term is defined in Amendment
No.1 to Loan and Security Agreement dated as of April 18, 1996, by and
between Lender and Factory 2-U (the "Factory 2-U Fee;" the Additional Term
Loan Fee, Increased Availability Fee, Line Increase Fee and Factory 2-U Fee
are herein collectively referred to as the "Fees").

- 6 -

<PAGE>

Borrower and Lender acknowledge that Lender may withhold the Fees from the
proceeds of the Additional Term Loan, to the extent such Fees are not paid
prior to disbursement thereof. Borrower and Lender further acknowledge that
Borrower shall account for the Factory 2-U Fee as a loan to Factory 2-U, to
which loan Lender hereby consents, subject to the provisions of Section
15(B) of the Loan Agreement.

4. Conditions Precedent. The modifications described in Section
--------------------
2 of 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:

(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) The Additional Term Note;

(iii) The Allonge;

(iv) Consent of Guarantor in the form attached
hereto,

(v) Such acknowledgments and reaffirmations of the
Affiliate Debt Subordination Agreement as Lender shall require;

(vi) Such acknowledgments and reaffirmations of the
Intercreditor Agreement as Lender shall require;

(vii) Such acknowledgments and reaffirmations of the
Subordination Agreement as Lender shall require;

(viii) Any other consents deemed necessary by Lender;

(ix) A corporate resolution of Borrower approving the
transactions contemplated hereby to which it is a party;

(x) A corporate resolution of Guarantor approving
the transactions contemplated hereby to which it is a party;

- 7 -

<PAGE>

(xi) An opinion from Borrower's and Guarantor's
counsel, which counsel must be acceptable to Lender, with respect
to such matters as Lender shall require; and

(xii) Such other items as Lender may require.

(b) Lender and each participant in the Inventory Loans
shall have entered into an amendment to such participation agreement
in contemplation of the execution and delivery of this Amendment and
the transactions contemplated hereunder on terms acceptable to Lender.

(c) Lender and Factory 2-U shall have executed an Amendment
No. 3 to the Factory 2-U Loan Agreement and each condition to the
effectiveness thereof shall have been satisfied other than the
execution of this Amendment.

(d) 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.

(e) 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.

(f) 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.

(g) Borrower shall have paid the Fees; provided, however,
-----------------
Borrower and Lender acknowledge that to the extent any Fees remain
unpaid, such Fees may be paid from the proceeds of the Additional Term
Loan.

5. Indebtedness Acknowledged. Borrower acknowledges that the
-------------------------
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
the 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 -

<PAGE>

6. 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.

7. 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.

8. Ratification of Terms and Conditions. All terms, conditions
------------------------------------
and provisions of the Loan Agreement, and of each of the other Loan Documents
shall continue 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. Without limiting the
generality of the foregoing, Borrower reaffirms its obligation to deliver to
Lender Landlord's Consents with respect to all of Borrower's facilities in which
Collateral is or is intended to be kept or maintained and further acknowledges
that Lender has not waived its right to require the delivery of such Landlord's
Consents.

9. 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. Choice of Law. The Loan Documents and this Amendment shall
-------------
be performed and construed in accordance with the laws of the State of Arizona.

- 9 -

<PAGE>

12. Entire Agreement. Except as modified by this Amendment, the
----------------
Loan Documents remain in full force and effect. 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.

13. Counterparts; Telecopy Execution. This Amendment 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 affect of this Amendment.

FINOVA CAPITAL CORPORATION,
Delaware corporation, successor-by-
merger to Greyhound Financial
Capital Corporation, an Oregon
corporation

By:
-------------------------------
Name:
Title:

GENERAL TEXTILES, a California
corporation

By:
-------------------------------
Name:
Title:

- 10 -

Exhibit 10.22

AMENDMENT NO. 2 TO LOAN AND SECURITY
------------------------------------
AGREEMENT AND WAIVER
--------------------

This Amendment No. 2 to Loan and Security Agreement and Waiver (the
"Amendment"), is entered into this 22nd day of April, 1996, by and between
FACTORY 2-U, INC., an Arizona corporation ("Borrower"), and FINOVA CAPITAL
CORPORATION, a Delaware corporation,

W I T N E S S E T H:
- - - - - - - - - --

WHEREAS, Borrower and Lender are parties to that certain Loan and
Security Agreement dated as of November 10, 1995 (the "Original Agreement"); and

WHEREAS, Borrower and Lender are parties to that certain Amendment
No. 1 to Loan and Security Agreement and Waiver dated as of April 18, 1996
("Amendment No. 1 "), which Amendment No.1 served to amend the Original
Agreement and provided for Lender's waiver of Borrower's non-compliance with
certain provisions thereof (the Original Agreement and Amendment No. 1 are
herein collectively referred to as the "Loan Agreement"); and

WHEREAS, Borrower has requested that Lender amend the Loan Agreement
in certain respects and waive Borrower's non-compliance with certain provisions
thereof and, subject to the terms and conditions set forth below, Lender is
willing to do so.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and undertakings set forth herein, the parties hereby agree as
follows:

1. Defined Terms. All capitalized terms used herein and not
-------------
otherwise defined shall have the meanings given such terms in the Loan
Agreement.

2. Amendment to Loan Agreement. The Loan Agreement and the Schedule
---------------------------
are hereby amended, as of the Second Amendment Effective Date, as follows:

2.1 Section 18 of the Loan Agreement is hereby amended by
inserting the following new defined terms:

"Second Amendment" means that certain Amendment No. 2 to
----------------
Loan and Security Agreement and Waiver, effective as of the Second
Amendment Effective Date, by and between Borrower and Lender.

<PAGE>

"Second Amendment Effective Date" means April 22, 1996.
-------------------------------

2.2 The "Net Worth" and "Debt to Net Worth" covenants set forth
in that Section of the Schedule to the Loan Agreement entitled FINANCIAL
COVENANTS are hereby amended in their entirety to read as follows:

Net Worth. Borrower shall maintain Net Worth of not less
---------
than Five Hundred Thousand Dollars ($500,000) from the Closing Date
through and including September 30, 1996; One Million Dollars
($1,000,000) from October 1, 1996 through and including January 31,
1997; and One Million Five Hundred Dollars ($1,500,000) thereafter
(the "Net Worth Covenant");

Debt to Net Worth. Borrower shall maintain a ratio of
-----------------
Indebtedness to Net Worth of not greater than 20.0 to 1.0 as of
January 31, 1996, and of not greater than 14.0 to 1.0 as of January 31
of each year thereafter (the "Debt to Net Worth Covenant"); and

3. Waiver of Events of Default. The waiver set forth in this
---------------------------
Section 3 is specific to the matter set forth herein: no future acts, events or
occurrences, or acts, events or occurrences of which Lender does not have actual
present knowledge, which either constitute an Event of Default or which with the
passage of time, giving of notice, or both, would constitute an Event of
Default, are waived by Lender, including, without limitation, any circumstances
which are of a continuing nature, the existence of which would independently
give rise to an Event of Default under the Loan Agreement after giving effect to
this Amendment; provided, that with respect to any financial covenants or
--------
reporting obligations which are only tested or to be complied with as of
specified dates pursuant to the Loan Agreement, no Event of Default shall exist
unless a breach occurs or exists as of the time such covenants are to be tested
or complied with as of a date subsequent to the date of this Amendment.

3.1 Net Worth Covenant. Subject to satisfaction of each
------------------
condition precedent set forth in Section 4 below, Lender hereby waives
Borrower's non-compliance with the Net Worth covenant set forth in that
Section of the Schedule to the Loan Agreement entitled "FINANCIAL
COVENANTS" for the period commencing on the Closing Date through the Second
Amendment Effective Date.

4. Conditions Precedent. The modifications described in Section 2
--------------------
of this Amendment and the waivers set forth in Section 3 of 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:

- 2 -

<PAGE>

(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) The Consent of Guarantor in the form attached hereto;
and

(iii) Such other items as Lender may require.

(b) Other than with respect to the matters set forth in Section
3 above, 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 and closing of this Amendment, which costs,
fees and expenses may be payable from the first advance made pursuant to
this Amendment.

5. Indebtedness Acknowledged. Borrower acknowledges that the
-------------------------
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
the 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.

- 3 -

<PAGE>

whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender.

7. 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.

8. Ratification of Terms and Conditions. All terms, conditions
------------------------------------
and provisions of the Loan Agreement, and of each of the other Loan Documents
shall continue 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. Without limiting the
generality of the foregoing, Borrower reaffirms its obligation to deliver to
Lender Landlord's Consents with respect to all of Borrower's facilities in which
Collateral is or is intended to be kept or maintained and further acknowledges
that Lender has not waived its right to require the delivery of such Landlord's
Consents.

9. 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. Choice of Law. The Loan Documents and this Amendment shall
-------------
be performed and construed in accordance with the laws of the State of Arizona.

12. Entire Agreement. Except as modified by this Amendment, the
----------------
Loan Documents remain in full force and effect. 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.

- 4 -

<PAGE>

13. Counterparts; Telecopy Execution. This Amendment 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 counterpan of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.

FINOVA CAPITAL CORPORATION, a Delaware
corporation

By: /s/ Carlos Villas
----------------------------
Name: Carlos Villas
Title Vice President

FACTORY 2-U, INC., an Arizona
corporation

By: /s/ James M. Baker
----------------------------
Name: James M. Baker
Title: Chief Financial Operator

- 5 -

<PAGE>

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 Amendment No. 2 to Loan and Security Agreement and Waiver (the "Second
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 that certain Amendment No.1
to Loan and Security Agreement and Waiver dated as of April 18, 1996 by and
between Borrower and Lender (the "First Amendment") and the Second Amendment,
and shall further include all additional amounts which may be funded or advanced
to Borrower pursuant to the Loan Agreement as amended by the First Amendment and
the Second 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.

IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent
as of this 22nd day of April, 1996.

FAMILY BARGAIN CORPORATION, a Delaware
corporation

By: /s/ William W. Mowbray
---------------------------------
Name: William W. Mowbray
Title: Chief Financial Officer

Exhibit 10.23

AMENDMENT NO. 3 TO LOAN AND SECURITY
------------------------------------
AGREEMENT AND WAIVER
--------------------

This Amendment No. 3 to Loan and Security Agreement and Waiver (the
"Amendment"), is entered into this 10th day of July, 1996, by and between
FACTORY 2-U, INC., an Arizona corporation ("Borrower"), and FINOVA CAPITAL
CORPORATION, a Delaware corporation,

W I T N E S S E T H:
--------------------

WHEREAS, Borrower and Lender are parties to that certain Loan and
Security Agreement dated as of November 10, 1995 (the "Original Agreement"); and

WHEREAS, Borrower and Lender are parties to that certain Amendment No.
1 to Loan and Security Agreement and Waiver dated as of April 18, 1996
("Amendment No. 1"), and that certain Amendment No. 2 to Loan and Security
Agreement and Waiver dated as of April 22, 1996 ("Amendment No 2"), which
Amendment No. 1 and Amendment No. 2 served to amend the Original Agreement and
provided for Lender's waiver of Borrower's non-compliance with certain
provisions thereof (the Original Agreement, Amendment No. 1 and Amendment No. 2
are herein collectively referred to as the "Loan Agreement"); and

WHEREAS, Borrower has requested that Lender amend the Loan Agreement
in certain respects and, subject to the terms and conditions set forth below,
Lender is willing to do so.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and undertakings set forth herein, the parties hereby agree as
follows:

1. Defined Terms. All capitalized terms used herein and not
-------------
otherwise defined shall have the meanings given such terms in the Loan
Agreement.

2. Amendment to Loan Agreement. The Loan Agreement and the Schedule
---------------------------
are hereby amended, as of the Third Amendment Effective Date, as follows:

2.1 Section 18 of the Loan Agreement is hereby amended by
inserting the following new defined terms:

"Additional Intercompany Term Note" means that certain
---------------------------------
Promissory Note of Borrower dated as of the Third Amendment

<PAGE>

Effective Date and made payable to General Textiles in the original
principal amount of $2,000,000.

"GenTex Sixth Amendment" means that certain Amendment No. 6
----------------------
to Loan and Security Agreement dated as of the Third Amendment
Effective Date by and between Lender and General Textiles.

