Employment Agreement - Net Grocer Inc. and Richard Falcone


                              EMPLOYMENT AGREEMENT

         AGREEMENT made as of January 13, 1997, between Net Grocer Inc., a
corporation with its principal office at 919 Third Avenue, New York, New York
10022 (the 'Company'), and Richard Falcone, an individual residing at the
address indicated in the payroll records of the Company from time to time (the
'Executive'). 
         WHEREAS, the parties desire to enter into this Agreement in order to
assure the Company of the services of the Executive and to set forth the duties
and compensation of the Executive, all upon the terms and conditions
hereinafter set forth;
         NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, representations and covenants contained herein, the parties hereto
agree as follows:

         1. Duties. The Company shall employ the Executive, and the Executive
shall serve, as Chief Financial Officer and Vice President of Operations of the
Company during the Employment Term (as hereinafter defined). During the
Employment Term, Executive shall perform such duties and functions as the
Company's Board of Directors or Chief Executive Officer shall from time to time
determine and Executive shall comply in the performance of his duties with the
policies of, and be subject to, the direction of the Board of Directors and the
Chief Executive Officer of the Company.

         Except as may be expressly otherwise consented to in writing by the
Board of Directors or the Chief Executive Officer of the Company, Executive
covenants and agrees to and shall devote his full working time, attention and
efforts toward the performance of his duties and responsibilities hereunder.
Executive shall not, directly or indirectly, without the prior consent of the
Company's Board of Directors, as owner,





partner, joint venturer, stockholder, employee, corporate officer or director,
engage or become financially interested in, or be concerned with any other
duties or pursuits which interfere with the performance of his duties
hereunder, or which even if non-interfering, may be inimical or contrary to
the best interests of the Company.

         2. Term. The term of this Agreement and the term of employment (the
'Employment Term') of the Executive shall continue for four years from the date
hereof (the 'Termination Date') unless sooner terminated in accordance with the
terms hereof; provided, however, that the Termination Date shall be extended
automatically for successive one year periods unless either party hereto gives
the other such party written notice of its or his intention to terminate this
Agreement thirty (30) days prior to the Termination Date (or, if applicable,
any extension of the Termination Date).

         If the Company terminates this Agreement without cause (as defined in
Section 5 hereof) at any time other than as set forth in Section 7 hereof, the
parties hereto agree that damages to the Executive shall be difficult to
ascertain in any such event, but in order to limit the liability of the Company
in any such event, the Executive shall be entitled to receive as liquidated
damages and not as a penalty the base salary of the Executive for a period of
six months from any such date of termination.

         The Executive is entitled to terminate this Agreement, without any
liability, upon ninety (90) days prior written notice given to the Company
(other than liabilities, if any, resulting from violations of this Agreement by
the Executive occurring prior to such termination or from a violation of
Sections 8 or 9 of this Agreement after such termination and other than as
provided in Section 3(c) above).
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         3. Compensation, etc..
            a. Salary. In each of the four years of the Employment Term, the 
Executive shall receive a minimum base salary at the rate of $125,000 per annum 
as well as such bonuses as may be authorized from time to time by the Board of 
Directors as provided in Section 3(b) hereof. The Executive shall be entitled to
such increases in base salary as may be determined by the Company's Board of 
Directors from time to time in its sole and absolute discretion. The Executive's
compensation shall be payable in installments in accordance with the Company's
normal salary payment policies, and shall be subject to such payroll deductions 
as are required by law.

            b. Bonus. The bonus, if any, payable to Executive shall be 
determined solely by the Company's Board of Directors from time to time, based
on the Company's evaluation of the performance by Executive of his services to
the Company and on the revenues, profits, and other measures of Company
performance.

            c. Senior Management Option Plan. The Executive shall be entitled to
participate in a 'senior management option plan' (the 'Plan') that the Company
intends to establish. Under the Plan, if established, the Executive shall be
entitled to receive an option (the 'Option') to purchase a total of 334 shares 
of Company stock available for issuance under the Plan at an exercise price of 
two hundred dollars ($200) per share. Except as specifically provided otherwise 
herein, 20% of the Option (67 shares) will be immediately exercisable (the 
'Initial Portion') and the remainder of the Option (the 'Remainder') will
become exercisable in accordance with the following schedule based upon the 
period of the Executive's continuous employment or service with the Company 
following the date hereof:

