RESTRICTED STOCK AGREEMENT

     THIS RESTRICTED STOCK AGREEMENT (this "Agreement") is made and entered into
on this 9th day of June, 1997 (hereinafter referred to as the "Effective Date"),
by and between FAC REALTY, INC., a Delaware corporation (the "Corporation"), and
CHRISTOPHER G. GAVRELIS (the "Participant").

     WHEREAS,  prior to the Corporation's change of name to FAC Realty, Inc. the
Factory  Stores of America,  Inc.  1996  Restricted  Stock Plan (the "Plan") was
adopted by the Executive  Compensation  Committee (the "Committee") of the Board
of Directors of the Corporation (the "Board") and the Board; and

     WHEREAS,  the Committee has determined that it is desirable and in the best
interest of the  Corporation to make an award (the "Award") of certain shares of
common  stock,  par value $.01 per share of the  Corporation  ("Common  Stock"),
under the Plan, to the Participant, subject to certain restrictions as specified
below; and

     WHEREAS,  in order to enforce the aforesaid  restrictions,  Participant  is
required under the terms of the Award to immediately  deposit the certificate(s)
for the shares of Common Stock subject to the Award,  together with stock powers
appropriately  endorsed in blank,  with the  Corporation in accordance  with the
requirements of this Agreement.

     NOW, THEREFORE, the Corporation and the Participant agree as follows:

     1. Date of Award.  The date of making the Award under this Agreement is the
1st day of March 1997 (the "Effective Date").

     2. Receipt by Participant.  The Participant  acknowledges  receipt from the
Corporation of 6,000 shares of Common Stock (the "Restricted  Stock") and agrees
to the execution of stock powers or such other  transfer  authorizations  as the
Corporation shall request, in blank, covering the Restricted Stock to be held by
the  Corporation,  prior to the  distribution of certificates  representing  the
Restricted Stock to the Participant as hereinafter provided.

     3. Investment Representation and Transfer Restrictions

     (a) Investment  Representation.  Participant  represents to the Corporation
that the  Participant is taking the Restricted  Stock for investment and without
any present  intention to sell,  transfer or otherwise dispose of the Restricted
Stock.

     (b)  Securities  Law   Restrictions.   The  Participant   agrees  with  the
Corporation  that the  Restricted  Stock shall


 
<PAGE>


be subject to such stop-transfer  orders and other restrictions as the Committee
may deem advisable under the rules,  regulations,  and other requirements of the
Securities and Exchange  Commission,  any stock exchange upon which Common Stock
is then listed and any other applicable  federal or state securities laws, rules
or regulations,  and the Committee may cause a legend or legends to be placed on
any  certificate  representing  any of the  shares of  Restricted  Stock to make
appropriate reference to such restrictions.

     (c)  Other  Transfer   Restrictions.   The  Participant   agrees  with  the
Corporation that each  certificate  representing any of the shares of Restricted
Stock may bear a legend, substantially in the form attached as Exhibit A hereto,
to the effect  that the  shares of  Restricted  Stock  represented  thereby  are
subject to potential  forfeiture  and may not be sold,  exchanged,  transferred,
pledged,  hypothecated  or otherwise  disposed of except in accordance  with the
terms of this Agreement,  and shall be subject to such stop-transfer  orders and
other  restrictions as the Committee  shall deem advisable to ensure  compliance
with the terms of this Agreement.

     (d)  Registration.  Prior to vesting  pursuant to  Paragraph  5 below,  the
Corporation  shall  cause  the  Restricted  Stock  to be  registered  under  the
Securities Act of 1933 and to be listed on the New York Stock Exchange.

     4. Receipt by the Corporation.  The Corporation  acknowledges  receipt from
the Participant of certificates representing the Restricted Stock, registered in
the name of the Participant,  and acknowledges  receipt of stock powers executed
in blank by the Participant  covering all of the Restricted Stock.  Certificates
representing  the  Restricted  Stock  shall  be  held  by  the  Corporation  and
distributed or transferred as directed by the Committee in accordance  with this
Agreement.

     5. Vesting and Delivery of Restricted Stock by the Corporation

     (a) Vesting. Subject to subparagraph 5(b) below, the Restricted Stock shall
vest and become nonforfeitable on March 1, 2000.

     (b)  Accelerated  Vesting.  Notwithstanding  subparagraph  5(a) above,  all
Restricted  Stock previously not vested and subject to forfeiture shall vest and
the right of the Participant to such shares of the Restricted Stock shall become
nonforfeitable upon the occurrence of any of the following:

          (i) Retirement of Participant.  The  termination of the  Participant's
     membership on the Board or employment by the Corporation, as applicable, by
     reason


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<PAGE>


     of retirement (as defined in the Plan).