"Third Amendment" means that certain Amendment No. 3 to Loan
---------------
and Security Agreement, effective as of the Third Amendment Effective
Date, by and between Borrower and Lender.

"Third Amendment Effective Date" means July 10, 1996.
------------------------------

2.2 Paragraphs 3, 4, and 5 of that Section of the Schedule to
the Loan Agreement entitled "ADDITIONAL PROVISIONS" are hereby deleted in
their entirety and the following new Paragraph 3 is inserted to read in its
entirety as follows:

3. Sale of Nogales Warehouse. Borrower shall have
consummated the sale of the Nogales Warehouse not later than August
15, 1996, and shall have paid directly to Lender proceeds of such sale
of not less than $2,000,000 by such date, for credit against the
obligations of General Textiles to Lender and in reduction of the
obligations of Borrower to General Textiles under the Merchandising
Note. Upon receipt of such sale proceeds, Lender agrees that it shall
thereupon release its lien under the GenTex Deed of Trust, provided,
---------
(i) no Event of Default or event or condition which, with the passage
of time, giving of notice, or both, would constitute an Event of
Default, exists and is continuing at the time of such release and
termination, (ii) such sale transaction, in Lender's sole discretion,
shall constitute an arm's-length, bona-fide transaction.

2.3 The paragraph entitled "Indebtedness" set forth in that
------------
Section of the Schedule entitled "NEGATIVE COVENANTS" is hereby amended by
deleting the period at the end thereof and inserting the following new
clause (ix) to read in its entirety as follows:

,(ix) Indebtedness to General Textiles evidenced by the
Additional Intercompany Term Note, the terms of which Additional
Intercompany Term Note shall be identical to those contained in the
"Additional Term Note," as that term is defined in the GenTex Sixth
Amendment, and (x) Indebtedness to General Textiles arising from the

- 2 -

<PAGE>

payment by General Textiles of the Refinancing Fee on behalf of
Borrower evidenced by the Additional Intercompany Term Note, provided,
--------
Borrower shall have reimbursed General Textiles in the amount of the
Refinancing Fee no later than July 31, 1996.

2.4 Paragraph (i) set forth in the Section of the Schedule to
the Loan Agreement entitled "BORROWER INFORMATION" is hereby amended in its
entirety to read as follows:

"i) Liens in favor of General Textiles on all of Borrower's
personal property assets, as collateral security for all of
Borrower's obligations to General Textiles, including without
limitation, under the Merchandising Note and under the Additional
Intercompany Term Note, provided all of General Textiles' rights have
--------
been collaterally assigned to Lender."

3. Waiver. Subject to satisfaction of each condition precedent set
------
forth in Section 4 below, Lender hereby waives Borrower's non-compliance with
the provisions of Section 13.15 of the Loan Agreement for the period commencing
December 31, 1995 through July 31, 1996, provided further:
-----------------

(a) the proceeds of the advance by General Textiles to Borrower
evidenced by the Additional Intercompany Term Note shall be applied in
their entirety to reduction of the outstanding balance of the Merchandising
Note; and

(b) Borrower shall comply with the repayment obligations set
forth in Section 2.2 of this Amendment.

4. Conditions Precedent. The modifications and the waiver
--------------------
described in Section 2 and Section 3 of this Amendment will not be effective
unless nd until each of the following conditions precedent have been satisfied,
in form, manner and substance satisfactory to Lender:

(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) The Consent of Guarantor in the form attached hereto;

- 3 -

<PAGE>

(iii) Such acknowledgments and reaffirmations of the
Subordination Agreement as Lender shall require;

(iv) Any other consents deemed necessary by Lender;

(v) A corporate resolution of Borrower approving the
transactions contemplated hereby to which it is a party;

(vi) A corporate resolution of Guarantor approving the
transactions contemplated hereby to which it is a party;

(vii) An opinion from Borrowers and Guarantor's counsel,
which counsel must be acceptable to Lender, with respect to such
matters as Lender shall require; and

(viii) Such other items as Lender may require.

(b) Borrower shall have executed and delivered to GenTex the
Additional Intercompany Term Note;

(c) Lender and General Textiles shall have entered into the
GenTex Sixth Amendment and each condition to the effectiveness thereof
shall have been satisfied, including without limitation, the endorsement by
General Textiles of the Additional Intercompany Term Note as payable to the
order of Lender and delivery of the Additional Intercompany Term Note
bearing such endorsement to Lender.

(d) 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.

(e) 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.

- 4 -

<PAGE>

5. Indebtedness Acknowledged. Borrower acknowledges that the
-------------------------
indebtedness evidenced by the Loan Documents is just and owing and agrees to pay
the 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.

7. 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.

8. Ratification of Terms and Conditions. All terms, conditions and
------------------------------------
provisions of the Loan Agreement, and of each of the other Loan Documents shall
continue 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. Without limiting the generality of
the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's
Consents with respect to all of Borrower's facilities in which Collateral is or
is intended to be kept or maintained and further acknowledges that Lender has
not waived its right to require the delivery of such Landlord's Consents.

9. 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.

10. Benefit of the Amendment. The terms and provisions of this
------------------------
Amendment and the other Loan Documents shall be binding upon and inure to the

- 5 -

<PAGE>

benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall not have any right to assign its rights under this
Amendment or any of the Loan Documents or any interest therein without the prior
written consent of Lender.

11. Choice of Law. The Loan Documents and this Amendment shall be
-------------
performed and construed in accordance with the laws of the State of Arizona.

12. Entire Agreement. Except as modified by this Amendment, the Loan
----------------
Documents remain in full force and effect. 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.

13. Counterparts; Telecopy Execution. This Amendment 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.

FINOVA CAPITAL CORPORATION, a
Delaware corporation

By:
-------------------------------
Name:
Title:

FACTORY 2-U, INC., an Arizona
corporation

By:
-------------------------------
Name:
Title:

- 6 -

Exhibit 10.24

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT (the "Agreement") dated as of June , 1996 by
and among FAMILY BARGAIN CORPORATION, a Delaware corporation (the "Seller"), and
MORGANA HOLDINGS INC., a Panama corporation and L'ANCRESSE HOLDINGS LTD., a
Gibraltar corporation (each a "Buyer" and collectively, the "Buyers"):
--------

W I T N E S S E T H:
- - - - - - - - - --

WHEREAS, pursuant to that certain Final Judgment dated January 30,
1996 of the District Court of Harris County, Texas, 295th Judicial District (the
"Final Judgment"), the Seller has issued 153,846 shares of its Series A 9 1/2 %
-----
Cumulative Convertible Preferred Stock, par value $.01 per share (collectively,
the "Purchased Shares") in order to secure the recovery of an award (the
---------
"Obligation") granted to Joel Mandel, et al., the plaintiffs therein:

WHEREAS, the Purchased Shares are to be held in escrow by Wynne &
Maney, as Trustee (the "Escrow Agent") until such time as the Obligation shall
------
be satisfied in full; and

WHEREAS, Seller desires to sell and Buyers desire to purchase the
Purchased Shares on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, covenants and
other agreements contained herein, the parties hereby agree as follows:

ARTICLE I

PURCHASE AND SALE; CLOSING

SECTION 1.1 Purchase and Sale of Purchased Shares. Subject to the
-------------------------------------
terms and conditions set forth herein, Seller agrees to sell, transfer and
deliver to each Buyer and, and each Buyer agrees to purchase, acquire and accept
from Seller the total number of Purchased Shares as specified opposite such
Buyer's name on the Schedule of Buyers attached hereto as Exhibit A.
----------

<PAGE>

SECTION 1.2 Consideration. Subject to the terms and conditions set
--------------
forth herein, the purchase price (the "Purchase Price") payable by each Buyer
--------
for the Purchased Shares shall be $5.25 per share, for a total Purchase Price in
the aggregate sum of $807,691.50. Such Purchase Price shall be payable on the
Closing Date (as hereinafter defined) to Seller by wire transfer, in immediately
available funds, provided, however, that while the Obligation remains
-----------------
outstanding, the Purchase Price shall be paid to the Escrow Agent in accordance
with the terms and provisions of the Final Judgment.

SECTION 1.3 Closing. The closing (the "Closing") of the purchase and
-------
sale of the Purchased Shares hereunder shall take place at the offices of Baer
Marks & Upham, 805 Third Avenue, New York, New York at 10:00 a.m., local time,
on a date mutually agreeable to the parties hereto but no later than September
30, 1996 (the time and date of the Closing being hereinafter called the "Closing
-------
Date").

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyers that:

SECTION 2.1 Corporate Existence and Power. Seller is a corporation
-----------------------------
duly organized, validly existing and good standing under the laws of its state
of incorporation and has all requisite corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.

SECTION 2.2 Status of and Title to the Purchased Shares. The Purchased
-------------------------------------------
Shares owned by Seller are, and at Closing Buyer will acquire title to the
Purchased Shares, free and clear of any liens, encumbrances and other adverse
claims and subject to no restrictions on transferability other than restrictions
imposed by (a) the 1933 Act, (b) applicable state securities laws, and (c)
Sections 4.2 and 4.4 herein.

SECTION 2.3 Authority Relative to this Agreement. Seller has full
------------------------------------
power, capacity and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby (the "Contemplated
------------
Transactions"). The execution and delivery of this Agreement and the
consummation of the Contemplated Transactions have been duly and validly
authorized by Seller and no other proceedings on the part of Seller is

- 2 -

<PAGE>

necessary to authorize the execution and delivery by Seller of this Agreement or
the consummation of the Contemplated Transactions. This Agreement has been duly
and validly executed and delivered by Seller, and (assuming the valid execution
and delivery of this Agreement by the other parties hereto) constitutes the
legal, valid and binding agreement of Seller enforceable against Seller in
accordance with its terms except as such obligations and their enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights generally and except
that the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought (whether at law or in equity).

SECTION 2.4 No Conflicts; Consents. Neither the execution, delivery
----------------------
and performance by Seller of this Agreement nor the consummation of the
Contemplated Transactions by Seller will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Seller, (ii) require Seller to obtain
any consent, approval or action of or waiver from, or make any filing with, or
give any notice to, any governmental body or any other Person (as defined
below); (iii) violate, conflict with or result in the breach of any of the terms
of, result in a material modification of the effect of, or otherwise cause the
termination of or give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both constitute) a default (by
way of substitution, novation or otherwise) under, any material contract or
agreement, to which Seller is a party or by or to which it may be bound or
subject, or result in the creation of any lien upon the Purchased Shares
pursuant to the terms of any such contract; or (iv) violate any law, order or
permit of any governmental body against, or binding upon, Seller. As used in
this Agreement, the term "Person" shall mean any individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity including a government or political subdivision or any agency or
instrumentality thereof.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF BUYERS

Each Buyer, severally for itself only, represents and warrants to
Seller that:

SECTION 3.1 Corporate Existence and Power. It is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the country
in which it is incorporated and has all requisite corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.

SECTION 3.2 Acquisition for Investment. It is acquiring the Purchased
--------------------------
Shares for its own account and not with a present intention to make any sale,
disposition,

- 3 -

<PAGE>

distribution or other transfer of the Purchased Shares in a manner that will
violate any applicable securities laws and understands that the Purchased Shares
have not been registered under the 1933 Act or under the securities laws of any
state. The offer by Seller to sell the Purchased Shares was directly
communicated to such Buyer in such a manner that it had the opportunity to ask
questions and receive answers concerning Seller that it has deemed necessary and
advisable for purposes of determining whether or not to purchase the Purchased
Shares which it is acquiring hereunder. Such Buyer, together with its investment
advisors, if any, is sophisticated in financial matters and is able to evaluate
the risks and benefits of its investment in the Purchased Shares. Such Buyer
acknowledges that it has evaluated the risks and merits of its investment in the
Purchased Shares solely with respect to its own interests.

SECTION 3.3 Authority Relative to This Agreement. It has full
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
consummate the Contemplated Transactions. The execution and delivery of this
Agreement and the consummation of the Contemplated Transactions have been duly
and validly authorized and approved by the Board of Directors of such Buyer and
no other corporate proceedings on the part of such Buyer is necessary to
authorize this Agreement or the Contemplated Transactions. This Agreement has
been duly and validly executed and delivered by such Buyer and (assuming the
valid execution and delivery of this Agreement by the other parties hereto)
constitutes the valid and binding agreement of such Buyer, enforceable against
such Buyer in accordance with its terms, except as such obligations and their
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought (whether in law or at equity).

