EMPLOYMENT AGREEMENT

                                     BETWEEN

                         FACTORY STORES OF AMERICA, INC.

                                       AND

                             CHRISTOPHER G. GAVRELIS


<PAGE>


                              EMPLOYMENT AGREEMENT



     THIS EMPLOYMENT AGREEMENT is entered into as of the 15th day of December,
1995 between FACTORY STORES OF AMERICA, INC., a Delaware corporation (the
"Company"), and CHRISTOPHER G. GAVRELIS (the "Executive") for employment
commencing on the Effective Date (as hereinafter defined).

                                  WITNESSETH:

     WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;

     NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:

     1. Employment.

          (a) The Company hereby employs the Executive as Senior Vice President
     and the Executive hereby accepts such employment, on the terms and subject
     to the conditions hereinafter set forth.

          (b) During the term of his employment under this Employment Agreement,
     the Executive shall be and have the title of Senior Vice President and
     shall devote his entire business time and all reasonable efforts to his
     employment and perform diligently such duties as are customarily performed
     by senior vice presidents of companies similar in size to the company,
     together with such other duties as may be reasonably requested from time to
     time by the Board of Directors of the Company (the "Board"), which duties
     shall be consistent with his title and position as set forth above and as
     provided in Paragraph 2; provided, however, that business activities by the
     Executive with respect to passive investments, so long as such activities
     do not, alone or in the aggregate, materially interfere with the
     Executive's performance of his duties as described in this Paragraph 1(b),
     will not be deemed inconsistent with the requirements of this Paragraph
     1.(b)

     2. Term and Positions.

          (a) Subject to the provisions for termination hereinafter stated, the
     term of this Employment Agreement shall begin on December 15, 1995 (the
     "Effective Date") and shall continue through the second anniversary of the
     Effective Date.

          (b) The Executive shall be entitled to serve as Senior Vice President
     of the Company. For service as an officer and employee of the Company, the
     Executive shall be entitled to the full protection of the applicable
     indemnification provisions of the Certificate of Incorporation and Bylaws
     of the Company, as



<PAGE>


     the same may be amended from time to time, which indemnifications shall
     remain effective after termination of this Employment Agreement with
     respect to Executive's actions and inactions during the term hereof.

          (c) If:

               (i) the Company materially changes the Executive's duties and
          responsibilities as set forth in Paragraphs 1(b) and 2(b) without his
          consent;

               (ii) the Executive's place of employment or the principal
          executive offices of the Company are located more than fifty (50)
          miles from the geographical center of Smithfield, North Carolina;

               (iii) there occurs a material breach by the Company of any of its
          obligations under this Employment Agreement, which breach has not been
          cured in all material respects, within ten (10) days after the
          Executive gives notice thereof to the Company; or

               (iv) there occurs a "change in control" (as hereinafter defined)
          of the Company during the term of this Employment Agreement;

     then in any such event the Executive shall have the right to terminate his
     employment with the Company, but such termination shall not be considered a
     voluntary resignation or termination of such employment or of this
     Employment Agreement by the Executive but rather a discharge of the
     Executive by the Company "without cause" (as defined in Paragraph 5 (a)
     (iii)). The Executive may exercise such right of termination at any time
     within three (3) months following the occurrence of the applicable event
     described in (i), (iii) and (iv) of this Paragraph 2(c), and within six (6)
     months following the occurrence of the applicable event described in (ii)
     of this Paragraph 2(c).

               (d) The Executive shall be deemed not to have consented to any
          written proposal calling for a material change in his duties and
          responsibilities unless he shall give written notice of his consent
          thereto to the Executive Management Committee of the Company within
          fifteen (15) days after receipt of such written proposal. If the
          Executive shall not have given such consent, the Company shall have
          the opportunity to withdraw such proposed material change by written
          notice to the Executive given within ten (10) days after the end of
          said fifteen (15) day period.

