Exhibit 99.2

                              EMPLOYMENT AGREEMENT

     THIS  EMPLOYMENT  AGREEMENT,  dated as of November 7, 2002,  by and between
Factory 2-U Stores, Inc. (the "Company"), a Delaware corporation, and William R.
Fields, who currently resides in Austin, Texas ("Executive").

                               W I T N E S S E T H
                               - - - - - - - - - -

     WHEREAS, the Company desires to employ Executive,  and Executive desires to
accept such employment on the terms and conditions set forth in this Agreement.

     NOW,  THEREFORE,  in  consideration  of the promises  and mutual  covenants
contained herein and for other good and valuable consideration,  the Company and
Executive agree as follows:

     1. TERM OF  EMPLOYMENT.  Except  upon  earlier  termination  as provided in
Section 9 hereof,  Executive's  employment  under this Agreement  shall be for a
one-year term  commencing on the date of this Agreement (the  "Effective  Date")
and terminating on November 6, 2003;  provided,  however,  that at the scheduled
end of the employment term, and on each anniversary of such date, the employment
term shall automatically be extended for a one-year period unless the Company or
the Executive  gives notice to the other at least 90 days before an extension is
to take effect that they do not desire the employment  term to be extended.  The
term of  employment,  as so extended  from time to time,  is referred to in this
Agreement as the "Employment Term."

     2. POSITIONS.

        (a) Executive shall serve as Chairman and Chief Executive Officer of the
Company.  Executive  shall  report to the Board of Directors of the Company (the
"Board") and shall have such duties and authority,  consistent with his position
as the Chief Executive Officer of the Company,  as shall be assigned to him from
time to time by the Board.

        (b) During the -Employment  Term,  Executive shall,  without  additional
compensation,  also  serve on the Board  of,  and  perform  such  executive  and
consulting services for, or on behalf of, such subsidiaries or affiliates of the
Company as the Board  may,  from time to time,  request.  The  Company  and such
subsidiaries and affiliates are hereinafter  referred to,  collectively,  as the
"Company" and,  individually,  as a "Constituent  Corporation."  For purposes of
this  Agreement,  the  term  "Affiliate"  shall  have the  meaning  given in the
Securities Exchange Act of 1934, as amended (the "Act").

        (c) During the Employment Term, Executive shall devote substantially all
of his business  time and efforts to the  performance  of his duties  hereunder;
PROVIDED,  HOWEVER,  that Executive shall be permitted,  to the extent that such
activities do not materially  interfere  with the  performance of his duties and
responsibilities  hereunder,  to manage his personal financial and legal affairs
and to serve on not more than three  corporate,  civic or  charitable  boards or
committees.  Notwithstanding the foregoing, the Executive shall not serve on any
corporate  board  of  directors  or  similar  body  if  such  service  would  be
inconsistent with his fiduciary  responsibilities to any Constituent Corporation

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and in no event  shall  Executive  serve on any such board or other body  unless
approved  by the  Board,  which  approval  shall not be  unreasonably  withheld.
Executive's  current  service  on the boards of  directors  of  Lexmark,  Bauger
Investments/Bonus  and Everyday Wealth are hereby approved;  provided,  however,
that if current or future rules or  regulations  of the  Securities and Exchange
Commission,  New York  Stock  Exchange  or Nasdaq  limit the number of boards of
directors of public companies on which an individual may serve,  Executive shall
reduce his  commitments  such that he may  continue to serve on the Board of the
Company.  Executive shall,  within six months after the Effective Date, relocate
his  principal  residence  to a location not more than fifty (50) miles from the
Company's executive offices in San Diego, California.

     3. BASE SALARY.  During the  Employment  Term, the Company shall pay to the
Executive a base  salary at the annual  rate of not less than Seven  Hundred and
Fifty Thousand  Dollars  ($750,000).  Base salary shall be payable in accordance
with the usual payroll  practices of the Company.  Executive's base salary shall
be subject to annual review by the  Compensation  Committee of the Board and may
be  increased,  but not  decreased,  from time to time at the  discretion of the
Compensation Committee. The base salary, as determined as aforesaid from time to
time, shall constitute "Base Salary" for purposes of this Agreement.