SECTION 3.4 No Conflicts; Consents. The execution, delivery and
----------------------
performance of this Agreement by such Buyer and the consummation of the
Contemplated Transactions will not (i) violate any provision of the Certificate
of Incorporation, By-laws or other constituent documents of such Buyer; (ii)
require such Buyer to obtain any consent, approval or action of, or make any
filing with or give any notice to, any governmental body or any other Person
(iii) violate, conflict with or result in the breach of any of the terms of,
result in a material modification of the effect of. or otherwise cause the
termination of or give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both constitute) a default (by
way of substitution, novation or otherwise) under any material contract or
agreement to which such Buyer is a party or by or to which it or any of its
assets may be bound or subject, or result in the creation of any lien upon the
assets of such Buyer; or (iv) violate any law, order or permit of any
governmental body against, or binding upon, such Buyer.

- 4 -

<PAGE>

ARTICLE IV

COVENANTS AND AGREEMENTS

SECTION 4.1 Efforts to Consummate. Subject to the terms and
---------------------
conditions herein provided, each party hereto, without payment or further
consideration, shall use its reasonable, good faith efforts to take or cause to
be taken all action and to do or cause to be done all things necessary, proper
or advisable under applicable laws, permits and orders to consummate and make
effective, as soon as reasonably practicable, the Contemplated Transactions, and
each party hereto shall cooperate with the other in all of the foregoing.

SECTION 4.2 Restrictions on Transferability. Each Buyer agrees that
-------------------------------
during the two (2) year period commencing on the Closing Date it shall not sell,
assign, transfer or otherwise dispose or pledge, hypothecate, grant a security
interest in or otherwise encumber the Purchased Shares without the prior written
approval of Seller.

SECTION 4.3 Expenses. Except as otherwise specifically provided
--------
herein, Buyers and Seller shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the Contemplated Transactions.

SECTION 4.4 Exchange Offer. (a) Buyers acknowledge that subsequent to
--------------
the execution of this Agreement, Seller may effect an exchange offer (the
"Exchange Offer") to the holders of its Series A 91/2% Cumulative Convertible
--------
Preferred Stock (the "Preferred Stock"). Each Buyer hereby covenants and agrees
---------
that in the event that the Exchange Offer is made (i) prior to the Closing Date,
it shall consummate the intent of this Agreement by purchasing, in lieu of the
Purchased Shares, those securities which each Buyer would have received in the
Exchange Offer in exchange for the Purchased Shares had it consummated the
purchase of the Purchased Shares prior to the Exchange Offer or (ii) subsequent
to the Closing Date, it shall exchange the Purchased Shares in accordance with
the terms and conditions of the Exchange Offer.

- 5 -

<PAGE>

(b) Buyers acknowledge and agree that the covenants set forth in Section
4.4 are a material inducement to the Seller agreeing to enter into this
Agreement and that any breach by either Buyer of such covenants may cause Seller
irreparable injury for which there is no adequate remedy at law. Accordingly,
Buyers expressly agree that in the event of any such breach by either Buyer, or
any threatened breach hereunder by either Buyer, Seller shall be entitled, in
addition to any and all other remedies available, to seek and obtain injunctive
relief and/or other equitable relief to require specific performance of or
prevent a breach under Section 4.4 of this Agreement, without proof of any
actual damages that have been or may be caused by such actual or threatened
breach. Such right to an injunctive and/or other equitable relief shall be
cumulative and in addition to, and not in limitation of, any other rights and
remedies Seller may have in equity or at law.

ARTICLE V

CONDITIONS TO CLOSING

SECTION 5.1 Conditions to the Obligations of Seller. All obligations
---------------------------------------
of Seller hereunder are subject to the fulfillment prior to or at the Closing of
each of the following conditions (any or all of which may be waived by Seller in
its discretion):

(a) Performance. Each Buyer shall have performed in all material
-----------
respects all of its obligations hereunder required to be performed by it at or
prior to the Closing Date.

(b) Representations and Warranties. The representations and
------------------------------
warranties of each Buyer contained in this Agreement and in any certificate or
other writing delivered by each Buyer pursuant hereto shall be true in all
material respects at and as of the Closing Date as if made at and as of such
time (except to the extent such representations and warranties speak as of an
earlier time) and each Buyer shall have delivered to Seller a certificate,
executed by the President or any Vice President of such Buyer, dated the Closing
Date, to such effect.

(c) Purchase Price. Buyers shall have paid the Purchase Price by
--------------
wire transfer in immediately available funds to Seller, provided, however, that
-----------------
while the Obligation remains outstanding, the Purchase Price shall be paid to
the Escrow Agent in accordance with the terms and provisions of the Final
Judgment.

SECTION 5.2 Conditions to the Obligations of Buyers. All
---------------------------------------
obligations of Buyers hereunder are subject to the fulfillment prior to or at
the Closing of each of the following conditions (any or all of which may be
waived by a Buyer. in its discretion):

- 6 -

<PAGE>

(a) Performance. Seller shall have performed in all material
-----------
respects all of its obligations hereunder required by it at or prior to the
Closing Date.

(b) Representations and Warranties. The representations and
------------------------------
warranties of Seller contained in this Agreement and in any certificate or other
writing delivered by Seller pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such time (except
to the extent such representations and warranties speak of an earlier time) and
Seller shall have delivered to Buyers a certificate, executed by the President
or any Vice President of Seller, dated the Closing Date, to such effect.

(c) Documentation. Seller shall have caused to be delivered to
-------------
Buyers certificates representing all of the Purchased Shares, together with duly
endorsed stock transfer powers executed in blank.

ARTICLE VI

TERMINATION

SECTION 6.1 Termination. This Agreement may be terminated and the
-----------
Contemplated Transactions may be abandoned at any time prior to the Closing by
mutual written consent of Seller and Buyers.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1 Notices. (a) Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid) as follows:

- 7 -

<PAGE>

(i) if to Buyers:

Whitehill House
Newby Road Industrial Estate
Newby Road,
Hazel Grove
Stockport SK7 5DA
England
Telecopier: (011--441-61) 487-1508
Attention: Mr. Harold P. Chaffe

(ii) if to Seller:

Family Bargain Corporation
315 East 62nd Street
New York, New York 10021
Telecopier: (212) 593-4586
Attention: Mr. John A. Selzer

with a copy to:

Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5941
Attention: Joel M. Handel, Esq.

(b) Each such notice or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in Section 8. l(a) (with confirmation of transmission) or (ii)
if given by any other means, when delivered at the address specified in Section
8. l(a). Any party by notice given in accordance with this Section 8.1 to the
other party may designate another address (or telecopier number) or Person for
receipt of notices hereunder. Notices by a party may be given by counsel to such
party.

SECTION 7.2 Entire Agreement. This Agreement (including the Schedules
----------------
and Exhibits hereto) contains the entire agreement between the parties with
respect to the subject matter hereof and related transactions and supersede all
prior agreements, written or oral, with respect thereto.

- 8 -

<PAGE>

SECTION 7.3 Waivers and Amendments; Non-Contractual Remedies;
------------------------------------------------
Preservations of Remedies. This Agreement may be amended, superseded,
- -------------------------
cancelled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. Except as otherwise provided herein, the rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in respect of any
inaccuracy in or breach of any representation, warranty, covenant or agreement
contained in this Agreement shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this Agreement (or
in any other agreement between the parties) as to which there is no inaccuracy
or breach.

SECTION 7.4 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws rules thereof.

SECTION 7.5 Consent to Jurisdiction. The parties hereto irrevocably;
-----------------------
(a) agree that any suit, action or other legal proceeding arising out of this
agreement may be brought in the courts of the State of New York or the courts of
the United States located in New York County, New York, (b) consent to the
jurisdiction of each court in any such suit, action or proceeding, (c) waive any
objection which they, or any of them, may have to the laying of venue of any
such suit, action or proceeding in any of such courts, and (d) waives the right
to a trial by jury in any such suit, action or other legal proceeding.

SECTION 7.6 Binding Effect; No Assignment. This Agreement and all of
-----------------------------
its provisions, rights and obligations shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, heirs and
legal representatives. This Agreement may not be assigned by a party without the
express written consent of the others and any purported assignment, unless so
consented to, shall be void and without effect. Nothing herein express or
implied is intended or shall be construed to confer upon or to give anyone other
than the parties hereto and their respective heirs, legal representatives and
successors any rights or benefits under or by reason of this Agreement.
Accordingly, no party that has not executed this Agreement shall have any right
to enforce any of the provisions of this Agreement.

- 9 -

<PAGE>

SECTION 7.7 Severability. If any provisions of this Agreement for any
------------
reason shall be held to be illegal, invalid or unenforceable, such
illegality shall not affect any other provision of this Agreement, but this
Agreement shall be construed as if such illegal, invalid or unenforceable
provision had never been included herein.

SECTION 7.8 Counterparts. The Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original as against
any party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts hereof, individually or taken together, shall
bear the signatures of all of the parties reflected hereon as the
signatories.

-10-

<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.

SELLER:
------

FAMILY BARGAIN CORPORATION

--------------------------------------------
Name:
Title:

BUYERS:

MORGANA HOLDINGS INC.

By: /s/ Harold P. Chaffe
-----------------------------------------------
Name: Harold P. Chaffe
Title: President

L'ANCRESSE HOLDINGS LTD.

/s/ F.Y. Lelong
-----------------------------------------------
Name: F. Y. Lelong
Title: President

<PAGE>

EXHIBIT A
---------

(Schedule of Buyers)

Morgana Holdings Inc. _______ Shares

L'Ancresse Holdings Inc. _______ Shares

Total = 153,846 SHARES

Exhibit 10.25

PURCHASE AND SALE AGREEMENT

SELLER:

FACTORY 2-U, INC.

PURCHASER:

NOGALES PROPERTY MANAGEMENT, L.L.C.

PROPERTY:

48 Acres
Nogales, Arizona

May 24, 1996
--

<PAGE>

INDEX

SECTION PAGE

1. The Property
1.1 Description . . . . . . . . . . . . . . . . . . . . 1
1.2 "As-Is" Purchase . . . . . . . . . . . . . . . . . 2
1.3 Agreement to Convey . . . . . . . . . . . . . . . . 3

2. Price and Payment
2.1 Purchase Price . . . . . . . . . . . . . . . . . . 3
2.2 Payment . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . 3

3. Permitted Encumbrances
3.1 Objections to Title . . . . . . . . . . . . . . . . 3
3.2 Permitted Encumbrances . . . . . . . . . . . . . . 4
3.3 Seller's Use and Occupancy . . . . . . . . . . . . 5

4. Prior to Closing.
4.1 Insurance . . . . . . . . . . . . . . . . . . . . . 5
4.2 Operation . . . . . . . . . . . . . . . . . . . . . 5
4.3 New Leases . . . . . . . . . . . . . . . . . . . . 5

5. Representations and Warranties
5.1 By Seller . . . . . . . . . . . . . . . . . . . . . 7
5.2 By Purchaser . . . . . . . . . . . . . . . . . . . 7
5.3 Mutual . . . . . . . . . . . . . . . . . . . . . . 8

6. Costs and Prorations
6.1 Purchaser's Costs . . . . . . . . . . . . . . . . . 8
6.2 Seller's Costs . . . . . . . . . . . . . . . . . . 9
6.3 Prorations . . . . . . . . . . . . . . . . . . . . 9
6.4 Tax Protest . . . . . . . . . . . . . . . . . . . . 10
6.5 Payments Under Development Agreement . . . . . . . 10
6.6 Purpose and Intent . . . . . . . . . . . . . . . . 10

7. Damage, Destruction or Condemnation
7.1 Material Event . . . . . . . . . . . . . . . . . . 10
7.2 Immaterial Event . . . . . . . . . . . . . . . . . 10
7.3 Termination and Return of Deposit . . . . . . . . . 10

<PAGE>

SECTION PAGE

8. Notices

9. Closing
9.1 Seller's Deliveries . . . . . . . . . . . . . . . . 12
9.2 Purchaser's Deliveries . . . . . . . . . . . . . . 12
9.3 Utility Service and Deposits . . . . . . . . . . . 13
9.4 Post-Closing Collections . . . . . . . . . . . . . 13