               (e) The term "change in control" means the first to occur of the
          following events:

                    i) any person or group of commonly controlled persons owns
               or controls, directly or indirectly, fifty percent (50%) or more
               of the voting



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<PAGE>


               control or value of the capital stock of the Company following
               the Effective Date;

                    ii) any person or group of commonly controlled persons
               owning less than five percent (5%) of the voting control or value
               of the capital stock of the Company within 30 days following the
               Effective Date owns or controls, directly or indirectly, more
               than twenty percent (20%) of the voting control or value of the
               capital stock of the Company; or

                    iii) following the Effective Date, the stockholders of the
               Company approve an agreement to merge or consolidate with another
               corporation or other entity resulting (whether separately or in
               connection with a series of transactions) in a change in
               ownership of twenty percent (20%) or more of the voting control
               or value of the capital stock of the Company, or an agreement to
               sell or otherwise dispose of all or substantially all of the
               Company's assets (including without limitation, a plan of
               liquidation or dissolution), or otherwise approve of a
               fundamental alteration in the nature of the Company's business;
               provided, however, a pledge, hypothecation or other similar
               disposition for the purpose of providing collateral security made
               at the time the Company enters into a bona fide financing
               transaction with a party which at the time of such transaction is
               not an affiliate of the Company would not constitute a change in
               control.

          Notwithstanding the foregoing provisions of this Paragraph 2, the
          ownership or acquisition of capital stock by the Executive, J. Dixon
          Fleming, Jr., C. Cammack Norton, Connell L. Radcliff, and/or their
          respective affiliates, shall not be deemed to result in a "change in
          control" of the Company.

     3. Compensation.

     During the term of his employment under this Employment Agreement the
Company shall, pay or provide, as the case may be, to the Executive the
compensation and other benefits and rights set forth in this Paragraph 3.

          (a) The Company shall pay to the Executive a base salary payable in
     accordance with the Company's usual pay practices (and in any event no less
     frequently than monthly) of One Hundred Twenty-Five Thousand Dollars
     ($125,000) per annum, to be increased (but not decreased) from time to time
     (based upon the performance of the Company and the Executive) as determined
     by the Board or the Company's Executive Compensation Committee.



                                      -3-
<PAGE>


          (b) The Company shall pay to the Executive bonus compensation on a
     calendar year basis pursuant to the terms of the incentive compensation
     plan established by the Board from time to time, not later than 30 days
     following the completion of the audit of the Company's financial statements
     for each calendar year, prorated on a per diem basis for partial calendar
     years in which the Executive was employed hereunder.

          (c) The Company shall provide to the Executive such life, medical,
     hospitalization and dental insurance for himself, his spouse and eligible
     family members, as may be available to other officers of the Company.

          (d) The Executive shall participate in all retirement and other
     benefit plans of the Company generally available from time to time to
     officers of the Company and for which the Executive qualifies under the
     terms thereof (and nothing in this Employment Agreement shall or shall be
     deemed to in any way affect the Executive's rights and benefits thereunder
     except as expressly provided herein).

          (e) The Executive shall be entitled to such periods of vacation and
     sick leave allowance each year as are determined by the Company's Executive
     Compensation Committee for officers generally.

          (f) The Executive shall be entitled to participate in any equity or
     other employee benefit plan that is generally available to officers, as
     distinguished from general management, of the Company. The Executive's
     participation in and benefits under any such plan shall be on the terms and
     subject to the conditions specified in the governing document of the
     particular plan.

          (g) The Company shall reimburse the Executive or provide him with an
     expense allowance during the term of this Employment Agreement for travel,
     entertainment and other expenses reasonably and necessarily incurred by the
     Executive in connection with the Company's business. The Executive shall
     furnish such documentation with respect to reimbursement to be paid
     hereunder as the Company shall reasonably request.

     4. Payment in the Event of Death or Permanent Disability.

          (a) In the event of the Executive's death or "permanent disability"
     (as hereinafter defined) during the term of his employment under this
     Employment Agreement, the Company shall pay to the Executive (or his
     personal representatives, heirs, successors and assigns in the event of his
     death) an amount equal to two (2) times the Executive's then effective
     annual base salary, as determined under Paragraph 3(a), plus a pro rata
     portion of the bonus applicable to the calendar year in which such death or


                                      -4-
<PAGE>


     permanent disability occurs, as such bonus is determined under Paragraph
     3(b).

