wilsonempagmt.htm


    

      


      


      Duckwall-Alco
Stores, Inc.

      401
Cottage Street

      Abilene,
Kansas 67410

      


      


      


      February
11, 2010

      


      


      


      Mr.
Richard E. Wilson

      48
Woodbine Street

      Newton,
MA  02466

      


      Re: Employment Agreement

      


      This is your Employment
Agreement (the “Agreement’) with Duckwall-Alco Stores, Inc., a
Kansas corporation (the “Company”). It sets forth the
terms of your employment with the Company.

      


      1.  Your Position, Performance and
Other Activities

       

      (a) Position. You will be
employed in the position of President and Chief Executive Officer of the
Company.

       

      (b)   Authority, Responsibilities and
Reporting. You will report directly to the Company’s Board of Directors
(the “Board’) and be
given such duties, authorities and responsibilities that are consistent with
your being the Company’s most senior executive officer as determined by the
Board.

       

      (c) Performance. During your
employment, except as permitted under Section 1(d), you will devote your full
business time and attention to the Company and will use good faith efforts to
discharge your responsibilities under this Agreement to the best of your
ability. During your employment, your primary work place will be at the
Company’s corporate headquarters in Abilene, Kansas.

       

      (d) Other Activities. You may (1)
continue to serve as a member of the Board of Directors of any civic or
charitable boards in your individual capacity, and (2) manage personal
investments, so long as (A) these activities do not interfere with your
performance of your responsibilities under this Agreement, and (B) any service
on a civic or charitable board is approved by the Board.

       

      2. 
 Employment
Period

       

      Your employment under this Agreement
will begin on February 15, 2010 (the “Start Date” of this
Agreement) and will thereafter govern your employment with the Company until the
effective date of termination of your employment in accordance with Section 5
(such period of your employment, the “Employment Period"). During
the Employment Period, you will be an “at-will” employee of the
Company.

      


      3. 
 Your
Compensation

       

      (a) Salary. During your
employment, you will receive an annual base salary of $450,000.00 (your “Salary”). Your Salary will
be paid in accordance with the Company’s normal practices for senior
executives.

       

      (b) Bonus.

       

      (i) For each
Bonus Period (as defined below), you will be eligible to receive an annual bonus
(your “Bonus”), subject
to the Company’s achievement of certain financial objectives as more
particularly described below. Your Bonus will be paid in cash within 60 days
following the end of the applicable Bonus Period. “Bonus Period” means each of
the First Bonus Period and the Subsequent Bonus Period. “First Bonus Period” means
the period commencing on the Start Date and ending at the end of the fiscal
year. “Subsequent Bonus
Period” means each period commencing at the start of each fiscal year
subsequent to the First Bonus Period and ending at the end of such fiscal year.
Any Bonus payments will be prorated based on changes in Salary that may occur
during the fiscal year.

       

      (ii) The
amount of the Bonus will be determined based upon the Company’s Return on Equity
(ROE) (as defined below) for the applicable Bonus Period as described
below:

       

      
        	
                ROE

              	
                Amount
      of Bonus

                 

              
	
                7.49%
      or less

              	
                No
      Bonus

                 

              
	
                7.5%
      to 9.99%

              	
                50%
      of Salary

                 

              
	
                10%
      to 12.49%

              	
                75%
      of Salary

                 

              
	
                12.5%
      to 14.99%

              	
                100%
      of Salary

                 

              
	
                15%
      to 17.49%

              	
                125%
      of Salary

                 

              
	
                17.5
      or more

              	
                150%
      of Salary

              


      

      


      “Return on Equity”, for any
12 month period, means earnings from continuing operations before discontinued
operations for such period, excluding cumulative changes in accounting and
one-time termination benefits recognized in accordance with FAS 146, divided by
the stockholders’ equity at the end of the immediately preceding 12-month
period.

      


      (iii) You agree
to reimburse the Company for, or have the Company offset against additional
amounts owed to you under this Agreement or otherwise, any Bonus paid to you to
the extent that such Bonus was paid on financial information which is later
determined to be materially overstated and results in any financial restatement,
which would have lessened the amount paid to you.

       

      (c) Initial
Incentive Awards.

       

      (i) In
addition to your Salary and Bonus, subject to approval of the Board, on or
promptly following your Start Date, you will be awarded options to purchase (1)
100,000 shares of the Company’s common stock (the “Options”), subject to the
provisions of the Company’s Incentive Stock Option Plan (the “ISO Plan”) and the option
award agreement thereunder.  The exercise price of the Options will be
the closing sale price of the Company’s common stock on the NASDAQ Global Market
on the date of grant (the “Option Grant
Date”).

       

      (ii) Your
Options will become vested and exercisable in accordance with the following
schedule, provided you are employed by the Company on the applicable vesting
date:

       

      •           25%
will vest 12 months from the Option Grant Date;

      •           25%
will vest 24 months from the Option Grant Date;

      •           25%
will vest 36 months from the Option Grant Date; and

      •           25%
will vest 48 months from the Option Grant Date.

       

      Upon a “Change of Control” (as defined
in the ISO Plan), all your Options that have not yet vested shall vest and
become exercisable in accordance with the terms of the option award agreements,
provided that within eighteen (18) months of a Change of Control, you have been
terminated by the Company without Cause or you have terminated your employment
for Good Reason, as those terms are defined in this
Agreement.  Further, should your options vest as a result of a Change
of Control under this Paragraph, your then current salary will continue for
eighteen (18) months under Paragraph 6(b)(2)(A), rather than for twelve (12)
months.

