Document:

EXHIBIT 4.3

                          REGISTRATION RIGHTS AGREEMENT

     This  Registration  Rights Agreement (the  "AGREEMENT") is made and entered
into as of the 6th day of March 2003 (the "EFFECTIVE  DATE") between Factory 2-U
Stores, Inc., a Delaware corporation (the "COMPANY"),  and the parties set forth
on  the  signature  page  and  Exhibit  A  hereto  (each,   a  "PURCHASER"   and
collectively, the "PURCHASERS").

                                R E C I T A L S:

     A.   The Purchasers have purchased shares of the Company's Common Stock (as
defined  below)  pursuant to  Subscription  Agreements  (each,  a  "SUBSCRIPTION
AGREEMENT" and collectively,  the "SUBSCRIPTION  AGREEMENTS") by and between the
Company and each Purchaser.

     B.   The  Company and the Purchasers  desire to set forth the  registration
rights to be granted by the Company to the Purchasers.

     NOW, THEREFORE,  in consideration of the mutual promises,  representations,
warranties,  covenants,  and conditions set forth herein and in the Subscription
Agreements, the parties mutually agree as follows:

                               A G R E E M E N T:

     1.   CERTAIN  DEFINITIONS.  As used in this Agreement,  the following terms
shall have the following respective meanings:

     "APPROVED  MARKET"  means the Nasdaq  National  Market,  the New York Stock
Exchange, Inc., or the American Stock Exchange, Inc.

     "BUSINESS DAY" means any day of the year, other than a Saturday, Sunday, or
other day on which the Commission is required or authorized to close.

     "CERTIFICATE   OF   INCORPORATION"   means  the  Restated   Certificate  of
Incorporation  of the Company as filed with the  Secretary of State of the State
of Delaware, as the same may be amended from time to time.

     "CLOSING  DATE" means  February 28, 2003, or such other time as is mutually
agreed  between  the  Company  and the  Purchasers  for the  closing of the sale
referred to in Recital A above.

     "COMMISSION"  means the  Securities  and Exchange  Commission  or any other
federal agency at the time administering the Securities Act.

     "COMMON  STOCK" means the common stock,  par value $0.01 per share,  of the
Company and any and all shares of capital stock or other equity  securities  of:
(i) the Company  which are added to or exchanged or  substituted  for the Common
Stock by reason of the  declaration  of any stock  dividend or stock split,  the
issuance   of   any   distribution   or  the   reclassification,   readjustment,
recapitalization  or other such  modification  of the capital  structure  of the
Company;  and (ii) any other corporation,  now or hereafter  organized under the
laws of any state or other  governmental  authority,  with which the  Company is
merged,  which results from any  consolidation  or  reorganization  to which the

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Company is a party, or to which is sold all or  substantially  all of the shares
or assets of the  Company,  if  immediately  after such  merger,  consolidation,
reorganization  or sale,  the  Company or the  stockholders  of the  Company own
equity  securities  having in the  aggregate  more than 50% of the total  voting
power of such other corporation.

     "EXCHANGE ACT" means the Securities  Exchange Act of 1934, as amended,  and
the rules and regulations of the Commission promulgated thereunder.

     "FAMILY MEMBER" means (a) with respect to any individual, such individual's
spouse,  any  descendants  (whether  natural or  adopted),  any trust all of the
beneficial  interests of which are owned by any of such individuals or by any of
such individuals  together with any organization  described in Section 501(c)(3)
of the  Internal  Revenue  Code of 1986,  as  amended,  the  estate  of any such
individual, and any corporation,  association,  partnership or limited liability
company all of the equity  interests of which are owned by those above described
individuals,  trusts or  organizations  and (b) with  respect to any trust,  the
owners of the beneficial interests of such trust.

     "FORM S-3" means  such form  under the  Securities  Act as in effect on the
date  hereof or any  registration  form under the  Securities  Act  subsequently
adopted  by  the  Commission,   which  permits  inclusion  or  incorporation  of
substantial  information  by reference to other  documents  filed by the Company
with the Commission.

     "HOLDER"  means  each  Purchaser  or any  of  such  Purchaser's  respective
successors  and Permitted  Assigns who acquire  rights in  accordance  with this
Agreement with respect to the Registrable Securities directly or indirectly from
such Purchaser, including from and Permitted Assignee.

     "INSPECTOR"  means any attorney,  accountant,  or other agent retained by a
Purchaser for the purposes provided in Section 4(j).

     "MAJORITY  HOLDERS"  means  at  any  time  Holders  of a  majority  of  the
Registrable Securities.

     "PERMITTED ASSIGNEE" means (a) with respect to a partnership,  its partners
or former  partners in accordance  with their  partnership  interests,  (b) with
respect to a corporation,  its shareholders in accordance with their interest in
the corporation, (c) with respect to a limited liability company, its members or
former  members in  accordance  with their  interest  in the  limited  liability
company,  (d) with respect to an  individual  party,  any Family  Member of such
party, (e) an entity that is controlled by, controls, or is under common control
with a transferor, or (f) a party to this Agreement.

     The  terms  "REGISTER,"   "REGISTERED,"  and  "REGISTRATION"  refers  to  a
registration  effected  by  preparing  and filing a  registration  statement  in
compliance  with the  Securities  Act,  and the  declaration  or ordering of the
effectiveness of such registration statement.

     "REGISTRABLE  SECURITIES"  means  shares  of  Common  Stock  issued to each
Purchaser pursuant to the Subscription Agreements, EXCLUDING (i) any Registrable
Securities  that  have been  publicly  sold or may be sold  immediately  without
registration  under  the  Securities  Act  either  pursuant  to Rule  144 of the
Securities Act or otherwise; (ii) any Registrable Securities sold by a person in
a transaction  pursuant to a registration  statement  filed under the Securities
Act or (iii)  any  Registrable  Securities  that are at the time  subject  to an
effective registration statement under the Securities Act.

     "REGISTRATION  DEFAULT DATE" means the date which is 90 days  following the
Closing Date;  PROVIDED,  HOWEVER,  if the Registration  Statement is subject to
review by the SEC staff the Registration Default Date shall be the date which is
150 days following the Closing Date.

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     "REGISTRATION  DEFAULT PERIOD" means the period  following the Registration
Default Date during which any Registration Event occurs and is continuing.

     "REGISTRATION EVENT" means the occurrence of any of the following events:

          (a)  the Company fails to file with the SEC the Registration Statement
     on or  before  the  date by  which  the  Company  is  required  to file the
     Registration Statement pursuant to Section 3(a),

          (b)  the Registration Statement covering Registrable Securities is not
     declared effective by the Commission on or before the Registration  Default
     Date,

          (c)  after  the SEC Effective  Date,  sales cannot be made pursuant to
     the Registration  Statement for any reason (including without limitation by
     reason of a stop order, or the Company's failure to update the Registration
     Statement) but except as excused pursuant to Section 3(a), or

          (d)  the  Common  Stock   generally  or  the  Registrable   Securities
     specifically  are not  listed or  included  for  quotation  on an  Approved
     Market,  or  trading  of the  Common  Stock is  suspended  or halted on the
     Approved Market, which at the time constitutes the principal market for the
     Common Stock.

     "SECURITIES  ACT" means the  Securities  Act of 1933,  as  amended,  or any
similar federal statute  promulgated in replacement  thereof,  and the rules and
regulations of the Commission thereunder,  all as the same shall be in effect at
the time.

     "SEC EFFECTIVE DATE" means the date the Registration  Statement is declared
effective by the Commission.