     4. ANNUAL BONUS.

        (a) For the first year of the Employment Term,  Executive's annual bonus
will be Three Hundred Seventy-Five Thousand Dollars ($375,000),  equal to 50% of
the Base Salary, payable in 12 monthly installments in accordance with the usual
payroll practices of the Company. Not later than four months after the Effective
Date, Executive shall prepare and present to the Compensation  Committee written
financial,  operational and other objectives (the "Performance  Objectives") for
the  Company's  fiscal  year  ending  February  3,  2004.  If  such  Performance
Objectives are approved and accepted by the Compensation Committee,  Executive's
target  bonus for such fiscal year shall be equal to 75% of  Executive's  annual
Base  Salary for such year.  For each fiscal  year  during the  Employment  Term
thereafter,  Executive  shall prepare and submit  Performance  Objectives to the
Compensation  Committee during the normal course of the Company's planning cycle
and  before  the  commencement  of the  new  fiscal  year.  If  such  subsequent
Performance Objectives are accepted and approved by the Compensation  Committee,
Executive's  target  bonus  for  such  fiscal  years  shall  be based on 100% of
Executive's  Base Salary in effect as of the start of such fiscal  year.  In the
event of any  disagreement  between the  Compensation  Committee  and  Executive
concerning  the  acceptance   and  approval  of  Performance   Objectives,   the
Compensation Committee and Executive shall negotiate in good faith to attempt to
resolve  such  differences.  Annual  bonuses  shall be reduced  pro rata for any
fiscal year other than the first during the  Employment  Term that is not a full
year (based on the actual number of days of such year included in the Employment
Term).  Except as provided  above with regard to the annual  bonus for the first
year of the  Employment  Term,  each annual bonus shall be paid no later than 30
days after the Company's audited  financial  statements with respect to the year
for  which  the  annual  bonus is  awarded  are  available.  If the  Performance
Objectives accepted by the Compensation  Committee are exceeded in any year, the
Compensation  Committee may increase the bonus.  If the  Performance  Objectives
accepted by the Compensation  Committee are not met, the Compensation  Committee
may reduce or withhold the bonus entirely.



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        (b) To the extent that the  Executive's  annual bonus and base salary in
any fiscal year is in excess of $1 million,  payment of an amount  equal to such
excess shall be  automatically  deferred.  Amounts deferred under this Paragraph
4(b) shall be credited  annually with interest at the Company's  borrowing  rate
and shall be paid to  Executive  (or to his  estate,  in the case of death) in a
single lump sum three months  following his  termination of employment.  Amounts
deferred  under this  Paragraph  4(b) shall  represent  an  unfunded,  unsecured
obligation of the Company. The Company will establish a "rabbi trust" reasonably
acceptable  to Executive and will fund its deferred  compensation  obligation to
Executive by transferring to such rabbi trust,  cash or other assets  sufficient
to satisfy such obligation.

     5. EQUITY COMPENSATION.

        (a)  NON-QUALIFIED  STOCK OPTIONS.  The Company will grant to Executive,
pursuant to the  Company's  Second  Amended and Restated  1997 Stock Option Plan
(the  "Plan"),  if approved by the  stockholders  at the  Company's  next annual
meeting of  stockholders  or, if such approval is not obtained,  by contract not
subject to the Plan, nonqualified options entitling Executive to acquire a total
of 250,000  shares of the  Company's  common  stock at $1.68 per share (which is
equal to the closing market price of such common stock on the commencement  date
of the Employment Term). Subject to Executive's  continued employment under this
Agreement,  such  nonqualified  stock  options will vest in increments of 15,625
shares (each, a "Tranche") on each December, March, June and September 30 during
the first four years of the Employment Term. The  non-qualified  options in each
such Tranche shall be  exercisable  for a period of five years after the vesting
of such Tranche.  During any period of time after one year from the date of this
Agreement that shares acquired upon exercise of such non-qualified options would
not be saleable by  Executive  pursuant to Rule 144 under the Act or pursuant to
an effective  registration  statement under the Act, the Company shall file with
the  Securities  and Exchange  Commission  and maintain the  effectiveness  of a
registration statement on Form S-8 (or such successor or replacement form as may
be  applicable)  to permit  Executive to resell shares of common stock  acquired
upon  exercise  of  such  non-qualified   stock  options.   The  terms  of  such
nonqualified stock options will be more specifically set forth in a Stock Option
Agreement substantially in the form attached as Exhibit A.

        (b) RESTRICTED  STOCK.  The Company will grant to Executive  pursuant to
the Plan, if approved by the  stockholders  at the Company's next annual meeting
of stockholders or, if such approval is not obtained, by contract not subject to
the  Plan,  two  hundred  fifty  thousand  (250,000)  restricted  shares  of the
Company's  common stock (the  "Restricted  Stock") at a cost to Executive of Two
Thousand Five Hundred Dollars ($2,500).

        (c) VESTING. The Restricted Stock shall vest in installments as follows:
83,333 shares of Restricted  Stock shall vest at such time as the closing market
price of the  Company's  common  stock  equals or  exceeds  $10 per share for 20
consecutive  trading days in any three-month period; an additional 83,333 shares
of restricted  common stock shall vest at such time as the closing  market price
of the Company's  common stock equals or exceeds  twenty dollars ($20) per share
for 20 consecutive  trading days in any three-month period; and the final 83,334
shares of the  Company's  common  stock  shall vest at such time as the  closing
market price of the  Company's  common stock  equals or exceeds  thirty  dollars
($30) per share  for 20  consecutive  trading  days in any  three-month  period.
Executive's  right to receive  any shares of  Restricted  Stock that have not so
vested prior to November 7, 2007 shall terminate and any such  Restricted  Stock

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shall be retained by the Company. Notwithstanding the foregoing, Executive shall
not be  entitled to sell any such vested  shares of  Restricted  Stock until the
expiration of two years from the  Effective  Date (the  "Holding  Period").  The
terms  of such  Restricted  Stock  will  be more  specifically  set  forth  in a
Restricted Stock Agreement substantially in the form attached as Exhibit B.

