EMPLOYMENT AGREEMENT



     THIS  EMPLOYMENT  AGREEMENT,  dated as of November 10, 2003, by and between

Factory 2-U Stores, Inc. (the "Company"), a Delaware corporation,  and A.J. Nepa

("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 9, 2004;  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  Executive  Vice   President-General

Merchandise  Manager  of the  Company.  Executive  shall  report  to  the  Chief

Executive  Officer  of the  Company  ("CEO")  and  shall  have such  duties  and

authority,  consistent  with his  position as Executive  Vice  President-General

Merchandise  Manager of the  Company,  as shall be  assigned to him from time to

time by the CEO.



          (b) During the -Employment Term,  Executive shall,  without additional

compensation,  perform such executive and consulting  services for, or on behalf

of, such  subsidiaries or affiliates of the Company as the CEO 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

and in no event  shall  Executive  serve on any such board or other body  unless

approved by the CEO, which approval shall not be unreasonably withheld.





     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 Two Hundred  Fifty

Thousand Dollars ($250,000). 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 CEO and may be increased,  but not decreased,  from time

to time at the  discretion  of the  CEO.  The  base  salary,  as  determined  as

aforesaid from time to time, shall constitute "Base Salary" for purposes of this

Agreement.



     4. Annual Bonus. At such time as requested by the Company's CEO,  Executive

shall prepare and present to the CEO written  financial,  operational  and other

objectives (the  "Performance  Objectives") for the Company's fiscal year ending

January 29, 2005 (i.e.,  fiscal year 2004). If such  Performance  Objectives are

approved and accepted by the CEO,  Executive's target bonus for such fiscal year

shall be equal to 50% 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 CEO  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 CEO,

Executive's  target  bonus  for  such  fiscal  years  shall  be  based on 50% of

Executive's  Base Salary in effect as of the start of such fiscal  year.  In the

event  of  any  disagreement  between  the  CEO  and  Executive  concerning  the

acceptance and approval of Performance  Objectives,  the CEO and Executive shall

negotiate in good faith to attempt to resolve such  differences.  Annual bonuses

shall be reduced  pro rata for any fiscal year that is not a full year (based on

the actual number of days of such year included in 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 CEO are

exceeded in any year,  the annual  bonus shall be increased by 1% of Base Salary

for each 1% of  excess,  up to a maximum  bonus of 100% of Base  Salary  for the

achievement of 150% of the Performance Objectives. If the Performance Objectives

accepted  by the CEO are not met,  the  Executive  shall not be  entitled to any

bonus.



     5. Equity Compensation.

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