SEPARATION AGREEMENT

         THIS SEPARATION  AGREEMENT (the  "Agreement") made as of the 1st day of
August, 1997 by and between Family Bargain Corporation, a Delaware corporation
(the "Company") and William W. Mowbray ("Mowbray").

                               W I T N E S S E T H

         WHEREAS, the Company and Mowbray are currently parties to the following
agreements:
             (i) an Amended and Restated Employment Agreement dated February 24,
1997 (which replaced and superseded an Employment Agreement dated as of
November 1, 1996) (the "Employment Agreement"); and

             (ii) Options to purchase  One Hundred Ten  Thousand  (110,000)
shares of common  stock of the  Company  at $1.375 per share  expiring  ten (10)
years after issuance ("First New Options"); and

             (iii) a Secured Promissory  Note and related agreement dated
March 21, 1997 (the "Note"); and

             (iv)  Options to purchase Six Hundred Seventeen Thousand (617,000) 
shares of common stock of the Company at $2.25 per share expiring five (5) years
after issuance, which become exercisable in twenty-five percent (25%) 
installments at such time as the market price of common stock of the Company
exceeds $6, $7.50, $10 and $15 per share for sixty (60) consecutive trading days
(the "Class A Second New Options"); and

             (v)  Options to purchase Thirty-Five Thousand Five Hundred (35,500)
shares of common stock of the Company at $2.25 per share expiring five (5) years
after issuance and currently exercisable (the "Class B Second New Options"); and

      WHEREAS, Mowbray is a member of the Board of Directors of the Company; and

      WHEREAS, the parties desire that:

             (i) Mowbray resign from the Board of Directors of the Company and
as an officer of the Company;

             (ii) the Employment Agreement be terminated;

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<PAGE> 31

             (iii)Mowbray agree not to compete with the Company (the 
"Non-Competition Agreement"); and

             (iv) the Note and Class A Second New Options be modified as herein
set forth,

all of the foregoing transactions to be in accordance with the terms hereinafter
set forth.

         NOW,  THEREFORE,   in  consideration  of  the  mutual  promises  herein
contained, the parties hereby agree as follows:

         1. Resignation as Director and Officer. Effective upon the execution of
this Agreement by both parties, Mowbray resigns as a Director of the Company and
as an officer of the Company and as a director  and/or officer of any subsidiary
of the Company for which he presently serves in such capacity.

         2.  Termination  of  the  Employment  Agreement.   Effective  upon  the
execution of this Agreement by both parties,  the Employment  Agreement shall be
terminated  and be of no further force or effect and the rights and  obligations
of the parties thereunder shall be as set forth herein.

         3.  Non-Competition  Agreement.  In consideration of the payments to be
made by the Company pursuant to Paragraph 4A below, Mowbray agrees that from the
date of this  Agreement  until  December  31,  2000,  he will not,  directly  or
indirectly,  (a) compete with the Company,  or any direct or indirect subsidiary
of the Company,  in the operation of a retail bargain clothing store or chain of
such stores  which  markets  products to low income  consumers  in the States of
California, Arizona, New Mexico, Washington, Oregon, Texas and such other states
in which the Company is operating on the date hereof;  or (b) be interested  in,
employed by, engaged by, or participate in the ownership, management, operation,
or  control  of,  or act in any  advisory  or other  capacity  for,  any firm or
corporation  which  competes  with the  Company  in the  States  of  California,
Arizona,  New Mexico,  Washington,  Oregon, Texas and such other states in which
the  Company  is  operating  on  the  date  hereof  (provided,   however,   that
notwithstanding  the foregoing,  Mowbray may make solely passive  investments in
any  corporation  the  common  stock of which is  Apublicly  held,@ and of which
Mowbray  shall not own or  control  securities  which  constitute  more than one
percent (1%) of the voting rights or equity ownership of such  corporation);  or
(c) solicit or divert  business  from the Company or assist any person,  firm or
corporation in doing so or attempting to do so; or (e) hire any person  employed
on a full-time basis by the Company on the date hereof,  or any person who was a
full-time employee of the Company within six (6) months from the date hereof, or
assist any person, firm or corporation in doing so or attempting to do so.

         4. Consideration to Mowbray. A. In consideration of the Non-Competition
Agreement,  the  Company  shall pay to Mowbray the sum of Nine  Hundred  Seventy
Thousand Dollars ($970,000) payable as follows:

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<PAGE> 32


           (i)  Three Hundred Sixty Thousand Dollars ($360,000) on March 30, 
1998; and

           (ii) Three Hundred Sixty Thousand Dollars ($360,000) on March 30, 
1999; and

           (iii)Two Hundred Fifty Thousand Dollars ($250,000) on August 1, 2001.

