EMPLOYMENT AGREEMENT


         AGREEMENT made as of August 1, 1998 between ALLOU HEALTH & BEAUTY CARE,
INC., a Delaware corporation with offices at 50 Emjay Boulevard, Brentwood, New
York 11717 ("Company"), and HERMAN JACOBS, residing at 116 Rutledge Street,
Brooklyn, New York 11211 ("Employee").

                              W I T N E S S E T H :

         WHEREAS, Employee has been employed by the Company and has rendered
substantial services to the Company; and

         WHEREAS, the Company believes that the contributions that have been
made and can continue to be made by Employee toward the success of the business
of the Company are valuable and wishes to retain the services of Employee for
its benefit; and

         WHEREAS, the Company desires to continue to retain the services of
Employee as its President and Chief Operating Officer; and

         WHEREAS, Employee is willing to continue as such upon the terms and
conditions herein set forth;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Employee agree as
follows:

         1. Term. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions herein contained
for a term commencing August 1, 1998 (the "Commencement Date") and terminating
on July 31, 2001 ("Original Term") unless sooner terminated as herein provided
(the "Term").
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         2. Employment Duties.

         (a) During the Term, Employee shall serve as the President and Chief
Operating Officer of the Company and Employee shall have such responsibilities,
powers and duties as are substantially consistent with his present
responsibilities, powers and duties. Employee shall be subject to the reasonable
direction of the Board of Directors of the Company. Employee agrees that during
the Term he will devote his full time and attention during regular business
hours to the business and affairs of the Company except during vacation periods
and periods of illness or incapacity. Notwithstanding the foregoing and so long
as his activities do not interfere with the performance of his duties hereunder,
Employee will be permitted to acquire, own or deal in securities or other
investments except that, without the prior written consent of the Company's
Board of Directors, Employee may not invest in any business which has business
relations or competes with the Company or any of its subsidiaries or affiliates
unless the securities of such business are listed on a national securities
exchange or traded in the over-the-counter market and the interest of Employee
does not exceed one (1%) percent of the outstanding securities of any class of
that business. In addition, nothing contained herein shall prevent Employee from
serving as a director or trustee of any corporation or other organization, and
in any other capacity with any non-commercial enterprise, PROVIDED THAT such
service does not materially interfere with the performance of his duties
hereunder and such business or organization does not compete with the Company or
any of its subsidiaries or affiliates. (b) It is understood that, except for
limited business travel which shall be only such as is reasonably required for
him to perform his duties hereunder, Employee's duties under this paragraph 2
are performed at the Company's principal executive office in Brentwood, New
York.

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         3. Compensation and Benefits.

                  (a) For the full, prompt and faithful performance of all of
the duties and services to be performed by Employee hereunder, the Company
agrees to pay Employee a salary ("Base Salary") at the rate of Three Hundred
Thousand Dollars ($300,000) per year, payable in equal semi-monthly installments
or in such other manner as shall be mutually agreeable to Employee and the
Company. The Company's Board of Directors may, in its discretion, at any time
and from time to time, increase such Base Salary for Employee and grant Employee
other compensation, including bonuses, in addition to that provided for
hereunder. Employee's compensation shall be reviewed at least once each year.
Any increase in Base Salary or other compensation shall in no way limit or
reduce any other obligation of the Company under this Agreement.

                  (b) As additional compensation, Employee shall receive a sum
equal to: (i) three percent (3%) of the amount of any increase in the Company's
earnings before interest and taxes ("EBIT") (as hereinafter defined) at the end
of each fiscal year during the term of this Agreement as compared to the EBIT
for the prior fiscal year (an "Increase") for amounts of such Increase up to
$2,000,000; (ii) two percent (2%) of the amount of any Increase that is greater
than $2,000,000 but less than or equal to $3,000,000; and (iii) one percent (1%)
of the amount of any Increase exceeding $3,000,000. For the purposes of this
Agreement, "EBIT" shall be the annual earnings of the Company for the fiscal
year computed before any charges for interest expense and any federal, state or
other taxes relating to income, and shall be determined in accordance with
generally accepted accounting principles by the certified public accountants
regularly employed by the Company whose determination shall be binding on the
parties. The computation of "EBIT" shall be made as soon as practicable after
the end of each fiscal year and may be paid in full after the end of each fiscal
year. If at the end of any fiscal year, the

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Company's EBIT does not exceed the EBIT for the prior fiscal year, Employee
shall not receive any additional compensation as set forth in this section 3(b).

                  (c) In addition to the compensation provided for herein,
Employee shall be entitled to participate in any bonus, incentive compensation,
retirement, profit-sharing, medical payment, disability, health or life
insurance and other benefit arrangements which may be or become available to
executives of the Company.

                  (d) Throughout the Original Term, the Company shall continue
to provide Employee with life insurance with the beneficiary thereof to be
designated by Employee in an amount not less than that in effect for Employee at
the date hereof and shall pay all premiums due thereunder.

                  (e) Employee shall be entitled to reimbursement, not less
frequently than monthly, for expenses reasonably incurred by him in furtherance
of the business of the Company and in the performance of his duties hereunder,
on an accountable basis with such substantiation as the Company may at the time
require from its senior executive officers.

                  (f) During the Term, Employee shall be entitled to continue to
receive the fringe benefits and perquisites presently provided for him by the
Company. In order to enable Employee to most effectively perform his duties
hereunder, the Company will provide Employee with the use of an automobile to be
comparable and equivalent to the price category car presently used by Employee,
under a two-year replacement program, and payment of all expenses associated
therewith.