      


      4. 
Other
Employee Benefits

       

      (a) Vacation. You will be
entitled to four weeks of paid annual vacation during your
employment.

       

      (b) Business Expenses. You will
be reimbursed for all reasonable business expenses incurred by you in performing
your responsibilities under this Agreement in accordance with Company policies.
If any business expense is taxable, reimbursement will not be paid later than
December 31 of the year in which the expense is incurred.

       

      (c) Employee Benefit Plans.
During your employment, you will be eligible to participate in each of
the Company’s employee benefit plans, on a basis that is at least as favorable
as that provided to other senior executives of the Company, subject to the terms
of the plans. However, nothing in this Agreement prohibits the Company from
amending any employee benefit plan in accordance with its terms.

       

      (d) Legal Fees; Relocation. The
Company will reimburse you for (i) reasonable legal fees and expenses in
connection with the negotiation, preparation and execution of this letter and
(ii) reasonable relocation expenses related to your move from the Boston,
Massachusetts metropolitan area to Abilene, Kansas, in an amount not to exceed
$30,000 in the aggregate. Any reimbursements made to you under this Section will
be made on or before December 31, 2010, subject to your prior submission of
appropriate supporting documentation in accordance with the Company’s
policies.

       

      5. 
Early
Termination of Your Employment

       

      (a) No Reason Required. You or
the Company may terminate your employment at any time for any reason, or for no
reason, subject to compliance with Section 5(e).

       

      (b) Termination by the Company for
Cause.

       

      (1) “Cause” means any of the
following:

       

      (A) Your
continued failure, either due to willful action or as a result of negligence, to
perform your duties and responsibilities to the Company under this
Agreement.

       

      (B) Your
engagement in conduct which is injurious to the Company, or that harms the
reputation or financial position of the Company, unless the conduct in question
was undertaken in good faith on an informed basis with due care and with a
rational business purpose and based upon the honest belief that such conduct was
in the best interest of the Company.

       

      (C) Your
conviction of, or plea of guilty or nolo contendere to, a felony
or any other crime involving dishonesty, fraud or moral turpitude.

       

      (D) Your
being found liable in any SEC or other civil or criminal securities law action
or entering any cease and desist order with respect to such action (regardless
of whether or not you admit or deny liability).

       

      (E) Your
breach of your fiduciary duties to the Company which may reasonably be expected
to have a material adverse effect on the Company.

       

      (F) Your
unauthorized use or disclosure of confidential or proprietary information, or
related materials, or the violation of any of the terms of the Company’s
standard confidentiality policies and procedures.

       

      (G) Your
violation of the Company’s policies on discrimination, harassment or substance
abuse.

       

      (2) To
terminate your employment “for Cause”, the Board must determine in good faith
that Cause has occurred, the Company must comply with Section 5(e) and the Company must
deliver to you a copy of a resolution duly adopted by a majority of the entire
Board at a meeting of the Board called and held for such purpose (after
reasonable notice to you and a reasonable opportunity for you to be heard) that
finds that in the good faith opinion of the Board, Cause has occurred and states
the basis for that belief.

       

      (c) Termination
by You for Good Reason.

       

      (1) “Good Reason” means any of
the following:

       

      (A) Any material diminution in your Salary, other than any such reduction
agreed to by you in writing.

       

      (B) Any
material diminution in your authority, duties or responsibilities, other than any such
diminution agreed to by you in writing.

       

      (C) Any other
action or inaction that constitutes a material breach by the Company of this
Agreement.

       

      (2) The
Company’s placing you on paid leave for up to 90 consecutive days while it is
determining whether there is a basis to terminate your employment for Cause will
not constitute Good Reason.

       

      (3) To
terminate your employment “for Good Reason”, you must give the Company a
Termination Notice detailing why you believe a Good Reason event has occurred
and such notice must be provided to the Company within ninety (90) days of the
initial occurrence of such alleged Good Reason event. The Company shall then
have thirty (30) days after its receipt of written notice to cure the item cited
in the written notice. “Good Reason” will not have formally occurred with
respect to the event in question, unless and until the cure period has expired
and the item remains uncured. At the end of the cure period, if the Company has
not cured the basis for the Good Reason termination, your obligation to serve
the Company, and the Company’s obligation to employ you under the terms of this
Agreement, shall terminate simultaneously.

       

      (d) Termination
on Disability or Death.

       

      (1) The term
“Disability” means your
permanent disability or incapacity as determined in accordance with the
Company’s long term or permanent disability insurance policy, if such policy is
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 your inability to perform the essential functions of your
position, with reasonable accommodation by the Company, for a period in excess
of 180 days during any period of 365 calendar days.

       

      (2) Your
employment will terminate automatically on your death. If you die before your
employment starts, all of the provisions of this Agreement will also terminate
and there will be no liability of any kind under this Agreement.

       

      (e) Advance Notice Generally
Required.

       

      (1) To
terminate your employment, either you or the Company must provide a written
notice of termination to the other (a “Termination
Notice”)

       

      (2) You and
the Company agree to provide 30 days’ advance Termination Notice of any
termination, unless
your employment is terminated by the Company for Cause or because of your
Disability or death.