     "S-3 BLACKOUT PERIOD" means,  with respect to a registration,  a period not
in excess of 30 Trading Days in any period of 365 consecutive days, in each case
commencing on the day immediately after the Company notifies the Purchasers that
they are  required,  pursuant to Section  4(f),  to suspend  offers and sales of
Registrable  Securities during which the Company,  in the good faith judgment of
its  Board  of  Directors,  determines  (because  of  the  existence  of,  or in
anticipation  of, any  acquisition,  financing  activity,  or other  transaction
involving the Company,  or the  unavailability  for reasons beyond the Company's
control of any required financial statements, disclosure of information which is
in its best interest not to publicly  disclose,  or any other event or condition
of similar  significance to the Company) that the  registration and distribution
of the Registrable Securities to be covered by such registration  statement,  if
any,  would  be  seriously  detrimental  to the  Company  and its  shareholders;
PROVIDED,  HOWEVER, that no S-3 Blackout Period may commence sooner than 60 days
after the end of a prior S-3  Blackout  Period and there  shall not be more than
two S-3 Blackout Periods in any 12-month period.

     "TRADING  DAY"  means  a day  on  whichever  (a)  the  national  securities
exchange,  (b) the Nasdaq Stock Market, or (c) such other securities  market, in
any such case which at the time constitutes the principal  securities market for
the Common Stock, is open for general trading of securities.

     2.   TERM.  This  Agreement  shall  continue in full force and effect for a
period of two (2) year from the Effective Date.

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     3.   REGISTRATION.

     (a)  REGISTRATION ON FORM S-3. As promptly as reasonably  practicable after
the date hereof,  but in any event not later than 60 days after the Closing Date
(the  "REGISTRATION  FILING  DATE"),  the  Company  shall  use its  commercially
reasonable  best  efforts  to file  with  the  Commission  a shelf  registration
statement  on Form S-3  relating  to the  resale  by the  Holders  of all of the
Registrable  Securities;  PROVIDED,  HOWEVER,  that  the  Company  shall  not be
obligated to effect any such registration,  qualification or compliance pursuant
to this Section 3(a), or keep such registration effective pursuant to Section 4:
(i) in any  particular  jurisdiction  in which the Company  would be required to
qualify to do business  as a foreign  corporation  or as a dealer in  securities
under  the  securities  or blue sky laws of such  jurisdiction  or to  execute a
general   consent  to  service  of  process  in  effecting  such   registration,
qualification  or compliance,  in each case where it has not already done so; or
(ii) during any S-3 Blackout Period.

     (b)  PIGGYBACK REGISTRATION. If the Company shall determine to register for
sale for cash any of its Common Stock, for its own account or for the account of
others (other than the Holders),  other than (i) a registration  relating solely
to  employee  benefit  plans or  securities  issued or  issuable  to  employees,
consultants  (to  the  extent  the  securities  owned  or to be  owned  by  such
consultants  could be  registered  on Form S-8) or any of their  Family  Members
(including a registration on Form S-8) or (ii) a registration relating solely to
a Commission Rule 145 transaction, a registration on Form S-4 in connection with
a merger,  acquisition,  divestiture,  reorganization,  or  similar  event,  the
Company shall  promptly give to the Holders  written  notice  thereof (and in no
event shall such notice be given less than 30 calendar  days prior to the filing
of such registration statement),  and shall, subject to Section 3(c), include in
such  registration (and any related  qualification  under blue sky laws or other
compliance)  (a "PIGGYBACK  REGISTRATION"),  all of the  Registrable  Securities
specified in a written  request or requests,  made within 20 calendar days after
receipt of such  written  notice  from the  Company,  by any Holder or  Holders.
However,  the Company  may,  without the consent of the Holders,  withdraw  such
registration  statement  prior to its becoming  effective if the Company or such
other  shareholders  have  elected to  abandon  the  proposal  to  register  the
securities proposed to be registered thereby.

     (c)  UNDERWRITING.  If a Piggyback  Registration is for a registered public
offering  involving an underwriting,  the Company shall so advise the Holders in
writing or as a part of the written  notice given  pursuant to Section  3(b). In
such  event the right of any Holder to  registration  pursuant  to Section  3(b)
shall be conditioned upon such Holder's  participation in such  underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided  herein.  All Holders  proposing to distribute  their securities
through  such  underwriting  shall  (together  with the  Company  and any  other
shareholders  of  the  Company   distributing   their  securities  through  such
underwriting)  enter into an  underwriting  agreement in customary form with the
underwriter or  underwriters  selected for such  underwriting  by the Company or
selling shareholders, as applicable. Notwithstanding any other provision of this
Section  3(c),  if the  underwriter  or the Company  determines  that  marketing
factors  require a limitation  of the number of shares to be  underwritten,  the
underwriter   may  exclude  some  or  all   Registrable   Securities  from  such
registration and  underwriting.  The Company shall so advise all Holders (except
those Holders who have indicated to the Company their decision not to distribute
any of their Registrable  Securities through such underwriting),  and the number
of shares of Registrable Securities that may be included in the registration and
underwriting, if any, shall be allocated among such Holders as follows:

          (i)  In the event of a Piggyback Registration that is initiated by the
     Company,  the number of shares that may be included in the registration and
     underwriting  shall be allocated first to the Company and then,  subject to

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     obligations and commitments  existing as of the date hereof, to all selling
     shareholders,  including  the  Holders,  who have  requested to sell in the
     registration  on a pro  rata  basis  according  to  the  number  of  shares
     requested to be included; and

          (ii) In the event of a Piggyback Registration that is initiated by the
     exercise of demand  registration rights by a shareholder or shareholders of
     the Company (other than the Holders), then the number of shares that may be
     included in the registration  and underwriting  shall be allocated first to
     such selling  shareholders  who exercised such demand and then,  subject to
     obligations  and commitments  existing as of the date hereof,  to all other
     selling shareholders,  including the Holders, who have requested to sell in
     the  registration,  on a pro rata basis  according  to the number of shares
     requested to be included.

     No Registrable  Securities  excluded from the underwriting by reason of the
underwriter's  marketing  limitation shall be included in such registration.  If
any Holder  disapproves of the terms of any such  underwriting,  such Holder may
elect  to  withdraw   therefrom  by  written  notice  to  the  Company  and  the
underwriter.  The Registrable  Securities  and/or other  securities so withdrawn
from such underwriting shall also be withdrawn from such registration; PROVIDED,
HOWEVER,  that, if by the  withdrawal of such  Registrable  Securities a greater
number of Registrable  Securities  held by other Holders may be included in such
registration (up to the maximum of any limitation  imposed by the underwriters),
then the  Company  shall  offer to all  Holders  who have  included  Registrable
Securities  in the  registration  the right to  include  additional  Registrable
Securities  pursuant to the terms and  limitations  set forth herein in the same
proportion used above in determining the underwriter limitation.

     (e)  OTHER REGISTRATIONS.  Prior to the SEC Effective Date the Company will
not, without the prior written consent of the Majority Holders,  file or request
the acceleration of any other registration  statement filed with the Commission,
and during any time  subsequent to the SEC Effective Date when the  Registration
Statement  for any reason is not  available for use by any Holder for the resale
of any Registrable Securities,  the Company shall not, without the prior written
consent of the Majority Holders,  file any other  registration  statement or any
amendment  thereto with the  Commission  under the Securities Act or request the
acceleration of the effectiveness of any other registration statement previously
filed with the Commission, other than (A) any registration statement on Form S-8
and (B) any registration statement or amendment which the Company is required to
file or as to which the Company is required to request acceleration  pursuant to
any  obligation  in  effect  on the  date  of  execution  and  delivery  of this
Agreement.