10. Default; Failure of Condition
10.1 Purchaser Default . . . . . . . . . . . . . . . . 13
10.2 Seller Default . . . . . . . . . . . . . . . . . . 13
10.3 Failure of Condition . . . . . . . . . . . . . . . 14

11. Escrow
11.1 Provisions as to Release . . . . . . . . . . . . . 14
11.2 Conflicting Demands . . . . . . . . . . . . . . . . 15
11.3 Limitations on Liability . . . . . . . . . . . . . 15
11.4 Modification of Terms of Escrow . . . . . . . . . . 15
11.5 Representation of Seller . . . . . . . . . . . . . 15
11.6 Law and Venue Concerning Escrow Agent . . . . . . . 16

12. Miscellaneous.
12.1 Entire Agreement . . . . . . . . . . . . . . . . . 16
12.2 Severability . . . . . . . . . . . . . . . . . . . 16
12.3 Applicable Law . . . . . . . . . . . . . . . . . . 16
12.4 Assignability . . . . . . . . . . . . . . . . . . . 16
12.5 Successors Bound . . . . . . . . . . . . . . . . . 16
12.6 No Public Disclosure . . . . . . . . . . . . . . . 16
12.7 Captions . . . . . . . . . . . . . . . . . . . . . 17
12.8 Attorney's Fees . . . . . . . . . . . . . . . . . . 17
12.9 No Partnership . . . . . . . . . . . . . . . . 17
12.10 Counterparts . . . . . . . . . . . . . . . . . . . 17
12.11 Recordation . . . . . . . . . . . . . . . . . . . . 17
12.12 Proper Execution . . . . . . . . . . . . . . . . . 17
12.13 Confidentiality . . . . . . . . . . . . . . . . . . 17

<PAGE>

LIST OF EXHIBITS
----------------

Exhibit 1.1.1 Legal Description
Exhibit 1.1.5 Schedule of Leases and Security Deposits
Exhibit 3.2 Title Exceptions

<PAGE>

PURCHASE AND SALE AGREEMENT
---------------------------

THIS PURCHASE AND SALE AGREEMENT ("Agreement"), dated as of the 24th
----
day of May, 1996 ("Date of this Agreement"), is made by and between FACTORY
----------------------
2-U, INC., an Arizona corporation, ("Seller"), with an office at c/o Family
------
Bargain Corporation, 315 East 62nd Street, New York, New York 10021 and
NOGALES PROPERTY MANAGEMENT, L.L.C., an Arizona limited liability company
("Purchaser") with an address at P.O. Box 1806, Nogales, AZ 85628.
---------
RECITALS

Seller desires to sell certain improved and unimproved real property
located in Nogales, Arizona, along with certain related personal and
intangible property, and Purchaser desires to purchase such real, personal
and intangible property.

NOW, THEREFORE, in consideration of the foregoing, of the covenants,
promises and undertakings set forth herein, and for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Seller and Purchaser agree as follows:

1. The Property.

1.1 Description. Subject to the terms and conditions of this
Agreement, and for the consideration herein set forth, Seller agrees to
sell and transfer, and Purchaser agrees to purchase and acquire, all of
Seller's right, title, and interest in and to the following (collectively,
"Property"):
--------

1.1.1 Certain land ("Land") located in Nogales, Santa Cruz County,
----
Arizona, and more specifically described in Exhibit 1.1.1 attached hereto;

1.1.2 The buildings, parking areas, improvements, and fixtures now
situated on the Land and affixed to the improvements including the heating
and air conditioning system (the "Improvements"), if any;
------------
1.1.3 All easements, hereditaments, and appurtenances belonging to
or inuring to the benefit of Seller and pertaining to the Land, if any;

1.1.4 Any street or road abutting the Land to the center lines
thereof;

1.1.5 The leases or occupancy agreements, including those in
effect on the Date of this Agreement which are identified on the Schedule
of Leases attached hereto as

<PAGE>

Exhibit 1.1.5, and any new leases entered into pursuant to Section 4.3,
which as of the Closing (as hereinafter defined) affect all or any portion
of the Land or Improvements ("Leases"), and any security deposits actually
------
held by Seller with respect to any such Leases; and

1.1.6 All transferable consents, authorizations, variances
or waivers, licenses, permits and approvals from any governmental or
quasi-governmental agency, department, board, commission, bureau or other
entity or instrumentality solely in respect of the Land or Improvements.

1.2 "As-Is" Purchase. The Property is being sold in an "AS IS"
condition and "WITH ALL FAULTS" as of the Date of this Agreement and of
Closing. Except as expressly set forth in this Agreement, no
representations or warranties have been made or are made and no
responsibility has been or is assumed by Seller or by any partner, officer,
person, firm, agent or representative acting or purporting to act on behalf
of Seller as to the condition or repair of the Property or the value,
expense of operation, or income potential thereof or as to any other fact
or condition which has or might affect the Property or the condition,
repair, value, expense of operation or income potential of the Property or
any portion thereof. The parties agree that all understandings and
agreements heretofore made between them or their respective agents or
representatives are merged in this Agreement and the Exhibits hereto
annexed, which alone fully and completely express their agreement, and-that
this Agreement has been entered into after full investigation, or with the
parties satisfied with the opportunity afforded for investigation, neither
party relying upon any statement or representation by the other unless such
statement or representation is specifically embodied in this Agreement or
the Exhibits annexed hereto. To the extent that Seller has provided or
shall provide to Purchaser information from or copies of any inspection,
engineering or environmental reports and surveys and maps concerning the
Property or any part thereof, Seller makes no representations or warranties
with respect to the accuracy or completeness, methodology of preparation or
otherwise concerning the contents of such reports and surveys and maps.
Purchaser acknowledges that Seller has requested Purchaser to inspect fully
the Property and investigate all matters relevant thereto and to rely
solely upon the results of Purchaser's own inspections or other information
obtained or otherwise available to Purchaser, rather than any information
that may have been provided by Seller to Purchaser.

Except as may be represented and warranted by Seller in Section
5.1.5 hereof, Purchaser waives and releases Seller from any present or
future claims arising from or relating to the presence or alleged presence
of harmful or toxic substances in, on, under or about the Property
including, without limitation, any claims under or on account of (i) the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as the same may have been or may be amended from time to time, and
similar state statutes, and any regulations promulgated thereunder, (ii)
any other federal, state or local law, ordinance, rule or regulation, now
or hereafter in effect, that deals with or otherwise in any manner

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<PAGE>

relates to, environmental matters of any kind, or (iii) this Agreement or
the common law. The terms and provisions of this paragraph shall survive
Closing hereunder.

1.3 Agreement to Convey. Seller agrees to convey, and Purchaser
agrees to accept, title to the Land and Improvements by special warranty
deed in the condition described in Section 3.2.

2. Price and Payment.

2.1 Purchase Price. The purchase price for the Property ("Purchase
--------
Price") is Four Million Five Hundred Thousand and 00/100 Dollars
-----
($4,500,000) U.S.

2.2 Payment. Payment of the Purchase Price is to be made in cash as
follows:

2.2.1 Four Hundred Fifty Thousand and 00/100 Dollars ($450,000)
(the "Deposit") prior to or contemporaneously with the execution of this
-------
Agreement, to be held in escrow by Lawyers Title of Arizona, 1780 North
Mastick Way, Nogales, AZ (the "Escrow Agent"), in an interest bearing money
------------
market account acceptable to the parties hereto. Any interest earned on the
Deposit shall be paid to the party entitled to the Deposit under the terms
of this Agreement. The Deposit, together with the interest earned thereon,
will be applied to the Purchase Price at Closing.

2.2.2 Four Million Fifty Thousand and 00/100 Dollars
($4,050,000), subject to adjustment for the prorations as provided herein,
via wire transfer in immediately available funds, to a bank account or
accounts designated by Seller.

2.3 Closing. Payment of the Purchase Price and the closing hereunder
("Closing") will take place on or before forty-five (45) days from the Date
-------
of this Agreement, at the offices of the Escrow Agent, at 10:00 local time,
or at such other time and place as may be agreed upon in writing by both
Seller and Purchaser. Time shall be of the essence with respect to
Purchaser's obligation to close on or before the forty-fifth day following
the Date of this Agreement; provided, however, Purchaser shall be entitled
-----------------
to one or more adjournments of the closing for an aggregate period of up
to thirty (30) days; provided, further, that Purchaser shall have received
-----------------
a commitment letter from an institutional lender to provide financing for
the purchase contemplated hereby in an amount equal to at least $3,375,000
(and shall have delivered a copy thereof to Seller prior to the date
originally scheduled for closing), which commitment shall be in full force
and effect and which, by its terms, shall continue to be in full force and
effect through the adjourned closing date.

-3-

<PAGE>

2.4 Tax Free Exchange. Seller shall cooperate with Purchaser to
consummate the transaction contemplated hereby as part of an exchange under
Section 1031 of the Internal Revenue Cede provided that: (i) Seller shall
not be required to take title to any real property in connection therewith;
(ii) Seller's agreement to so cooperate shall not alter Purchaser's "time
of the essence" closing obligation; and (iii) Purchaser and Dino
Panousopoulos shall each, jointly and severally, indemnify and hold Seller
free and harmless from and against any and all loss, cost and injury which
Seller shall or might incur as a consequence of any such exchange
transaction. Seller shall not be obligated to advance any of its own funds
or incur any liabilities or expenses with respect to any such exchange
transaction. The obligations of Purchaser and Dino Panousopoulos under this
paragraph shall survive the Closing.

3. Permitted Encumbrances.

3.1 Objections to Title. Purchaser shall promptly order a title report
for the Property and cause a copy thereof to be sent to Seller's attorney
together with a letter setting forth any objections to the status of the
title or of any matters to be cleared by the Seller under the terms of this
Agreement, and the Seller shall be entitled to one or more adjournments of
the Closing for an aggregate period of up to sixty (60) days for the
purpose of clearing such objections. In the event Seller shall be unable to
convey title to the Property at the Closing in accordance with the
provisions of this Agreement or if Purchaser shall have any other grounds
under this Agreement for refusing to consummate the purchase provided
for herein, Purchaser, nevertheless, may elect to accept such title as
Seller may be able to convey without any reduction in the Purchase Price or
liability on the part of Seller. If Purchaser shall not so elect, Purchaser
may terminate this Agreement and the sole liability of Seller shall be to
refund the Deposit to Purchaser, with any interest accrued thereon. Upon
such refund, this Agreement shall be null and void and the parties hereto
shall be relieved of any further obligations and liability other than any
arising under Section 5.3.

3.2 Permitted Encumbrances. Set forth on Exhibit 3.2 is a schedule of
title exceptions on the Property and contemporaneously herewith, Seller has
delivered to Purchaser a survey or surveys of the Land prepared in
accordance with the "Minimum Standard Detail Requirements for Land Title
Surveys" jointly established and adopted by ALTA and ACSM, dated or redated
within the previous ten (10) years, except that with respect to the
industrial park portion of the Property, Seller has provided Purchaser with
a filed subdivision map (collectively, the "Survey"). Purchaser shall
------
purchase the Property subject to the following matters ("Permitted
---------
Encumbrances"):
------------
3.2.1 all exceptions to title shown on Exhibit 3.2 and matters
shown on the Survey and any additional state of facts shown on any update
thereto obtained by Purchaser at its sole expense provided same do not
prohibit the use of the Property as presently used;

3.2.2 the Leases;

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<PAGE>

3.2.3 the lien of non-delinquent real and personal property taxes
and assessments;

3.2.4 rights of parties in possession not shown by the public
records;

3.2.5 discrepancies, conflicts in boundary lines, shortages in
area, encroachments, and any state of facts which an inspection of the
premises would disclose and which are not shown by the public records or
the Survey;

3.2.6 easements or claims of easements not shown by the public
records;

3.2.7 any service, installation, connection, maintenance or
construction charges due after Closing, and subject to the proration
provisions hereof, for sewer, water, electricity, telephone, cable
television or gas;

3.2.8 unrecorded leaseholds, rights of vendors and holders of
security interests on personal property installed upon the Property by
tenants and rights of tenants to remove trade fixtures and other property
at the expiration of the term of the leases of tenants pursuant to the
terms of such leases;

3.2.9 governmental laws, codes, ordinances and restrictions now or
hereafter in effect so far as these affect the Property or any part
thereof, including without limitation zoning ordinances (and amendments and
additions relating thereto) and the Americans with Disabilities Act; and

3.2.10 any other matter(s) to which Purchaser, or its counsel, has
not objected in writing before Closing.