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                                                                    Cumulative
Period                   Incremental         Incremental            Percentage
of Continuous            Percentage of       Number of              of
Employment/              Remainder           Shares                 Remainder
Service                  Exercisable         Exercisable            Exercisable

Less than 1 year               0%                 0                     0%

1 year                        25%                67                    25%

2 years                       25%                67                    50%

3 years                       25%                67                    75%

4 or more years               25%                66                    100%


         Any agreement entered into between the Company and Executive pursuant
to the Plan relating to the Option shall provide that:

                  (1) if (i) the Company terminates this Agreement for any
         reason other than cause (as defined in Section 5 hereof) or (ii)
         Executive terminates this Agreement and/or his employment with the
         Company any time on or after the first anniversary of the date hereof,
         Executive shall be entitled to retain the Initial Portion and the
         vested portion of the Remainder as calculated in accordance with the
         schedule above, in all instances for a period of two months by which
         time Executive must have exercised the Option or the Option (both the
         Initial Portion and the Remainder) shall terminate; and

                  (2) if (i) Executive is terminated for cause or (ii)
         terminates this Agreement and/or his employment with the Company at
         any time prior to the first anniversary of the date hereof, then (x)
         the unexercised portion of the Option shall terminate immediately and
         Executive shall not be entitled to exercise any portion of the Option
         (both the Initial Portion and the Remainder) so terminated; and (y)
         the Company may, it its sole and absolute discretion,

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         repurchase any or all of the shares, if any, purchased by Executive
         pursuant to the exercise of the Initial Portion at a per share price
         equal to the price paid therefor by Executive for a period of up to
         two months from the time of such termination for cause or termination
         by Executive.

                  (3) at any time after any registration statement covering an
         initial public offering of Company stock under the Securities Act
         shall have become effective, Executive may make a 'cashless exercise'
         of any portion of the Option then vested, subject to the provisions
         contained herein on permitted exercisability of the Option, such that
         Executive shall be entitled upon exercise to that number of shares of
         Company stock determined by multiplying the number of shares being
         exercised by a fraction, the numerator of which shall be the
         difference between the then current market price per share of the
         Company stock and the Exercise Price, and the denominator of which
         shall be the then current market price per share of the Company stock.

                  d. Expenses. The Company acknowledges and agrees that the
Executive, in rendering the services hereunder, will be required to spend sums
of money for travel to various locations and for the entertainment of various
persons and representatives of companies and organizations with whom the
Company is having, or would like to have, business relationships. In addition
to the base salary provided for in Section 3 hereof, the Company shall
reimburse the Executive, upon presentation by the Executive of documented
expense accounts, for any travel or other reasonable out-of-pocket expenses
incurred by the Executive in rendering the services hereunder on behalf of the
Company and which are incurred pursuant to the Company's expense

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reimbursement policies; provided however, that Executive shall be entitled to
an advance from the Company for any single expense item greater than $500 in
amount but in no event will Executive be relieved of his obligation to properly
document all expenses. In addition to the foregoing, Executive shall be
entitled to reimbursements for expenses incurred by Executive in commuting to
and from the Company's principal executive offices as required pursuant to
Section 4 hereof, but in no event in an amount in excess of $5,000 per annum;
and provided that all such commuting expenses shall be documented as set forth
above.

                  e. Vacations. The Executive shall be entitled to 15 business
days of vacation under guidelines established by the Company from time to time.
Vacation time shall not cumulate from year to year.

                  f. Other Benefits. The Executive shall be entitled to
participate in all benefit plans generally made available to the Company's
other employees including, but not limited to, life insurance, health
insurance, retirement and 401(k) plans; provided that the Company is under no
obligation to adopt any such plan or retain any such plan, if already adopted
or if adopted in the future.

         4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the principal executive offices of the
Company, except for travel required for Company business.