     (f)  FAILURE  TO  FILE  REGISTRATION  STATEMENT.  If a  Registration  Event
occurs,  then  the  Company  will  make  payments  to the  Purchase  as  partial
liquidated  damages for the minimum amount of damages to the Purchaser by reason
thereof,  and not as a penalty,  at the rate of $0.05 per share per  month,  for
each calendar month of the Registration Default Period (pro rated for any period
less than 30 days).  Each such payment shall be due and payable  within five (5)
days after the end of each calendar  month of the  Registration  Default  Period
until the  termination  of the  Registration  Default Period and within five (5)
days after such termination.  Such payments shall be in partial  compensation to
the Purchaser,  and shall not constitute the  Purchaser's  exclusive  remedy for
such events. The Registration Default Period shall terminate upon (i) the filing
of the  Registration  Statement in the case of clause (a) of the  definition  of
"Registration  Event," (ii) the SEC Effective  Date in the case of clause (b) of
the  definition of  "Registration  Event," (iii) the ability of the Purchaser to
effect sales pursuant to the Registration Statement in the case of clause (c) of
the  definition of  "Registration  Event," (iv) the listing or inclusion  and/or
trading of the Common  Stock on an Approved  Market,  as the case may be, in the
case of clause (d) of the  definition  of  "Registration  Event," and (v) in the
case of the  events  described  in  clauses  (b) and  (c) of the  definition  of
"Registration  Event," the earlier  termination of the Registration  Period. The
amounts payable as partial  liquidated  damages pursuant to this paragraph shall

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be payable  in lawful  money of the United  States.  Amounts  payable as partial
liquidated  damages hereunder shall cease when the Purchaser no longer holds the
Registrable Securities.

     4.   REGISTRATION   PROCEDURES.   In  the   case  of   each   registration,
qualification,  or  compliance  effected  by the  Company  pursuant to Section 3
hereof,  the  Company  will  keep  each  Holder  including   securities  therein
reasonably  advised  in  writing  as to the  initiation  of  each  registration,
qualification,  and compliance and as to the completion  thereof. At its expense
with  respect to any  registration  statement  filed  pursuant to Section 3, the
Company will use its commercially reasonable best efforts to:

     (a)  prepare  and file with the Commission with respect to such Registrable
Securities,  a  registration  statement  on any form for which the Company  then
qualifies or which  counsel for the Company  shall deem  appropriate,  and which
form shall be available for the sale of the Registrable Securities in accordance
with the intended  method(s) of  distribution  thereof,  and use its  commercial
efforts to cause such  registration  statement to become and remain effective at
least  for a  period  ending  with  the  first  to  occur of (i) the sale of all
Registrable  Securities  covered  by  the  registration   statement,   (ii)  the
availability under Rule 144 for the Holder to immediately, freely resell without
restriction all Registrable  Securities  covered by the registration  statement,
and (iii) one year after a registration statement filed pursuant to Section 3(a)
is declared  effective by the  Commission  (in either case,  the  "EFFECTIVENESS
PERIOD");  PROVIDED,  HOWEVER, if at the end of such one-year period, any Holder
is not able to  immediately,  freely resell all  Registrable  Securities that it
owns,  the  Effectiveness  Period shall continue  until  terminated  pursuant to
clause (i) or (ii); provided that no later than five business days before filing
with the Commission a registration  statement or prospectus or any amendments or
supplements  thereto,  including  documents  incorporated by reference after the
initial filing of any registration  statement,  the Company shall (i) furnish to
one  counsel  ("HOLDERS  COUNSEL")  selected by the Holders of a majority of the
Registrable Securities covered by such registration statement copies of all such
documents  proposed to be filed  (excluding any exhibits  other than  applicable
underwriting  documents),  in substantially the form proposed to be filed, which
documents  shall be subject to the review of such counsel,  and (ii) notify each
Holder of Registrable  Securities covered by such registration  statement of any
stop  order  issued or  threatened  by the  Commission  and take all  reasonable
actions  required  to  prevent  the entry of such stop  order or to remove it if
entered;

     (b)  if a  registration  statement is subject to review by the  Commission,
promptly  respond  to all  comments  and  diligently  pursue  resolution  of any
comments to the satisfaction of the Commission;

     (c)  prepare  and file with the Commission  such amendments and supplements
to such registration  statement and the prospectus used in connection  therewith
as may be necessary to keep such  registration  statement  effective  during the
Effectiveness  Period (but in any event at least until  expiration of the 90-day
period  referred to in Section 4(3) of the  Securities  Act and Rule 174, or any
successor thereto, thereunder, if applicable), and comply with the provisions of
the Securities Act with respect to the disposition of all securities  covered by
such  registration  statement during such period in accordance with the intended
method(s) of disposition by the sellers  thereof set forth in such  registration
statement;

     (d)  furnish,  without  charge,  to each Holder of  Registrable  Securities
covered  by  such  registration  statement  (i)  one  (1)  signed  copy  of such
registration  statement  (including  any exhibits  thereto  other than  exhibits
incorporated by reference),  each amendment and supplement thereto, (ii) two (2)
conformed copies of each such registration  statement,  amendment and supplement
(in each case  including all exhibits  thereto),  (iii) such number of copies of
the  prospectus  included  in  such  registration   statement   (including  each
preliminary  prospectus and any other  prospectus filed under Rule 424 under the
Securities Act) as such Holders may request, in conformity with the requirements
of the  Securities  Act,  and (iv)  such  other  documents  as such  Holder  may
reasonably  request in order to facilitate the  disposition  of the  Registrable
Securities owned by such Holder, but only during the Effectiveness Period;

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     (e)  use its  commercially  reasonable  best efforts to register or qualify
such Registrable  Securities under such other applicable  securities or blue sky
laws of such  jurisdictions as any Holder of Registrable  Securities  covered by
such  registration  statement  reasonably  requests as may be necessary  for the
marketability of the Registrable Securities (such request to be made by the time
the applicable registration statement is deemed effective by the Commission) and
do any and all other  acts and  things  which  may be  reasonably  necessary  or
advisable  to  enable  such  Holder  to  consummate  the   disposition  in  such
jurisdictions of the Registrable Securities owned by such Holder;  PROVIDED that
the Company shall not be required to (i) qualify generally to do business in any
jurisdiction  where it would not  otherwise  be required to qualify but for this
paragraph  (e),  (ii) subject  itself to taxation in any such  jurisdiction,  or
(iii) consent to general service of process in any such jurisdiction;

     (f)  immediately  notify each Holder of such Registrable  Securities at any
time when a prospectus  relating  thereto is required to be delivered  under the
Securities  Act of the  happening  of any  event  which  comes to the  Company's
attention  if as a  result  of  such  event  the  prospectus  included  in  such
registration  statement contains an untrue statement of a material fact or omits
to state any material  fact  required to be stated  therein or necessary to make
the statements therein not misleading and the Company shall promptly prepare and
furnish to such Holder a supplement or amendment to such  prospectus (or prepare
and file  appropriate  reports  under the Exchange  Act) so that,  as thereafter
delivered to the  purchasers of such  Registrable  Securities,  such  prospectus
shall not contain an untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein  not  misleading,  unless  suspension  of  the  use of  such  prospectus
otherwise is  authorized  herein or in the event of an S-3 Blackout  Period,  in
which case no supplement or amendment  need be furnished (or Exchange Act filing
made) until the termination of such suspension or S-3 Blackout Period;

     (g)  comply,   and   continue  to  comply   during  the  period  that  such
registration  statement is effective  under the Securities  Act, in all material
respects with the  Securities  Act and the Exchange Act and with all  applicable
rules and  regulations of the Commission  with respect to the disposition of all
securities  covered by such  registration  statement,  and make available to its
security  holders,  as soon as  reasonably  practicable,  an earnings  statement
covering the period of at least twelve (12) months,  but not more than  eighteen
(18) months,  beginning  with the first full calendar  month after the effective
date of such registration statement,  which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.