        (d) RESTRICTIONS ON RESTRICTED STOCK.  Until Restricted Stock has vested
and the Holding Period has expired, it may not be sold, transferred, assigned or
pledged.  Shares of  Restricted  Stock shall be evidenced by stock  certificates
bearing  appropriate  legends referring to the applicable terms,  conditions and
restrictions.  Stock  certificates  representing  the  Restricted  Stock will be
registered in the name of Executive as of the date of this  Agreement,  but such
certificates  will be held by the Company  until the shares vest and the Holding
Period has expired,  and  Executive  shall deliver to the Company a stock power,
endorsed in blank,  relating to the shares of Restricted  Stock. At such time as
Restricted  Stock vests, and the expiration of the Holding Period with regard to
such vested shares of Restricted  Stock, a certificate  representing such shares
(less any shares retained by the Company to satisfy  Executive's tax withholding
obligations) will be delivered to Executive as soon as practicable.

        (e)  DIVIDENDS  AND  VOTING.  From and after the date of issuance of the
Restricted Stock, Executive will have, with respect to the Restricted Stock, all
the  rights of a holder of common  stock,  including  the right to  receive  any
dividends  or  distributions  paid on the common stock and the right to vote the
shares of Restricted Stock.

        (f)  INCOME  TAX.  Executive  shall  be  required  to make  arrangements
satisfactory  to the Company to satisfy any applicable  federal,  state or local
tax liability  arising with respect to the Restricted  Stock.  Such arrangements
may be satisfied by either  making a cash payment to the Company of the required
amount or by having the Company retain  Restricted Stock having a value equal to
the  amount of  Executive's  federal,  state and local tax  obligation  from the
shares of Restricted  Stock otherwise  deliverable to Executive upon the vesting
of such  Restricted  Stock and  expiration of the Holding  Period.  If Executive
fails to  satisfy  the  obligations  in a time and  manner  satisfactory  to the
Company,  the  Company  may  withhold  all  required  amounts  from  Executive's
compensation  or other  amounts  payable  under this  Agreement  to satisfy such
federal, state and local tax obligations.  Executive shall be solely responsible
for  determining  whether to make,  and for making,  any election  under Section
83(b) of the  Internal  Revenue  Code of 1986 (as  amended)  with respect to the
Restricted Stock.

        (g) EFFECT AND OTHER  BENEFITS.  Income  recognized  by Executive as the
result of the grant or  vesting  of  Restricted  Stock,  the  expiration  of the
Holding  Period or the  receipt  of  dividends,  unrestricted  stock will not be
included in any formula for  calculating  benefits  under this  Agreement or any
benefit plan of the Company.

     6. EMPLOYMENT BENEFITS AND VACATION.

        (a) During the  Employment  Term,  Executive  shall also be  entitled to
participate in all pension,  retirement,  savings, welfare and other pension and
welfare  employee  benefit  plans  and  arrangements  and  fringe  benefits  and
perquisites  generally  maintained  by the  Company  from  time to time  for the
benefit of senior executives of the Company, in accordance with their respective
terms as in effect from time to time (other than any special arrangement entered
into by contract with an executive).


<PAGE>


        (b) During the Employment Term,  Executive shall be entitled to vacation
each year in accordance with the Company's policies in effect from time to time,
but in no event  less than four (4)  weeks  paid  vacation  per  calendar  year.
Executive  shall also be entitled to such sick leave as is customarily  provided
by the Company for its senior executive employees.

     7. MOVING  EXPENSES.  The Company will reimburse  Executive on an after-tax
basis  for  all  reasonable  expenses  incurred  by the  Executive  (i)  for the
relocation of his family to San Diego for the purpose of commencing  Executive's
employment  pursuant to this  Agreement,  including  one  customary  real estate
commission,  (ii) for interim living  expenses in the San Diego area  reasonably
incurred to maintain  Executive's  normal standard of living for up to two years
and  (iii)  for  up to two  trips  to the  San  Diego  area  for  Executive  and
Executive's  spouse for the purpose of locating a  residence.  In the event that
Executive's  employment is terminated by the Company  without Cause or Executive
terminates his employment with the Company for Good Reason,  in each case within
one year after the Effective Date, the Company will reimburse  Executive for all
reasonable  expenses  incurred by Executive in the  relocation  of his family to
Austin, Texas.

     8. BUSINESS  EXPENSES.  Executive  shall  be  reimbursed  for  the  travel,
entertainment  and other business  expenses  incurred in the  performance of his
duties  hereunder,  in accordance with policies  generally  applicable to senior
executives of the Company as in effect from time to time.