         B. In consideration for the termination of the Employment Agreement, 
the Company shall pay to Mowbray:

           I. (i) upon execution of this Agreement, the gross sum of $44,767.50 
which is equal to $1,313.60 per day multiplied by the number of accrued and 
unused vacation days as of the date hereof; and

              (ii) from the date hereof until December 31, 1997, the pro rata
portion of Three Hundred Forty-One Thousand Five Hundred Thirty-Six  Dollars 
($341,536) payable in biweekly installments on the normal payroll cycle of the
Company; and

              (iii) from January 1, 1998 to December 31, 1998, the sum of Three
Hundred Sixty-Five Thousand Four Hundred Forty-Four Dollars ($365,444) payable
in biweekly installments on the normal payroll cycle of the Company; and

              (iv)  on or about February 28, 1998, the bonus due, if any, under
the Company's existing bonus plan for the fiscal year ending January 31, 1998, 
pro rated to the date hereof; and

              (v)   from January 1, 1999 to December 31, 1999, the sum of Three 
Hundred Ninety-One Thousand Twenty-Five Dollars ($391,025) payable in  biweekly
installments on the normal payroll cycle of the Company; and

              (vi) from January 1, 2000 to January 31, 2000, the pro rata share
of Four Hundred Eighteen Thousand Three Hundred Thirty-Six Dollars ($418,396)
payable in biweekly installments on the normal payroll cycle of the Company.

           II. Each of the payments described in subparagraph BI above shall be 
subject to standard  deductions for taxes and other withholding items.  In the
event of a "Change in Control" (as that term is defined in the Employment  
Agreement), all amounts payable under subparagraphs A and B of this Paragraph 4 
shall become immediately due and payable.

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<PAGE> 33

     C. The Company shall continue to provide to Mowbray, all of the benefits 
described in Sections 3.01, 3.04 and 3.05 of the Employment Agreement, which
provisions are incorporated herein by reference as if set forth in full, for the
five (5) year period commencing on August 1, 1997 and ending July 31, 2002. In 
the event of Mowbray's death prior to the end of such five (5) year period,  his
spouse shall continue to receive such benefits until July 31, 2002.

      D. Amendment of Note. The Note is hereby amended to forgive and waive all 
interest payable thereunder.

      E. Stock Options. The First New Options and the Class B Second Options 
shall  continue to be  exercisable by Mowbray in accordance with their 
respective  terms.  The Class A Second New  Options  are hereby  amended so that
Mowbray can  exercise  fifty  percent  (50%)  thereof at such time as the market
price of the  common  stock of the  Company  exceeds $6 per share for sixty (60)
consecutive  trading  days and fifty  percent  (50%) at such time as the  market
price of the common stock of the Company  exceeds $7.50 per share for sixty (60)
consecutive trading days.

    4. Representations and Warranties by Mowbray.  Mowbray hereby represents and
warrants as follows:

                  (i) That he is not  aware of any  claims  or  causes of action
which are pending or  threatened  against him in his  capacities  as a director,
officer or employee of the Company or any subsidiary thereof.

                  (ii) That he is not aware of any material  claims or causes of
action which are pending or  threatened  against the Company which have not been
disclosed to the Company.

         5.  Representations  and Warranties by the Company.  The Company hereby
represents and warrants as follows:

                  (i)  That  the  Company  has  full  power  and   authority  to
consummate  the  transactions  contemplated  by this  Agreement;  this Agreement
constitutes the legal, valid and binding obligation of the Company,  enforceable
against it in accordance with its terms; that neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated herein,
will violate any agreement to which the Company is a party or by which it or any
of its  property  or assets  is bound,  or any law,  order,  decree or  judgment
applicable  to  the  Company,  or any  provision  of its  Amended  and  Restated
Certificate of  Incorporation  or Restated  Bylaws,  and that no  authorization,
approval  or consent of any third party is  required  for the lawful  execution,
delivery and performance of this Agreement by the Company; and

                  (ii) That the  execution,  delivery  and  performance  of this
Agreement and the transactions  contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company.

