$4,000,000 Promissory Note between Gottschalks Inc. and Heller Financial Leasing, Inc. dated May 16, 2001

Loan No.: 1910059-0005

FOR VALUE RECEIVED, GOTTSCHALKS INC., a Delaware corporation ( "Maker"), promises to pay to the order of HELLER FINANCIAL LEASING, INC., a Delaware corporation (together with any holder of this Note, Payee"), at its office located at 500 West Monroe Street, Chicago, Illinois 60661, or at such other place as Payee may from time to time designate, the principal sum of $4,000,000.00, together with interest thereon at a rate per annum equal to the Base Rate (hereafter defined), plus three percent (3.00%), payable in sixty (60) consecutive monthly installments of principal plus interest commencing July 1, 2001, and continuing on the same day of each consecutive calendar month thereafter until this Note is fully paid. The first fifty-nine (59) such monthly installments shall each be in the principal amount of $66,666.67, plus accrued interest, and the final monthly installment shall be in the amount of the entire then outstanding principal balance hereunder, plus all accrued and unpaid interest, charges and other amounts owing hereunder or under the Security Agreement (defined below). All payments shall be applied first to interest and then to principal. Interest shall be computed on the basis of a 360-day year and charged for the actual number of days elapsed. Maker shall make an interest only initial payment on June 1, 2001, of all accrued interest from the date of this Note through May 31, 2001.

For purposes of this Note, the term "Base Rate" means, for each calendar month, a rate of interest per annum equal to:

(a) the offered rate for deposits in U.S. dollars in an amount comparable to the then outstanding principal balance hereunder in the London interbank market for the relevant month that is published by the British Bankers' Association and which appears on Telerate Page 3750, or any other source utilized by Payee, as of 11:00 a.m. (London time) on the day which is two (2) Business Days prior to the first day of the relevant month or, if for any reason such a rate is not published by the British Bankers' Association on Telerate or any other source utilized by Payee, the rate per annum equal to the average rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which Payee determines that U.S. dollars in an amount comparable to the then outstanding principal balance hereunder are being offered to prime banks for the relevant month at approximately 11:00 a.m. (London time) on the day which is two (2) Business Days prior to the first day of the relevant month for settlement in immediately available funds by leading banks in the London interbank market selected by Payee; divided by

(b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two (2) Business Days prior to the beginning of the relevant month (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) which are required to be maintained by a member bank of the Federal Reserve System; such rate to be rounded upward to the next whole multiple of one-sixteenth of one percent (.0625%).

For the initial funding month (or any fraction thereof) under this Note, the interest rate hereunder shall be the Base Rate in effect on the day of funding, plus three percent (3%).

It is the intent of the parties to comply strictly with applicable usury laws. Notwithstanding anything herein to the contrary, in no event shall interest contracted for, taken, charged, reserved or received hereunder ever exceed the highest non-usurious interest permitted under applicable law and if any such excess interest is taken, received or collected, then such excess shall be deemed the result of a mathematical error and shall be applied as a reduction of principal and any remainder refunded to the Maker.

This Note is secured by the collateral described in the Security Agreement dated July 24, 2000, between Maker and Payee (the "Security Agreement"), the collateral described in the Leasehold Deed Of Trust, Security Agreement, Assignment Of Leases And Rents, And Fixture Filing of dated May 16, 2001, granted by Maker to First American Title Guaranty Company for the benefit of Payee, the collateral described in the Security Agreement dated December 16, 1994, between Maker and Payee (the "Hanford Security Agreement"), the collateral described in the Security Agreement dated September 30, 1996, between Maker and Payee (the "SLO Security Agreement"), the collateral described in the Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing recorded on December 16, 1994 in the Official Records of Kings County, California, as Instrument No. 9424303 (the "Hanford Deed of Trust") and the collateral described in Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing recorded on October 1, 1996, in the Official Records of San Luis Obispo County, California, as Instrument No. 1996-049244 and amended by that certain Amendment to Deed of Trust recorded July 30, 1999 in the Official Records of San Luis Obispo County, California, as Instrument No. 1999-055875 (the "SLO Deed of Trust;" and together with the Security Agreement, the Hanford Security Agreement, the SLO Security Agreement, the Hanford Deed of Trust and all related documents and instruments, all as amended and/or modified as of the date hereof, the "Loan Documents") to which reference is made for a statement of the nature and extent of protection and security afforded, certain rights of Payee and certain rights and obligations of Maker.

Maker may not prepay all or any part of principal outstanding under this Note prior to its stated maturity except strictly in accordance with the terms of Section 3 of the Security Agreement.

Time is of the essence hereof. If payment of any installment or any other sum due under this Note or the Loan Documents is not paid when due, Maker agrees to pay a late charge equal to the lesser of (i) five cents per dollar on, and in addition to, the amount of each such payment, or (ii) the maximum amount Payee is permitted to charge by law. In the event of the occurrence of an Event of Default (as defined in the Security Agreement), then the entire unpaid principal balance hereof with accrued and unpaid interest thereon, together with all other sums payable under this Note or the Loan Documents, shall, at the option of Payee and without notice or demand, become immediately due and payable, such accelerated balance bearing interest until paid at the rate of three percent (3%) per annum above the then otherwise applicable interest rate hereunder.

Maker and all endorsers, guarantors or any others who may at any time become liable for the payment hereof hereby consent to any and all extensions of time, renewals, waivers and modifications of, and substitutions or release of security or of any party primarily or secondarily liable on, or with respect to, this Note or any of the Loan Documents or any of the terms and provisions thereof that may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee, without joinder of the others as parties thereto, and that Payee shall not be required to first foreclose, proceed against, or exhaust any security herefor, in order to enforce payment of this Note by any one or more of them. Maker and all endorsers, guarantors or any others who may at any time become liable for the payment hereof hereby severally waive presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection with this Note, filing of suit and diligence in collecting this Note or enforcing any of the security herefor, and, without limiting any provision of any of the Loan Documents, agree to pay, if permitted by law, all expenses incurred in collection, including reasonable attorneys' fees, and hereby waive all benefits of valuation, appraisement and exemption laws.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN DAYS AFTER THE DATE OF MAILING THEREOF.

MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.