     9. TERMINATION.

        (a) The employment of Executive  under this Agreement shall terminate on
the expiration of the Employment  Term and earlier upon the occurrence of any of
the following events:

            (i) the death of Executive;

            (ii) the termination by the Company of Executive's employment due to
Executive's Disability pursuant to Section 9(b) hereof;

            (iii) the  termination  by Executive of  Executive's  employment for
Good Reason pursuant to Section 9(c) hereof;

            (iv)  the  termination  by the  Company  of  Executive's  employment
without Cause;

            (v) the termination by Executive of Executive's  employment  without
Good Reason upon sixty (60) days prior written notice; or

            (vi) the  termination by the Company of  Executive's  employment for
Cause pursuant to Section 9(e) hereof.

        (b) DISABILITY.  If, by reason of the same or related physical or mental
reasons,  Executive is unable to carry out his material  duties pursuant to this
Agreement  for more than three (3) months in any twelve (12)  consecutive  month
period,  the Company may terminate  Executive's  employment for Disability  upon
thirty (30) days prior written notice.


<PAGE>


        (c) TERMINATION  FOR GOOD REASON.  A Termination for Good Reason means a
termination  by Executive by written  notice given within ninety (90) days after
the occurrence of the Good Reason event.  For purposes of this Agreement,  "Good
Reason"  shall mean the  occurrence or failure to cause the  occurrence,  as the
case  may  be,  without  Executive's  express  written  consent,  of  any of the
following  circumstances,  unless such  circumstances are corrected prior to the
date of termination  specified in the Notice of Termination  for Good Reason (as
defined in Section 9(d) hereof):  (i) the material  breach by the Company of any
of its  obligations  to  Executive  under  this  Agreement;  (ii)  any  material
diminution of Executive's positions, duties or responsibilities hereunder, as of
the Effective  Date (except in each case in connection  with the  termination of
Executive's  employment  for Cause or Disability  or as a result of  Executive's
death,  or temporarily  as a result of Executive's  illness or other absence and
provided  that a  reduction  in the size or  number of the  units  reporting  to
Executive as a result of dispositions,  shall not be a material diminution),  or
the assignment to Executive of duties or responsibilities  that are inconsistent
with Executive's  position as the Chief Executive Officer of the Company;  (iii)
removal of, or the  nonreelection  of, the  Executive  from his  position as the
Chief  Executive  Officer of the  Company;  (iv) a relocation  of the  principal
executive offices of the Company to a location more than seventy-five (75) miles
from its current location in San Diego, California, or a relocation of Executive
away from such  principal  executive  office;  (v)  failure by the  Compensation
Committee and  Executive to agree on  Performance  Objectives,  after good faith
negotiations,  within 60 days after submission to the Compensation  Committee by
Executive;  or (vi) any change in the Company's  Certificate of Incorporation or
Bylaws  not  approved  by  Executive  that  materially  and  adversely  diminish
Executive's  rights to indemnification in his capacity as an officer or director
of the Company.

        (d) NOTICE OF  TERMINATION OF GOOD REASON.  A Notice of Termination  for
Good Reason shall mean a notice that shall  indicate  the  specific  termination
provision in Section 9(c) relied upon and shall set forth in  reasonable  detail
the facts and circumstances  claimed to provide a basis for Termination for Good
Reason.  The Notice of  Termination  for Good Reason shall provide for a date of
termination  not less than ten (10) nor more than sixty (60) days after the date
such Notice of Termination for Good Reason is given.

        (e) CAUSE. Subject to the notification provisions of Section 9(f) below,
Executive's employment hereunder may be terminated by the Company for Cause. For
purposes of this  Agreement,  the term  "Cause"  shall be limited to (i) willful
misconduct  by  Executive  with  regard  to the  Company;  (ii) the  refusal  of
Executive  to follow  the  proper  written  direction  of the  Board;  PROVIDED,
HOWEVER,  that the  foregoing  refusal shall not be "Cause" if Executive in good
faith believes that such direction is illegal, unethical or immoral and promptly
so  notifies  in  writing  the  entity or person  giving  the  direction;  (iii)
Executive being  convicted of a felony;  (iv) the willful breach by Executive of
any fiduciary duty owed by Executive to any Constituent  Corporation which has a
material adverse effect on the Company;  or (v) Executive's  material fraud with
regard to any Constituent Corporation.

        (f) NOTICE OF TERMINATION  FOR CAUSE. A Notice of Termination  for Cause
shall mean a notice that shall  indicate the specific  termination  provision in
Section 9(e) relied upon and shall set forth in reasonable  detail the facts and
circumstances  which  provide a basis for  Termination  for  Cause.  The date of
termination  for a  Termination  for Cause  shall be the date  indicated  in the
Notice of  Termination.  Any purported  Termination for Cause which is held by a


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court not to have been based on the grounds set forth in this Agreement shall be
deemed a Termination without Cause.