          (b) The pro rata portion of the bonus described in Paragraph 4(a)
     shall be paid when and as provided in Paragraph 3(b). The remainder of the
     benefit to be paid pursuant to Paragraph 4(e) shall be paid within ninety
     (90) days after the date of death or permanent disability, as the case may
     be.

          (c) Except as otherwise provided in Paragraphs 2(b), 3(d), 4(a) and
     4(b), in the event of the Executive's death or permanent disability, the
     Executive's employment hereunder shall terminate and the Executive shall be
     entitled to no further compensation or other benefits under this Employment
     Agreement, except as to that portion of any unpaid salary and other
     benefits accrued and earned by him hereunder up to and including the date
     of such death or permanent disability, as the case may be.

          (d) For purposes of this Employment Agreement, the Executive's
     "permanent disability" shall be deemed to have occurred after one hundred
     twenty (120) days in the aggregate during any consecutive twelve (12) month
     period, or after ninety (90) consecutive days, during which one hundred
     twenty (120) or ninety (90) days, as the case may be, the Executive, by
     reason of his physical or mental disability or illness, shall have been
     unable to discharge his duties under this Employment Agreement. The date of
     permanent disability shall be such one hundred twentieth (120th) or
     ninetieth (90th) day, as the case may be. In the event either the Company
     or the Executive, after receipt of notice of the Executive's permanent
     disability from the other, dispute that the Executive's permanent
     disability shall have occurred, the Executive shall promptly submit to a
     physical examination by the chief of medicine of any major accredited
     hospital in the Raleigh, North Carolina, area and, unless such physician
     shall issue his written statement to the effect that in his opinion, based
     on his diagnosis, the Executive is capable of resuming his employment and
     devoting his full time and energy to discharging his duties within thirty
     (30) days after the date of such statement, such permanent disability shall
     be deemed to have occurred.

     5. Termination.

          (a) The Employment of the Executive under this Employment Agreement,
     and the term hereof, may be terminated by the Company:

               (i) on the death or permanent disability (as defined above) of
          the Executive;

               (ii) for "cause" at any time by action of the Board; or


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<PAGE>


               (iii) "without cause" at any time by action of the Board.

     For purposes hereof, the term "cause" shall mean:

               (A): The Executive's fraud, commission of a felony, commission of
          an act or series of repeated acts of dishonesty which fraud, felony or
          dishonesty is materially inimical to the best interests of the
          Company, or which results in material injury to the business
          reputation of the Company, or the Executive's willful and repeated
          failure to perform his duties under this Employment Agreement, which
          failure has not been cured within fifteen (15) days after the Company
          gives notice thereof to the Executive; or

               (B) The Executive's material breach of any material provision of
          this Employment Agreement, which breach has not been cured in all
          substantial respects within ten (10) days after the Company gives
          notice thereof to the Executive.

     For purposes hereof, the term "without cause" shall mean any reason other
     than those set forth in subparagraphs (a) (i) and (a) (ii) of this
     Paragraph 5.

          The exercise by the Company of its rights of termination under this
          Paragraph 5 shall be the Company's sole remedy in the event of the
          occurrence of the event as a result of which such right to terminate
          arises. Upon any termination of this Employment Agreement, the
          Executive shall be deemed to have resigned from all offices and
          directorships held by the Executive in the Company.