          (ii) Disability of Participant.  The termination of the  Participant's
     membership on the Board or employment by the Corporation, as applicable, by
     reason of disability (as defined in the Plan).

          (iii)  Death  of  Participant.  The  Participant's  death  during  the
     employment of the Participant by the Corporation.

          (iv)  Termination  Without Cause.  The  termination  of  Participant's
     employment by the Corporation "without cause" pursuant to Paragraph 2(c) or
     Paragraph 5(a)(iii) of the Employment  Agreement dated December 15, 1995 by
     and  between  the  Corporation  and  the   Participant   (the   "Employment
     Agreement")  or,  in the  case of  termination  at any time  following  the
     expiration of the  Employment  Agreement,  termination  for the reasons set
     forth in Paragraph 2(c) or Paragraph 5(a)(iii) thereof.

     (c) Delivery of Restricted Stock  Certificates to the  Participant.  Within
thirty (30) days after a date on which  shares of  Restricted  Stock have become
vested as provided in  subparagraphs  5(a) or 5(b) above,  the  Committee  shall
instruct  the  appropriate   officer  of  the  Corporation  to  deliver  to  the
Participant, the Participant's designee, or such other person as shall have been
designated as  Participant's  beneficiary in accordance with this Agreement,  as
applicable,  certificates representing the shares of Restricted Stock which have
become vested and  nonforfeitable,  free from any  restrictions  imposed by this
Agreement other than such restrictions and conditions as may be deemed necessary
by the  Committee to assure  compliance  with all  applicable  securities  laws,
rules,  regulations and listing  requirements as set forth in subparagraph  3(b)
above.

     (d) Delivery of Forfeited Restricted Stock. If the Participant's employment
with the Corporation  terminates for any reason other than one of those provided
in  subparagraph  5(b) above,  before all of the shares of Restricted  Stock are
vested in accordance  with  subparagraphs  5(a) and 5(b) above,  all such shares
then subject to forfeiture  shall be deemed forfeited by the Participant and the
Committee shall instruct the appropriate  officer of the Corporation  concerning
the disposition of such forfeited shares. Thereafter such forfeited shares shall
cease to be subject to this Agreement.

     6. Voting Rights:  Dividends:  Other  Distributions.  The Participant shall
have the full power to vote all of the Restricted  Stock held by the Corporation
in the Participant's


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<PAGE>


name from time to time and  shall be  entitled  to  receive  all cash  dividends
declared  upon  any of the  Restricted  Stock  held  by the  Corporation  in the
Participant's  name from  time to time.  All  shares  of  Common  Stock or other
securities,  including but not limited to stock dividends,  issued in respect of
the Restricted Stock or in substitution  thereof,  whether by the Corporation or
by another issuer,  shall be held by the Corporation and shall be subject to all
terms  and  conditions  of  this  Agreement  and  shall  be  redelivered  to the
Participant  or  delivered  as  instructed  by  the  Committee  under  the  same
circumstances as the Restricted  Stock with respect to, or in substitution  for,
which  they were  issued;  provided,  however,  that if the  Participant  should
receive  rights,  warrants  or  fractional  interests  in  respect of any of the
Restricted Stock held by the Corporation in the Participant's  name, such rights
or warrants  may be held,  exercised,  sold or  otherwise  disposed of, and such
fractional  interests may be settled,  by the Participant  free and clear of the
restrictions herein set forth.

     7. Designation of Beneficiary.  The Participant may file with the Committee
a written  designation  of one or more persons as the  beneficiary  who shall be
entitled  to  receive  the  Restricted  Stock,  if  any,  distributable  to  the
Participant  upon the  Participant's  death.  The Participant  may, from time to
time, revoke or change the  Participant's  beneficiary  designation  without the
consent of any prior  beneficiary,  if any, by filing a new designation with the
Committee.  The  last  such  designation  received  by the  Committee  shall  be
controlling;  provided,  however,  that no designation,  or change or revocation
thereof,  shall be  effective  unless  received  by the  Committee  prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt.