3.3 Seller's Use and Occupancy. Purchaser acknowledges that Seller is
currently using approximately 10,000 square feet of the warehouse building,
and that Seller may desire to use approximately 5,000 square feet after the
Closing. Purchaser agrees that Seller may use such portion of the warehouse
and the common areas of the building on a month-to-month basis in
consideration of which Seller shall pay Purchaser market rent therefor.
Either party may terminate this arrangement on not less than thirty (30)
days prior written notice; provided, however, that Seller shall have the
right to occupy said space at least through September 30, 1996.

-5-

<PAGE>

4. Prior to Closing. Until Closing, Seller or Seller's agent shall:

4.1 Insurance. Keep the Property insured against fire and other
hazards covered by extended coverage endorsement.

4.2 Operation. Operate and maintain the Property in a businesslike
manner and substantially in accordance with Seller's past practices with
respect to the Property, and make any and all repairs and replacements
reasonably required to deliver the Property to Purchaser at Closing in its
present condition, normal wear and tear excepted, provided that in the
event of any loss or damage to the Property as described in Section 7,
Seller shall have an obligation to Purchaser to repair the Property only if
Seller so elects and then shall be obligated only to the extent of
available insurance proceeds.

4.3 Lease Action.

4.3.1 Seller may not execute new leases nor adversely amend,
terminate or accept the surrender of any existing tenancies nor approve any
subleases (collectively, "Lease Action"), unless any Lease Action is
------------
required by the terms of any existing lease, without the prior consent of
Purchaser, which consent shall not be unreasonably withheld or delayed. In
the event that Seller executes any new lease after the Date of this
Agreement and such lease requires maintenance or repair of the Property,
the construction of tenant fixtures or improvements or the payment of
leasing or brokerage commission(s) at the cost of the landlord, at Closing
Purchaser shall reimburse Seller for any costs theretofore paid by Seller
in connection with such lease and assume the obligations of Seller under
and in connection with such lease including, without limitation, the cost
of any such improvements and leasing or brokerage commission(s).

4.3.2 Without limiting the generality of the foregoing section,
Purchaser acknowledges that Seller is currently in negotiation with the
United States Department of Justice Immigration and Naturalization
Service - Border Patrol (the "Border Patrol") for a lease of the warehouse
-------------
and a portion of the Land to be used as a border patrol station (the "BP
--
Lease"). Purchaser acknowledges that Seller shall have the right to
-----
continue such negotiation and may execute the BP Lease without the prior
consent of Purchaser; provided, however, that if the terms of the BP Lease
shall be materially adversely modified between the Date of this Agreement
and the date of the execution of the BP Lease, such modification shall
require the prior approval of Purchaser, not to be unreasonably withheld or
delayed; In the event the BP Lease shall be executed by Seller prior to
Closing, Seller shall assign to Purchaser all of Seller's rights, and
Purchaser shall assume all of Seller's obligations, under the BP Lease,
pursuant to the assignment and assumption agreement, which shall include an
indemnification from Purchaser against any claim arising out of the BP
Lease, to be delivered at Closing pursuant to Section 9.1.2 hereof. In the
event the BP Lease shall not have been executed by Seller prior to Closing,
but the negotiation between Seller and the Border Patrol is continuing,
Seller shall deliver to Purchaser at Closing copies of Seller's

-6-

<PAGE>

files in connection with such lease negotiation and shall cooperate with
Purchaser to facilitate the transition of the negotiation from Seller to
Purchaser, at no expense to Seller.

4.3.3 At Closing, whether or not the BP Lease shall have been executed
by Seller and the Border Patrol, Purchaser shall reimburse Seller for all
costs theretofore paid by Seller in connection with the BP Lease and shall
assume the obligations of Seller under any other agreements currently in
effect or entered into by Seller after the Date of this Agreement in
connection with the BP Lease, which assumption shall include an
indemnification from Purchaser against any claim arising out of such
agreements, including without limitation, Seller's obligations under the
following agreements:

a. Standard Form of Agreement Between Owner and Architect dated
January 22, 1996 between Seller, as owner, and E.A. Fagin & Associates, as
architect, a true copy of which has been furnished to Purchaser;

b. Single Party Commission Agreement between Seller, as owner,
and RE/MAX Associates, as broker, a true copy of which has been furnished
to Purchaser;

c. Any construction contract entered into by Seller after the
Date of this Agreement for construction of tenant improvements required
under the terms of the BP Lease; and

d. Any contract for janitorial services entered into after the
Date of this Agreement required under the terms of the BP Lease.

At Closing, Purchaser shall also reimburse Seller for the legal fees of
Luce Forward Hamilton & Scripps, San Diego, California, paid by Seller to
the date of Closing for legal services rendered in connection with the BP
Lease or any other agreement now or hereafter executed in connection
therewith, but in no event shall the reimbursement exceed $15,000.

Notwithstanding anything to the contrary set forth above, Purchaser
shall not be required to reimburse Seller for any costs incurred in
connection with the BP Lease if negotiations between Seller and the Border
Patrol shall have terminated without the execution by the parties of the BP
Lease and execution of the BP Lease by the parties is no longer pending as
of the Closing. In the event the BP Lease negotiation shall be pending as
of the Closing and thereafter the BP Lease shall fail to be executed,
Seller shall reimburse Purchaser for the amount paid by Purchaser to Seller
at Closing for the fees of E.A. Fagin & Associates in excess of $25,000.

4.3.4 Seller does not warrant that any particular lease or tenancy will
be in force or effect at the Closing or that the tenants will have
performed their obligations thereunder. The termination of any lease or
tenancy prior to the Closing by reason of the tenant's default, or the
termination of the negotiation of any new lease for any reason

-7-

<PAGE>

whatsoever, shall not affect the obligations of Purchaser under this
Agreement in any manner or entitle Purchaser to an abatement of or credit
against the Purchase Price or give rise to any other claim on the part of
Purchaser.

4.3.5 Notwithstanding anything to the contrary set forth above,
Purchaser shall have five (5) days from the giving of written notice from
Seller to approve or disapprove any proposed Lease Action (including any
Lease Action with respect to the BP Lease) and if Purchaser fails to do so
on a timely basis, Purchaser shall be deemed to have approved thereof.

5. Representations and Warranties.

5.I By Seller. Seller represents and warrants to Purchaser that:

5.1.1 Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona,
has duly authorized the execution and performance of this Agreement, and
such execution and performance will not violate any material term of its
certificate of incorporation or by-laws.

5.1.2 There are no leases or tenancies of any space in the
Improvements other than those set forth on Exhibit 1.1.5, true and correct
copies of which have been or will be furnished to Purchaser.

5.1.3 To the best of Seller's knowledge, the Improvements, as
currently used, comply with applicable zoning laws.

5.1.4 All utilities necessary for the use of the Improvements
as currently built and used are installed and available to the Property.

5.1.5 Seller has provided or will provide to Purchaser a true
copy of (i) the Environmental Site Assessment prepared by Vuich
Environmental for Seller with respect to a twenty-acre portion of the
Property, and (ii) the Environmental Property Evaluation prepared by WT
Environmental Consultants Inc. with respect to all of the Property, and,
except as specified therein, Seller has no knowledge of any environmental
hazards affecting any portion of the Property. Seller has not received
any written notice of any proceeding or any inquiry by any governmental
agency alleging environmental contamination of the Property. Seller has
not received any written notice of any violations of any local, state or
federal statutes or laws governing the generation, treatment, storage,
disposal or clean-up of hazardous substances, including, without
limitation, under the Arizona Environmental Quality Act of 1986, the
Toxic Substance Control Act of 1976, or the Resource Conservation and
Recovery Act of 1976, as they have been amended from time to time.

-8-

<PAGE>

5.1.6 Seller has not made an assignment for the benefit of
creditors nor filed any voluntary proceedings in bankruptcy pursuant to any
other laws for relief of debtors nor has any involuntary proceeding been
filed against Seller.

5.2 By Purchaser. Purchaser represents and warrants to Seller that:

5.2.1 Purchaser is an Arizona limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Arizona, has duly authorized the execution and performance of this
Agreement, and such execution and performance will not violate any material
term of its Operating Agreement.

5.2.2 Purchaser is acting as principal in this transaction with
authority to close the transaction.

5.2.3 No petition in bankruptcy (voluntary or otherwise),
assignment for the benefit of creditors, or petition seeking reorganization
or arrangement or other action under Federal or State bankruptcy laws is
pending against or contemplated by Purchaser.

5.2.4 Unless otherwise disclosed to Seller in writing, neither
Purchaser nor any affiliate of or principal in Purchaser is other than a
citizen of, or Partnership, corporation or other form of legal person
domesticated in the United States of America.

5.2.5 Purchaser will not use the assets of an employee benefit
plan as defined in Section 3(3) of the Employee Retirement Income Security
Act oil 1974, as amended ("ERISA") and covered under Title I, Part 4 of
-----
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended, in
the performance or discharge of its obligations hereunder, including the
acquisition of the Property.

5.3 Mutual. Seller and Purchaser each represents to the other that it
has dealt with no broker in connection with this transaction and that this
Agreement was brought about by direct negotiation between Seller and
Purchaser and that it knows of no broker entitled to a commission in
connection with this transaction. Seller and Purchaser shall indemnify,
defend and hold each other harmless from and against any liability, loss,
damage, costs, claims or expenses, including attorneys' fees, arising out
of the breach of their respective representations contained in this
Section 5.3. The representations and obligations under this Section 5.3
shall survive the Closing, or, if the Closing does not occur, the
termination of this Agreement.

-9-

<PAGE>

5.4 Survival. All representations and warranties contained in this
Agreement are true on and as of the date so made and, as a condition to the
parties' obligation to close hereunder, shall be true on and as of the
Closing Date. Such representations shall survive the Closing Date for a
period of six (6) months and no claim may thereafter be brought against the
other for breach of any representation or warranty.

6. Costs and Prorations

6.1 Purchaser's Costs. Purchaser will pay the following costs of
closing this transaction:

6.1.1 The fees and disbursements of its counsel, inspecting
architect, engineer and other consultants, if any;

6.1.2 One-half (1/2) of any real estate transfer, stamp or
documentary tax(es);

6.1.3 The cost of any title insurance in excess of the costs(s)
of a standard coverage owner's policy, including, any additional premium
charge(s) for extended coverage, endorsements and/or deletions of exception
items and any cancellation charge(s) imposed by any title company in the
event a title insurance policy is not issued, unless caused by willful
default of Seller hereunder;

6.1.4 The cost of any survey or survey updates (other than the
Survey), if desired by Purchaser or required by the title insurer;

6.1.5 Any recording fees; and

6.1.6 Any other expense(s) incurred by Purchaser or its
representative(s) in inspecting or evaluating the Property or closing this
transaction.

6.2 Seller's Costs.

Seller will pay:

6.2.1 The fees and disbursements of Seller's counsel;

6.2.2 One-half (1/2) of any real estate transfer, stamp or
documentary taxes; and

6.2.3 The cost of a standard coverage owner's title insurance
policy in the amount of the Purchase Price, issued in connection with this
transaction.

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<PAGE>

6.3 Prorations. The following apportionments shall be made between
the parties at the Closing as of the close of business on the day prior to
the Closing Date:

6.3.1 Rents and any other amounts payable by tenants, as and when
collected;

6.3.2 personal property taxes;

6.3.3 sewer and/or water charges and rents, on the basis of the
fiscal period for which assessed;

6.3.4 value of fuel stored on the Property, at the price then
charged by Seller's supplier, including any taxes;

6.3.5 any other utility charges; and

6.3.6 real estate taxes and special assessments relating to the
Property for the fiscal year in which Closing occurs; if Closing shall
occur before the actual taxes and special assessments for such year are
known, the apportionment of taxes shall be upon the basis of taxes for the
Property for the immediately preceding fiscal year, provided that, if the
taxes and special assessments for the year in which Closing occurs are
thereafter determined to be more or less than the taxes for the preceding
year (after any appeal of the assessed valuation thereof is concluded),
Seller and Purchaser promptly (but no later than the date that is thirty
(30) days from and after the date that the final invoices for taxes for the
Property are issued by the applicable taxing authority(ies) except in the
case of an ongoing tax protest) shall adjust the proration of such taxes
and special assessments and Seller or Purchaser, as the case may be, shall
pay to the other any amount required as a result of such adjustment and
this covenant shall not merge with the deed delivered hereunder but shall
survive the Closing.