       

      6. 
The
Company’s Obligations in Connection With Your Termination.

       

      (a) General Effect. On
termination in accordance with Section 5, your employment will end and the
Company will have no further obligations to you except as provided in this
Section 6.

       

      (b) Without Cause or for Good Reason.
If the Company terminates your employment without Cause or you terminate
for Good Reason:

       

      (1) The
Company will pay you the following through the effective date of your
termination of employment with the Company (the “Termination Date”): (A) your
unpaid Salary on the next regular payroll date, (B) your Salary for any accrued
but unused vacation on the next regular payroll date, (C) any accrued expense
reimbursements due under Sections 4(b) and 4(d), and (D) any earned but unpaid
Bonus for a Bonus Period that has been completed before the Termination Date,
paid when it otherwise would have been paid if you had remained employed by the
Company (together, your “Accrued Compensation”). In
addition, the Company will timely pay you any amounts and provide you any
benefits that are required, or to which you are entitled under any plan,
contract or arrangement of the Company in accordance with the terms of such
plans, contracts or arrangements, including your rights under any equity
incentive award agreement under Section 3(c) (together, the “Other
Benefits”).

       

      (2) In
addition to the amounts set forth in Section 6(b)(I), the Company will provide
you the following amounts after your “separation from service” (within the
meaning of 409A (defined in Section I2(i)) and the Treasury Regulations
thereunder), in exchange for your release of any claims in the form attached
hereto as Exhibit A, provided you sign said release and it becomes effective
within 60 calendar days after such “separation from service” (the “Release Deadline”)
:

       

      (A) your then
current Salary, at regular pay cycle intervals, for 12 months (the “Severance Period”),
commencing in the first regular pay cycle in the calendar month following
the calendar month containing the Release Deadline, subject to Section I2(i);
and

       

      (B) if your
Termination Date occurs more than six months after the commencement of the most
recent Bonus Period, your Pro-Rated Bonus, payable on the later of (i) the first
day following the Release Deadline and (E) the date it would have been paid if
you had remained employed by the Company. Your “Pro-Rated Bonus” means the
Bonus that you otherwise would have received had you continued to be employed
through the end of the applicable Bonus Period in which your Termination Date
occurs, payable based on the actual performance results for such Bonus Period,
multiplied by a fraction, the numerator of which is the number of days from the
beginning of such applicable Bonus Period through your Termination Date and the
denominator of which is the total number of days in such applicable Bonus
Period.

       

      (C) For Cause or Termination Without
Good Reason by Executive. If the Company terminates your employment for
Cause or you terminate your employment without Good Reason, the Company will pay
your Accrued Compensation and provide your Other Benefits, provided, however,
there will be no further vesting of any stock option, or other equity based
compensation.

       

      (D) For Your Disability or Death.
If your employment terminates as a result of your death or Disability,
the Company will pay your Accrued Compensation and provide your Other Benefits.
In addition, if you are terminated due to death or Disability and the
termination occurs more than six months after the commencement of the most
recent Bonus Period, the Company will pay your Pro-Rated Bonus on the date it
would have been paid if you had remained employed by the Company.

       

      7.   Proprietary
Information

      


      (a) Definition. “Proprietary
Information” means confidential or proprietary information, knowledge or
data concerning (1) the Company’s businesses, strategies, operations, financial
affairs, organizational matters, personnel matters, budgets, business plans,
marketing plans, studies, policies, procedures, products, ideas, processes,
software systems, trade secrets and technical know-how, (2) any other matter
relating to the Company and (3) any matter relating to customers of the Company
or other third parties having relationships with the Company. Proprietary
Information includes (1) information regarding any aspect of your tenure as an
employee of the Company or the termination of your employment, (2) the names,
addresses, and phone numbers and other information concerning customers and
prospective customers of the Company, and (3) information and materials
concerning the personal affairs of employees of the Company. In addition,
Proprietary Information may include information furnished to you orally or in
writing (whatever the form or storage medium) or gathered by inspection, in each
case before or after the date of this Agreement. However, Proprietary
Information does not include information (1) that was or becomes generally
available to you on a non-confidential basis, if the source of this information
was not reasonably known to you to be bound by a duty of confidentiality, (2)
that was or becomes generally available to the public, other than as a result of
a wrongful disclosure by you, directly or indirectly, or (3) that you can
establish was independently developed by you without reference to any
Proprietary Information.

       

      (b) Use and Disclosure. You will
obtain or create Proprietary Information in the course of your involvement in
the Company’s activities and may already have Proprietary Information. You agree
that the Proprietary Information is the exclusive property of the Company, and
that, during your employment, you will use and disclose Proprietary Information
only for the Company’s benefit and in accordance with any restrictions placed on
its use or disclosure by the Company. After your employment, you will not use or
disclose any Proprietary Information. In addition, nothing in this Agreement
will operate to weaken or waive any rights the Company may have under statutory
or common law, or any other agreement, to the protection of trade secrets,
confidential business information and other confidential
information.

       

      (c) Limitations. Nothing in this
Agreement prohibits you from providing truthful testimony concerning the Company
to governmental, regulatory or self-regulatory authorities.

       

      8.   Ongoing Restrictions on
Your Activities

      


      (a) General Effect. This Section
8 applies during your employment and for the 12-month period after your
employment ends. This Section uses the following defined terms:

       

      


      
        	
                 
      

              	
                “Competitive Enterprise”
      means any business enterprise that either (1) engages in any
      material activity that competes anywhere with any material activity in
      which the Company is then engaged or (2) holds a 5% or greater equity,
      voting or profit participation interest in any enterprise that engages in
      such a competitive activity.