     If no  such  beneficiary  designation  is in  effect  at  the  time  of the
Participant's  death, or if no designated  beneficiary survives the Participant,
or if such  designation  conflicts with law, the  Participant's  estate shall be
deemed to have been designated the  Participant's  beneficiary and shall receive
the  Restricted  Stock,  if  any,  distributable  to the  Participant  upon  the
Participant's  death. If the Committee is in doubt as to the right of any person
to receive such distribution, the Committee may direct an appropriate officer of
the  Corporation  to retain the  Restricted  Stock,  without  liability  for any
interest in respect  thereof,  until the rights thereto are  determined,  or the
Committee  may direct the  transfer of such  Restricted  Stock into any court of
appropriate  jurisdiction and such transfer shall be deemed a complete discharge
of the obligations of the Corporation hereunder.

     8.  Effect of Award on Status  of  Participant.  The fact that an Award has
been made to the Participant under this Plan shall not confer on the Participant
any right to continued  employment with the Corporation;  nor shall it limit the
right of


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<PAGE>


the Corporation to terminate the Participant's employment at any time.

     9. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation

     (a) In the  event of a change  in the  number  or type of  shares of Common
Stock outstanding (or in the event of an exchange of such shares) by reason of a
reclassification, recapitalization, reorganization, merger, or consolidation, or
other similar capital adjustment, merger or consolidation of the Corporation, or
the sale by the  Corporation of all or a substantial  portion of its assets,  or
the occurrence of any other event which could affect the  implementation  of the
Plan and the  realization  of its  objectives,  the  Committee  shall  make such
adjustments in the terms,  conditions,  or restrictions of this Agreement as are
equitable and just.

     (b) The making of the Award under this Agreement does not affect in any way
the right or power of the  Corporation or its  stockholders to make or authorize
any  adjustment,  recapitalization,  reorganization,  or  other  change  in  the
Corporation's  capital structure or its business, or any merger or consolidation
of the Corporation, or to issue bonds, debentures, preferred or other preference
stock  ahead  of or  affecting  Common  Stock  or  the  rights  thereof,  or the
dissolution or liquidation of the Corporation, or any sale or transfer of all or
any part of the Corporation's assets or business.

     10.  Nontransferability.  The Restricted Stock may not be sold,  exchanged,
transferred,  pledged, hypothecated, or otherwise disposed of by the Participant
until  transferred to the  Participant by the Corporation in accordance with the
terms of this  Agreement.  Nothing  herein shall preclude the  Participant  from
making a gift of any Restricted Stock to a spouse, child, stepchild, grandchild,
parent,  sibling, or legal dependent of the Participant,  or to a trust of which
the  beneficiary  or  beneficiaries  of the  trust  shall  be  either  a  person
designated  herein or the Participant,  provided,  however,  that any Restricted
Stock so  given  shall  remain  subject  to the  restrictions,  obligations  and
conditions set forth in this Agreement. In addition, the Restricted Stock may be
tendered in response to a tender offer for or a request or  invitation to tender
of greater than fifty percent (50%) of the common stock of the  Corporation  and
may be surrendered in a merger,  consolidation  or share exchange  involving the
Corporation;  provided, however, in each case, that except as otherwise provided
in Paragraph 6 above, the security or other  consideration  received in exchange
therefor  shall  thereafter be subject to the  restrictions  and  conditions set
forth in this Agreement.

     11. Taxes. All Restricted Stock distributed pursuant to


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<PAGE>


this  Agreement,  and any amounts  distributed  with  respect  thereto  prior to
distribution of such Restricted  Stock by the  Corporation,  shall be subject to
applicable  federal,  state and local  withholding  for taxes.  The  Participant
expressly  acknowledges and agrees to such withholding without regard to whether
the  Restricted  Stock  may  then  be  sold  or  otherwise  transferred  by  the
Participant.

     12. Notices. Any notices or other  communications  required or permitted to
be given  under this  Agreement  shall be in writing and shall be deemed to have
been  sufficiently  given  if  delivered  personally  or  when  delivered  to  a
nationally  recognized  overnight  courier  service or  deposited  in the United
States mail as Certified Mail, return receipt requested,  properly addressed and
postage prepaid,  if to the Corporation at its principal office at 11000 Regency
Parkway,  Third Floor East Tower,  Cary,  North Carolina  27511;  and, if to the
Participant,  at the  Participant's  last address  appearing on the books of the
Corporation.  The  Corporation  and the  Participant may change their address or
addresses by giving written notice of such change as provided herein. Any notice
or other communication  hereunder shall be deemed to have been given on the date
actually  delivered,  as of the first (1st) business day following delivery to a
nationally  recognized  overnight  courier  service,  or as of the  third  (3rd)
business day following the date mailed, as the case may be.