     10. CONSEQUENCES OF TERMINATION OF EMPLOYMENT.

        (a) DEATH. If Executive's employment is terminated during the Employment
Term by reason of Executive's  death, the employment period under this Agreement
shall   terminate   without  further   obligations  to  the  Executive's   legal
representatives  under this Agreement except for (i) any compensation earned but
not yet paid,  including and without limitation,  any declared but unpaid bonus,
any amount of Base Salary or deferred compensation accrued or earned but unpaid,
any accrued  vacation  pay payable  pursuant to the  Company's  policies and any
unreimbursed  business  expenses  payable  pursuant to Section 8, which  amounts
shall be promptly paid in a lump sum to Executive's  estate; (ii) the product of
(x) the target annual bonus for the fiscal year of Executive's death, multiplied
by (y) a fraction,  the  numerator of which is the number of days of the current
fiscal  year  during  which  Executive  was  employed  by the  Company,  and the
denominator  of which is 365,  which bonus shall be paid if and when bonuses for
such  period are paid to the other  executive  officers  of the  Company;  (iii)
subject to Section 11 hereof,  any other amounts or benefits  owing to Executive
under the then  applicable  employee  benefit  plans or policies of the Company,
which shall be paid in accordance with such plans or policies;  and (iv) payment
of the spouse's and dependent's  COBRA coverage  premiums to the extent,  and as
long as,  they remain  eligible  for COBRA  coverage,  but in no event more than
three (3) years.

        (b)  DISABILITY.  If  Executive's  employment is terminated by reason of
Executive's Disability,  Executive shall be entitled to receive the payments and
benefits  to which  his  representatives  would be  entitled  in the  event of a
termination  of employment by reason of his death;  PROVIDED that the payment of
Base Salary shall be reduced by the projected  amount he would receive under any
long-term  disability policy maintained by the Company or program  maintained by
the Company  during the twelve  (12) month  period  during  which Base Salary is
being paid.

        (c)  TERMINATION  BY EXECUTIVE FOR GOOD REASON OR FOR CHANGE IN CONTROL.
If (i) Executive  terminates his employment hereunder for Good Reason during the
Employment  Term;  or (ii) a  Change  in  Control  occurs  and  within  180 days
thereafter Executive  terminates his employment for any reason,  Executive shall
be entitled to receive the payments  and  benefits to which his  representatives
would be entitled in the event of a  termination  of employment by reason of his
death plus  payment on a monthly  basis of twelve  (12) months of Base Salary in
effect as of the start of the fiscal year in which such termination  occurs,  in
accordance  with usual  Company  payroll  practices.  In addition,  in the event
Executive  terminates  his  employment  as a  result  of a  Change  of  Control,
Executive's  non-qualified  stock  options  shall  immediately  vest and  become
exercisable and Executive's Restricted Stock shall immediately vest.

        (d) TERMINATION WITH CAUSE OR VOLUNTARY RESIGNATION WITHOUT GOOD REASON.
If Executive's  employment hereunder is terminated (i) by the Company for Cause;
or (ii) by Executive  without  Good Reason  except  within 180 days  following a
Change in Control,  the  Executive  shall be  entitled to receive  only his Base
Salary  through the date of  termination,  any earned but unpaid  bonus for such
year, any unreimbursed  business  expenses payable pursuant to Section 8 and any
other benefits subject to Section  10(a)(iii)  hereof to which he is entitled by


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law.  All  other  benefits  (including,  without  limitation,  rights  to retain
Restricted  Stock and rights to exercise  options) due Executive shall terminate
upon such termination of employment.

        (e) NON RENEWAL BY THE  COMPANY OR  TERMINATION  BY THE COMPANY  WITHOUT
CAUSE.  If  this  Agreement  is not  renewed  by the  Company  at the end of the
Employment  Term or Executive's  employment is terminated by the Company without
cause,  Executive shall be entitled to receive the payment and benefits to which
his  representatives  would  be  entitled  in  the  event  of a  termination  of
employment by reason of his death plus payment on a monthly basis of twelve (12)
months of Base  Salary in effect as of the start of such fiscal  year,  in equal
shares all in accordance with usual Company payroll practices.

        (f) PARACHUTE  PAYMENTS.  Notwithstanding  the  foregoing,  the benefits
provided to the Executive  under Section 10(c) on account of a Change in Control
shall be reduced  if and to the  extent  that a  nationally  recognized  firm of
compensation  consultants or auditors  designated by the Company determines that
such reduction  will result in a greater net after-tax  benefit to the Executive
than the Executive  would obtain in the absence of such  reduction,  taking into
account any excise tax payable by the  Executive  under  Internal  Revenue  Code
Section 4999. The allocation of the reduction required hereby among the benefits
shall be determined by the Executive.

     11. NO  MITIGATION:  NO  SET-OFF.  In  the  event  of  any  termination  of
employment under Section 9, Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts due Executive  under
this  Agreement on account of any  remuneration  attributable  to any subsequent
employment  that  Executive may obtain.  Any amounts due under Section 10 are in
the nature of severance payments, or liquidated damages, or both, and are not in
the nature of a penalty.  Such amounts are  inclusive and in lieu of any amounts
payable under any other salary continuation or cash severance arrangement of the
Company or any  affiliate  thereof and to the extent paid or provided  under any
other such arrangement shall be offset from the amount due hereunder.