6.4 Tax Protest. Purchaser acknowledges that Seller has retained the
firm of Deloitte & Touche LLP, Phoenix, Arizona, to bring a property tax
appeal proceeding for the 1997 tax year, a copy of which agreement has been
or will be furnished to Purchaser. Seller is hereby authorized to continue
such proceeding and to try to settle the same in Seller's reasonable
discretion. If as a result of any tax protest or otherwise, any refund or
reduction of any real property or other tax or assessment relating the
Property during the period for which Seller is responsible, Seller shall be
entitled to receive or retain such refund or the benefit of such reduction,
less equitable prorated costs of collection.

6.5 Payments Under Development Agreement. Purchaser acknowledges that
all sums payable after the Date of this Agreement or after the Closing by
the City of Nogales ("City") or George Barr or his successors in title
----
(individually and collectively, "Barr")
----
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<PAGE>

under that certain Development Agreement dated January 2, 1992 among the
City, Barr and Seller (recorded in Docket 574, Page 759) and Addendum
thereto dated as of March 4, 1992 (recorded in Docket 588, Page 621) as
reimbursement for or otherwise in connection with construction or other
work performed by Seller prior to the Closing shall belong to Seller, and
if, following the Closing, Purchaser receives any such sums, Purchaser
shall promptly remit the same to Seller. At the Closing, Purchaser and
Seller shall enter into an agreement memorializing the assignment from
Purchaser to Seller of such reimbursements. The terms and provisions of
this Section 6.5 shall not merge with the deed delivered hereunder but
shall survive the Closing.

6.6 Purpose and Intent. Except as expressly provided herein, the
purpose and intent as to the provisions of prorations and apportionments
set forth in this Section 6 and elsewhere in this Agreement is that Seller
shall bear all expenses of ownership and operation of the Property and
shall receive all income therefrom accruing through midnight at the end of
the day preceding the Closing and Purchaser shall bear all such expenses
and receive all such income accruing thereafter.

7. Damage, Destruction or Condemnation.

7.1 Material Event. If, prior to Closing, twenty percent (20%) or more
of the net rentable area of the building(s) or of the parking spaces on the
Property or all access to the Property is rendered completely untenantable,
or is destroyed or taken under power of eminent domain, Purchaser may elect
to terminate this Agreement by giving written notice of its election to
Seller within seven (7) days after receiving notice of such destruction or
taking. If Purchaser does not give such written notice within such seven
(7) day period, this transaction shall be consummated on the date and at
the Purchase Price provided for in Section 2, and Seller will assign to
Purchaser the physical damage proceeds of any insurance policy(ies) payable
to Seller, or Seller's portion of any condemnation award, in both cases, up
to the amount of the Purchase Price, and, if an insured casualty, pay to
Purchaser the amount of any deductible but not to exceed the amount of the
loss.

7.2 Immaterial Event. If, prior to Closing, less than twenty percent
(20%) of the net rentable area of the Building(s) or of the parking spaces
on the Property are rendered completely untenantable or are destroyed, or
are taken under power of eminent domain, Purchaser shall close this
transaction on the date of Closing and at the Purchase Price agreed upon in
Section 2, and Seller will assign to Purchaser the physical damage proceeds
of any insurance policies payable to Seller, or Seller's portion of any
condemnation award, in both cases, up to the amount of the Purchase Price.

7.3 Termination and Return of Deposit. If either party elects to
terminate this Agreement pursuant to this Section 7, and if Purchaser is
not, on the date of such election, in default under the Agreement, Seller
shall promptly direct the Escrow Agent to return the

-12-

<PAGE>
Deposit to Purchaser, and thereafter, neither Seller nor Purchaser shall
have any obligation or liability hereunder (provided that Section 5.3 shall
survive without limitation as to time), and Purchaser shall have no
interest in the Property.

8. Notices.

Any notice required or permitted to be given hereunder shall be deemed
to be given when hand delivered or one (1) business day after pickup by an
overnight express service, in either case addressed to the parties at their
respective addresses referenced below:

If to Seller: c/o Family Bargain Corp.
315 E. 62nd Street
Sixth Floor
New York, NY 10021

Attention: John Selzer
Phone No.: (212) 980-9670
Fax No.: (212) 593-4586

With a copy to: Baer Marks & Upham
805 Third Avenue
New York, NY 10022

Attention: Joel M. Handel, Esq.
Phone No.: (212) 702-5700
Fax No.: (212) 702-5941

If to Purchaser: Nogales Property Management, L.L.C.
P.O. Box 1806
Nogales, AZ 85628-1806
Attn: Dino Panousopoulos
Phone: (520) 281-4444
Fax: (520) 281-3456

With a copy to: Soto, Martin & Coogan, P.C.
P.O. Box 939
Nogales, AZ 85628-0939
Attention: James A. Soto
Phone No.: (520) 287-2110
Fax No.: (520) 287-5201

-13-

<PAGE>

or in each case to such other address as either party may from time to time
designate by giving notice in writing to the other party. Telephone and
facsimile numbers are for informational purposes only. Effective notice
will be deemed given only as provided above.

9. Closing.

9.1 Seller's Deliveries. Seller shall deliver either at the Closing
or by making available at the Property, as appropriate, the following
original, documents, each executed and, if required, acknowledged:

9.1.1 A special warranty deed to the Property.

9.1.2 (i) The Leases described in Section 1.1.5 which are still
in effect as of Closing and any new leases entered into pursuant to Section
4.3; (ii) a current listing of any tenant security deposits and prepaid
rents held by Seller with respect to the Property; and (iii) an assignment
of such leases, deposits, and prepaid rents by way of an assignment and
assumption agreement.

9.1.3 (i) Copies of all contracts relating to the Property
which Purchaser is required to assume pursuant to Section 4.3; and (ii) an
assignment of such contracts to Purchaser by way of an assignment and
assumption agreement.

9.1.4 All books and records at the Property held by or for the
account of Seller, including without limitation, plans and specifications
and lease applications, as available.

9.1.5 An affidavit pursuant to the Foreign Investment and Real
Property Tax Act.

9.1.6 A corporate authorization.

9.1.7 An incumbency affidavit.

9.1.8 A closing statement and acknowledgements setting forth
all prorations and credits made at Closing.

9.1.9 An assignment of utility deposit, if any, pursuant to
Section 9.3 hereof.

9.1.10 A letter to any tenants of the Property advising them of
the sale and directing them to make all future payments as directed by
Purchaser.

-14-

<PAGE>

9.2 Purchaser's Deliveries. At Closing, Purchaser shall pay Seller
the Purchase Price, subject to all of the adjustments and prorations set
forth in this Agreement, and Purchaser shall deliver the following
original, documents, each executed and, if required, acknowledged:

9.2.1 The agreements referred to in Sections 9.1.2(iii) and

9.1.3(ii). 9.2.2 The agreement referred to in Section 6.5.

9.2.3 A closing statement and acknowledgements setting forth all
prorations and credits made at Closing.

9.2.4 Any other documents required by this Agreement to be
delivered by Purchaser.

9.3 Utility Service and Deposits. Seller shall be entitled to the
return of any deposit(s) posted by it with any utility company and
Purchaser shall notify each utility company serving the Property to
terminate Seller's account, effective at noon on the date of Closing. In
the event that any such deposit shall not be returned by any utility
company, Purchaser shall pay Seller the amount of such deposit at Closing
and Seller shall assign to Purchaser all of its right, title and interest
to such deposit.

9.4 Post-Closing Collections. Purchaser shall use its best efforts
during the six (6) month period immediately following Closing to collect
and promptly remit to Seller rents or other amounts due Seller for the
period prior to Closing. Purchaser shall apply such rents or other amounts
received, first for the account of Purchaser for amounts currently due to
Purchaser; second, to Seller for any and all amounts due to Seller for
periods prior to Closing; and the balance to be retained by Purchaser. The
provisions of this Section 9.4 shall not merge with the deed delivered
hereunder but shall survive the Closing.

10. Default; Failure of Condition.

10.1 Purchaser Default. If Purchaser shall breach or be in default
under this Agreement, the Deposit, plus interest accrued thereon, shall be
retained by Seller as liquidated damages, and both parties shall be
relieved of and released from any further liability hereunder except for
any arising under Section 5.3 of this Agreement. Seller and Purchaser agree
that the Deposit is a fair and reasonable amount to be retained by Seller.
as agreed and liquidated damages in light of Seller's removal of the
Property from the market and the costs incurred by Seller and shall not
constitute a penalty or a forfeiture.

10.2 Seller Default. If Seller shall refuse or fail to convey the
Property as herein provided for any reason other than (i) a default by
Purchaser, or (ii) any other

-15-

<PAGE>
zzz

provision of this Agreement which permits Seller to terminate this
Agreement or otherwise relieves Seller of the obligation to convey the
Property, Purchaser shall elect as its sole remedy hereunder either to
terminate this Agreement and recover the Deposit or to enforce the Seller's
obligations to convey the Property, provided that no such action in
specific performance shall seek to require the Seller to do any of the
following: (a) change the condition of the Property or restore the same
after any fire or other casualty; (b) expend money or post a bond to remove
a title encumbrance or defect or correct any matter shown on a survey of
the Property; or (c) secure any permit, approval, or consent with respect
to the Property or Seller's conveyance of the Property.

10.3 Failure of Condition. If prior to Closing Seller discloses to
Purchaser or Purchaser discovers that (i) title to the Property is subject
to defects, limitations or encumbrances other than Permitted Encumbrances,
or (ii) any representation or warranty of Seller contained in this
Agreement is or, as of the Closing, will be untrue in any material respect,
then Purchaser shall promptly give Seller written notice of its objection
thereto. In such event, Seller shall be entitled to one or more
adjournments of the Closing for an aggregate period of up to sixty (60)
days, for the purpose of clearing such objections, provided that Purchaser
may not object to the state of title of the Property on the basis of
matters set out in Section 3.2 above. In the event Seller shall be unable
to convey title to the Property at the Closing in accordance with the
provisions of this Agreement or if Purchaser shall have any other grounds
under this Agreement for refusing to consummate the purchase provided for
herein, Purchaser, nevertheless, may elect to accept such title as Seller
may be able to convey without any reduction in Purchase Price or liability
on the part of Seller. If Purchaser shall not so elect, Purchaser may
terminate this Agreement and the sole liability of Seller shall be to
refund the Deposit to Purchaser, with any interest accrued thereon. Upon
such refund, this Agreement shall be null and void and the parties hereto
shall be relieved of any further obligations and liability other than any
arising under Section 5.3. For the purposes of this Agreement, any title
defect, limitation or encumbrance other than a Permitted Encumbrance shall
be deemed cured if the Title Company or another title company reasonably
acceptable to Purchaser and authorized to do business in the State of
Arizona will agree to issue a standard coverage owner's title insurance
policy to Purchaser for the Purchase Price, which policy takes no exception
for such defect, limitation or encumbrance and is issued for no additional
premium or for an additional premium if Seller agrees to pay such
additional premium upon Closing. .

11. Escrow

11.1 Provisions as to Release. The Deposit shall be held in escrow by
the Escrow Agent and applied in accordance with the terms of this
Agreement, unless and until either:

-16-

<PAGE>

11.1.1 receipt by Escrow Agent of a writing signed by Seller
and Purchaser, directing the distribution or delivery of the Deposit other
than in accordance with the terms of this Agreement, in which event Escrow
Agent shall act in accordance with such written directive; or

11.1.2 receipt by Escrow Agent of a notice signed by
Purchaser or Seller (a "Notifying Party") indicating that this Agreement
---------------
has been terminated and that the Notifying Party is entitled to delivery of
the Deposit and seven (7) days have elapsed from the date that Escrow Agent
sends notice to the non-Notifying Party that the Notifying Party has
demanded the return of the Deposit, in which event, and only if Escrow
Agent receives no notice of contest from the non-Notifying Party, Escrow
Agent shall deliver the Deposit to the Notifying Party; provided, however,
that if Escrow Agent receives notice of contest from the non-Notifying
Party, then Escrow Agent shall retain the Deposit in escrow pending a
resolution of the dispute or proceed in accordance with Section 11.2 below.