              


      

      


      
        	
                 
      

              	
                “Customer” means any
      customer or prospective customer of the Company to whom you provided
      services, or for whom you transacted business, or whose identity became
      known to you in connection with your relationship with or employment by
      the Company.

              


      

      


      
        	
                 
      

              	
                “Solicit” means any
      direct or indirect communication of any kind, regardless of who initiates
      it, that in any way invites, advises, encourages or requests any person to
      take or refrain from taking any
action.

              


      

      


      (b) Your
Importance to the Company and the Effect of this Section 8. You acknowledge
that:

       

      (1) In the
course of your involvement in the Company’s activities, you will have access to
Proprietary Information and the Company’s customer base and will profit from the
goodwill associated with the Company. On the other hand, in view of your access
to Proprietary Information and your importance to the Company, if you compete
with the Company for some time after your employment, the Company will likely
suffer significant harm. In return for the benefits you will receive from the
Company and to induce the Company to enter into this Agreement, and in light of
the potential harm you could cause the Company, you agree to the provisions of
this Section 8. The Company would not have entered into this Agreement if you
did not agree to this Section 8.

       

      (2) In light
of Section 8(b)(l), if you breach any provision of this Section 8, the loss to
the Company would be material but the amount of loss would be uncertain and not
readily ascertainable.

       

      (3) This
Section 8 limits your ability to earn a livelihood in a Competitive Enterprise
and your relationships with Customers. You acknowledge, however, that complying
with this Section 8 will not result in severe economic hardship for you or your
family.

       

      (c) Your Payment
Obligations.

       

      (1) If you
fail to comply with this Section 8 during the Employment Period and for a
12-month period thereafter, other than any isolated, insubstantial and
inadvertent failure that is not in bad faith, you will:

       

      (A) forfeit
all (i) Options and other equity-based compensation (with features similar to
exercise) that have been awarded by the Company to you and not been exercised at
the time of determination and (ii) restricted stock and other equity-based
compensation (without features similar to exercise) that have been awarded by
the Company and not vested at the time of determination; and

       

      (B) pay to
the Company the amount of all gain to you within the 12 months before the time
of determination from (i) the exercise of any Options and other equity-based
compensation (with features similar to exercise) that have been awarded by the
Company to you, (ii) the vesting of any restricted stock and other equity-based
compensation (without features similar to exercise) that have been awarded by
the Company to you and (iii) the forgiveness by the Company of any loan to
you.

       

      (2) To
determine the amount you owe under this Section 8(c)(I)(B):

       

      (A) The value
of the Company’s common stock on any date will be calculated using the average
closing sale price of the Company’s common stock on the NASDAQ Global Market for
the 20 full trading days ending on that date.

       

      (B) Gain on
the exercise of stock options and other equity-based compensation with features
similar to exercise will be based on the value of the Company’s common stock on
the date of exercise.

       

      (C) Gain on
the vesting of any restricted stock and other equity-based compensation without
features similar to exercise will be based on the value of the Company’s common
stock on the date of vesting.

       

      (D) Gain will
be determined after any income taxes that you owe as a result of vesting,
exercise or forgiveness (or would owe if the exercise or vesting resulted in the
realization of income or gain at the time for income tax purposes) so long as you timely pay all of
these taxes that you owe and you pay to the Company any federal, state or local
income tax benefit to you as a result of paying the Company under this Section
8(c) within 5 Business Days of the time that you actually realize the benefit. A
“Business Day” means
any day on which banks are open for business in New York, New York.

       

      (3) You will
pay the Company under this Section 8(c) within 5 Business Days of notice by the
Company, and the date of notice will be the date of determination for purposes
of this Section. You will pay the Company in cash. However, you may choose to
deliver Company stock (valued in accordance with Section 8(c)(2)) in partial or
full satisfaction of your obligation. Your obligations under Section 8(c) are
full recourse obligations. The Company will have the right to offset your
obligations under this Section 8(c) against any amounts otherwise owed to you by
the Company, including under this Agreement.

       

      (d) Non-Competition. During your
Employment Period and for a 12-month period after termination of your
employment, you will not directly or indirectly:

       

      (1) hold a 5%
or greater equity, voting or profit participation interest in a Competitive
Enterprise; or

       

      (2) associate
(including as a director, officer, employee, partner, consultant, agent or
advisor) with a Competitive Enterprise.

       

      (e) Non-Solicitation of Customers.
During your Employment Period and for a 12 month period after termination
of your employment, you will not attempt to:

       

      (1) Solicit
any Customers to transact business with a Competitive Enterprise;

       

      (2) cause
Customers to reduce or refrain from doing any business with the
Company;

       

      (3) transact
business with any Customers that would cause you to be a Competitive Enterprise
or to cause Customers to reduce or refrain from doing any business with the
Company, or

       

      (4) interfere
with or damage any relationship between the Company and a Customer.

       

      (f) Non-Solicitation of Company
Employees. During your Employment Period and for a 12-month period after
termination of your employment, you will not attempt to Solicit anyone who is
then an employee of the Company (or who was an employee of the Company within
the six months prior to your Termination Date) to resign from the Company or to
apply for or accept employment with any Competitive Enterprise.