     13.  Construction  Controlled by Plan. This Agreement shall be construed so
as to be consistent  with the Plan; and except as  specifically  provided herein
the  provisions of the Plan shall be deemed to be  controlling in the event that
any provision hereof should appear to be inconsistent therewith. The Participant
hereby acknowledges receipt of a copy of the Plan from the Corporation.

     14. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be valid and enforceable  under applicable
law, but if any provision of this  Agreement is determined to be  unenforceable,
invalid or illegal,  the validity of any other provision or part thereof,  shall
not be affected  thereby and this Agreement  shall continue to be binding on the
parties hereto as if such  unenforceable,  invalid or illegal  provision or part
thereof had not been included herein.

     15.  Modification  of Agreement;  Waiver.  This  Agreement may be modified,
amended, suspended or terminated,  and any terms,  representations or conditions
may be waived,  but only by a written  instrument  signed by each of the parties
hereto.  No waiver  hereunder  shall  constitute  a waiver  with  respect to any
subsequent  occurrence or other transaction  hereunder or of any other provision
hereof.


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<PAGE>


     16.  Captions  and  Headings;  Gender and Number.  Captions  and  paragraph
headings  used  herein  are for  convenience  only,  do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for  interpretation or in construction of this Agreement.  As used herein,
the masculine gender shall include the feminine and neuter,  the singular number
the plural, and vice versa, whenever such meanings are appropriate.

     17. Governing Law: Venue and Jurisdiction. Without regard to the principles
of conflicts of laws,  the laws of the State of North  Carolina shall govern and
control the  validity,  interpretation,  performance,  and  enforcement  of this
Agreement.  The parties  hereto  agree that any suit or action  relating to this
Agreement  shall be  instituted  and  prosecuted  in the courts of the County of
Wake,  State of North  Carolina,  and each party  hereby does waive any right or
defense relating to such jurisdiction and venue.

     18. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the  Corporation,  and its successors  and assigns,  and shall be
binding  upon and  inure  to the  benefit  of the  Participant,  and his  heirs,
legatees, personal representatives, executors and administrators.


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<PAGE>


     19. Entire  Agreement.  This Agreement  constitutes and embodies the entire
understanding  and  agreement  of the parties  hereto and,  except as  otherwise
provided hereunder, there are no other agreements or understandings,  written or
oral, in effect  between the parties  hereto  relating to the matters  addressed
herein.

     20.  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
counterparts,  each of which  when  executed  and  delivered  shall be deemed an
original,  but all of which taken  together  shall  constitute  one and the same
instrument.

     IN WITNESS  WHEREOF,  the  Corporation  has caused  this  instrument  to be
executed in its corporate name by a duly authorized officer, and attested by its
Secretary or any of its  Assistant  Secretaries,  and its  corporate  seal to be
hereto affixed, all by authority of its Board of Directors first duly given; and
the  individual  party  hereto has hereunto set such party's hand and adopted as
such  party's seal the  typewritten  word "SEAL"  appearing  beside such party's
name, all done this the day and year first above written.

                                       FAC REALTY, INC.

                                       By: ______________________________
                                           C. Cammack Morton
                                           President and Chief Executive
                                           Officer
ATTEST:

__________________________

__________________________ Secretary

[Corporate Seal]

__________________________
                                ________________________________
                                  (SEAL)

__________________________
Christopher G. Gavrelis



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<PAGE>


                                    EXHIBIT A

                                 Form of Legend


     The shares  represented by this  certificate are subject to restrictions on
transfer  and  potential  forfeiture  under  the  terms  of a  Restricted  Stock
Agreement  dated on June 9, 1997, a copy of which agreement may be obtained from
the issuer by writing to:

                                    FAC REALTY, INC.
                                    11000 Regency Parkway
                                    Third Floor, East Tower
                                    Cary, North Carolina 27511
                                    Attention: Corporate Secretary



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<PAGE>


ASSIGNMENT SEPARATE FROM CERTIFICATE


     FOR VALUE  RECEIVED,  CHRISTOPHER  G. GAVRELIS  hereby  sells,  assigns and
transfers  unto   ______________________________________  Six  Thousand  (6,000)
Shares of the Common Stock of FAC REALTY,  INC. (the "Company")  standing in its
name  on  the  books  of  the  Company   represented   by   Certificate(s)   No.
____________________  herewith,  and  does  hereby  irrevocably  constitute  and
appoint  attorney  to transfer  the said stock on the books of the Company  with
full power of substitution in the premises.

Dated __________________

IN THE PRESENCE OF:

____________________________________

____________________________________  (SEAL)
     CHRISTOPHER G. GAVRELIS