          (b) In the event of a termination claimed by the Company to be for
     "cause" pursuant to Paragraph 5(a) (ii), the Executive shall have the right
     to have the justification for said termination determined by arbitration in
     Raleigh, North Carolina. In order to exercise such right, the Executive
     shall serve on the Company within thirty (30) days after termination a
     written request for arbitration. The Company immediately shall request the
     appointment of a single arbitrator by the American Arbitration Association
     and thereafter the question of "cause" shall be determined under the rules
     of the American Arbitration Association, and the decision of the arbitrator
     shall be final and binding on both parties. The parties shall use all
     reasonable efforts to facilitate and expedite the arbitration and shall act
     to cause the arbitration to be completed as promptly as possible. During
     the pendency of the arbitration, the Executive shall continue to receive
     all compensation and benefits to which he is entitled hereunder, and if at
     any time during the pendency of such arbitration the Company fails to pay
     and provide all compensation and benefits to the Executive in a timely
     manner the Company shall be deemed to have automatically waived whatever



                                      -6-
<PAGE>


     rights it then may have had to terminate the Executive's employment for
     cause. Expenses of the arbitration shall be borne equally by the parties.

          (c) In the event of termination pursuant to subparagraph (a) (i) or
     (a) (ii) of this Paragraph 5, except as otherwise provided in Paragraphs
     2(b), 3(d), 4(a) and 4(b), as applicable, the Executive shall be entitled
     to no further compensation or other benefits under this Employment
     Agreement, except as to that portion of any unpaid salary and other
     benefits accrued and earned by him hereunder up to and including the
     effective date of such termination.

          (d) In the event of termination pursuant to Paragraph 2(c) or
     subparagraph (a) (iii) of this Paragraph 5, the Executive shall be entitled
     to (i) severance pay payable within five (5) days of such termination in a
     lump sum equal to the greater of (A) the total amount of unpaid base salary
     for the then-unexpired portion of the term of this Employment Agreement, at
     the then-effective annual rate of salary, as determined under Paragraph
     3(a), and (B) the amount of one year's base salary at the then-effective
     annual rate of salary, (ii) a pro rata portion of the bonus described in
     Paragraph 4(a) applicable to the calendar year in which such termination
     occurs, as such bonus is determined under Paragraph 3(b), and (iii) other
     benefits accrued and earned by him hereunder up to and including the
     effective date of such termination.

          (e) In no event shall the Executive have or be deemed to have any duty
     to seek employment or otherwise mitigate damages with respect to any
     amounts or benefits due to him upon termination of this Employment
     Agreement provided in this Paragraph 5, nor shall any such amount or
     benefit be reduced by reason of any other compensation or benefits which
     the Executive may earn following termination of this Employment Agreement.

     6. Covenants and Confidential Information.

          (a) The Executive acknowledges the Company's reliance and expectation
     of the Executive's continued commitment to performance of his duties and
     responsibilities during the time when he is employed under this Employment
     Agreement. In light of such reliance and expectation on the part of the
     Company, during the time when he is employed under this Employment
     Agreement and if the Executive's employment is terminated voluntarily by
     the Executive or by the Company pursuant to Paragraph 5(a) (ii), for the
     period after such termination through the date this Employment Agreement
     would have otherwise terminated but for such termination (and, as to clause
     (ii) of this subparagraph (a), at any time during and after the term of
     this Employment Agreement), the Executive shall not, directly or
     indirectly, do either of the following;

               (i) Own, manage, control or participate in the ownership,
          management, or control of, or be employed or



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<PAGE>


          engaged by or otherwise affiliated or associated as a consultant,
          independent contractor or otherwise with, any other corporation,
          partnership, proprietorship, firm, association or other business
          entity engaged in the business of, or otherwise engage in the business
          of, acquiring, owning, developing or managing factory outlet shopping
          centers; provided, however, that the ownership of not more than one
          percent (1%) of any class of publicly traded securities of any entity
          shall not be deemed a violation of this covenant; or

               (ii) Disclose, divulge, discuss, copy or otherwise use or suffer
          to be used in any manner, in competition with, or contrary to the
          interests of, the Company, any confidential information relating to
          the Company's operations, properties or otherwise to its particular
          business or other trade secrets of the Company, it being acknowledged
          by the Executive that all such information regarding the business of
          the Company compiled or obtained by, or furnished to, the Executive
          while the Executive shall have been employed by or associated with the
          Company is confidential information and the Company's exclusive
          property; provided, however, that the foregoing restrictions shall not
          apply to the extent that such information (A) is obtainable in the
          public domain or known in the industry generally, (B) becomes
          obtainable in the public domain or known in the industry generally,
          except by reason of the breach by the Executive of the terms hereof,
          (C) was not acquired by the Executive in connection with his
          employment or affiliation with the Company, (D) was not acquired by
          the Executive from the Company or its representatives, or (E) is
          required to be disclosed by rule of law or by order of a court or
          governmental body or agency.