11.2 Conflicting Demands.

11.2.1 In the event the Escrow Agent receives or becomes
aware of conflicting demands or claims with respect to this escrow or the
rights of any of the parties hereto or any funds, securities, property or
documents deposited herein or affected hereby, the Escrow Agent shall have
the right to deposit the Deposit into a court or continue to hold same
until such conflict is resolved to his satisfaction.

11.2.2 The Escrow Agent shall have the further right but not
the obligation to commence or defend any action or proceedings for the
determination of such conflict. The parties jointly and severally agree to
pay all costs, damages, judgments and expenses, including reasonable
attorneys' fees, suffered or incurred by the Escrow Agent in connection
with or arising out of this escrow, including, but without limiting the
generality of the foregoing, a suit in interpleader brought by the Escrow
Agent. In the event the Escrow Agent files a suit in interpleader, he shall
thereupon be fully released and discharged from all further obligations to
perform any and all duties or obligations imposed upon him by this Escrow
Agreement.

11.3 Limitations on Liability. The Escrow Agent shall not be liable
for any error or judgment or for any act done or omitted by him in good
faith, or for anything which he may in good faith do or refrain from doing
in connection herewith; nor for any negligence other than 'his gross
negligence or willful misconduct; nor will any liability be incurred by the
Escrow Agent if, in the event of any dispute or question as to his duties
or obligations hereunder, he acts in accordance with the written opinion of
his legal counsel. The Escrow Agent is authorized to act upon any document
believed by him to be genuine and to be signed by the proper party or
parties, and will incur no liability in so acting.

-17-

<PAGE>

11.4 Modification of Terms of Escrow. The Escrow Agent shall not
be bound by any modification of this Agreement or any agreement
incorporated by reference herein, unless there is delivered to the Escrow
Agent a written modification signed by the parties. No such modification
shall, without the written consent of the Escrow Agent, modify the
provisions of this escrow relating to the duties, obligations or rights of
the Escrow Agent.

11.5 Representation of Seller. Escrow Agent shall have the right to
represent Seller in any dispute between Seller and Purchaser with respect
to the Deposit or otherwise.

11.6 Law and Venue Concerning Escrow Agent. With respect to any
dispute concerning Escrow Agent, and its liability under this Agreement,
and notwithstanding any provision of this Agreement to the contrary, the
substantive laws of the State of Arizona shall apply. Unless Escrow Agent
otherwise agrees (in which case Escrow Agent's designation shall control),
venue and jurisdiction for any dispute concerning Escrow Agent's liability
shall be in the courts located in Santa Cruz, Arizona.

12. Miscellaneous.

12.1 Entire Agreement. This Agreement, together with the Exhibits
attached hereto, all of which are incorporated by reference, is the entire
agreement between the parties with respect to the subject matter hereof,
and no alteration, modification or interpretation hereof shall be binding
unless in writing and signed by both parties.

12.2 Severability. If any provision of this Agreement or application
to any party or circumstances shall be determined by any court of competent
jurisdiction to be invalid and unenforceable to any extent, the remainder
of this Agreement or the application of such provision to such person or
circumstances, other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision hereof
shall be valid and shall be enforced to the fullest extent permitted by
law.

12.3 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Arizona. .

12.4 Assignability. Purchaser may assign this Agreement provided
that the assignee shall assume all of the Purchaser's obligations
hereunder. Any assignment in contravention of this provision shall be void.
No assignment shall release the Purchaser herein named from any obligation
or liability under this Agreement. Any assignee shall be deemed to have
made any and all representations and warranties made by Purchaser
hereunder, as if the assignee were the original signatory hereto.

-18-

<PAGE>

12.5 Successors Bound. This Agreement shall be binding upon and inure
to the benefit of Purchaser and Seller and their successors and permitted
assigns.

12.6 No Public Disclosure. Purchaser shall make no public
disclosure of the terms of this transaction without the prior written
consent of Seller, except that Purchaser may discuss the transaction in
confidence with proposed joint venturers or prospective mortgagees.

12.7 Captions. The captions in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit or
describe the scope of this Agreement or the scope or content of any of its
provisions.

12.8 Attorney's Fees. In the event of any litigation arising out of
this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees and costs.

12.9 No Partnership. Nothing contained in this Agreement shall be
construed to create a partnership or joint venture between the parties or
their successors in interest.

12.10 Counterparts. This Agreement may be executed and delivered in
any number of counterparts, each of which so executed and delivered shall
be deemed to be an original and all of which shall constitute one and the
same instrument.

12.11 Recordation. Purchaser and Seller agree not to record this
Agreement or any memorandum hereof.

12.12 Proper Execution. The submission by Seller to Purchaser of this
Agreement in unsigned form shall be deemed to be a submission solely for
Purchaser's consideration and not for acceptance and execution. Such
submission shall have no binding force and effect, shall not constitute an
option, and shall not confer any rights upon Purchaser or impose any
obligations upon Seller, irrespective of any reliance thereon, change of
position or partial performance. The submission by Seller of this Agreement
for execution by Purchasers and the actual execution and delivery thereof
by Purchaser to Seller shall similarly have no binding force and effect on
Seller unless and until Seller shall have executed this Agreement and the
Deposit shall have been received by the Escrow. Agent and a counterpart
thereof shall have been delivered to Purchaser.

12.13 Confidentiality. Unless Seller specifically and expressly
otherwise agrees in writing, Purchaser agrees that all information
regarding the Property of whatsoever nature made available to it by Seller
or Seller's agents or representatives ("Proprietary Information") is
confidential and shall not be disclosed to any other person except those
assisting Purchaser with the transaction, or Purchaser's lender, if any,
and then only upon Purchaser making such person aware of the
confidentiality restriction and procuring such person's agreement to be
bound thereby. In the event the purchase and sale contemplated

-19-

<PAGE>

hereby fails to close for any reason whatsoever, Purchaser agrees to return
to Seller, or cause to be returned to Seller all Proprietary Information.
Further, Purchaser agrees not to use or allow to be used any Proprietary
Information for any purpose other than to determine whether to proceed with
the contemplated purchase, or if same is consummated, in connection with
the operation of the Property post-Closing. Notwithstanding any other term
of this Agreement, the provisions of this Section 12.13 shall survive
Closing or the termination of this Agreement.

IN WITNESS WHEREOF, Purchaser and Seller have executed this Agreement
on the date set forth below, effective as of the date set forth above.

SELLER:

FACTORY 2-U, INC.

Date: 5/23/1996 By: /s/ James M. Baker
-----------------------------
Printed name: James M. Baker
------------------
Its: CFO
-----------------------------

PURCHASER:

NOGALES PROPERTY MANAGEMENT, L.L.C.

Date: 5/21/1996 By: /s/ Dino Panousopoulos
-----------------------------
Printed name: Dino Panousopoulos
-------------------
Its: Manager
-----------------------------

The undersigned confirms his agreement with
the terms and provisions of Section 2.4 of
this Agreement:

/s/ Dino Panousopoulos
-------------------------------------------
Dino Panousopoulos

-20-

<PAGE>

An original, fully executed copy of this Agreement, together with the
Deposit, have been received by the Escrow Agent this 24 day of May, 1996,
--
and by execution hereof the Escrow Agent hereby covenants and agrees to be
bound by the terms of this Agreement. The Escrow Agent is authorized to
place the date of its execution of this Agreement on the Title Page and on
Page 1 of this Agreement as the Date of this Agreement.

LAWYERS TITLE OF ARIZONA

By: /s/ Alexa Ramirez
-------------------------
Printed name: Alexa Ramirez
---------------
Its: Vice President
-------------------------
-21-

<PAGE>

EXHIBIT 1.1.1

Parcel 1
--------

The following description is based upon that certain map on file in
the Office of the County Recorder of Santa Cruz County, Arizona, in
Book 1 of Surveys, Page 110 and amended in Book 1 of Surveys, Page
111 and those certain Deeds as recorded in Docket 495, Page 468 and
Docket 529, Page 893, in the Office of the County Recorder of Santa Cruz
County, Arizona;

That portion of the West half of the Southeast quarter of Section
12, Township 24 South, Range 13 East of the Gila and Salt River
Base and Meridian, Santa Cruz County, Arizona, more particularly
described as follows:

COMMENCING at the East quarter corner of said Section 12, being a half
inch aluminum capped pin;

thence South 89 degrees 28 minutes 52 seconds West, along the North line
of the aforementioned Southeast quarter of Section 12, a distance of
1,325.94 feet to the POINT OF BEGINNING, being a found half inch
aluminum capped pin stamped "R.L.S. 12536";

thence South 00 degrees 13 minutes 48 seconds East (record) South
00 degrees 12 minutes 45 seconds East (measured), along the West line
of the parcels described in the Deeds recorded in Docket 462, Page 594
and Docket 462, Page 458, a distance of 554.65 feet (record and
measured) to a point;

thence South 89 degrees 40 minutes 39 seconds West, 50.00 feet;

thence South 00 degrees 13 minutes 48 seconds East (record), South
00 degrees 12 minutes 45 seconds East (measured), a distance of 454.88
feet;

thence South 89 degrees 40 minutes 39 seconds West, a distance of
1273.01 feet to a point on the West line of aforementioned West half
of the Southeast quarter of said Section 12;

thence North 00 degrees 19 minutes 23 seconds West (record) North
00 degrees 17 minutes 52 seconds West (measured), along the
aforementioned West line of the Southeast quarter of Section 12, a
distance of 1,004.99 feet to the Northwest corner of said Southeast
quarter, being a found half inch aluminum capped pin stamped "R.L.S.
12536";

thence North 89 degrees 28 minutes 52 seconds East (record and
measured), along the North line of said Southeast quarter, a distance
of 1,324.63 feet (record) 1.324.52 feet (measured) to the POINT
OF BEGINNING.

TOGETHER WITH an easement for ingress, egress and utilities as more
fully set forth in the Warranty Deed recorded March 10, 1989 in Docket
495, Page 468 and re-recorded in Docket 529, Page 893.

EXCEPT that portion conveyed to the CITY OF NOGALES in Warranty
Deed recorded April 13, 1993 in Docket 609, Page 299, described as
follows:

<PAGE>

That portion of the West half of the Southeast quarter of Section 12,
Township 24 South, Range 13 East of the Gila and Salt River Base and
Meridian, Santa Cruz County, Arizona, more particularly described as
follows:

COMMENCING at the East quarter corner of said Section 12;

thence South 89 degrees 28 minutes 52 seconds West along the North line of
the Southeast quarter of Section 12, a distance of 1,325.94 feet;

thence South 00 degrees 12 minutes 45 seconds East along the West line of a
parcel described in Docket 462, Page 594 recorded in the Office of the
County Recorder of Santa Cruz County, Arizona, a distance of 554.65 feet to
the POINT OF BEGINNING;

thence South 89 degrees 40 minutes 39 seconds West, a distance of 50.00
feet;

thence North 80 degrees 35 minutes 24 seconds East, a distance of 50.65
feet;

thence South 00 degrees 12 minutes 45 seconds East along the West line of a
parcel described in said Docket 462, Page 594, a distance of 8.00 feet to
the POINT OF BEGINNING.

Parcel 2
--------

LOTS 1 THROUGH 12 INCLUSIVE, IN CAPIN INDUSTRIAL PARK, A
SUBDIVISION OF SANTA CRUZ COUNTY, ARIZONA, ON RECORD IN THE
OFFICE OF THE SANTA CRUZ COUNTY RECORDER IN BOOK 4 OF MAPS AND
PLATS AT PAGE 54.

