DOLLAR EXPRESS INC, S-1/A, 2000-02-22

DOLLAR EXPRESS INC
S-1/A, 2000-02-22
MISCELLANEOUS RETAIL

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As filed with the Securities and Exchange Commission on February 22, 2000
Registration No. 333-93601

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
Registration Statement Under
The Securities Act of 1933
------------------------

DOLLAR EXPRESS, INC.

(Exact Name of Registrant as Specified in Its Charter)
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Pennsylvania 5331 23-2989081
- --------------------------------- -------------------------------- ------------
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)

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1700 Tomlinson Road
Philadelphia, Pennsylvania 19116-3848
(215) 969-7888
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
Bernard Spain
Chief Executive Officer
Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, Pennsylvania 19116-3848
(215) 969-7888
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
------------------------
COPIES TO:

Barry M. Abelson, Esquire Valerie Ford Jacob, Esquire
Bruce K. Fenton, Esquire Fried, Frank, Harris, Shriver & Jacobson
Pepper Hamilton LLP One New York Plaza
3000 Two Logan Square New York, New York 10004-1980
18th and Arch Streets (212) 859-8000
Philadelphia, PA 19103-2799
(215) 981-4000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / -------------

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ---------------

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ---------------

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /

The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated February 22, 2000

PROSPECTUS

3,400,000 Shares

[GRAPHIC OMITTED]

Common Stock

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This is Dollar Express, Inc.'s initial public offering of common stock.
We are selling 2,333,333 of the shares and our shareholders are selling
1,066,667 of the shares. We will not receive any proceeds from the shares being
sold by our shareholders.

We expect the initial public offering price to be between $14.00 and
$16.00 per share. Currently, no public market exists for the shares. After the
pricing of this offering, we expect that the common stock will be quoted on the
Nasdaq National Market under the symbol "DLRX."

Investing in our common stock involves risks that are described in the
"Risk Factors" section beginning on page 10 of this prospectus.

------------------

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Per Share Total
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Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Dollar Express................ $ $
Proceeds to the selling shareholders........................ $ $
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The underwriters may also purchase up to an additional 510,000 shares
from our selling shareholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares of common stock will be ready for delivery on or about ,
2000.

------------------

Merrill Lynch & Co.
Prudential Securities
U.S. Bancorp Piper Jaffray
First Union Securities, Inc.
Legg Mason Wood Walker
Incorporated
------------------

The date of this prospectus is , 2000.
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[Description of pictures on the front inside cover]

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TABLE OF CONTENTS
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Page
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Prospectus Summary............................................................................................ 5
Risk Factors.................................................................................................. 11
Forward-Looking Statements.................................................................................... 18
Use of Proceeds............................................................................................... 19
Dividend Policy............................................................................................... 20
Capitalization................................................................................................ 20
Dilution...................................................................................................... 22
Selected Financial Data....................................................................................... 24
Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 27
Business...................................................................................................... 39
Management.................................................................................................... 53
Related Party Transactions.................................................................................... 63
Principal and Selling Shareholders............................................................................ 66
Description of Capital Stock.................................................................................. 68
Shares Eligible for Future Sale............................................................................... 72
Material U.S. Tax Considerations Applicable to Non-U.S. Holders of Common Stock............................... 74
Underwriting ................................................................................................. 78
Legal Matters................................................................................................. 82
Experts....................................................................................................... 82
Change in Principal Accountants............................................................................... 82
Where You Can Find More Information........................................................................... 84
Index to Financial Statements................................................................................. F-1

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You should rely only on the information contained in this prospectus.
We have not, and the underwriters have not, authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

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[This page intentionally left blank]

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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus.

Unless we indicate otherwise, the information in this prospectus
assumes that:

o the over-allotment option granted to the underwriters by the selling
shareholders is not exercised;

o the conversion of our outstanding Series A convertible preferred stock
into common stock and the cancellation of warrants to purchase common
stock occurs prior to this offering; and

o a 1.075-for-1 split of our common stock is effected immediately prior
to this offering.

Our Company

Our Dollar Express Stores

We are a leading operator of fixed $1.00 price point stores in the
United States, based on sales. We currently operate 101 stores located in six
states. Our Dollar Express stores operate in the deep discount segment of the
discount retail industry, which is among the fastest growing segments in the
$420 billion mass market retail industry. We offer our customers a wide
assortment of regularly available merchandise, such as housewares, food and
other consumable items, giftware, health and beauty care items and toys. We
supplement this merchandise with ever-changing seasonal and first quality
closeout offerings. This merchandise mix is selected to create a "treasure hunt"
shopping experience. Our products include national brand name merchandise, which
is prominently displayed in our stores, as well as our own and other private
label products. Almost all of our products are sold at our fixed $1.00 price
point and are intended to exceed customers' expectations of the range and
quality of items that can be purchased at this price.

