FACTORY 2 U STORES INC
FIRST AMENDMENT TO THE AMENDED AND RESTATED
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>ex1023043004.txt
<DESCRIPTION>FIRST AMENDMENT TO THE AMENDED AND RESTATED
<TEXT>
                                                                   Exhibit 10.23

                               FIRST AMENDMENT TO
                 SECOND AMENDED AND RESTATED FINANCING AGREEMENT


     This First  Amendment to Second  Amended and Restated  Financing  Agreement
("Amendment")  is entered into as of January 30, 2004,  by and among FACTORY 2-U
STORES, INC., a Delaware corporation, the debtor and debtor in possession in the
Bankruptcy Case ("Company"),  THE CIT  GROUP/BUSINESS  CREDIT,  INC., a New York
corporation ("CITBC"),  in its capacity as Agent for Lenders under the Financing
Agreement  ("Agent");  CITBC in its capacity as Tranche A Lender  (together with
any other  Persons who may  subsequently  become a Tranche A Lender,  "Tranche A
Lenders"); and GB RETAIL FUNDING, LLC, a Massachusetts limited liability company
in its  capacity as Tranche B Lender  (together  with any other  Persons who may
subsequently  become a Tranche B Lender,  "Tranche B Lenders" and together  with
the Tranche A Lenders, "Lenders").

     A. Agent,  Company and Lenders  have  previously  entered into that certain
Second  Amended and Restated  Financing  Agreement  dated as of January 12, 2004
(the  "Financing  Agreement"),  pursuant to which Lenders have provided  Company
with certain loans and other financial accommodations.

     B.  Company  has  requested  that  Agent and  Lenders  amend the  Financing
Agreement  pursuant to the terms and subject to the conditions set forth in this
Amendment.

     C. Agent and Lenders are willing to amend the  Financing  Agreement  on the
terms and subject to the conditions set forth in this Amendment.

     NOW  THEREFORE,  in  consideration  of the  foregoing  and  the  terms  and
conditions hereof,  the parties do hereto agree as follows,  effective as of the
date set forth above:

     1. Definitions.  Terms used herein,  unless otherwise defined herein, shall
have the meanings set forth in the Financing Agreement.

     2. Amendments to Financing Agreement.

          (a) Section 1 of the Financing  Agreement is hereby  amended by adding
          the following definition in such Section:

          "Springing  Junior Liens shall have the meaning  given to such term in
          the Final Financing Order."

          (b) Section 1 of the Financing Agreement is hereby amended by deleting
          each of the  following  definitions  in such  Section in each of their
          entirety  and  replacing  such  definition  in such  Section  with the
          following:

               "Permitted  Encumbrances  shall mean:  (a) liens  existing on the
          date hereof on specific  items of  Equipment  and listed on Schedule 1
          hereto and other liens  expressly  permitted,  or consented to, by the
          Agent; (b) Permitted  Purchase Money Liens; (c) Customarily  Permitted
          Liens;  (d) liens created in connection  with sale leasebacks or loans
          secured  by  the   Company's   equipment   to  the  extent  that  such
          transactions  constitute Permitted Indebtedness  hereunder;  (e) liens
          granted  the Agent by the  Company;  (f) liens of  judgment  creditors
          provided such liens do not exceed, in the aggregate,  at any time, Two
          Hundred  Thousand  Dollars  ($200,000)  (other  than  liens  bonded or
          insured to the reasonable  satisfaction  of the Agent);  (g) Springing
          Junior Liens; (h) liens for taxes not yet due and payable or which are
          being diligently contested in good faith by the Company by appropriate
          proceedings  for which the Company  has posted a bond in the  required
          amount or otherwise has taken action  necessary to stay enforcement of
          such lien. In no event shall any  Collateral be subject to foreclosure
          proceedings  or, in the  Agent's  discretion,  subject  to any loss of
          perfection  or priority in favor of the Agent and/or the Lenders;  and
          (i)  liens  to  secure  indebtedness  that  would  (1)  result  in the
          indefeasible and permanent  satisfaction of the Obligations in full in
          cash,  and (2) being  effective,  arising and existing  only upon such
          indefeasible and permanent  satisfaction of the Obligations in full in
          cash."

