String Unified Models based on the k = 1 level of the Kac-Moody Algebr
a, predict the existence of ''exotic'' new states which carry fraction
al electric charges. We analyse the possibility of considering these '
'exotics'' as preonic matter which can be used to form the families an
d the gauge group breaking higgs scalars. It is proposed that such a f
ormation may occur provided that these states transform non-trivially
under a non-Abelian gauge group with a relatively large rank in order
to confine them at a sufficiently large scale. Such a situation is nat
ural in string derived unified models, since the role of the confining
group can be played by (part of) the Hidden symmetry. As an example,
we present a string derived toy model based on the SU(4) x SU(2)(L) x
SU(2)(R) Pati-Salam gauge group.