We believe we distinguish ourselves from our competition in the
following ways:

o we balance our merchandising mix between regularly available
consumables and variety merchandise and a changing combination of
seasonal and closeout products;

o we emphasize seasonal and holiday merchandise throughout the year
in our ever-changing product mix;

o we focus attention on the selection and presentation of our
merchandise, considering fashion and color, and emphasize the
design and packaging of those items over which we have control,
particularly our Today's Home private label line;

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o we have established a style and look to our stores that we
believe is more upscale than that of other retailers in our
segment of the retail industry; and

o our stores are typically larger than other dollar stores,
averaging 8,700 square feet.

We believe these features attract customers to our stores, encourage repeat
visits, and generate greater spending.

Each of our founders, Bernard Spain and Murray Spain, has more than 40
years of experience in retail. In addition, the five other members of our senior
management team average more than 20 years of retail experience. Most of these
executives have spent their entire business careers working for us.

In 1998, our Dollar Express stores generated net sales of $111.6
million, representing a compound annual growth rate of 24.9% over the last three
years. In 1998, our Dollar Express stores that were open the entire year
averaged $1.4 million in net sales and had net sales per estimated selling
square foot of $240. Our stores opened in 1998 generated an average first year
pre-tax cash-on-cash return on investment in excess of 100%. This return on
investment measures a store's first year operating income, exclusive of
depreciation expense against the cash cost of opening and operating the store in
its first year of operation. We believe that historically, our new stores have
become profitable during their first full year of operation.

We currently operate 101 Dollar Express stores in six states:
Pennsylvania, New Jersey, Maryland, Delaware, New York and Virginia. We plan to
increase our Dollar Express store count by approximately 25% per year, and
believe that we could operate up to 250 stores within our current 250 mile
distribution radius.

Our Spain's Cards & Gifts Stores

We are one of the largest specialty greeting card vendors in the
Philadelphia metropolitan area, based on number of stores. Our Spain's Cards &
Gifts stores offer our customers a wide selection of greeting cards, moderately
priced giftware, fad and novelty products, candy and other consumer items.
During 1998, our Spain's stores generated net sales of $19.2 million. We
currently operate 25 Spain's stores, primarily in the Philadelphia metropolitan
area. We do not anticipate significant growth in the number of Spain's stores,
but we will take advantage of attractive opportunities for new stores as they
arise.

Our Controlling Shareholders

Bernard Spain and his brother Murray Spain currently control 100% of
our issued and outstanding common stock and hold two seats on our board of
directors. After the completion of the offering, Bernard Spain and Murray Spain
will together beneficially own 47.6% of our common stock (46.5% if the
underwriters exercise their over-allotment option). Through their common stock
ownership and board positions, the Spain brothers will be in a position to exert
significant control over our corporate actions. See "Risk Factors."

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Our Corporate Structure

We are a Pennsylvania corporation formed in 1998. Our operations are
conducted through Dollar Express Stores, Inc., our wholly-owned subsidiary,
which was formed in 1992 as the successor to the partnership formed by the Spain
brothers in 1959. Our executive offices are located at 1700 Tomlinson Road,
Philadelphia, Pennsylvania 19116-3848. Our telephone number is (215) 969-7888.

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The Offering

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Common stock offered:

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By us ............................................ 2,333,333shares

By our selling shareholders....................... 1,066,667shares

Total shares offered ........................ 3,400,000shares

Common stock to be outstanding after this
offering ........................................ 13,083,333shares(1)

Use of proceeds ...................................... We intend to use the net proceeds to be
received by us from this offering:

o to repay the approximately
$19.5 million that we
anticipate will be outstanding
under our $20.0 million term
loan facility upon completion
of this offering;

o to repay the approximately $11.0 million
we anticipate will be outstanding under our
revolving credit facility upon completion of
this offering; and

o for general corporate purposes.

We will not receive any proceeds from
the sale of shares of common
stock by our selling shareholders.
Proposed NASDAQ National Market
symbol............................................ DLRX
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(1) Does not include:
o 279,500 shares of common stock issuable upon exercise of
options granted under our 1999 Stock Option Plan at an
exercise price of $8.96 per share;
o ________ shares of common stock issuable upon the exercise of
options that will be granted under our 1999 Stock Option Plan
on the date of this prospectus at an exercise price equal to
the initial public offering price; and
o _________ shares of common stock issuable upon exercise of
options reserved for future grants under our 1999 Stock Option
Plan.