<PAGE>

Exhibit 1.1.5

Factory 2-U, Inc.
Lease Income from Nogales Facility

<TABLE><CAPTION>
Monthly Lease Lease Lease
Lessee Square Footage Rental Start Signed Terminates Deposits
------ -------------- ------- ----- ------ ---------- --------

<S> <C> <C> <C> <C> <C> <C>
William F. Joffroy, Inc. 30,372 $11,000 11/01/94 10/25/94 10/31/96 $0
International Power 5,022 $3,500 01/01/95 12/29/94 06/30/96 $0
Systems
- ----------------------------------------------------------------------------------------------------
TOTALS 35,394 $14,500
-------------------------
-------------------------

</TABLE>

Note 1

Tenant has right to extend lease for one year provided it notifies landlord in
writing 90 days in advance of the expiration of the original termination date.
Landlord and tenant may extend for additional one year periods for up to five
more years if mutually agreeable. Rent escalates during these extension periods
as stipulated in the lease agreement.

Note 2

The lease has been amended by one amendment dated 7/1/95. The amendment
substituted 5,022 SF of warehouse space for the 1,700 SF of office and the
1,000 SF of warehouse originally called for in the lease. The amendment also
extends the lease term by six months to June 30, 1996 and cancels the original
option to extend.

<PAGE>

EXHIBIT 3.2

Taxes for the full year of 1996. (The first half is due October 1, 1996 and
is delinquent November 1, 1996. The second half is due March 1, 1997 and is
delinquent May 1, 1997.) (Both parcels)

Water rights, claims or title to water, whether or not the matters excepted
are shown by the public records. (Both parcels)

An easement for telephone and telegraph facilities and rights incident
thereto as granted in instrument recorded in Book 22 of Miscellaneous,
Page 45. (Parcel 1)

An easement for access and rights incident thereto as set forth in
------
instrument recorded in Docket 495, Page 468 and re-recorded in Docket 529,
Page 893. (Parcel 1)

Agreement with the City of Nogales recorded in Docket 574, Page 759 and re-
recorded in Docket 588, Page 603. (Parcel 1)

An easement for roadway and public utilities and rights incident thereto as
set forth in instrument recorded March 12, 1987 in Docket 443, Page 232.
(Parcel 1)

An easement for roadway and public utilities and rights incident thereto as
set forth in instrument recorded October 26, 1987 in Docket 460, Page 63.
(Parcel 1)

Easements, reservations and conditions as set forth on the recorded plat of
said subdivision. (Parcel 2)

Reservations as contained in Patent from the United States of America:
Recorded: March 4, 1918 (Parcel 2)
Book of Deeds/Page: 10/314

EXHIBIT 12.1

FAMILY BARGAIN CORPORATION
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

(in thousands, except where otherwise indicated)

Year 4 Months 9 months 12 months 12 months 12 months
ended ended ended ended ended ended
12/31/91 04/30/92 04/30/93 01/29/94 01/28/95 1/27/96
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations 0 (111) (3,239) 1,113 (205) 1,476
before income taxes
------------------------------------------------------------------------------------------------------------------------------
Interest expense* 0 56 719 3,433 2,813 3,675
------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings 0 (55) (2,520) 4,546 2,608 5,153
------------------------------------------------------------------------------------------------------------------------------

Interest expense 0 56 719 3,433 2,813 3,675

Dividends 0 0 25 200 2,030 3,040
------------------------------------------------------------------------------------------------------------------------------
Combined fixed charges and dividends 56 744 3,633 4,843 6,715
------------------------------------------------------------------------------------------------------------------------------
Ratio of Adjusted Earnings to Combined
Fixed Charges and Preferred Stock
Dividends n/s (0.96) (3.39) 1.25 0.54 0.77

Surplus (deficiency) 0 (111) (3,264) 913 (2,235) (1,582)

- -----------------------------
* Represents interest expenses as reported on the financial statements,
which includes capital lease interest, debt discount amortization and
debt discount amortization and debt issuance cost amortization.

Pro Forma Pro Forma
12 months 12 months 3 months 3 months 12 months 12 months
ended ended ended ended ended ended
04/29/95 April 1996 04/29/95 04/27/96 01/27/96 04/27/96
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations (2,845) 3,474 (3,554) (1,558) (504) (1,911)
before income taxes
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense* 2,714 4,050 664 1,039 5,657 1,392
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings (131) 7,524 (2,890) (519) 5,513 519
- -------------------------------------------------------------------------------------------------------------------------------

Interest expense 2,714 4,050 664 1,039 5,657 1,392

Dividends 2,790 3,134 760 854 3,040 854
- -------------------------------------------------------------------------------------------------------------------------------
Combined fixed charges and dividends 5,504 7,184 1,424 1,893 8,697 2,246
- -------------------------------------------------------------------------------------------------------------------------------

Ratio of Adjusted Earnings Combined
Fixed Charges and Preferred Stock
Dividends
n/s (0.02) 1.05 (2.03) (0.27) 0.59 (0.23)

Surplus (deficiency) (5,635) 340 (4,314) (2,412) (3,544) (2,765)

</TABLE>

EXHIBIT 21.1

Subsidiaries of the Registrant
------------------------------

The Company's subsidiaries are DRS Apparel, Inc., General Textiles, and
Factory 2-U, Inc.

EXHIBIT 23.1

[PEAT MARWICK LLP LOGO]

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Family Bargain Corporation:

We consent to the inclusion in the registration statement (No. 333- )
------
and to the reference to our firm under the heading "Experts" in the
prospectus on Form S-2 of Family Bargain Corporation of our report dated
March 29, 1994, with respect to the balance sheet of Capin Mercantile
Corporation as of December 31, 1993, and the related statements of
earnings, changes in stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1993, which report is
included herein.

KPMG PEAT MARWICK LLP

Phoenix, Arizona
August 6, 1996

EXHIBIT 23.2

[LOGO PEAT MARWICK LLP]

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Family Bargain Corporation:

We consent to the use of our reports included herein the Form S-2
(Registration Statement 333- ) and to the reference to our firm
--------
under the heading "Experts" in the prospectus,

KPMG PEAT MARWICK LLP

San Diego, California
August 6, 1996

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Family Bargain
Corporation on Form S-1 of our report dated April 20, 1995 (May 1, 1995 as
to paragraph 4 of Note 6) relating to the financial statements of Capin
Mercantile Corporation (which expresses an unqualified opinion and includes
an explanatory paragraph concerning the entity's ability to continue as a
going concern) appearing in the Prospectus, which is part of this Registration
Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Tucson, Arizona

August 6, 1996

EXHIBIT 25

------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

--------------------
FORM T-1

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
--

--------------------

IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)

New York 13-5375195
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. national bank) Identification No.)

One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)

IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)

Family Bargain Corporation
(Exact name of obligor as specified in its charter)

Delaware 51-0299573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

315 East 62nd Street
New York, New York 10021
(Address of principal executive offices) (Zip code)

--------------------

% Convertible Subordianted Debentures Due 2006
---
(Title of indenture securities)

----------------------------------------------------

<PAGE>

Item 1. General information

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising
authority to which it is subject.

New York State Banking Department
Two Rector Street, New York, New York

Federal Deposit Insurance Corporation
Washington, D.C.

Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York

(b) Whether it is authorized to exercise corporate trust powers.

Yes

Item 2. Affiliations with the Obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

The obligor is not an affiliate of the trustee.

Defaults by the Obligor.

(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.

None

<PAGE>
(b) If the trustee is a trustee under another
indenture under which any other securities, or
certificates of interest or participation in any
other securities, of the obligor are outstanding,
or is trustee for more than one outstanding series
of securities under the indenture, state whether
there has been a default under any such indenture
or series, identify the indenture or series
affected, and explain the nature of any such
default.

Trustee for General Textiles Subordinated Debt
Notes due 2003 issed under an Indentrue dated as
of May 28, 1993. The Issuer of the Debentures is
a subsidary of Family Bargain Corporation.

List of exhibits.

List below all exhibits filed as part of this statement of eligibility.

*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended
to date. (See Exhibit 1A to Form T-1, Securities and Exchange
Commission File No. 22-18460).

*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).

*3. A copy of the Authorization of the trustee to exercise corporate trust
powers, as amended to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).

*4. A copy of the existing By-Laws of the trustee, as amended to date (See
Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-
19146).

5. Not Applicable

6. The consent of United States institutional trustee required by Section
321(b) of the Act.

7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.

<PAGE>

* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.

NOTE
----

In answering any item in this Statement of Eligibility
which relates to matters peculiarly within the
knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it
by the obligor.

Inasmuch as this Form T-1 is filed prior to the
ascertainment by the trustee of all facts on which to
base responsive answers to Item 2, the answer to said
Item are based on incomplete information.

Item 2, may, however, be considered as correct unless
amended by an amendment to this Form T-1.

Pursuant to General Instruction B, the trustee has
responded to Items 1, 2 and 16 of this form since to
the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture
under which the applicant is trustee.

<PAGE>
SIGNATURE
---------

Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
IBJ Schroder Bank & Trust Company, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York, and State of New York, on the day of July, 1996.
-----

IBJ SCHRODER BANK & TRUST COMPANY

By: /s/ Max Volmar
-------------------------
Max Volmar
Vice President

<PAGE>

Exhibit 6

CONSENT OF TRUSTEE

Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the issue by Family Bargain Corporation of
its % Convertible Subordinated Debentures due 2006, we hereby consent that
---
reports of examinations by Federal, State, Territorial, or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.

IBJ SCHRODER BANK & TRUST COMPANY

By: /s/
-------------------------------
Max Volmar
Vice President

Dated: July 16, 1996

<PAGE>
EXHIBIT 7

CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries

Report as of March 31, 1996

Dollar Amounts
in Thousands
----------------

ASSETS
------

Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . $ 27,805
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . $ 142,919

Securities: Held to Maturity . . . . . . . . . . . . . . . . . . . $ 169,682
Available-for-sale . . . . . . . . . . . . . . . $ 23,665

Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold . . . . . . . . . . . . . . . . . . . . . . . $ 63,801
Securities purchased under agreements to resell . . . . . . . . . $ -0-

Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . $ 1,575,250
LESS: Allowance for loan and lease losses . . . . . . $ 55,396
LESS: Allocated transfer risk reserve . . . . . . . . $ -0-
Loans and leases, net of unearned income, allowance,
and reserve . . . . . . . . . . . . . . . . . . . . . . . . . . $1,519,854

Assets held in trading accounts . . . . . . . . . . . . . . . . . . . $ 489

Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . $ 7,228

Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . $ 397

Investments in unconsolidated subsidiaries and associated companies . $ -0-

Customers' liability to this bank on acceptances outstanding . . . . $ 155

Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ -0-

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,135

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,016,130

<PAGE>

LIABILITIES
-----------

Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . $ 612,376
Noninterest-bearing . . . . . . . . . . . . . . . $ 174,044
Interest-bearing . . . . . . . . . . . . . . . . . $ 438,332

In foreign offices, Edge and Agreement subsidiaries, and IBFs . . $ 793,288
Noninterest-bearing . . . . . . . . . . . . . . . $ 16,090
Interest-bearing . . .. . . . . . . . . . . . . . . $ 777,198

Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:

Federal Funds purchased . . . . . . . . . . . . . . . . . . . . . $ 57,588
Securities sold under agreements to repurchase . . . . . . . . . $ -0-

Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . $ 24,522

Trading Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 390

Other borrowed money:
a) With original maturity of one year or less . . . . . . . . . . $ 250,333
b) With original maturity of more than one year . . . . . . . . . $ -0-

Mortgage indebtedness and obligations under capitalized leases . . . $ -0-

Bank's liability on acceptances executed and outstanding . . . . . . $ 155

Subordinated notes and debentures . . . . . . . . . . . . . . . . . . $ -0-

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,215

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . $1,806,867

Limited life preferred stock and related surplus . . . . . . . . . . $ -0-

EQUITY CAPITAL

Perpetual preferred stock . . . . . . . . . . . . . . . . . . . . . . $ -0-

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,649

Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 217,008

Undivided profits and capital reserves . . . . . . . . . . . . . . . $ (37,419)

Plus: Net unrealized gains (losses) on marketable equity
securities . . . . . . . . . . . . . . . . . . . . . . . . . $ 25

Cumulative foreign currency translation adjustments . . . . . . . . . $ -0-

TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . $ 209,263

TOTAL LIABILITIES AND EQUITY CAPITAL . . . . . . . . . . . . . . . . $2,016,130