     (h)  as promptly as practicable after becoming aware of such event,  notify
each Holder of  Registrable  Securities  being  offered or sold  pursuant to the
Registration  Statement of the issuance by the  Commission  of any stop order or
other suspension of effectiveness of the Registration  Statement at the earliest
possible time;

     (i)  permit  the Holders of  Registrable  Securities  being included in the
Registration  Statement and their legal counsel,  at such Holders' sole cost and
expense (except as otherwise  specifically  provided in Section 6) to review and
have a reasonable  opportunity to comment on the Registration  Statement and all
amendments and  supplements  thereto at least three Business Days prior to their
filing  with the  Commission  and shall not file any such  document to which any
Holder reasonably objects;

     (j)  make available for inspection by any Holder and any Inspector retained
by such  Holder,  at such  Holder's  sole  expense,  all  Records  as  shall  be
reasonably  necessary  to enable  such  Holder  to  exercise  its due  diligence
responsibility,  and cause the Company's officers,  directors,  and employees to
supply all information which such Holder or any Inspector may reasonably request
for purposes of such due diligence;  PROVIDED,  HOWEVER,  that such Holder shall
hold in  confidence  and shall not make any  disclosure  of any  record or other

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information which the Company  determines in good faith to be confidential,  and
of which  determination  such  Holder is so  notified  at the time  such  Holder
receives such information, unless (i) the disclosure of such record is necessary
to avoid or correct a misstatement or omission in the Registration Statement and
a reasonable  time prior to such  disclosure  the Holder shall have informed the
Company of the need to so correct such  misstatement or omission and the Company
shall have failed to correct such misstatement of omission,  (ii) the release of
such  record is ordered  pursuant  to a subpoena  or other order from a court or
governmental  body of competent  jurisdiction  or (iii) the  information in such
record has been made generally  available to the public other than by disclosure
in violation of this or any other  agreement.  The Company shall not be required
to disclose any confidential  information in such records to any Inspector until
and unless such Inspector  shall have entered into a  confidentiality  agreement
with the Company with respect thereto, substantially in the form of this Section
4(j),  which  agreement  shall permit such Inspector to disclose  records to the
Holder who has retained such Inspector.  Each Holder agrees that it shall,  upon
learning  that  disclosure  of  such  Records  is  sought  in or by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
notice to the  Company  and allow the  Company,  at the  Company's  expense,  to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the records deemed confidential. The Company shall hold in confidence
and shall not make any disclosure of information  concerning an Holder  provided
to the  Company  pursuant  to  this  Agreement  unless  (i)  disclosure  of such
information is necessary to comply with federal or state  securities  laws, (ii)
disclosure of such  information  is necessary to avoid or correct a misstatement
or omission in the Registration Statement,  (iii) release of such information is
ordered pursuant to a subpoena or other order from a court or governmental  body
of competent  jurisdiction,  or (iv) such  information  has been made  generally
available  to the public  other than by  disclosure  in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of  such  information  concerning  a  Holder  is  sought  in  or by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
notice to such  Holder and allow  such  Holder,  at such  Holder's  expense,  to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;

     (k)  use its best efforts to cause all the Registrable  Securities  covered
by the Registration Statement to be quoted on the Nasdaq National Market or such
other  principal  securities  market on which  securities  of the same  class or
series issued by the Company are then listed or traded;

     (l)  provide a transfer agent and registrar,  which may be a single entity,
for the Registrable Securities at all times;

     (m)  cooperate  with the Holders of  Registrable  Securities  being offered
pursuant to the Registration  Statement to facilitate the timely preparation and
delivery of  certificates  (not bearing any  restrictive  legends)  representing
Registrable  Securities to be offered pursuant to the Registration Statement and
enable such  certificates to be in such  denominations or amounts as the Holders
may reasonably request and registered in such names as the Holders may request;

     (n)  during the Registration Period, refrain from bidding for or purchasing
any Common Stock or any right to purchase  Common Stock or  attempting to induce
any Person to  purchase  any such  security  or right if such bid,  purchase  or
attempt  would in any way  limit the right of the  Holders  to sell  Registrable
Securities by reason of the limitations set forth in Regulation M under the 1934
Act; and

     (o)  take all other reasonable actions necessary to expedite and facilitate
disposition  by  the  Holders  of the  Registrable  Securities  pursuant  to the
Registration Statement.

     5.   SUSPENSION OF OFFERS AND SALES. Each Holder of Registrable  Securities
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 4(f) hereof or of the  commencement of an
S-3 Blackout Period,  such Holder shall  discontinue  disposition of Registrable

<PAGE>

Securities  pursuant to the  registration  statement  covering such  Registrable
Securities  until such  Holder's  receipt of the copies of the  supplemented  or
amended  prospectus  contemplated by Section 4(f) hereof or notice of the end of
the S-3 Blackout Period,  and, if so directed by the Company,  such Holder shall
deliver to the Company (at the Company's expense) all copies (including, without
limitation,  any and all drafts), other than permanent file copies, then in such
Holder's  possession,  of the prospectus  covering such  Registrable  Securities
current at the time of receipt of such  notice.  In the event the Company  shall
give any such notice,  the period mentioned in Section 4(a)(iii) hereof shall be
extended  by the  greater  of (i) ten  business  days or (ii) the number of days
during  the period  from and  including  the date of the  giving of such  notice
pursuant to Section  4(f) hereof to and  including  the date when each Holder of
Registrable  Securities  covered  by  such  registration  statement  shall  have
received the copies of the  supplemented or amended  prospectus  contemplated by
Section 4(f) hereof.

     6.   REGISTRATION   EXPENSES.   The  Company  shall  pay  all  expenses  in
connection  with  any   registration,   including,   without   limitation,   all
registration,  filing, stock exchange and NASD fees, printing expenses, all fees
and  expenses  of  complying  with  securities  or blue sky  laws,  the fees and
disbursements of counsel for the Company and of its independent accountants, and
the reasonable fees and  disbursements of a Holders  Counsel;  provided that, in
any  underwritten  registration,  each party shall pay for its own  underwriting
discounts and commissions  and transfer taxes.  Except as provided above in this
Section 6 and Section 9, the Company shall not be  responsible  for the expenses
of any attorney or other advisor employed by a Holder of Registrable Securities.

     7.   ASSIGNMENT  OF RIGHTS.  No Holder  may  assign  its rights  under this
Agreement  to any  party  without  the prior  written  consent  of the  Company;
PROVIDED,  HOWEVER,  that a Holder may assign  its rights  under this  Agreement
without such restrictions to a Permitted Assignee.

     8.   INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities
included  in any  registration  shall  furnish to the Company  such  information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may request in writing.

     9.   INDEMNIFICATION.

     (a)  In the event of the offer and sale of Registrable  Securities  held by
Holders under the Securities Act, the Company shall, and hereby does,  indemnify
and hold  harmless,  to the fullest  extent  permitted by law, each Holder,  its
directors,  officers,  partners,  each  other  person  who  participates  as  an
underwriter in the offering or sale of such  securities,  and each other person,
if any,  who  controls or is under  common  control with such Holder or any such
underwriter  within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities,  joint or several, and expenses to which
the Holder or any such director,  officer, partner or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses,  claims,  damages,  liabilities or expenses (or actions or  proceedings,
whether  commenced or threatened,  in respect thereof) arise out of or are based
upon any untrue  statement or alleged  untrue  statement  of any  material  fact
contained in any registration  statement under which such shares were registered
under the  Securities  Act, any  preliminary  prospectus,  final  prospectus  or
summary prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated  therein  or  necessary  to make the  statements  therein in light of the
circumstances  in which they were made not  misleading,  and the  Company  shall
reimburse the Holder, and each such director, officer, partner,  underwriter and
controlling  person for any legal or any other expenses  reasonably  incurred by
them in  connection  with  investigating,  defending  or settling any such loss,
claim, damage, liability, action or proceeding;  provided that the Company shall
not be liable  in any such case (i) to the  extent  that any such  loss,  claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue  statement or alleged  untrue  statement in or

<PAGE>

omission  or  alleged  omission  from  such  registration  statement,  any  such
preliminary  prospectus,  final  prospectus,  summary  prospectus,  amendment or
supplement in reliance upon and in conformity with written information furnished
to the  Company  through an  instrument  duly  executed  by or on behalf of such
Holder  specifically  stating that it is for use in the  preparation  thereof or
(ii) if the person asserting any such loss, claim, damage,  liability (or action
or proceeding in respect thereof) who purchased the Registrable  Securities that
are the  subject  thereof  did not  receive  a copy  of an  amended  preliminary
prospectus  or the final  prospectus  (or the final  prospectus  as  amended  or
supplemented)  at or  prior  to the  written  confirmation  of the  sale of such
Registrable  Securities to such person  because of the failure of such Holder or
underwriter to so provide such amended  preliminary or final  prospectus and the
untrue  statement or alleged untrue statement or omission or alleged omission of
a material fact made in such preliminary prospectus was corrected in the amended
preliminary  or  final  prospectus  (or  the  final  prospectus  as  amended  or
supplemented).  Such indemnity shall remain in full force and effect  regardless
of any investigation made by or on behalf of the Holders,  or any such director,
officer,  partner,  underwriter  or  controlling  person and shall  survive  the
transfer of such shares by the Holder.