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<PAGE> 34

         6.  Indemnification by the Company.  a) The Company agrees to indemnify
and hold harmless Mowbray against any claims, losses, costs (including,  without
limitation,  legal,  witness and expert fees and disbursements and other charges
of counsel  (collectively "Legal Fees"),  expenses,  liabilities,  or damages in
connection  with any  claims or  actions  arising  from or related to any of the
transactions  consummated  or  contemplated  pursuant to this Agreement (but not
legal fees relating to the transactions  themselves),  excluding federal,  state
and local taxes (including interest,  penalties and associated expenses) imposed
on Mowbray with respect to payments received by him pursuant to the transactions
consummated  or  contemplated  by  this  Agreement,  which  shall  be  the  sole
responsibility of Mowbray; or arising from or relating to any  misrepresentation
or breach of any  covenant,  warranty or agreement  made by the  Company,  or in
connection with the enforcement of this paragraph.

                  b. The  indemnification  set forth  above shall be in addition
to, and without limiting or affecting, the Company's imdemnification obligations
pursuant to the  Company's Articles of Incorporation and Amended and Restated
Bylaws (the "Bylaws"), provided, however that the Company further agrees that,
notwithstanding Section 5 of the Bylaws (provided that an undertaking of
repayment of expenses required by such Section 5 is given to the Company), any
expenses incurred by Mowbray defending any civil, criminal, administrative or
investigative action, suit or proceeding, or threat thereof, including without
limitation any claims or actions contemplated by this Paragraph 6, shall be paid
by the  Company in advance of the final disposition of such action, suit or
proceeding, to the fullest extent permissible under the Company's Bylaws and
Delaware law.

         7.  Indemnification  by Mowbray.  Mowbray agrees to indemnify and hold
harmless the Company from and against any claims, losses, costs (including Legal
Fees), expenses, liabilities or damages arising from or relating to any
misrepresentation or breach of any covenant, warranty or agreement made by him
in this Agreement or connection with the enforcement of this Paragraph 7 and
from and against any liability for withholding taxes pursuant to federal, state
and local law (including  interest, penalties and reasonable attorneys' fees)
with respect to any amounts payable to Mowbray under this Agreement or the
Non-Competition Agreement.

         8. Mutual General Release.  The Company on one hand, and Mowbray on the
other hand, hereby each release, remise, acquit and forever discharge the other
party and its respective, agents, principals, servants, parents, subsidiaries,
partners, affiliates, officers, directors, shareholders, attorneys, employees,
heirs, executors, successors and assigns from all actions, causes of action and
from any and all past, present or future actions, causes of action, suits,
claims, demands, debts, sums of money, judgments, liabilities (statutory or
otherwise), damages, costs, expenses, interest,  compensation, liens and
attorneys' fees in law or in equity (collectively "Claims") which relate to or
in any way are based upon or arise out of in any respect the service, acts,
facts, circumstances, matters, claims, transactions or occurrences of or
involving Mowbray as an officer, director and/or employee of the Company.
Notwithstanding the foregoing, nothing herein will release the Company from its
obligations under this Agreement or its indemnification and expense advancement

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<PAGE> 35

obligations to Mowbray under its Bylaws and under Delaware law.  The Company
further agrees that it will not prosecute nor allow to be prosecuted on its
behalf in any administrative agency, whether federal or state, or in any court,
whether federal or state, any claims or actions against Mowbray, his agents and
attorneys, heirs, representatives, successors and assigns, related to the
matters discharged herein.

                The parties hereby expressly waive all rights under California
Civil Code section 1542 which reads as follows:

                      Section 1542.  A general release does not extend to claims
                      which the creditor  does not know or suspect to exist
                      in his favor at the time of  executing  the  release,
                      which if known by him must have  materially  affected
                      his settlement with the debtor.

         10. No Derogatory Statements;  Press Releases. a) Mowbray agrees not to
make any  disparaging  or derogatory  statements  about the Company,  any of its
officers or directors, or any of its subsidiaries or other corporate affiliates,
except as may be required by law or in connection  with the  enforcement  of his
rights under this Agreement or any other agreement related hereto.

                  b) The Company agrees not to make, and to cause the members of
the Executive  Committee of the Company and the Company's directors not to make,
any  disparaging  or  derogatory  statements  about  Mowbray,  except  as may be
required by law or in connection  with the  enforcement of its rights under this
Agreement or any other agreement  related hereto.  The Company further agrees to
give positive references to any potential employer of Mowbray.

                  c) The Company shall provide  Mowbray with the  opportunity to
review and to approve,  which approval shall not be unreasonably  withheld,  the
descriptions of this Agreement  contained in (i) any Company press release,  and
(ii) any of the Company's  documents  concerning this Agreement to be filed with
the  Securities  and  Exchange   Commission  or  distributed  to  the  Company's
shareholders.  Mowbray  shall not issue any press release and shall not make any
other public  statement  except as required by law,  concerning the transactions
consummated  pursuant  to this  Agreement.  The  time  permitted  for  obtaining
approval  hereunder  shall be subject to the Company's  requirement of complying
with applicable law on timely disclosures.