          (b) The Executive agrees and understands that the remedy at law for
     any breach by him of this Paragraph 6 may be inadequate and that the
     damages flowing such breach are not readily susceptible to being measured
     in monetary terms. Accordingly, it is acknowledged that, upon adequate
     proof of the Executive's violation of any legally enforceable provision of
     this Paragraph 6, the Company may be entitled to immediate injunctive
     relief and may obtain a temporary order restraining any threatened or
     further breach. Nothing in this Paragraph 6 shall be deemed to limit the
     Company's remedies at law or in equity for any breach by the Executive of
     any of the provisions of this Paragraph 6 which may be pursued or availed
     of by the Company.

          (c) The Executive has carefully considered the nature and extent of
     the restrictions upon him and the rights and remedies conferred upon the
     Company under this Paragraph 6, and hereby acknowledges and agrees that the
     same are reasonable in time and territory, are designed to eliminate
     competition which otherwise would be unfair to the Company, do not stifle
     the


                                      -8-
<PAGE>



     inherent skill and experience of the Executive, would not operate as a bar
     to the Executive's sole means of support, are fully required to protect the
     legitimate interests of the Company and do not confer a benefit upon the
     Company disproportionate to the detriment to the Executive.

     7. Stock Options. The Executive shall receive stock options under the
company's 1993 Employee Stock Incentive Plan (the "Option Plan") to purchase up
to 35,000 shares of the Company's common stock. Such options shall be eligible
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1956, as amended. The Company shall cause the shares underlying
such options to be registered on Form S-8 as soon as practicable after the date
of grant. The shares will be listed on the New York Stock Exchange (the "NYSE")
and will be freely tradable subject to the applicable provisions of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
As soon as practicable following approval of the option grant by the Company's
Executive Compensation Committee, the Company and the Executive shall enter into
a Stock Option Agreement in a form mutually agreed upon by the Company and the
Executive providing that such options shall vest at the rate of twenty Percent
(20%) on the date of grant and an additional twenty percent (20%) on each of the
next four anniversaries of the date of grant, provided that at each date of
vesting he is employed by the Company, and upon vesting shall be exercisable at
any time or times during the ten year period following the date of grant at an
option price equal to the closing price of the Company's common stock on the
NYSE on the business day immediately preceding the effective date of the Stock
Option Agreement.

     8. Restricted Stock. The Executive shall receive a grant of 16,667 shares
(the "Restricted Shares") of restricted common stock of the Company ("Common
Stock") granted under the Company's 1996 Restricted Stock Plan. Prior to
vesting, the Restricted Shares will be registered under the Securities Act on
Form S-8, will be listed on the NYSE and following vesting thereof will be
freely tradable subject to applicable provisions of Rule 144 promulgated under
the Securities Act. With respect to said grant, the Company and the Executive
shall enter into a Restricted Stock Agreement in a form mutually agreed upon by
the Company and the Executive providing that (i) the Restricted Shares shall
vest in three equal installments of thirty-three and one-third percent (33 1/3%)
per year provided the Executive continues to be employed by the Company,
commencing on the one-year anniversary date of the Effective Date and (ii) upon
the Executive's death or permanent disability (as defined in Paragraph 4(d))
during his employment by the Company or termxnation of the Executive's
employment pursuant to (or, in the case of termination at any time following the
expiration of this Employment Agreement, for the reasons set forth in) Paragraph
2(c) or Paragraph 5(a) (iii), all unvested Restricted Shares shall
(notwithstanding the requirement of continued employment in



                                      -9-
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subparagraph (i) above), upon such termination of employment, immediately vest.