       

      (g) Notice to New Employers. Before you
either apply for or accept employment with any other person or entity while any
of Section 8(d), (e) or (f) is in effect, you will provide the prospective
employer with written notice of the provisions of this Section 8 and will
deliver a copy of the notice to the Company.

       

      (h) No Public Statements. You
agree that you will not make any public statements regarding your employment or
the termination of your employment (for whatever reason) that are not agreed to
by the Company. You agree that you will not make any public statement that would
libel, slander or disparage the Company or any of its respective past or present
officers, directors, employees or agents. The Company agrees that it will not
make any public statement that would libel or slander you. This Section 8(h) is
subject to Section 7(c).

       

      


      9.   Effect on Other
Agreements; Entire Agreement

      


      (a) This
Agreement is the entire agreement between you and the Company with respect to
the relationship contemplated by this Agreement and supersedes any earlier
agreement, written or oral, with respect to the subject matter of this
Agreement. In entering into this Agreement, no party has relied on or made any
representation, warranty, inducement, promise or understanding that is not in
this Agreement.

       

      (b) You
represent and warrant that you do not have any agreements, obligations,
relationships or commitments to any other person or entity that conflict or
would conflict with accepting this offer or fully performing your duties and
obligations of this position, including, without limitation any ongoing
obligations you may have to your former employer. You further represent that the
credentials and information you provided to the Company (or its agents) related
to your qualifications and ability to perform this position are true and
correct.

       

      10.  Successors

      


      (a) Payments on Your Death. If
you die and any amounts become payable under this Agreement, we will pay those
amounts to your designated beneficiaries and in the absence thereof, your
estate.

       

      (b) Assignment by You. You may
not assign this Agreement without the Company’s consent. Also, except as
required by law, your right to receive payments or benefits under this Agreement
may not be subject to execution, attachment, levy or similar process. Any
attempt to effect any of the preceding in violation of this Section 10(b),
whether voluntary or involuntary, will be void.

       

      (c) Assumption by any Surviving Company.
Before the effectiveness of any merger, consolidation, statutory share
exchange or similar transaction (including an exchange offer combined with a
merger or consolidation) involving the Company (a “Reorganization”) or any
sale, lease or other disposition (including by way of a series of transactions
or by way of merger, consolidation, stock sale or similar transaction involving
one or more subsidiaries) of all or substantially all of the Company’s
consolidated assets (a “Sale”), the Company will
cause (1) the Surviving Company to assume this Agreement in writing and (2) a
copy of the assumption to be provided to you. After the Reorganization or Sale,
the Surviving Company will be treated for all purposes as the Company under this
Agreement. The “Surviving Company” means (i) in a Reorganization, the entity
resulting from the Reorganization or (ii) in a Sale, the entity that has
acquired all or substantially all of the assets of the Company.

       

      11.  Disputes

      


      (a) This
Section 11 applies to any controversy or claim between you and the Company
arising out of or relating to or concerning this Agreement or any aspect of your
employment with the Company or the termination of that employment (together, an
“Employment
Matter”).

       

      (b) Mandatory
Arbitration. Subject to
the provisions of this Section 11, any Employment Matter will be finally settled
by arbitration in the County of New York administered by the American
Arbitration Association under its Employee Arbitration Rules then in
effect. However, the rules will be modified in the following ways: (1)
the decision must not be a compromise but must be the adoption of the submission
by one of the parties, (2) each arbitrator will agree to treat as confidential
evidence and other information presented to the same extent as the information
is required to be kept confidential under Section 7, (3) there will be no
authority to amend or modify the terms of this Agreement except as provided in
Section 12(c) (and you and the Company agree not to request any such amendment
or modification), (4) a decision must be rendered within 10 Business Days of the
parties’ closing statements or submission of post-hearing briefs and (5) the
arbitration will be conducted before a panel of three arbitrators, one selected
by you within 10 days of the commencement of arbitration, one selected by the
Company in the same period and the third selected jointly by these arbitrators
(or, if they are unable to agree on an arbitrator within 30 days of the
commencement of arbitration, the third arbitrator will be appointed by the
American Arbitration Association; provided that the arbitrator shall be a
partner or former partner at a nationally recognized law firm).

       

      (c) Limitation on Damages. You
and the Company agree that there will be no punitive damages payable as a result
of any action brought under this Agreement and agree not to request punitive
damages.

       

      (d) Injunctions and
Enforcement of Arbitration Awards. You or the Company may bring an
action or special proceeding in a state or federal court of competent
jurisdiction sitting in the County of New York to enforce any arbitration award
under Section 11(b). Also, the Company may bring such an action or
proceeding, in addition to its rights under Section 11(b) and whether or not an
arbitration proceeding has been or is ever initiated, to temporarily,
preliminarily or permanently enforce any part of Sections 7 and 8. You agree
that (1) your violating any part of Sections 7 and 8 would cause damage to the
Company that cannot be measured or repaired, (2) the Company therefore is
entitled to an injunction, restraining order or other equitable relief
restraining any actual or threatened violation of those Sections, (3) no bond
will need to be posted for the Company to receive such an injunction, order or
other relief, and (4) no proof will be required that monetary damages for
violations of those Sections would be difficult to calculate and that remedies
at law would be inadequate.