     12. CHANGE IN CONTROL.  Subject to the  provisions of Section 12(b) hereof,
for purposes of this Agreement,  the term "Change in Control" shall mean (a) any
"person"  (as  defined  in the  Act)  not an  affiliate  of the  Company  on the
Effective  Date becomes the  "beneficial  owner" (as defined in Rule 13d-3 under
the Act),  directly or  indirectly,  of securities  of the Company  representing
fifty percent (50%) or more of the combined  voting power of the Company's  then
outstanding  securities;  (b)  during  any  period  of  two  consecutive  years,
individuals  who at the beginning of such period  constitute the Board,  and any
new director (other than a director  designated by a person who has entered into
an  agreement  with the  Company  to  effect  a  transaction  described  in this
paragraph) whose election by the Board of the Company or nomination for election
by the Company's  stockholders  was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at the beginning of
the two-year  period or whose election or nomination for election was previously
so  approved,  cease for any reason to  constitute  at least a  majority  of the
Board;  (c) the stockholders of the Company approve a merger or consolidation of
the Company  with any other  corporation,  other than a merger or  consolidation
which  would  result  in  the  voting  securities  of  the  Company  outstanding
immediately   prior  thereto   continuing  to  represent  (either  by  remaining
outstanding  or by being  converted  into  voting  securities  of the  surviving
entity) more than fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after

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such merger or  consolidation;  or (d) the stockholders of the Company approve a
plan of  complete  liquidation  of the Company or an  agreement  for the sale or
disposition by the Company of all or  substantially  all of the Company's assets
other than the sale of all or substantially  all of the assets of the Company to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent  (50%) or more of the combined  voting power of the  outstanding  voting
securities of the Company at the time of the sale.

     13. CONFIDENTIAL  INFORMATION,  NON-COMPETITION AND NON-SOLICITATION OF THE
COMPANY.

        (a) (i)  Executive  acknowledges  that,  as a result  of his  employment
hereunder,  Executive  will obtain secret and  confidential  information  of the
Company and the Company will suffer substantial damage, which would be difficult
to ascertain and in an amount which would be difficult to compute,  if Executive
should use any of such  confidential  information and that because of the nature
of the  information  that will be known to  Executive,  it is necessary  for the
Company to be  protected by the  prohibition  against  Competition  as set forth
herein, as well as the Confidentiality restrictions set forth herein.

            (ii)  Executive  acknowledges  that the  retention  of  non-clerical
employees  of the  Company,  in which the Company has  invested  training and on
which the Company depends for the operation of its business, is important to the
businesses of the Company;  Executive will obtain unique  information as to such
employees as an executive of the Company and will develop a unique  relationship
with  such  persons  as a result  of being an  executive  of the  Company;  and,
therefore,  it is  necessary  for the Company to be protected  from  Executive's
Solicitation of such employees as set forth below.

            (iii) Executive  acknowledges  that the provisions of this Agreement
are  reasonable  and necessary for the protection of the business of the Company
and that part of the compensation paid under this Agreement and the agreement to
pay severance in certain  instances is in  consideration  for the  agreements in
this Section 13.

        (b) As used herein, "Competition" shall mean: participating, directly or
indirectly,  as  an  individual  proprietor,   partner,  stockholder,   officer,
employee,  director,  joint  venturer,  investor,  lender,  consultant or in any
capacity  whatsoever  (within  the  United  States of  America,  or in any other
country where any Constituent Corporation does business) in a business that owns
or operates off price apparel and  housewares  stores (or any other  business in
which any Constituent Corporation is then engaged); PROVIDED, HOWEVER, that such
participation  shall not include (i) the  ownership of not more than one percent
(1%) of the total  outstanding  stock of a  publicly-held  company;  or (ii) any
activity engaged in with the prior written approval of the Board.

        (c) As used herein, "Solicitation" shall mean recruiting,  soliciting or
inducing any non-clerical  employee of any Constituent  Corporation to terminate
his or her employment  with, or otherwise  cease his or her  relationship  with,
such Constituent Corporation or hiring, or assisting another person or entity to
hire, any  non-clerical  employee of any  Constituent  Corporation or any person
who,  within six (6) months  before,  had been a  non-clerical  employee  of any
Constituent  Corporation,  unless the employment of such person by a Constituent
Corporation was terminated involuntarily and without cause.


<PAGE>


        (d)  If  any  restriction  set  forth  with  regard  to  Competition  or
Solicitation is found by any court of competent jurisdiction,  or an arbitrator,
to be unenforceable because it extends for too long a period of time or over too
great a range of  activities  or in too broad a  geographical  area, it shall be
interpreted  to extend over the maximum  period of time,  range of activities or
geographic  area as to which it may be  enforceable.  If any  provision  of this
Section 13 shall be declared to be invalid or enforceable,  in whole or in part,
as a result of the  foregoing,  as a result  of  public  policy or for any other
reason,  such  invalidity  shall not affect  the  remaining  provisions  of this
Section, which shall remain in full force and effect.