     9. Representations and Warranties of the Company.

          (a) The Company is a corporation duly organized, validly existing and
     in good standing under the laws of the State of Delaware and has all
     requisite corporate power and authority to enter into, execute and deliver
     this Employment Agreement, fulfill its obligations hereunder and consummate
     the transactions contemplated hereby.

          (b) The execution and delivery of, performance of obligations under,
     and consummation of the transactions contemplated by, this Employment
     Agreement have been duly authorized and approved by all requisite corporate
     action by or in respect of the Company, and this Employment Agreement
     constitutes the legally valid and binding obligation of the Company,
     enforceable by the Executive in accordance with its terms.

          (c) No provision of the Company's governing documents or any agreement
     to which it is a party or by which it is bound or of any material law or
     regulation of the kind usually applicable and binding upon the Company
     prohibits or limits its ability to enter into, execute and deliver this
     Employment Agreement, fulfill its respective obligations hereunder and
     consummate the transactions contemplated hereby.

     10. Miscellaneous.

          (a) The Executive represents and warrants that he is not a party to
     any agreement, contract or understanding whether employment or otherwise,
     which would restrict or prohibit him from undertaking or performing
     employment in accordance with the terms and conditions of this Employment
     Agreement.

          (b) The provisions of this Employment Agreement are severable and if
     any one or more provisions may be determined to be illegal or otherwise
     unenforceable, in whole or in part, the remaining provisions and any
     partially unenforceable provision to the extent enforceable nevertheless
     shall be binding and enforceable.

          (c) The rights and obligations of the Company under this Employment
     Agreement shall inure to the benefit of, and shall be binding on, the
     Company and its successors and assigns, and the rights and obligations of
     the Executive under this Employment Agreement shall inure to the benefit
     of, and shall be binding upon, the Executive (other than obligations to
     perform services and to refrain from competition and disclosure of
     confidential information) and his heirs, personal representatives and
     assigns.



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<PAGE>


          (d) Any controversy or claim arising out of or relating to this
     Employment Agreement, or the breach thereof, shall be settled by
     arbitration in accordance with the Rules of the American Arbitration
     Association then pertaining in the City of Raleigh, North Carolina, and
     judgment upon the award rendered by the arbitrator or arbitrators may be
     entered in any court having jurisdiction thereof. The arbitrator or
     arbitrators shall be deemed to possess the powers to issue mandatory orders
     and restraining orders in connection with such arbitration; provided,
     however, that nothing in this Paragraph 9(d) shall be construed so as to
     deny the Company the right and power to seek and obtain injunctive relief
     in a court of equity for any breach or threatened breach by the Executive
     of any of his covenants contained in Paragraph 6 hereof.

          (e) Any notice to be given under this Employment Agreement shall be
     personally delivered in writing or shall have been deemed duly given when
     received after it is posted in the United States mail, postage prepaid,
     registered or certified return receipt requested, and if mailed to the
     Company, shall be addressed to its principal place of business, attention:
     Chairman, and if mailed to the Executive, shall be addressed to him at his
     home address last known on the records of the Company, or at such other
     address or addresses as either the Company or the Executive may hereafter
     designate in writing to the other. All notices provided for hereunder to
     the parties shall be accompanied by simultaneous copy of such notice sent
     to the attorneys for such parties, as follows:

          If to the Executive:

                Bernard Flateman, Esq.
                Sills Cummis Zuckerman Radin
                  Tischman Epstein & Gross, P.A.
                One Riverfront Plaza
                Newark, New Jersey 07102

          If to the Company;

                Stephen D. Hope, Esq.
                Moore & van Allen, PLLC
                NationsBank Corporate Center
                100 North Tryon Street, Floor 47
                Charlotte, North Carolina 25202-4003

     Notices sent by Federal Express or similar overnight delivery service or by
     facsimile transmissions shall also constitute due notice under this
     paragraph 9(e), effective upon receipt thereof.