       

      (e) Jurisdiction and
Choice of Forum. You and
the Company irrevocably submit to the exclusive jurisdiction of any state or
federal court located in the County of New York over any Employment Matter that
is not otherwise arbitrated or resolved according to Section II(b). This
includes any action or proceeding to compel arbitration or to enforce an
arbitration award. Both you and the Company (1) acknowledge that the forum
stated in this Section 11 (e) has a reasonable relation to this Agreement and to
the relationship between you and the Company and that the submission to the
forum will apply even if the forum chooses to apply non-forum law, (2) waive, to
the extent permitted by law, any objection to personal jurisdiction or to the
laying of venue of any action or proceeding covered by this Section 11(e) in the
forum stated in this Section, (3) agree not to commence any such action or
proceeding in any forum other than the forum stated in this Section 11 (e) and
(4) agree that, to the extent permitted by law, a final and non-appealable
judgment in any such action or proceeding in any such court will be conclusive
and binding on you and the Company. However, nothing in this Agreement precludes
you or the Company from bringing any action or proceeding in any court for the
purpose of enforcing the provisions of Sections 11(b) and this
11(e).

       

      (f) Waiver of Jury Trial. To the
extent permitted by law, you and the Company waive any and all rights to a jury
trial with respect to any Employment Matter.

       

      (g) Governing Law. This Agreement
will be governed by and construed in accordance with the law of the State of
Kansas applicable to contracts made and to be performed entirely within that
State.

       

      12.           General
Provisions

      


      (a)           Construction.

      


      (1) References
(A) to Sections are to sections of this Agreement unless otherwise stated; (B)
to any contract (including this Agreement) are to the contract as amended,
modified, supplemented or replaced from time to time; (C) to any statute, rule
or regulation are to the statute, rule or regulation as amended, modified,
supplemented or replaced from time to time (and, in the case of statutes,
include any rules and regulations promulgated under the statute) and to any
section of any statute, rule or regulation include any successor to the section;
(D) to any governmental authority include any successor to the governmental
authority; (E) to any plan include any programs, practices and policies; (F) to
any entity include any corporation, limited liability company, partnership,
association, business trust and similar organization and include any
governmental authority; and (G) to any affiliate of any entity are to any person
or other entity directly or indirectly controlling, controlled by or under
common control with the first entity.

       

      (2) The
various headings in this Agreement are for convenience of reference only and in
no way define, limit or describe the scope or intent of any provisions or
Sections of this Agreement.

       

      (3) Unless
the context requires otherwise, (A) words describing the singular number include
the plural and vice versa, (B) words denoting any gender include all genders and
(C) the words “include”, “includes” and “including” will be deemed to be
followed by the words “without limitation.”

       

      (4) It is
your and the Company’s intention that this Agreement not be construed more
strictly with regard to you or the Company.

       

      (b) Withholding. You and the
Company will treat all payments to you under this Agreement as compensation for
services. Accordingly, the Company may withhold from any payment any taxes that
are required to be withheld under any law, rule or regulation.

       

      (c) Severability. If any
provision of this Agreement is found by any court of competent jurisdiction (or
legally empowered agency) to be illegal, invalid or unenforceable for any
reason, then (1) the provision will be amended automatically to the minimum
extent necessary to cure the illegality or invalidity and permit enforcement and
(2) the remainder of this Agreement will not be affected. In particular, if any
provision of Section 8 is so found to violate law or be unenforceable because it
applies for longer than a maximum permitted period or to greater than a maximum
permitted area, it will be automatically amended to apply for the maximum
permitted period and maximum permitted area.

       

      (d) Notices. All notices,
requests, demands and other communications under this Agreement must be in
writing and will be deemed given (1) on the business day sent, when delivered by
hand during normal business hours, (2) on the business day after the business
day sent, if delivered by a nationally recognized overnight courier or (3) on
the third business day after the business day sent if delivered by registered or
certified mail, return receipt requested, in each case to the following address
(or to such other addresses as may be specified by notice that conforms to this
Section 12(d)):

       

      If to
you, to your address then on file with the Company’s payroll
department.

      


      If to the
Company or any other member of the Company, to:

      


      Duckwall-Alco
Stores, Inc.

      401
Cottage Street

      Abilene,
Kansas 67410

      Attention:  Chairman
of the Board of Directors

      


      (e) Consideration and Approvals.
This Agreement is in consideration of the mutual covenants contained in
it. You and the Company acknowledge the receipt and sufficiency of the
consideration to this Agreement and intend this Agreement to be legally binding.
The Company represents and warrants it has taken all actions necessary to
approve this Agreement, including the equity grants provided by this
Agreement.

       

      (f) Amendments and Waivers. Any
provision of this Agreement may be amended or waived but only if the amendment
or waiver is in writing and signed, in the case of an amendment, by you and the
Company or, in the case of a waiver, by the party that would have benefited from
the provision waived. Except as this Agreement otherwise provides, no failure or
delay by you or the Company to exercise any right or remedy under this Agreement
will operate as a waiver, and no partial exercise of any right or remedy will
preclude any further exercise.

       

      (g) Third Party Beneficiaries.
Subject to Section 10, this Agreement will be binding on, inure to the
benefit of and be enforceable by the parties and their respective heirs,
personal representatives, successors and assigns. This Agreement does not confer
any rights, remedies, obligations or liabilities to any entity or person other
than you and the Company and your and the Company’s permitted successors and
assigns, although this Agreement will inure to the benefit of the
Company.

       

      (h) Counterparts. This Agreement
may be executed in counterparts, each of which will constitute an original and
all of which, when taken together, will constitute one agreement.