               "Permitted  Indebtedness  shall  mean  (a)  current  indebtedness
          maturing in less than one (1) year and incurred in the ordinary course
          of business for raw materials, supplies, equipment, services, taxes or
          labor;  (b) the indebtedness  secured by the Permitted  Purchase Money
          Liens;  (c)  indebtedness  arising  under the Letters of Credit,  this
          Financing  Agreement,  and the Loan Documents;  (d) deferred taxes and
          other  expenses  incurred  in the  ordinary  course of  business;  (e)
          Subordinated  Debt,  if  unsecured  and  subject  to  a  subordination
          agreement  in  form  and  substance  satisfactory  to the  Agent;  (f)
          indebtedness arising from sale leaseback transactions or loans secured
          by the  Company's  equipment,  but only if (i) the Company gives prior
          written notice to the Agent of each such transaction, (ii) an Event of
          Default  has not  occurred  and is  continuing  at the  time  any such
          transaction is entered into, (iii) such  indebtedness  does not exceed
          the cost of the Company's equipment being given as collateral for such
          indebtedness,  (iv) the  transaction  does not involve  the  Company's
          intangible assets (including,  but not limited to,  trademarks,  trade
          names  and  trade  styles),  and (v) the net cash  proceeds  from such
          sale/leaseback  or loan  transaction  shall be paid to the  Agent  for
          distribution  to the Lenders to the extent required under Section 8.15
          of the Financing  Agreement;  (g) other  indebtedness  existing on the
          Petition  Date or  otherwise  disclosed  to the Agent in writing;  (h)
          indebtedness  secured by liens on real estate  acquired after the date
          of the Prior Agreement,  provided that (i) each such lien shall attach
          only to the real estate  acquired,  (ii) the aggregate  amount of such
          real estate debt shall not,  at any time,  exceed Ten Million  Dollars
          ($10,000,000),  (iii) the Company  shall give the Agent prior  written
          notice before incurring any such real estate indebtedness, and (iv) no
          Event of Default shall have occurred and be continuing at the time the
          Company incurs any such indebtedness;  (i) all indebtedness secured by
          a Permitted Encumbrance; and (j) indebtedness that would (1) result in
          the indefeasible and permanent satisfaction of the Obligations in full
          in cash, and (2) being effective,  arising and existing only upon such
          indefeasible and permanent  satisfaction of the Obligations in full in
          cash."

               (c)  7.21(i)  of the  Financing  Agreement  is hereby  amended by
          deleting such Section in its entirety and replacing  such Section with
          the following:

                    "(i) as of the  Petition  Date the  Prepetition  Obligations
               were  due  and  outstanding  pursuant  to  the  Prepetition  Loan
               Documents in the principal amount of not more than $17,000,000 in
               the  aggregate,   all  of  which   Prepetition   Obligations  are
               unconditionally  owing by the Company to the  Prepetition  Lender
               Parties,  without  offset,  defense or  counterclaim  of any kind
               nature and description whatsoever;"

               (d) Section 10.1(o) of the Financing  Agreement is hereby amended
          by deleting  such Section in its entirety and  replacing  such Section
          with the following:

                    "(o) any  challenge  by the Company or any  guarantor of the
               Obligation   to  the  validity  of  any  Loan   Document  or  the
               applicability or  enforceability of any Loan Document strictly in
               accordance with the subject Loan Document's  terms or which seeks
               to void, avoid, limit, or otherwise adversely affect any security
               interest  created by or in any Loan  Document or any payment made
               pursuant thereto;"

               (e)  Section  10.1(r)(1)  of the  Financing  Agreement  is hereby
          amended by deleting  such Section in its entirety and  replacing  such
          Section  with the  following:  "(1)  authorizing  the  Company  in the
          Bankruptcy Case to obtain additional financing under section 364(c) or
          (d) of the  Bankruptcy  Code unless such  relief  shall  result in the
          Obligations owed to Lenders being indefeasibly satisfied in full;"