          (f) The failure of either party to enforce any provision or provisions
     of this Employment Agreement shall not in any way be construed as a waiver
     of any such provision or provisions as to any future violations thereof,
     nor prevent that party thereafter from enforcing each and every other
     provision of this Employment Agreement. The rights granted the parties
     herein



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<PAGE>


     are cumulative and the waiver of any single remedy shall not constitute a
     waiver of such party's right to assert all other legal remedies available
     to it under the circumstances.

          (g) This Employment Agreement supersedes all prior agreements and
     understandings between the parties made prior to the date hereof and may
     not be modified or terminated orally. No modification, termination or
     attempted waiver shall be valid unless in writing and signed by the party
     against whom the same is sought to be enforced.

          (h) This Employment Agreement shall be governed by and construed
     according to the laws of the State of North Carolina.

          (i) Captions and paragraph headings used herein are for convenience
     and are not a part of this Employment Agreement and shall not be used in
     construing it.

          (j) Where necessary or appropriate to the mean hereof, the singular
     and plural shall be deemed to include each other, and the masculine,
     feminine and neuter shall be deemed to include each other.

          (k) This Employment Agreement may be executed in multiple
     counterparts, each of which will be deemed an original, but all of which
     together will constitute one and the same instrument. This Employment
     Agreement may be executed by facsimile signature.

     IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first set forth above.


                                    FACTORY STORES OF AMERICA, INC., a
                                    Delaware corporation


                                    By: /s/ J. DIXON FLEMING, JR.
                                        -----------------------------------
                                        J. Dixon Fleming, Jr., Chairman
                                        and Chief Executive Officer


                                   /s/ CHRISTOPHER G. GAVRELIS
                                   ----------------------------------------
                                   Christopher G. Gavrelis



                                      -12-
<PAGE>



                     FIRST AMENDMENT TO EMPLOYMENT AGREEMENT


     THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT dated this 30th day of May,
1997, effective as of March 1, 1997, by and between FAC REALTY, INC. (formerly
Factory Stores of America, Inc.) (the "Company") and CHRISTOPHER G. GAVRELIS
(the "Executive").


                                    RECITALS

     A. The Company and the Executive entered into that certain Employment
Agreement with an Effective Date of December 15, 1995 (the "Agreement").

     B. The Company and the Executive desire to amend the Agreement, to, among
other things, extend the term thereof.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.

                                    AGREEMENT

     1. All capitalized terms shall be deemed to have the meaning ascribed to
them in the Agreement.

     2. Section 2(a) of the Agreement shall be amended by deleting "the second
anniversary of the Effective Date" and substituting "February 28, 1999 in its
place and stead. The following shall also be added to the end of Section 2(a):
"In the event of a "change in control" (as hereinafter defined) the term of this
Employment Agreement shall be extended until February 25, 2001.

     3. Section 2(c) of the Agreement shall be amended by deleting "Smithfield,
North Carolina" and substituting "Cary, North Carolina" in its place and stead.

     4. Section 3(a) of the Agreement shall be amended by deleting "One Hundred
Twenty-Five Thousand Dollars ($125,000)" and substituting "One Hundred Sixty
Thousand Dollars ($160,000)" in its place and stead.

     5. Section 10(a) of the Agreement shall be amended by deleting "Stephen D.
Hope, Esq., Moore & Van Allen, PLLC, NationsBank Corporate Center, 100 North
Tryon Street, Floor 47, Charlotte, North Carolina 28202-4003" and substituting
"General Counsel, FAC Realty Trust, 11000 Regency Parkway, Cary, North Carolina
27511" in its place and stead.

     6. Except as otherwise modified herein, all other provisions of the
Agreement are hereby ratified and affirmed.

     IN WITNESS WHEREOF, the parties hereto set their hand and seal as of the
effective date hereof.

                                      FAC REALTY, INC.

                                      By: /s/ C. CAMMACK MORTON
                                          -------------------------------------
                                          C. Cammack Morton
                                          President and Chief Executive Officer


                                      /s/ CHRISTOPHER G. GAVRELIS
                                      -----------------------------------------
                                      CHRISTOPHER G. GAVRELIS