        (e) During and after the  Employment  Term,  Executive  shall  hold in a
fiduciary  capacity  for the benefit of the  Company all secret or  confidential
information,  knowledge  or data  relating  to the  Company  and  its  business,
including any confidential information as to suppliers (i) obtained by Executive
during  his  employment  by the  Company  and (ii) not  otherwise  in the public
domain.  Executive  shall not,  without  prior  written  consent of the Company,
unless  compelled  pursuant to the order of a court or other government or legal
body  having  jurisdiction  over such  matter,  communicate  or divulge any such
information,  knowledge  or data to anyone  other  than the  Company,  and those
designated  by it. In the event  Executive  is  compelled by order of a court or
other governmental or legal body to communicate or divulge any such information,
knowledge or data to anyone other than the foregoing,  he shall promptly  notify
the Company of any such order and he shall  cooperate  fully with the Company in
protecting such information to the full extent, possible under applicable law,

        (f) Upon termination of his employment with the Company,  or at any time
the Company may request,  Executive  will  promptly  deliver to the Company,  as
requested, all documents (whether prepared by the Company,  Executive or a third
party)  relating to the Company or any of its business or property  which he may
possess  or have  under  his  direction  or  control,  other  than his  personal
employment and personnel records.

        (g)  During  the  Employment  Term  and  for one  (1)  year  thereafter,
Executive will not enter into Competition with the Company;  provided,  however,
that  Executive's  obligation  under this sentence shall be suspended during any
time when the Company is in breach of any payment obligation under Section 10(c)
or 10(e) of this  Agreement.  Furthermore,  in the event of any  termination  of
Executive's  employment for any reason whatsoever,  whether by the Company or by
the  Executive  and whether or not for Cause,  Good Reason or  expiration of the
Employment Tem, the Executive will not engage in  Solicitation  for one (1) year
thereafter.

        (h) Executive acknowledges that in the event of a breach of this Section
13, the Company will be caused  irreparable  injury and money damages may not be
an adequate  remedy.  Consequently,  Executive  agrees that the Company shall be
entitled to seek injunctive relief (in addition to its other remedies at law) to
have the provisions of this Section 13 enforced.

     14. INDEMNIFICATION.

        (a)  The  Company  agrees  that  if  Executive  is  made a  party  to or
threatened to be made a party to any action, suit or proceeding,  whether civil,
criminal,  administrative  or investigative (a  "Proceeding"),  by reason of the
fact that he is or was a director or officer of any  Constituent  Corporation or
is or was serving at the request of any  Constituent  Corporation as a director,
officer,  member,  employee,  fiduciary or agent of another  corporation or of a
partnership,  joint  venture,  trust or  other  enterprise,  including,  without
limitation,  service with respect to employee benefit plans,  whether or not the

<PAGE>

basis  of such  Proceeding  is  alleged  action  in an  official  capacity  as a
director,  officer,  member,  employee,  fiduciary  or agent while  serving as a
director, officer, member, employee, fiduciary or agent, he shall be indemnified
and held harmless by the applicable  company to the fullest extent authorized by
applicable  law against all  Expenses  incurred  or  suffered  by  Executive  in
connection  therewith,  and such indemnification  shall continue as to Executive
even if Executive has ceased to be an officer,  director,  member,  fiduciary or
agent, or is no longer employed by such company,  and shall inure to the benefit
of his heirs, executors and administrators.

        (b) As  used in this  Agreement,  the  term  "Expenses"  shall  include,
without limitation,  damages, losses, judgments,  liabilities, fines, penalties,
excise taxes,  settlements and costs,  attorneys'  fees,  accountants'  fees and
disbursements and costs of attachment or similar bonds,  investigations  and any
expenses of establishing a right to indemnification under this Agreement.

        (c) To the extent  permitted by  applicable  law,  Expenses  incurred by
Executive  in  connection  with any  Proceeding  shall be paid in  advance  upon
request  of  Executive  and the  giving  by the  Executive  of any  undertakings
required by applicable law.

        (d) Executive  shall give the Company  notice of any  claim made against
him for  which  indemnity  will or could be  sought  under  this  Agreement.  In
addition,  Executive shall give the Company such  information and cooperation as
it may reasonably  require and as shall be within  Executive's power and at such
times and places as are reasonably convenient for Executive.

        (e) With respect to any Proceeding involving Executive:

            (i) The Company will be entitled to  participate  therein at its own
expense; and

            (ii) Except as otherwise  provided  below, to the extent that it may
wish, the Company will be entitled to assume the defense  thereof,  with counsel
reasonably  satisfactory  to Executive,  in which case Executive also shall have
the right to  participate  and employ his own  counsel in such  action,  suit or
proceeding,  but only at his own cost and  expense,  PROVIDED  that the  Company
shall only be permitted to assume  defense of a Proceeding if (l) the Proceeding
could not result in imposition of criminal  penalties  against Executive and (2)
the Company  acknowledges that it is liable to indemnify  Executive with respect
to all Expenses with respect to such Proceedings,  except as provided earlier in
this sentence with regard to Executive's own counsel.