       

      (i) Internal Revenue Code Section 409A.
Notwithstanding anything contained in this Agreement to the contrary, if
you are deemed by the Company at the time of your “separation from service” with
the Company to be a “specified employee,” each within the meaning of Section
409A of the Internal Revenue Code (“409A”), severance payments in Section
6(b)(2)(A) that otherwise would be paid in the first six months following
separation from service will instead be paid in the seventh month following
separation from service or, if earlier, within 30 days of your death, except no
delay shall apply with respect to amounts that are due only upon an involuntary
separation from service (as defined in Section 1.409A-1(n) of the Department of
Treasury Regulations), and that, when combined with all other such payments, do
not exceed the amount specified in Section 1.409A1(b)(9)(iii)(A) of the
Department of Treasury Regulations (generally the lesser of two times annualized
payor two times the compensation limit in Section 401 (a)(17) of the Internal
Revenue Code), and to the extent severance amounts are required to be delayed,
such severance amounts are considered for purposes of 409A to be separate
payments from the severance amounts that are not required to be delayed. The
Agreement shall be interpreted to ensure that the payments made to you are
exempt from, or comply with, 409A; provided, however, that nothing in this
Agreement shall be interpreted or construed to transfer any liability for any
tax (including a tax or penalty due as a result of a failure to comply with
409A) from you to the Company or to any other individual or entity.

       

       

      
 

      
        	 
      	
                Very truly yours,

                /s/ Royce Winsten

                 

                Royce
      Winsten

                Chairman
      of the Board

                 

              
	 
      	 
      
	
                Accepted
      and Agreed to:

                 

                 

                 

                /s/ Richard E. Wilson

                Richard
      E. Wilson

                 

                February
      15, 2010

              	 
      


      


      
        
          
            85491499.1

          

           


        

        
           


          
            

          

        

        
           


        

      


      


      Separation and Release
Agreement

      


      THIS SEPARATION AND RELEASE AGREEMENT
(this “Agreement”) is
made as of the ____ day of ______________, by and between Richard E. Wilson (the
“Executive”) and
Duckwall-Alco Stores, Inc., a Kansas corporation (the “Company”).

      


      WHEREAS, the Executive’s employment as
an executive of the Company has terminated; and

      


      WHEREAS, pursuant to Section 6(b)(2) of
the Employment Agreement by and between the Company and the Executive dated
February 15, 2010 (the “Employment Agreement”), the
Company has agreed to pay the Executive certain amounts, subject to the
execution of this Agreement.

      


      NOW THEREFORE, in consideration of
these premises and the mutual promises contained herein, and intending to be
legally bound hereby, the parties agree as follows:

      


      1.           Consideration. The
Executive acknowledges that: (i) the payments set forth in Section 6(b) of the
Employment Agreement constitute full settlement of all his rights under the
Employment Agreement, (ii) he has no entitlement under any other severance or
similar arrangement maintained by the Company, and (iii) except as otherwise
provided specifically in this Agreement, the Company does not and will not have
any other liability or obligation to the Executive. The Executive further
acknowledges that, in the absence of his execution of this Agreement, the
benefits and payments specified in Section 6(b) of the
Employment Agreement would not otherwise be due to him.

      


      2.           Release and Covenant Not to
Sue.

      


      2.1           The
Executive, his heirs and representatives release, waive and forever discharge
the Company, its predecessors and successors, assigns, stockholders,
subsidiaries, parents, affiliates, officers, directors, trustees, current and
former employees, agents and attorneys, past and present and in their respective
capacities as such (the Company and each such person or entity is each referred
to as a “Released
Person”) from all pending or potential claims, counts, causes of action
and demands of any kind whatsoever or nature for money or anything else, whether
such claims are known or unknown, that arose prior to the Executive’s signing
this Agreement or that relate in any way to the Executive’s employment or
termination of employment with the Company. This release includes, but is not
limited to, any and all claims of race discrimination, sexual discrimination,
national origin discrimination, religious discrimination, disability
discrimination, age discrimination and unlawful retaliation and any and all
claims under the following: Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. § 2000e et seq.; Civil Rights Act of 1866,42 U.S.C. § 1981 et
seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601, et seq.;
the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101, et seq.; the
Age Discrimination in Employment Act, as amended by the Older Workers Benefit
Protection Act, 29 U.S.C. § 621, et seq.; Kansas Act Against Discrimination,
Chapter 44, Art. 10, K.S.A.; Employee Retirement Income Security Act of 1974, as
amended, 29 U.S.C. § 1001, et seq.; Rehabilitation Act of 1973,29 U.S.C. § 706,
et seq.; any state, municipal and other local anti-discrimination statutes; any
and all claims for alleged breach of an express or implied contract; any and all
tort claims including, but not limited to, alleged retaliation for assertion of
workers’ compensation rights; any and all claims under workers’ compensation
law; and any and all claims for attorney’s fees.

      


      2.2           The
Executive expressly represents that he has not filed a lawsuit or initiated any
other administrative proceeding against a Released Person and that he has not
assigned any claim against a Released Person. The Executive further promises not
to initiate a lawsuit or to bring any other claim against any Released Person
arising out of or in any way related to the Executive’s employment by the
Company or the termination of that employment. This Agreement will not prevent
the Executive from filing a charge with the Equal Employment Opportunity
Commission (or similar state agency) or participating in any investigation
conducted by the Equal Employment Opportunity Commission (or similar state
agency); provided, however,
that any claims by the Executive for personal relief in connection with
such a charge or investigation (such as reinstatement or monetary damages) would
be barred. In addition, this release shall not affect the Executive’s rights
under the Older Workers Benefit Protection Act to have a judicial determination
of the validity of this release and waiver.

