Factory 2-U Stores, Inc. Signs Agreement to Sell Assets

Business Wire,  August 16, 2004  

Tags: asset, Company

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SAN DIEGO -- Factory 2-U Stores, Inc. (Pink Sheets:FTUSQ) today announced that it has entered into a definitive agreement to sell substantially all of the Company's assets to Factory 2-U Acquisition, LLC (the "Purchaser"), a company formed by an affiliate of National Stores, Inc., The Alamo Group, Garcel, Inc. d/b/a/ The Great American Group and The Ozer Group LLC. Under terms of the agreement, the Purchaser will acquire, among other assets, inventory and lease obligations for the Company's stores and distribution center for approximately $28 million, subject to adjustment based on the Company's actual inventory. This agreement is the result of efforts to maximize the value of the Company through a comprehensive process to identify qualified buyers, which the Company initiated after consulting with its secured lenders and the Official Committee of Unsecured Creditors in its Chapter 11 proceedings.

Headquartered in Gardena, Calif., National Stores operates 72 Fallas Paredes off-price retail stores in Arizona, California, Texas, Nevada and New Mexico. It is contemplated that a substantial number of the Company's current stores will continue to be operated by the Purchaser.

Completion of the transaction is subject to Bankruptcy Court approval and customary closing conditions. The transaction will also be subject to higher or better bids for Factory 2-U's assets at an auction the Company has proposed to hold in Wilmington, Del. on August 31, 2004 pursuant to Bankruptcy Court procedures. A hearing on the transaction, or any higher or better offer, has been scheduled for September 2, 2004, also in Wilmington, Del.

Norman G. Plotkin, Chief Executive Officer of Factory 2-U, said, "We believe this process, which allows for higher or better bids for our company to be submitted by other interested parties at an auction, will generate the best available outcome for the Company and its constituents."

Based on the proposed terms of the transaction and indications of interest received to date from other parties, Factory 2-U does not believe that any distribution will be made to its shareholders following completion of the sale. In addition, the Company announced that it intends to file a Form 15 with the Securities Exchange Commission suspending its duty to file reports under Sections 13 and 15(d) of the Securities Exchange Act.

About Factory 2-U Stores, Inc.

Factory 2-U Stores, Inc. operates 172 "Factory 2-U" off-price retail stores which sell branded casual apparel for the family, as well as selected domestics and household merchandise at prices which generally are significantly lower than the prices offered by its discount competitors. The Company currently operates 25 stores in Arizona, 50 stores in southern California, 51 stores in northern California, 6 stores in Nevada, 6 stores in New Mexico, 10 stores in Oregon, 15 stores in Texas, and 9 stores in Washington.

Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties, and actual results could differ materially from the Company's present expectations. Among the important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are: customer demand and trends in the off-price apparel industry, the effect of economic conditions, the impact of competitive openings and pricing, supply constraints or difficulties, the inherent uncertainties of proceedings under Chapter 11 of the Bankruptcy Code, the effects of the delisting of our common stock by Nasdaq, and other risks detailed in the Company's Securities and Exchange Commission filings.

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