         11.      Miscellaneous.

                  a.  Expenses.  The  Company  shall  bear all of its  costs and
expenses incurred in connection with the transactions contemplated hereunder and
shall,  upon execution of this  Agreement,  pay directly to counsel for Mowbray,
for legal and accounting  fees and costs in connection  with the negotiation and
execution of this Agreement, or reimburse Mowbray if previously paid by him, the
sum of Seven Thousand Five Hundred Dollars ($7,500).

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<PAGE> 36

                  b. Indulgences, Etc. Neither the failure nor any delay on the
part of either party to exercise any right, remedy, power or privilege  under
this Agreement shall operate as a waiver thereof, nor shall any  single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege  with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.  No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.

                  c. Governing Law. This Agreement and all questions relating to
its validity,  interpretation,  performance and enforcement (including,  without
limitation,  provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of California.

                  d.  Notices.   All  notices,   requests,   demands  and  other
communications  required or permitted  under this Agreement  shall be in writing
and  shall be  deemed  to have been  duly  given,  made and  received  only when
personally  delivered,  or on  the  next  business  day  when  deposited  with a
reputable  overnight courier service,  such as Federal Express,  for delivery to
the intended addressee. All notices shall be addressed as follows:

                  If to the Company:  Family Bargain Corporation
                                      4000 Ruffin Road
                                      San Diego, California 92123
                                      Attn: Chief Executive Officer

                  With a copy to:     David Stone, Esq.
                                      Weil, Gotshal & Manges
                                      767 Fifth Avenue
                                      New York, New York 10153


                  If to Mowbray:      William W. Mowbray
                                      6814 Vianda Court
                                      Carlsbad, California 92009

                  With a copy to:     Lawrence M. Sherman, Esq.
                                      Sherman & Lapidus LLP
                                      750 B Street, Suite 1930
                                      San Diego, California 92101

Either party may change the address to which  communications or copies are to be
sent by  giving  notice  of such  change  of  address  in  conformity  with  the
provisions  of this  subparagraph  for the giving of notice,  and such change of
address shall become effective upon actual receipt of such notice.

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<PAGE> 37

                  e. Binding Nature of Agreement - No Assignment. This Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective heirs, executors,  personal representatives,  successors and assigns,
except that no party may assign or transfer  its rights nor  delegate its duties
under this  Agreement  without  the prior  written  consent  of the other  party
hereto.

                  f. Execution in Counterpart. This Agreement may be executed in
counterparts,  each of which  shall be deemed an  original  as against the party
whose signature appears thereon,  and all of which shall together constitute one
and the same instrument.

                  g. Provisions Separable.  The provisions of this Agreement are
independent of and separable from each other; and no provision shall be affected
or rendered  invalid or  unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.

                  h. Paragraph Headings. The Paragraph and subparagraph headings
in this Agreement are for  convenience of reference  only;  they form no part of
this Agreement and shall not affect its interpretation.

         12. Entire Agreement This Agreement  contains the entire  understanding
among the  parties  hereto  with  respect  to the  subject  matter  hereof,  and
supersedes  all  prior  and   contemporaneous   agreements  and  understandings,
inducements or conditions, express or implied, oral or written, except as herein
and therein contained. The express terms hereof control and supersede any course
of  performance  and/or  usage of the trade  inconsistent  with any of the terms
hereof. This Agreement may not be modified or amended other than by an agreement
in writing.


         13. Court Jurisdiction. The parties agree that any action or proceeding
to enforce any  provision  of this  Agreement,  or  otherwise  arising out of or
relating to this Agreement,  may be brought in any federal or state court in San
Diego County in the State of California,  and in no other court,  and each party
(a) consents to the  jurisdiction  of each of those courts in any such action or
proceeding  (b)  agrees  not to seek to change  the venue of any such  action or
proceeding  from any of those courts  because of  inconvenience  of the forum or
otherwise  (except  that  nothing in this  Paragraph  will  prevent a party from
removing  any  action  from a state  court to a  federal  court  sitting  in the
appropriate  venue, and (c) agrees that process in any such action or proceeding
may be served by registered  mail or in any other manner  permitted by the rules
of the court in which the action or proceeding is brought.

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<PAGE> 38 

         IN WITNESS  WHEREOF,  the parties  have  executed  and  delivered  this
Agreement on the date first above written.

                           Family Bargain Corporation, a Delaware corporation


                           By: /s/ James D. Somerville
                               Its: Chairman



                              /s/ William W. Mowbray
                                 William W. Mowbray

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