Exhibit 99.3


                            Factory 2-U Stores, Inc.
                                4000 Ruffin Road
                        San Diego, California 92123-1866


                                                  November 4, 2002

Ronald Rashkow
Chapman Partners, L.L.C.
6250 North River Road, Suite 12-300
Rosemont, Illinois  60018

Dear Ron:

     Consistent  with  evolving  standards  of  corporate  governance,  we  have
determined  to create the position of Lead  Director.  The Lead Director will be
selected by the full Board of Directors  from among the  independent  directors,
and will act as a liaison  between the Board of  Directors  and the Chairman and
CEO.  The Lead  Director  will also act in a  leadership  role with the Board of
Directors, including coordination of meeting agendas with the Chairman and CEO.

     After due  consideration,  and with the approval of the Board of Directors,
we are  pleased  to offer you the  position  of Lead  Director.  Because  of the
significant  additional  responsibilities  that the Lead  Director  will assume,
which are discussed below, your compensation as Lead Director,  which will be in
lieu of any  other  compensation  as a  member  of the  Board of  Directors,  is
summarized below.

DUTIES

     o  Minimum of two days per month to be spent with the  Chairman  and CEO to
        evaluate business segments,  status, progress, overall strategic outlook
        and such other  matters  as you,  the  Chairman  and CEO or the Board of
        Directors deem appropriate.

     o  Up to an  additional  six days per quarter to be spent with the Chairman
        and CEO if  desired  by  you,  the  Chairman  and  CEO or the  Board  of
        Directors.

     o  All meetings  between the Chairman and CEO, and you, will be at mutually
        convenient times and locations.

     o  Start date to be  November  4, 2002,  with  service to  continue  at the
        pleasure of the Board of Directors for up to three years.

COMPENSATION

     o  Fully vested grant of 50,000 options,  to be granted under the Company's
        stock option 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


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        Plan. The option would be exercisable  for five years from date of grant
        at a price equal to the fair market value of the Company's  common stock
        on the date of your acceptance of this letter agreement.

     o  On or about  November 7, 2002,  a grant of 25,000  shares of  restricted
        common stock, subject to your completion of 12 months of service as Lead
        Director.

     o  Monthly  compensation of $12,500,  plus  reimbursement of all reasonable
        out-of-pocket  travel and other expenses  related to the  performance of
        your duties as Lead Director.

     o  Target  grants of 25,000  similar  shares of  restricted  common  stock,
        subject  to your  completion  of 24 and 36  months  of  service  as Lead
        Director,  commensurate  with achievement of CEO's performance goals for
        the applicable  year. By way of example,  if the CEO received 50% of his
        performance  bonus for such  year,  you would  receive a grant of 12,500
        shares of restricted stock for such year. In the event that such periods
        of service do not dovetail with the periods of such  performance  goals,
        the  number of shares of  restricted  stock will be  determined  in good
        faith  by the  Board  of  Directors  based on  achievements  during  the
        relevant periods.

     o  $3,500  per day,  plus  reimbursement  of all  reasonable  out-of-pocket
        travel and other expenses  related to the  performance of your duties as
        Lead Director, for each day of service in excess of six days per quarter
        (i.e. in excess of two days per month).

     If these terms are  acceptable to you,  please sign below and return a copy
of this  letter  agreement  to me. We are  confident  that your  experience  and
expertise will provide significant benefit to the Company and our shareholders.


                                          Very truly yours,

                                          Factory 2-U Stores, Inc



                                          By: /s/ WILLEM DE VOGEL
                                              ----------------------------------
                                              Willem de Vogel
                                              Chairman of Compensation Committee

AGREED AND ACCEPTED:

/s/ RONALD RASHKOW
------------------------------
Ronald Rashkow

Date: November 4, 2002