EMPLOYMENT AGREEMENT



      This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into

effective as of 5th day of January, 2006, by and between Duckwall-ALCO Stores,

Inc., a Kansas corporation (the "Company"), and Michael J. Gawin, an individual.



                                  W I T N E S S E T H:



      WHEREAS, the Company desires to employ Michael J. Gawin as the Company's

 Vice President - Divisional Merchandise Manager - Softlines (hereinafter the

 "Employee") on the terms and conditions set forth herein;



      NOW, THEREFORE, the Company and the Employee, each intending to be legally

 bound, hereby mutually covenant and agree as follows:



                                   SECTION I.

                                   DEFINITIONS



       The following terms used in this Agreement shall have the meanings set

       forth below:



             "Earned Obligations" shall mean, as of the date of Termination of

 Employment, the sum of (A) the Employee's aggregate Base Salary through such

 date to the extent not theretofore paid, plus(B) all vacation pay, expense

 reimbursements and other cash entitlements earned by the Employee hereunder as

 of such date to the extent not theretofore paid.



              "Base Salary" shall mean the amount set forth in Section 3(a).



              "Board" shall mean the board of directors of the Company.



             "Cause" shall mean (i) the Employee's material violation of any of

  Sections 2(c), 4(a),4(b) or 4(c) of this Agreement; (ii) the Employee engaging

  in conduct which is fraudulent or illegal with respect to the Company or any

  of its subsidiaries; (iii) the Employee's gross negligence in the performance

  or nonperformance of his duties or responsibilities hereunder; (iv) the

  Employee's engagement in misconduct which is materially injurious or

  materially damaging to the Company or any of its subsidiaries or the

  reputation of the Company or any of its subsidiaries; (v) the Employee's

  conviction of, or plea of nolo contendere to, a felony; (vi) failure to

  cooperate with regulatory or legal proceedings; or (vii) material breach of

  Company policy.



              "Competitor" shall have the meaning set forth in Section 4(b).



              "Confidential Information" shall have the meaning set forth in

              Section 4(c).



              "Change of Control" shall mean a change in control of a nature as

  set forth in the Duckwall-ALCO Stores, Inc. Incentives Stock Option Plan of

  2003, or as may be amended ("ISO Plan").



              "Disability" shall mean Employee's permanent disability or

  incapacity as determined in accordance with the Company's disability insurance

  policy, if such a policy is



<PAGE>







              then in effect, or if no such policy is then in effect, such

  permanent disability or incapacity shall be determined by the Company in its

  good faith judgment based upon inability to perform the essential functions of

  his position, with reasonable accommodation by the Company, for a period in

  excess of 180 days during any period of 365 calendar days.



            "Good Reason" means assignment of the Employee to duties and

 responsibilities that are substantially inconsistent with the scope of the

 duties and responsibilities of Employee or the Company has a Change in Control.



            "Person" shall mean an individual, corporation, partnership, joint

 venture, association, joint-stock company, trust, unincorporated organization,

 other entity or governmental or other agency or political subdivision thereof.



             "Term" shall mean the period beginning on the date of this

 Agreement and ending as provided in Section 2(b).



             "Termination of Employment" shall mean (i) the Employee's death or

 Disability, (ii) termination by the Company of the Employee's employment for

 Cause or without Cause, (iii) resignation by the Employee from the employ of

 the Company, (iv) retirement of the Employee or (v) expiration of the Term.

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