        (f) The Company  shall not be liable to indemnify  Executive  under this
Agreement  for any amounts paid in  settlement  of any action or claim  effected
without its written consent. The Company shall not settle any action or claim in
any manner  which  would  impose any penalty on  Executive  (except a penalty in
respect of which Executive is fully indemnified  hereunder) without  Executive's
written consent. Neither the Company nor Executive will unreasonably withhold or
delay consent to any proposed settlement.

        (g) The right to indemnification and the payment of expenses incurred in
defending a  Proceeding  in advance of its final  disposition  conferred in this

<PAGE>

Section 14 shall not be exclusive of any other right which Executive may have or
hereafter  may  acquire  under any  statute,  provision  of the  certificate  of
incorporation  or by-laws of the Company,  agreements,  vote of  stockholders or
disinterested directors or otherwise.

        (h) The Company shall obtain  officer and director  liability  insurance
policies  covering  Executive  in the same  aggregate  amount and under the same
terms as are  currently  maintained  by the  Company  for  senior  officers  and
directors and use commercially  reasonable  efforts to maintain such policies or
replacement  policies  with  substantially  the same limits in effect during the
term of Executive's employment by the Company.

     15. MISCELLANEOUS.

        (a) ENTIRE  ARRANGEMENT/AMENDMENTS.  This Agreement and the  instruments
contemplated  herein,  contain  the entire  understanding  of the  parties  with
respect  to  the   employment  of  Executive  by  the  Company.   There  are  no
restrictions,   agreements,  promises,  warranties,  covenants  or  undertakings
between the parties with respect to the subject  matter  hereof other than those
expressly  set forth  herein and  therein.  This  Agreement  may not be altered,
modified or amended except by written instrument signed by the parties hereto.

        (b) NO WAIVER. The failure of a party to insist upon strict adherence to
any term of this  Agreement on any occasion  shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict  adherence  to that term or any other  term of this  Agreement.  Any such
waiver must be in writing and signed by  Executive or an  authorized  officer of
the Company, as the case may be.

        (c)  ASSIGNMENT.  This  Agreement  shall not be assignable by Executive.
This  Agreement  shall  be  assignable  by the  Company,  but  only  to  another
Constituent  Corporation  and  only if  such  Constituent  Corporation  promptly
assumes all of the obligations  hereunder of the Company in a writing  delivered
to the Executive and otherwise  complies with the provisions  hereof with regard
to such assumption.  Upon such assignment and assumption, all obligations of the
Company herein shall be the obligations of the assignee  entity or acquiror,  as
the case  may be,  but the  Company  shall  remain  secondarily  liable  for the
obligations hereunder.

        (d) SUCCESSORS;  BINDING  AGREEMENT.  This Agreement shall inure to the
benefit of and be binding upon the  personal or
legal   representatives,    executors,    administrators,    successor,   heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.

        (e) COMMUNICATIONS.  For the purpose of this Agreement,  notices and all
other  communications  provided  for in this  Agreement  shall be in writing and
shall be deemed to have been duly given (i) when faxed or  delivered  in person;
or (ii) two business days after mailed by United States  registered or certified
mail,  return receipt  requested,  postage prepaid,  addressed to the respective
addresses set forth on the signature page of this  Agreement,  PROVIDED that all
notices to the Company  shall be directed  to the  Chairman of the  Compensation
Committee  of the  Company  or to such  other  address  as any  party  may  have
furnished to the other in writing in  accordance  herewith.  Notice of change of
address shall be effective only upon receipt.

        (f) WITHHOLDING TAXES. The Company may withhold from any and all amounts
payable under this Agreement to Executive such Federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.


<PAGE>


        (g)  SURVIVAL.  The  respective  rights and  obligations  of the parties
hereunder shall survive any termination of Executive's  employment to the extent
necessary to the agreed preservation of such rights and obligations.

        (h) COUNTERPARTS.  This Agreement may be signed in counterparts, each of
which shall be an original,  with the same effect as if the  signatures  thereto
and hereto were upon the same instrument.

        (i) HEADINGS.  The headings of the sections  contained in this Agreement
are for  convenience  only and  shall not be deemed  to  control  or affect  the
meaning or construction of any provisions of this Agreement.

        (j)  Notwithstanding  anything to the  contrary in this  Agreement,  the
Company  shall not be  required  to take any  action or make any  payment to the
extent  such  action  or  payment  would be  inconsistent  with or  violate  the
provisions of the Sarbanes-Oxley Act of 2002.

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written,

                                FACTORY 2-U STORES, INC.



                                By: /s/  WILLEM DE VOGEL
                                    --------------------------------------------
                                    Compensation Committee Chairman
                                    Address:   4000 Ruffin Road
                                               San Diego, California  92123-1866
                                    Telephone: (858) 627-1800
                                    Fax:       (858) 637-4199



                                /s/  WILLIAM R. FIELDS
                                ------------------------------------------------
                                William R. Fields

                                Address:   103 Bella Cima
                                           Austin, Texas  78734
                                Telephone: (512) 266-0206
                                Fax:       (512) 266-6495