               (f)  Section  10.1(r)(3)  of the  Financing  Agreement  is hereby
          amended by deleting  such Section in its entirety and  replacing  such
          Section with the following:

                    "(1)  authorizing  the use of cash  collateral  without each
               Lender's  prior  written  consent  under  section  363(c)  of the
               Bankruptcy   Code  unless  such  relief   shall   result  in  the
               Obligations owed to Lenders being indefeasibly  satisfied in full
               (except as provided in the Interim  Financing  Order or the Final
               Financing Order);"

     3. Conditions Precedent.  The effectiveness of this Amendment shall be, and
hereby is, subject to the fulfillment to Agent's  satisfaction of the Conditions
Precedent. The "Conditions Precedent" shall mean each of the following:

          (a) No  objection  to this  Amendment  is filed or served  pursuant to
     Section 1.3.3 of the Interim  Financing Order or the Final Financing Order;
     and

          (b)  As  of  the  date  hereof,  the  representations  and  warranties
     contained  in Section 7 of the  Financing  Agreement  are (before and after
     giving effect to this Amendment) true and correct in all material  respects
     (except to the extent any such  representation  and  warranty is  expressly
     stated to have been made as of a specific  date,  in which case it shall be
     true and  correct  as of such  specific  date) and no  Default  or Event of
     Default shall be existing or have occurred and be continuing.

     5. Miscellaneous.

          (a) Reference to and Effect on the Financing Agreement.

               (i)  Except as  specifically  amended by this  Amendment  and the
          documents executed and delivered in connection herewith, the Financing
          Agreement shall remain in full force and effect and is hereby ratified
          and confirmed.

               (ii) The  execution  and  delivery of this  Amendment  shall not,
          except  as  expressly  provided  herein,  constitute  a waiver  of any
          provision of, or operate as a waiver of any right,  power or remedy of
          Agent or any Lender under the Financing  Agreement or any agreement or
          document executed in connection therewith.

               (iii)  Upon  the  Conditions  Precedent  being  satisfied,   this
          Amendment  shall  be  construed  as one with  the  existing  Financing
          Agreement,  and the  existing  Financing  Agreement  shall,  where the
          context  requires,   be  read  and  construed   throughout  so  as  to
          incorporate this Amendment.

          (b) Fees and Expenses.  Company  acknowledges that all costs, fees and
     expenses  incurred  in  connection  with  this  Amendment  will  be paid in
     accordance  with  Section  8.5 of the  Financing  Agreement  and the  Final
     Financing Order.

          (c) Headings.  Section and  subsection  headings in this Amendment are
     included for  convenience of reference only and shall not constitute a part
     of this Amendment for any other purpose or be given any substantive effect.

          (d)  Counterparts.  This  Amendment  may be  executed  in one or  more
     counterparts,  each of which shall be deemed an  original  but all of which
     together shall constitute one and the same instrument.

          (e) Governing Law. This  Amendment  shall be governed by and construed
     according to the laws of the State of California.

          IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
     of the date first above written.
                                    Company:
                                    --------

                          FACTORY 2-U STORES, INC.


                          By:/s/Norman G. Plotkin
                             -------------------------------------------------
                          Name:Norman G. Plotkin
                             -------------------------------------------------
                          Title: Chief Executive Officer
                             -------------------------------------------------


                          Agent and Tranche A Lender:

                          THE CIT GROUP/BUSINESS CREDIT, INC.


                          By: /s/Mike Richman
                             --------------------------------------------------
                          Name: Mike Richman
                             --------------------------------------------------
                          Title: Vice President
                             --------------------------------------------------


                          Tranche B Lender:

                          GB RETAIL FUNDING, LLC


                          By:/s/Larry Klaff
                           ----------------------------------------------------
                          Name: Larry Klaff
                           ----------------------------------------------------
                          Title: Managing Director
                             --------------------------------------------------


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