     (b)  As a condition to including any  Registrable  Securities to be offered
by a Holder in any registration statement filed pursuant to this Agreement, each
such Holder  agrees to be bound by the terms of this  Section 9 and to indemnify
and hold  harmless,  to the fullest  extent  permitted by law, the Company,  its
directors and officers,  and each other person, if any, who controls the Company
within the  meaning of Section 15 of the  Securities  Act,  against  any losses,
claims,  damages or liabilities,  joint or several,  to which the Company or any
such  director or officer or  controlling  person may become  subject  under the
Securities  Act or  otherwise,  insofar  as  such  losses,  claims,  damages  or
liabilities  (or actions or  proceedings,  whether  commenced or threatened,  in
respect  thereof) arise out of or are based upon any untrue statement or alleged
untrue  statement  in or omission  or alleged  omission  from such  registration
statement,  any preliminary  prospectus,  final prospectus or summary prospectus
contained therein,  or any amendment or supplement thereto, if such statement or
alleged  statement or omission or alleged omission was made in reliance upon and
in  conformity  with  written  information  about such Holder as a Holder of the
Company  furnished to the Company,  and such Holder shall reimburse the Company,
and each such director,  officer,  and controlling person for any legal or other
expenses   reasonably   incurred  by  them  in  connection  with  investigating,
defending,  or settling and such loss,  claim,  damage,  liability,  action,  or
proceeding;  PROVIDED,  HOWEVER,  that such  indemnity  agreement  found in this
Section  8(b) shall in no event  exceed  the gross  proceeds  from the  offering
received by such Holder.  Such indemnity  shall remain in full force and effect,
regardless of any investigation  made by or on behalf of the Company or any such
director,  officer or  controlling  person and shall survive the transfer by any
Holder of such shares.

     (c)  Promptly  after  receipt  by an  indemnified  party of  notice  of the
commencement  of any  action or  proceeding  involving  a claim  referred  to in
Section 9(a) or (b) hereof (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the commencement of such
action;  provided  that the failure of any  indemnified  party to give notice as
provided  herein  shall not relieve the  indemnifying  party of its  obligations
under  Section  9(a) or (b) hereof,  except to the extent that the  indemnifying
party is actually  prejudiced  by such failure to give notice.  In case any such
action is  brought  against  an  indemnified  party,  unless  in the  reasonable
judgment of counsel to such  indemnified  party a conflict  of interest  between
such indemnified and indemnifying parties may exist or the indemnified party may
have defenses not available to the indemnifying  party in respect of such claim,
the  indemnifying  party shall be entitled to  participate  in and to assume the
defense thereof, with counsel reasonably  satisfactory to such indemnified party
and, after notice from the indemnifying  party to such indemnified  party of its
election so to assume the defense thereof,  the indemnifying  party shall not be
liable to such  indemnified  party for any legal or other expenses  subsequently
incurred by the latter in connection  with the defense  thereof,  unless in such
indemnified  party's  reasonable  judgment a conflict of interest  between  such
indemnified and  indemnifying  parties arises in respect of such claim after the

<PAGE>

assumption  of the defenses  thereof or the  indemnifying  party fails to defend
such claim in a diligent manner,  other than reasonable costs of  investigation.
Neither  an  indemnified  nor an  indemnifying  party  shall be  liable  for any
settlement  of any  action  or  proceeding  effected  without  its  consent.  No
indemnifying party shall,  without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement, which does not include as
an  unconditional  term  thereof the giving by the claimant or plaintiff to such
indemnified  party of a release  from all  liability in respect of such claim or
litigation.  Notwithstanding  anything to the  contrary  set forth  herein,  and
without limiting any of the rights set forth above, in any event any party shall
have the right to  retain,  at its own  expense,  counsel  with  respect  to the
defense of a claim.

     (d)  In the event that an  indemnifying  party does or is not  permitted to
assume the defense of an action  pursuant to Section  9(c) or in the case of the
expense  reimbursement  obligation  set  forth in  Section  9(a)  and  (b),  the
indemnification  required  by  Section  9(a)  and (b)  hereof  shall  be made by
periodic  payments of the amount thereof during the course of the  investigation
or  defense,  as and when  bills  received  or  expenses,  losses,  damages,  or
liabilities are incurred.

     (e)  If the  indemnification  provided  for in this  Section 9 is held by a
court of competent  jurisdiction to be unavailable to an indemnified  party with
respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying  party, in lieu of indemnifying  such indemnified  party hereunder,
shall (i) contribute to the amount paid or payable by such indemnified  party as
a result of such loss, liability,  claim, damage or expense as is appropriate to
reflect the  proportionate  relative fault of the indemnifying  party on the one
hand and the indemnified  party on the other  (determined by reference to, among
other things,  whether the untrue or alleged untrue statement of a material fact
or omission  relates to information  supplied by the  indemnifying  party or the
indemnified  party  and the  parties'  relative  intent,  knowledge,  access  to
information  and  opportunity  to correct or prevent  such untrue  statement  or
omission),  or (ii) if the  allocation  provided  by  clause  (i)  above  is not
permitted by applicable  law or provides a lesser sum to the  indemnified  party
than the amount  hereinafter  calculated,  not only the  proportionate  relative
fault of the indemnifying party and the indemnified party, but also the relative
benefits received by the indemnifying  party on the one hand and the indemnified
party on the other, as well as any other relevant equitable  considerations.  No
indemnified party guilty of fraudulent  misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution  from any
indemnifying party who was not guilty of such fraudulent misrepresentation.

     (f)  OTHER  INDEMNIFICATION.  Indemnification  similar to that specified in
the preceding  subsections  of this Section 9 (with  appropriate  modifications)
shall be given by the  Company and each Holder of  Registrable  Securities  with
respect to any required  registration or other qualification of securities under
any federal or state law or regulation or governmental  authority other than the
Securities Act.

     10.  MISCELLANEOUS

     (a)  GOVERNING  LAW. This  Agreement  shall be governed by and construed in
accordance with the laws of the State of Texas and the United States of America,
both substantive and remedial. Any judicial proceeding brought against either of
the parties to this  agreement or any dispute  arising out of this  Agreement or
any matter  related hereto may be brought in the courts of the State of Texas or
in the United States  District Court for the Southern  District of Texas and, by
its  execution  and  delivery of this  agreement,  each party to this  Agreement
accepts the jurisdiction of such courts.  The foregoing  consent to jurisdiction
shall not be deemed to confer  rights on any person  other  than the  parties to
this Agreement.

     (b)  SUCCESSORS  AND ASSIGNS.  Except as  otherwise  provided  herein,  the
provisions  hereof  shall  inure to the  benefit  of, and be binding  upon,  the
successors,  Permitted  Assigns,  executors  and  administrators  of the parties

<PAGE>

hereto.  In the event the Company  merges with,  or is otherwise  acquired by, a
direct or indirect  subsidiary of a publicly traded  company,  the Company shall
condition the merger or  acquisition on the assumption by such parent company of
the Company's obligations under this Agreement.