                  (g) Employee shall be entitled to four (4) weeks of vacation
in each twelve (12) month period during the Term, to be taken at such times as
may be mutually and reasonably agreed upon by the Company and Employee.

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         4. Termination upon Death. The Term shall terminate on the date of
Employee's death, except that Employee's Base Salary shall be paid to his estate
for a period of one (1) year after the date of his death. If Employee was
entitled to receive any bonus, incentive or similar form of compensation under
any arrangement with the Company which was to be based upon a period extending
beyond the date of Employee's death, payment of a portion thereof, equal to the
amount which would have been payable for the full period in which death occurs,
multiplied by a fraction, the numerator of which is the number of days in such
period through the date of death and the denominator of which is the total
number of days in the full period, shall be made at the time it would have been
made in accordance with such arrangement.

         5. Disability. If during the Term Employee shall, because of physical
or mental illness or incapacity, become totally unable to perform, or in the
judgment of the Company evidenced by a resolution adopted in good faith by a
majority of its Board of Directors unable adequately to perform, the duties and
services required of him pursuant to paragraph 2(a) for a period of one hundred
eighty (180) consecutive days, the Company may, upon at least ninety (90) days
prior written notice given at any time after the expiration of such one hundred
eighty (180) day period to Employee of its intention to do so, accelerate the
end of the Term to such date as may be set forth in such notice; PROVIDED,
HOWEVER, that the end of the Term shall not be accelerated and the Term shall
remain in full force and effect if Employee shall have resumed the full-time
performance of his duties hereunder prior to the effective date of such proposed
termination of the Term. In case of such acceleration of the end of the Term,
Employee shall be entitled to receive, and the Company agrees to pay, his Base
Salary for a period of one (1) year after the date of his termination due to
disability and a pro rata portion of the amount of any bonus, incentive or
similar form of compensation which

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he would have otherwise been entitled to for the period in which the
acceleration of the end of the Term occurs.

         6. Confidential Information. All confidential information which
Employee may now know or which hereby may become known to Employee relating to
the business of the Company or any customer or supplier of the Company shall not
be disclosed by Employee to any other person or entity either during the Term or
thereafter. Such confidential information shall be returned to the Company upon
termination of Employee's employment.

         7. Non-Competition.

                  (a) Employee agrees that during the Term and for a period of
one (1) year after the termination of his employment with the Company, he will
not (i) engage in or have any interest in any person, firm or corporation which
engages, directly or indirectly, in competition with the Company or its
subsidiaries or affiliates in the United States, in the sale of products or
services of the type in which Employee has been directly involved during the
Term in or have any interest in any person, firm or company which engages,
directly or indirectly, in competition with the Company or its subsidiaries or
affiliates in the United States for the business of any entity which was a
customer of the Company or its subsidiaries or affiliates at any time during the
Term or (ii) solicit any employees of the Company or any of its parents,
subsidiaries or affiliates to leave their employ.

                  (b) For the purposes of this paragraph 7, Employee will be
deemed directly or indirectly engaged in a business if he participates in such
business as a proprietor, partner, joint venturer, shareholder, director,
officer, lender, manager, employee, consultant, adviser or agent or if he in any
way controls such business. Employee shall not for purposes of this paragraph 7
be deemed a shareholder or lender if he holds less than one (1%) of the
outstanding securities of any class of any publicly- or privately-owned
corporation engaged in the same or similar business to that

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of the Company or its subsidiaries or affiliates, PROVIDED THAT Employee shall
not be in a control position (individually or as part of a group) with regard to
such corporation.

                  (c) In the event of a breach or threatened breach by Employee
of any of the provisions of this paragraph 7, the Company shall be entitled,
upon establishing the existence of such breach or threatened breach, to an
injunction to be issued by any tribunal of competent jurisdiction to restrain
Employee from committing or continuing any such violation. In any proceeding for
an injunction and upon any motion for temporary or permanent injunction,
Employee agrees that his ability to answer in damages shall not be a bar or be
interposed as a defense to the granting of such temporary or permanent
injunction against him. Employee acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by him. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company,
including, without limitation, the recovery of damages from Employee.

                  8. Representation by Employee. Employee represents and
warrants that he has not entered into any other agreement or understanding which
is inconsistent with the execution of this Agreement or which in any way will
prevent full compliance by him with the terms of this Agreement.

                  9. Assignability. This Agreement may not be assigned by
Employee and all of its terms and conditions shall be binding upon and inure to
the benefit of Employee and his heirs and legal representatives and the Company
and its successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the assets of the Company whether by merger,
consolidation, purchase, lease or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.

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                  10. Notices. All notices, requests, demands and other
communications provided for hereby shall be in writing and shall be deemed to
have been duly given when delivered personally, sent by facsimile transmission
(with receipt confirmed) or two days after being sent by registered or certified
mail, return receipt requested, to the party entitled thereto at the address
first above written or to such changed address as the addressee may have given
by a similar notice.

                  11. Modification. This Agreement may be modified or amended
only by an instrument in writing signed by Employee and the Company and any
provision hereof may be waived only by an instrument in writing signed by the
party hereto against whom any such waiver is sought to be enforced.

                  12. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision contained herein.

                  13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

                  14. Captions. The captioned headings here convenience of
reference only and are not intended to be construed to have any substantive
effect.

                  IN WITNESS WHEREOF, the parties hereto have this Agreement as
of the date first above written.

                                          ALLOU HEALTH & BEAUTY CARE, INC.



                                          By:     /s/ Victor Jacobs
                                               ---------------------------------
                                                 Name:  Victor Jacobs
                                                 Title: Chief Executive Officer



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                                                      /s/ HERMAN JACOBS
                                                    ----------------------------
                                                    HERMAN JACOBS


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