      


      2.3           The
foregoing will not be deemed to release the Company from (a) claims solely to
enforce this Agreement, (b) claims solely to enforce Section 6(b) of the
Employment Agreement, (c) claims solely to enforce the terms of any equity
incentive award agreement between the Executive and the Company, (d) claims for
indemnification under the Company’s By-Laws and/or any applicable
indemnification agreements, and/or

      (e) claims to continue health
care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended or similar state law. The foregoing will not be deemed to release any
person or entity from claims arising after the date of this Agreement, whether
under this Agreement, under the Employment Agreement or otherwise.

      


      3.           Restrictive
Covenants. The Executive acknowledges that the restrictive covenants
contained in Sections
7 and 8 of the Employment Agreement (the “Restrictive Covenants”) will
survive the termination of Executive’s employment. The Executive affirms that
the Restrictive Covenants are reasonable and necessary to protect the legitimate
interests of the Company, that he received adequate consideration in exchange
for agreeing to those restrictions and that he will abide by those restrictions.
The Company acknowledges that its obligations contained in Section 8(h) of the
Employment Agreement will survive the termination of the Executive’s
employment.

      


      4.           Return of Company
Property. The Executive represents and warrants that he has returned all
property belonging to the Company, including, but not limited to, all keys,
access cards, office equipment, computers, cellular telephones, notebooks,
documents, records, files, written materials, electronic information, credit
cards bearing the Company’s name, and other Company property (originals or
copies in whatever form) in the Executive’s possession or under the Executive’s
control.

      


      5.           Cooperation. The
Executive further agrees that, subject to reimbursement of his reasonable
expenses, he will cooperate fully with the Company and its counsel with respect
to any matter (including litigation, investigations, or governmental
proceedings) in which the Executive was in any way involved during his
employment with the Company; provided that such cooperation shall not
unreasonably interfere with Executive’s employment with another employer after
termination of his employment with the Company. The Executive shall render such
cooperation in a timely manner on reasonable notice from the
Company.

       

      6.           Rescission
Right. The Executive
expressly acknowledges and recites that (a) he has read and understands the
terms of this Agreement in its entirety, (b) he has entered into this Agreement
knowingly and voluntarily, without any duress or coercion; (c) he has been
advised orally and is hereby advised in writing to consult with an attorney with
respect to this Agreement before signing it; (d) he was provided twenty-one (21)
calendar days after receipt of the Agreement to consider its terms before
signing it; and (e) he is provided seven (7) calendar days from the date of
signing to terminate and revoke this Agreement, in which case this Agreement
shall be unenforceable, null and void. The Executive may revoke this Agreement
during those seven (7) days by providing written notice of revocation to the
Company at the address specified in Section 12(d) of the Employment
Agreement.

      


      7.           Challenge. If the
Executive violates or challenges the enforceability of any provisions of the
Restrictive Covenants or this Agreement, no further payments, rights or benefits
under Section
6(b)(2) of the Employment Agreement will be due to the
Executive.

      


      8.           Miscellaneous.

      


      8.1           No Admission of
Liability. This Agreement is not to be construed as an admission of any
violation of any federal, state or local statute, ordinance or regulation or of
any duty owed by the Company to the Executive. There have been no such
violations, and the Company specifically denies any such
violations.

      


      8.2           No Reinstatement. The
Executive agrees that he will not without the consent of the Company apply for
reinstatement with the Company or seek in any way to be reinstated, re-employed
or hired by the Company in the future.

      


      8.3           Successors and
Assigns. This Agreement shall inure to the benefit of and be binding upon
the Company and the Executive and their respective successors, permitted
assigns, executors, administrators and heirs. The Executive may not make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise. The Company may assign this Agreement to any successor to all or
substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or
otherwise.

      


      8.4           Severability.
Whenever possible, each provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable law. However, if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability will not affect any
other provision, and this Agreement will be reformed, construed and enforced as
though the invalid, illegal or unenforceable provision had never been herein
contained.

      


      8.5           Entire Agreement;
Amendments. Except as otherwise provided herein, this Agreement contains
the entire agreement and understanding of the parties hereto relating to the
subject matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature relating to the
subject matter hereof. This Agreement may not be changed or modified, except by
an agreement in writing signed by each of the parties hereto.

      


      8.6           Governing Law. This
Agreement shall be governed by, and enforced in accordance with, the laws of the
State of Kansas, without regard to the application of the principles of
conflicts of laws.

      


      8.7           Counterparts and
Facsimiles. This Agreement may be executed, including execution by
facsimile signature, in multiple counterparts, each of which shall be deemed an
original, and all of which together shall be deemed to be one and the same
instrument.


      


      IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and the Executive has executed this Agreement, in each
case as of the date first above written.

      


      


      
        	
                                   EMPLOYEE:

                                  

                 

                 

                                   Richard
      E. Wilson

                 

                                   Date:                      
      

                 

                                   COMPANY:

                 

                                   DUCKWALL-ALCO
      STORES, INC.

                 

                 

                                   By:                                                      

                                   Its:                                                      

                                   Date:                                                      

                 

              


      

      



      
        
          
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