     (c)  ENTIRE  AGREEMENT.  This  Agreement  constitutes  the full and  entire
understanding  and  agreement  between the parties  with regard to the  subjects
hereof.

     (d)  NOTICES,  ETC. All notices or other  communications which are required
or  permitted  under  this  Agreement  shall be in  writing  and  sufficient  if
delivered by hand, by facsimile  transmission,  by registered or certified mail,
postage  pre-paid,  or by courier or  overnight  carrier,  to the persons at the
addresses  set  forth  below  (or at  such  other  address  as  may be  provided
hereunder),  and  shall  be  deemed  to have  been  delivered  as of the date so
delivered:

          If to the Company:                Factory 2-U Stores, Inc.
                                            4000 Ruffin Road, 6th Floor
                                            San Diego, California 92123-1866
                                            Attention: Chief Executive Officer

          If to the Purchasers:             To each Purchaser at the address
                                            set forth on Exhibit A

          with a copy to:                   Sanders Morris Harris Inc.
                                            600 Travis, Suite 3100
                                            Houston, Texas 77002
                                            Attention: President

or at such other address as any party shall have  furnished to the other parties
in writing.

     (e)  DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to any Holder of any Registrable Securities,  upon any breach
or default of the Company  under this  Agreement,  shall  impair any such right,
power or remedy of such Holder nor shall it be  construed  to be a waiver of any
such  breach or default,  or an  acquiescence  therein,  or of or in any similar
breach or  default  thereunder  occurring;  nor shall any  waiver of any  single
breach or default be deemed a waiver of any other breach or default  theretofore
or thereafter occurring.  Any waiver, permit, consent or approval of any kind or
character  on the  part of any  Holder  of any  breach  or  default  under  this
Agreement,  or any  waiver  on the  part  of any  Holder  of any  provisions  or
conditions of this Agreement,  must be in writing and shall be effective only to
the extent  specifically set forth in such writing.  All remedies,  either under
this  Agreement,  or by law  or  otherwise  afforded  to any  holder,  shall  be
cumulative and not alternative.

     (f)  COUNTERPARTS.  This  Agreement  may  be  executed  in  any  number  of
counterparts,  each of which shall be enforceable  against the parties  actually
executing such  counterparts,  and all of which  together  shall  constitute one
instrument.

     (g)  SEVERABILITY.  In the case any  provision of this  Agreement  shall be
invalid, illegal or unenforceable,  the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

     (h)  AMENDMENTS.  The  provisions  of this  Agreement may be amended at any
time and from time to time, and  particular  provisions of this Agreement may be
waived,  with and only with an  agreement  or consent  in writing  signed by the
Company  and by the  holders  of an 80%  majority  of the  number  of  shares of

<PAGE>

Registrable  Securities  outstanding as of the date of such amendment or waiver.
The  Purchasers  acknowledge  that by the operation of this Section  10(h),  the
holders of an 80% majority of the  outstanding  Registrable  Securities may have
the right and power to diminish or eliminate all rights of the Purchasers  under
this Agreement.

     (i)  LIMITATION ON SUBSEQUENT  REGISTRATION  RIGHTS. After the date of this
Agreement,  the  Company  shall not,  without the prior  written  consent of the
Holders of at least a majority of the Registrable  Securities then  outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder  registration rights senior to those
granted to the Holders hereunder.

     This Registration  Rights Agreement is hereby executed as of the date first
above written.

                                         COMPANY:

                                         FACTORY 2-U STORES, INC.

                                         By:
                                            ------------------------------------
                                         Name:
                                              ----------------------------------
                                         Its:
                                              ----------------------------------

                                         PURCHASERS:

                                         The  Purchasers  listed  on  Exhibit  A
                                         attached hereto

                                         BY: SANDERS  MORRIS HARRIS INC.,  AGENT
                                         AND ATTORNEY-IN-FACT

                                         By:
                                            ------------------------------------
                                         Name:
                                              ----------------------------------
                                         Its:
                                             -----------------------------------Confidentiality and Nonsolicitation Agreement

 
Exhibit 10.1

 
CONFIDENTIALITY AND NONSOLICITATION
AGREEMENT 
 
THIS CONFIDENTIALITY AND NONSOLICITATION
AGREEMENT, (“Agreement”) made as of the 21st day of January, 2003, by and between Boston Safe Deposit
&Trust Company, and on behalf of Mellon Bank, N.A, their parent companies, subsidiaries, affiliates, related entities, successors and assigns (collectively “BSD&T”) and James P. Palermo (hereinafter “Palermo”) in
consideration of employment by BSD&T and as a condition precedent to the following additional compensation, the adequacy, sufficiency and receipt of which are hereby acknowledged, agree as follows: 
 
ARTICLE 1: CONSIDERATION 
 
In exchange for Palermo’s execution of this Agreement within thirty (30)
days of his receipt of the Agreement and as a condition precedent, BSD&T agrees to provide Palermo with a stock option award of 20,000 shares of Mellon Financial Corporation (“MFC”) Type I options (“Award”) upon approval of
the Award by MFC Human Resources Committee at its January 21, 2003 meeting and his execution of the individualized stock option agreement. The Award is subject to the terms and conditions set forth in the MFC Long Term Profit Incentive Plan (1996),
which is incorporated by reference. 
 
ARTICLE 2: CONFIDENTIAL
INFORMATION 
 
2.01 Definition of and Ownership of
Confidential Information. Palermo recognizes, acknowledges and agrees that: 
 
(a) In the course of Palermo’s employment by BSD&T and as a Vice Chair of MFC Palermo has had and it will be necessary for Palermo to be given or have access to and become informed of
confidential or proprietary information which BSD&T possesses or to which BSD&T has rights, which relates to BSD&T and which is not generally known to the public or in the trade and is a competitive asset of BSD&T, or information
which constitutes a “trade secret” of BSD&T, as that term is defined by the Uniform Trade Secrets Act, as amended and approved by the National Conference of Commissioners on Uniform State Laws in 1985, including without
limitation, (i) BSD&T’s planning data, records, observations and marketing strategies or techniques, computer programs, system documentation, manuals, formulae, processes, operation methods, machines, compositions; (ii) non-public terms of
any new products, data bases, and investment strategies of BSD&T, trading, arbitrage and/or hedging techniques or strategies,; (iii) non-public information relating to BSD&T personnel matters; (iv) BSD&T’s financial results and
information about its business condition; (v) non-public terms of any investment, management or advisory agreement or other material contract of BSD&T; (vi) BSD&T’s proprietary software and related documents; (vii) BSD&T’s
customer and client and prospecting lists, identifying information and contact persons at such customers and clients and prospects; and (viii) non-public material information concerning BSD&T’s clients or customers or their operations,
condition (financial or otherwise) or plans whether such is original, duplicated, computerized, memorized, handwritten or in any other form (collectively referred to herein as the “Confidential Information”); 
 
(b) Confidential Information shall not include information
generally known to the public other than by virtue of a breach of this Agreement by Palermo, information rightfully known to Palermo without limitation on disclosure prior to its receipt from BSD&T or a customer of 

 
BSD&T,
information rightfully received from a third party without limitation on disclosure and information generally made available by BSD&T or a client or customer of BSD&T to third parties without restriction on disclosure; or information
required to be disclosed by law, rule, regulation or order without an obligation of confidentiality on the part of the recipient, provided that prior to making any disclosure under this clause Palermo shall, if permissible under the law, rule
or regulation, provide the Company with notice and the opportunity to contest such disclosure. 
 
(c) The Confidential Information has been developed or acquired by BSD&T with significant expenditures of time, effort and money and is unique and cannot be lawfully duplicated or easily acquired.
The Confidential Information is the sole and exclusive property of BSD&T (and in some cases the property of a customer of BSD&T). BSD&T takes all reasonable measures to maintain its confidentiality and to guard its secrecy. The
Confidential Information is not generally known outside BSD&T and within BSD&T this information is confidential and used only on a “need to know” basis. The Confidential Information is unique and cannot be lawfully duplicated or
easily acquired. Palermo agrees that the Confidential Information is deserving of trade secret status and protection, as that term is defined by the Uniform Trade Secrets Act, as amended and approved by the National Conference of Commissioners on
Uniform State Laws in 1985. 
 