         5. Termination by the Company. The Company may terminate this
Agreement and all of the Company's obligations hereunder for 'cause.'
Termination by the Company for 'cause' shall mean termination because of: (i)
Executive's refusal to perform, or willful breach or neglect of the performance
of any of his duties or
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obligations hereunder (other than breaches of the covenants set forth in
Sections 1, 8 and 9 hereof which events are governed by clauses (vi) and (vii)
below); (ii) Executive's conviction (which, through lapse of time or otherwise,
is not subject to appeal) of any crime or offense involving money or other
property of the Company or any of its subsidiaries, (iii) Executive's
performance of any act or his failure to act, for which if Executive were
prosecuted and convicted, a crime or offense involving money or property of the
Company or any of its subsidiaries, or which would constitute a felony in the
jurisdiction involved, would have occurred, (iv) any attempt by Executive to
improperly secure any personal profit in connection with the business of the
Company or any of its subsidiaries, (v) chronic alcoholism or drug addiction
unless, in the sole and absolute discretion of the Company, it does not
interfere with the performance of the Executive's duties, (vi) any breach by
Executive of the terms of Section 8 or 9 of this Agreement or (vii) any breach
by Executive of the terms of Section 1 of this Agreement.

         6. Death; Disability. If the Executive shall die or become
'permanently disabled' during the term of this Agreement, this Agreement and
all benefits hereunder shall terminate except that such termination shall not
affect any vested rights which the Executive may have at the time of his death
pursuant to any insurance or other death benefit plans or arrangements of the
Company, which rights shall continue to be governed by the provisions of such
plans and agreements. For the purposes of this Agreement, Executive shall be
deemed to be 'permanently disabled' if, during the term hereof, because of ill
health, physical or mental disability, or for other causes beyond Executive's
control, Executive shall have been unable or unwilling, or shall have failed

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to perform his duties hereunder for one hundred twenty (120) consecutive days
or for a total period of one hundred twenty (120) days, whether consecutive or
not.
         7. Severance in the Event of a Change in Control

         a. In the event that (i) the Company terminates the employment of the
Employee (other than for 'cause' as defined in Section 5) within the 12 months
immediately succeeding a Change in Control of the Company (as defined below),
(ii) the Employee terminates his employment with the Company within the 12
months immediately succeeding a Change in Control of the Company as a result of
a material change in the Employee's position within the Company or a
significant modification to the Employee's working conditions or terms of
employment with the Company, the Company shall pay to the Employee the greater
of (x) the then effective base salary of the Employee or (y) the effective base
salary of the Employee at the time of the Change in Control of the Company, in
either instance for a period of one year from any such date of termination (the
'Severance Amount').

         b. Notwithstanding anything in paragraph 7a to the contrary, the
Employee shall not be entitled to the Severance Amount if the Employee's
employment with the Company is terminated (i) as a result of the death of the
Employee or the Employee being permanently disabled (as defined in Section 6)
or (ii) for 'cause' (as defined in Section 5).

         c.                (i) For purposes of this Agreement, 'Change in
                           Control of the Company' shall be deemed to occur if
                           (w) there shall be consummated (A) any consolidation
                           or merger of the Company in which the Company is not
                           the continuing or surviving corporation

                                      -8-




                           or pursuant to which shares of the Company's common
                           stock, would be converted into cash, securities or
                           other property, other than (i) a merger of the
                           Company in which the holders of the common stock
                           immediately prior to the merger have the same
                           proportionate ownership of common stock of the
                           surviving corporation immediately after the merger,
                           (ii) a transaction involving American Value Brands
                           Inc. ('AVB') pursuant to which the Company's
                           stockholders receive shares of AVB's Common Stock or
                           of the surviving entity to the transaction based
                           upon a valuation for the Company's Common Stock
                           determined by the Company's Board of Directors in
                           its sole discretion, or (B) any sale, lease,
                           exchange or other transfer (in one transaction or a
                           series of related transactions) of all, or
                           substantially all, of the assets of the Company, or
                           (x) the stockholders of the Company shall approve
                           any plan or proposal for liquidation or dissolution
                           of the Company, or (y) any person (as such term is
                           used in Section 13(d) and 14(d)(2) of the Securities
                           Exchange Act of 1934, as amended (the 'Exchange
                           Act')) who, at the time of the execution of this
                           Agreement, does not own 5% or more of the Company's
                           outstanding Common Stock, shall become the
                           beneficial owner (within the meaning of Rule 13d-3
                           under the Exchange Act) of 40% or more of the
                           outstanding Common Stock other than pursuant to a
                           plan or arrangement entered into by such person and
                           the

                                      -9-




                           Company, or (z) during any period of two consecutive
                           years commencing on the date hereof, individuals who
                           at the beginning of such period constitute the
                           entire Board of Directors shall cease for any reason
                           to constitute a majority thereof unless the
                           election, or the nomination for election by the
                           Company's stockholders, of each new director was
                           approved by a vote of at least two-thirds of the
                           directors then still in office who were directors at
                           the beginning of the period; provided, however, that
                           none of the transactions set forth above shall be
                           deemed to be a Change in Control of the Company
                           unless each of Frederick R. Adler and Uri Evan shall
                           cease to own other such Change of Control at least
                           80% of the securities of the Company owned by such
                           person prior to such Change in Control.

         8. Protection of Confidential Information. The Executive acknowledges
that his employment by the Company will, throughout the term of this Agreement,
bring him in contact with many confidential affairs of the Company not readily
available to the public, and plans for future developments. In recognition of
the foregoing, the Executive covenants and agrees that he will not use or
disclose to anyone outside of the Company, as the case may be, any material
confidential matters of the Company, which are not otherwise in the public
domain, either during or for a period of twenty-four months after the
termination of his employment with the Company, except with the Company's
written consent or as required by court order, law or subpoena, or other legal
compulsion to disclose.

                                      -10-




         9. Covenant Not To Compete.

         a. The Executive agrees that, without the Company's prior written
consent which may be withheld in the Company's sole and absolute discretion,
during the term of this Agreement and, subject to the provisions of the last
paragraph of Section 2 hereof, for the two years immediately following the
Employment Term (including any extensions thereof, as provided herein),
Executive shall not either directly or indirectly, whether by establishing a
new business or by joining an existing one, and whether as a principal,
employee, stockholder, officer, director, agent, consultant or in any other
capacity, compete with the Company or become associated with a business
enterprise which competes with any business operation of the Company, or any
business operation of the Company planned prior to Executive's termination of
employment, in the geographical areas in which the Company is then doing and
plans to do business for the next succeeding twelve month period.

         b. Executive and the Company intend that: (i) this covenant not to
compete shall be construed as a series of separate covenants, one for each
county and each product line; (ii) if any portion of the restrictions set forth
in this Section 9 should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or enforceability of the
remainder of such restrictions shall not thereby be adversely affected; (iii)
Executive declares that the territorial and time limitations set forth in this
Section 9 are reasonable and properly required for the adequate protection of
the business in the Company. In the event any such territorial or time
limitation is deemed to be unreasonable by a court of competent jurisdiction,
Executive agrees to the reduction of the territorial or time limitation to the
area or

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period which such court shall have deemed reasonable; (iv) the existence of any
claim or cause of action by Executive against the Company shall not constitute
a defense to the enforcement by the Company of such restrictions, but such
claim or cause of action shall be litigated separately.

         10. Successors; Binding Agreement. This Agreement and all rights of
the Executive hereunder shall inure to the benefit of, and shall be enforceable
by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder
if he had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there be no such
designee, to the Executive's estate. This Agreement shall inure to the benefit
of the successors and assigns of the Company.

         11. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered against receipt therefor
or three days after being mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:


     If to the Executive:      Mr. Richard Falcone
                               (at the address referenced on the first page of
                               this Agreement)

     If to the Company:        Net Grocer Inc.
                               919 Third Avenue
                               New York, New York 10022
                               Attention:  President


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or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.

         12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officers of the Company as may
be specifically designated by its Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

         13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

         14. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto or any
predecessor of any party hereto.

         15. Non-Assignability. This Agreement is entered into in consideration
of the personal qualities of the Executive and may not be, nor may any right or
interest hereunder be, assigned by him without the prior written consent of
Company.
                                      -13-




         16. Choice of Law. This Agreement is to be governed by and interpreted
under the laws of the State of New York without regard to its conflict of laws
principles.

         17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument. 

         18. Severability. The provisions of Sections 2, 8, 9, 15 (second
paragraph) and 16 of this Agreement shall survive the termination of this
Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first-above written.

                                   NET GROCER INC.


                                   By:/s/ Daniel Nissan
                                      _________________________________
                                      Daniel Nissan, President and
                                      Chief Operating Officer


                                   EXECUTIVE

                                   
                                   /s/ Richard D. Falcone
                                   ------------------------------------
                                   Richard Falcone


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