2.01 Use of Confidential
Information. Palermo agrees that the use, except for the sole purpose of conducting business on behalf of BSD&T or with prior written consent of BSD&T, misappropriation or disclosure of the Confidential Information would constitute a
breach of trust and could cause irreparable injury to BSD&T. 
 
2.02 Nondisclosure of Confidential Information. Palermo agrees that it is essential to the protection of BSD&T’s goodwill and to the maintenance of BSD&T’s competitive position that the Confidential
Information be kept secret and Palermo agrees not to disclose the Confidential Information to others or use the Confidential Information to Palermo’s own advantage or the advantage of others either during employment or at any time thereafter.

 
2.03 Additional Obligations. Palermo agrees that the
obligations under this Article are in addition to, and not in limitation or preemption of, all other obligations of confidentiality which Palermo may have to BSD&T under its Code of Conduct or general or specific legal or equitable principles.

 
2.04 Return of BSD&T Property. Palermo agrees that
upon the termination of employment, for any reason or no reason, or at any other time BSD&T may request, that Palermo will immediately return to BSD&T all Confidential Information and all of its property, including without limitation, all
documents (including copies) and information, however maintained (including computer files, tapes, and recordings), concerning BSD&T or acquired by the Palermo in the course and scope of employment (excluding only those documents relating solely
to Palermo’s own salary and benefits). 
 
ARTICLE 3:
NONSOLICITATION OF ACCOUNTS AND EMPLOYEES 
 
3.01
Nonsolicitation of Clients or Customers. Palermo covenants and agrees that during employment and that upon the termination his employment, for any reason or no reason, including but not limited to resignation of employment, that for a period
of twelve (12) months following the termination of his employment (“Restricted Period”), Palermo, whether directly or indirectly, in any capacity whatsoever (whether as proprietor, partner, investor, shareholder, director, officer,
employer, consultant, independent contractor, co-venturer, financier, agent, representative or otherwise) shall not: 
 
 

2 

 
(a) provide or
assist with the provision of Relevant Financial Services to a Client or Customer of the BSD&T, except as an employee of BSD&T or the parents, affiliates or related entity of BSD&T; provided that this Article 3 does not prohibit
Palermo from being employed by or affiliated or associated with any person or entity after termination his employment with BSD&T so long as he does not have any involvement on behalf of any person or entity with respect to soliciting, managing,
administering, supporting or retaining the Relevant Financial Services business provided or proposed to be provided to a Customer or Client of BSD&T; and/or 
 
(b) solicit by mail, phone, personal meeting, or by any other means, either directly or indirectly, the
business or patronage of any Customer or Client of BSD&T for any other person or entity, divert, entice, or otherwise take away from BSD&T the business or patronage of any Customer or Client of BSD&T, or attempt to do so, or solicit or
induce any Customer or Client of BSD&T to terminate or reduce its relationship with BSD&T. 
 
3.02 Nonsolicitation of Employees. Palermo covenants and agrees that during employment with BSD&T and during the Restricted Period that Palermo shall not, directly or indirectly, hire,
recruit solicit or induce, or attempt to hire, recruit solicit or induce, (or in any way assist another person or enterprise in recruiting, soliciting or inducing) any employee of BSD&T to leave BSD&T or any affiliate for any reason
whatsoever. 
 
3.03 Reasonableness of Restricted Period.
Palermo acknowledges and agrees that the Restricted Period is reasonable and valid in duration and scope and in all other respects. Palermo also represents that Palermo’s experience and capabilities are such that the enforcement of the
provisions of this Agreement will not prevent Palermo from earning a livelihood, and acknowledge that it would cause BSD&T serious and irreparable injury and cost if Palermo were to use Palermo’s ability and knowledge in competition with
BSD&T or to otherwise breach the obligations contained in this Agreement. 
 
3.04 Extension of Restricted Period. Palermo agrees that the nonsolicitation obligations contained in this Agreement shall be extended by the length of time during which Palermo shall have been in breach of any of the
provisions. 
 
3.05 Definitions. Palermo understands that
for the purposes of this Agreement: 
 
(a)
“Relevant Financial Services” trust and custody and related services, such as securities lending, investment accounting, pension management, trade processing, performance measurement and investment analysis services, investment-related
foreign exchange, risk management and fiduciary monitoring for pension funds i.e. defined benefit/defined contribution markets, foundations, investment managers and insurance companies provided in sub-custodian relationships with banks and joint
relationships provided by BSD&T from time to time or investment management services which at any time during the twelve (12) months preceding the termination of Palermo’s employment are or were within the scope of his responsibilities.

 
(b) Palermo understands that for the purposes of
this Agreement, “Customer” or “Client” of BSD&T means any person or entity who (i) is receiving Relevant Financial Services from BSD&T on the date of termination of his employment with BSD&T or its parent, subsidiary,
affiliate or related entity (ii) received such services for compensation at any time during the 1 year period 
 

3 

 
immediately preceding the date
of termination of his employment, or (iii) Palermo solicited, directly or indirectly, in whole or in part, on behalf of BSD&T to provide financial services within one (1) year preceding the termination of his employment. 
 
ARTICLE 4: DUTY OF LOYALTY 
 
4.01 Duty of Loyalty to BSD&T. Palermo agrees that at all times
during employment by BSD&T, Palermo owes BSD&T a duty of loyalty and a duty to act in good faith. Palermo agrees that during employment Palermo will not individually, or in combination with any other Palermo or competitor of BSD&T,
violate or breach the terms of this agreement, Code of Conduct or Mellon Securities Trading Policy. 
 
4.02 Cooperation. Palermo agrees that upon the termination of employment of Palermo, for any reason or no reason, including but not limited to resignation of employment, that Palermo will
cooperate with BSD&T, upon reasonable notice and at reasonable times, in the prosecution and defense of complaints, investigations, litigation, arbitration and mediation of any complaints, claims or actions now in existence or that may be
threatened or brought in the future relating to events or occurrences that transpired while employed by BSD&T. 
 
4.03 Prior Employer Restrictions. Palermo warrants that Palermo is not subject or party to any agreement, understanding or undertaking that would
prevent or restrict Palermo from performing Palermo’s employment duties or working with or on behalf of any customer or client. In addition, Palermo warrants that his employment with BSD&T does not violate any agreement, understanding or
undertaking. Still further, Palermo agrees that Palermo will not in the course of performing duties for BSD&T violate any confidentiality obligations Palermo may owe to others. 
 
4.04 Disclosure of Agreement. Palermo acknowledges and agrees to disclose the existence and terms of this Agreement so
long as and to the extent that such terms remain in effect to (a) any prospective employer, partner or co-venturer prior to entering into an employment, partnership, or other business relationship with such person or entity.  
 
ARTICLE 5; SPECIAL, UNIQUE AND EXTRAORDINARY SERVICES 
 
Palermo acknowledges and agrees that in performing the job duties of his
position that Palermo provides BSD&T with a special, unique and extraordinary service. 
 
ARTICLE 6; WORKS FOR HIRE. 
 
6.01 Property of BSD&T. Palermo understands and agrees that any and all rights or interests that Palermo holds or obtains in any designs, trade secrets, client, supplier, and vendor lists,
sales and marketing plans, inventions, discoveries, improvements, copyrights, patent rights, trademarks, and developments of any kind whatsoever, which are authored, conceived, reduced to practice, or otherwise obtained by Palermo during employment
with BSD&T which relate to or arise out of such employment with BSD&T are expressly regarded as property of BSD&T or “works for hire” (the “Inventions”). 
 
6.02 Disclosure;Assignment. Palermo agrees to promptly disclose to BSD&T any and all such
Inventions and deliver to BSD&T, upon its request, a written description of such Invention and 
 

4 

 
any available documentary or
other materials evidencing such Invention. Palermo hereby assigns to BSD&T the sole and exclusive right to such Inventions, and that, upon request of BSD&T, will execute and deliver any and all documents or instruments and take any other
action which BSD&T shall deem necessary to assign to and vest completely in it, to perfect trademark, trade secret, copyright and patent protection with respect to, or to otherwise protect BSD&T’ trade secrets and proprietary interest
in, such Inventions. 
 
6.03 Survival. These
obligations shall continue beyond the termination of Palermo’s employment, regardless of reason, with respect to such Inventions conceived of, reduced to practice, or developed by Palermo during the term of employment with BSD&T.

 
6.04 Fees. BSD&T agrees to pay any
and all copyright, trademark and patent fees and expenses or other costs incurred by Palermo for any assistance rendered to BSD&T pursuant to this Article 6 and to promptly reimburse Palermo for all expenses incurred by Palermo in perfecting its
property rights in the Inventions. Palermo’s obligations to assign Inventions shall not apply to any invention about which Palermo can prove that: (i) the invention was developed entirely on Palermo own time and effort, (ii) no equipment,
supplies, facilities, resources, trade secrets or confidential information of BSD&T was used in the development of the invention; (iii) the invention does not relate to the business of BSD&T or to BSD&T’ actual or anticipated
research and development; and (iv) the invention does not result from any work otherwise performed by Palermo for BSD&T.  
 
ARTICLE 7: REMEDIES 
 
7.01 Injunctive Relief. Palermo agrees that any breach or threatened breach of any of the covenants contained in the Agreement would cause
immediate, material and irreparable harm to BSD&T and that money damages would not provide an adequate remedy for BSD&T to protect and preserve the status quo. Therefore, PALERMO CONSENTS TO THE ISSUANCE OF A TEMPORARY RESTRAINING ORDER or A
PRELIMINARY or PERMANENT INJUNCTION ordering that: 
 

	 	a)	 	that Palermo immediately return to BSD&T all property and Confidential Information, whether original, duplicated, computerized, handwritten, or in any other form
whatsoever, and that Palermo be enjoined and restrained from using or disclosing any information contained in such records; and 

 

	 	b)	 	that, for a period of twelve (12) months, Palermo be enjoined and restrained from soliciting any client or customer whom Palermo served or whose name became known to
Palermo while employed by BSD&T, in any office and in any capacity; and 

 

	 	c)	 	that for a period of twelve (12) months, Palermo be enjoined and restrained from hiring, soliciting, or inducing any employee of BSD&T to leave BSD&T.

 
7.02 Palermo agrees that BSD&T shall have all
of the rights and remedies available under law, or in equity, including, but not limited to, injunctive relief, to a party enforcing any such covenant each of such rights and remedies to be independent of the other and severally enforceable
including, but not limited to, the right to have such covenants specifically enforced, and the right to require any violating party to account for and pay over to BSD&T all benefits derived or received by such violating party, or any of its
subsidiaries or affiliates, as a result of any such breach of covenant. 
 

	

 
 

5 

 
7.03 Jurisdiction. For
purposes of Article 7.01, Palermo agrees to submit to, and confer exclusive jurisdiction on, the United States District Court or the State Court which has original jurisdiction for judicial district or county in which Palermo last worked for
BSD&T. In addition, this Agreement shall be construed, governed by, and enforced in accordance with the laws of said jurisdiction. 
 
ARTICLE 8: EMPLOYMENT AT WILL 
 
NOTHING HEREIN IS A PROMISE OF EMPLOYMENT FOR A FIXED TERM. PALERMO AGREES THAT HE REMAINS AT ALL TIMES AN EMPLOYEE AT WILL. BSD&T MAY TERMINATE
PALERMO’S EMPLOYMENT FOR ANY REASON OR FOR NO REASON, JUST AS PALERMO MAY RESIGN AT ANY TIME. 
 
ARTICLE 9: ASSIGNMENT 
 
Palermo expressly acknowledges and agrees that BSD&T may assign this Agreement, and its rights and obligations hereunder, to any other individual, entity or organization that is a direct or
indirect subsidiary of BSD&T or which acquires (whether by purchase, merger, consolidation or otherwise) all or substantially all of the business of BSD&T, in either case without Palermo’s consent and without the necessity that this
Agreement be re-signed at the time of such transfer, and the term “BSD&T” shall be deemed to include such entity or organization to which this Agreement is assigned. Any such transfer shall not in and of itself constitute a termination
of Palermo’s employment by BSD&T. 
 
ARTICLE 10:
MISCELLANEOUS 
 
10.01 Reasonableness; Severability.
Palermo agrees that the covenants set forth herein are reasonable and valid in duration and scope and in all other respects. If any court or tribunal determines that any of such covenants, or any part thereof, are invalid or unenforceable, the
remaining covenants shall not thereby be affected and they shall be given full effect, without regard to the invalid portions. If any court or tribunal determined that all, or any part of the covenants contained herein are unenforceable, because of
the duration or scope of such provision, or for any other reason, such court or tribunal is directed to reduce the duration or scope of such provision, as the case may be, so that, in its reduced form, such provision shall then be enforceable. If
any provision or provisions hereof shall be deemed invalid or unenforceable either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the bounds thereof
in order to render it valid and enforceable. 
 
10.02 Additional
Obligations. Palermo agrees that the obligations in this Agreement are in addition to and not in limitation or preemption of, all other obligations or prior agreements he has with BSD&T may have to BSD&T or under its Code of Conduct or
general or specific legal or equitable principles. 
 
10.03 Time
to Consider Agreement. PALERMO ACKNOWLEDGES AND AGREES THAT HE HAS READ AND REVIEWED THIS AGREEMENT IN ITS ENTIRETY AND HAS BEEN GIVEN AN OPPORTUNITY TO CONSIDER THE AGREEMENT AND TO ASK BSD&T QUESTIONS ABOUT IT. PALERMO ALSO AGREES
THAT HE HAS BEEN GIVEN AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS CHOICE PRIOR TO EXECUTING THE AGREEMENT. BY EXECUTING THE AGREEMENT, PALERMO EXPRESSLY ACKNOWLEDGES THAT HE FULLY UNDERSTANDS THE TERMS OF THIS AGREEMENT AND KNOWINGLY AND
FREELY AGREES TO ABIDE BY THEM. 
 

6 

 
10.04 Governing Law.
This Agreement shall be deemed to be made and entered into in the Commonwealth of Massachusetts, and shall in all respects be interpreted, enforced and governed under the laws of said State. 
 
10.05 Survival. Palermo acknowledges and agrees that the
covenants and the restrictions contained in this Agreement are intended to protect BSD&T’s interest in its Confidential Information and its commercial relationships and goodwill with its customers, prospective customers, vendors, suppliers,
consultants and employees. Palermo acknowledges and agree that the covenants and the restrictions contained in this Agreement shall continue in accordance with the express terms hereof regardless of any changes in title, position, duties, salary,
compensation, benefits or other terms and conditions of employment, and shall survive the termination of Palermo’s employment. 
 
10.06 Headings. The underlined headings contained in this Agreement are for convenience of reference only and shall not affect the interpretation
or construction of any provision hereof. 
 

	 2/7/03
	 	 	 	 /s/    James P. Palermo
            

	 Date
	 	 	 	 James P. Palermo

	 Corrected 3/17/03
	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 Boston Safe Deposit and Trust Company

	 	 	 	 	 	 	 
	 2/19/03
	 	 	 	 By: /s/    Linda B. Kane

	 Date
	 	 	 	                 Linda B. Kane

	 Corrected 3/17/03
	 	 	 	                 SeniorVicePresident, Human Resources

 
 
 
 
 
 
 

7

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