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Summary Financial Information

The following table sets forth certain of our financial data for the
periods indicated. The statement of operations data for the years ended December
31, 1996, 1997 and 1998 are derived from, and are qualified by reference to, our
audited financial statements included elsewhere in this prospectus. The
statement of operations data for the nine months ended September 30, 1998 and
the thirty nine weeks ended September 30, 1999, and the balance sheet data as of
September 30, 1999, have been derived from, and are qualified by reference to,
our unaudited financial statements included elsewhere in this prospectus, which
in our opinion, include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and results of operations. The results of operations for the thirty
nine weeks ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the full fiscal year ending December 30, 1999
or any other future period. Average annual net sales per store and average
annual net sales per estimated selling square foot include data only for stores
open for the entire year. The change in comparable store net sales includes data
only for stores open for at least 15 months. Effective January 1, 1999, we
adopted a 52/53 week fiscal year. You should read the data set forth below
together with "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included elsewhere in this prospectus.

The pro forma amounts give effect to the conversion of the 3,530,000
outstanding shares of our Series A convertible preferred stock into 3,794,750
shares of our common stock, as if it had occurred on February 5, 1999, as well
as the application of an effective tax rate of 40% to reflect our conversion
from an S to a C corporation as if this conversion had occurred on January 1,
1998. Prior to February 5, 1999, we were treated as an S corporation for federal
and most state income tax purposes. The pro forma amounts also give effect to
the termination of warrants to purchase 447,917 shares of our common stock as if
it had occurred on February 5, 1999. The pro forma, as adjusted amounts
additionally reflect the application of the estimated net proceeds of this
offering to repay outstanding indebtedness, resulting in interest expense
savings, as if the offering had occurred on January 1, 1998. See "Use of
Proceeds" and "Capitalization."

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Nine Months Thirty Nine
Year Ended December 31, Ended Weeks Ended
-------------------------------- September 30, September 30,
1996 1997 1998 1998 1999
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(Dollars in thousands, except per share data)
Statement of Operations Data:
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Net sales...........................................$ 88,362 $ 103,030 $ 130,802 $ 86,290 $ 100,438
Gross profit........................................ 22,617 25,716 38,495 24,091 29,141
Operating profit.................................... 4,279 4,696 10,949 5,344 5,939
Interest expense, net............................... 156 277 283 195 1,640
Income before income taxes.......................... 4,259 4,677 10,853 5,313 4,112
Income taxes (benefit).............................. 35 28 50 26 (333)
Net income ......................................... 4,224 4,649 10,803 5,287 4,445
Net income (loss) available to common shareholders.. 4,224 4,649 10,803 5,287 (639)
Net income (loss) per common share:
Basic......................................$ 0.61 $ 0.67 $ 1.55 $ 0.76 $ (0.09)
Diluted....................................$ 0.61 $ 0.67 $ 1.55 $ 0.76 $ (0.09)
Pro forma net income per common share:
Basic......................................... $ 0.94 $ 0.26
Diluted....................................... $ 0.94 $ 0.26

Pro forma, as adjusted net income per common share:

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Basic......................................... $ 0.72 $ 0.28
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Diluted....................................... $ 0.72 -- $ 0.28
------ ---------

Weighted average number of common shares and common share equivalents
outstanding (in thousands):
Basic......................................... 6,955 6,955 6,955 6,955 6,955
Diluted....................................... 6,955 6,955 6,955 6,955 6,955
Pro forma basic............................... 6,955 10,249
Pro forma diluted............................. 6,955 10,335
Pro forma, as adjusted, basic................. 9,289 12,583
Pro forma, as adjusted, diluted............... 9,289 12,668

Dollar Express Stores Operating Data:

Number of stores at end of period................... 63 70 82 78 93
Average annual net sales per store ................. $ 1,243 $ 1,30 $ 1,430 N/A N/A
Change in comparable store net sales................ 10.7% 0.5% 2.8% 1.4% 2.6%
Average annual net sales per estimated selling
square foot $ 245 $ 232 $ 240 N/A N/A
Estimated selling square footage at period end...... 341,252 406,586 531,263 483,350 670,115

Spain's Stores Operating Data:

Number of stores at end of period................... 24 23 24 24 24
Average annual net sales per store.................. $ 587 $ 706 $ 797 N/A N/A
Change in comparable store net sales................ (4.0)% 16.8% 11.7% 18.9% (11.3)%
Average annual net sales per estimated selling
square foot ...................................... $ 186 $ 211 $ 236 N/A N/A
Estimated selling square footage at period end...... 78,833 77,079 81,541 81,541 81,541

September 30, 1999
-----------------------------------------
Pro Forma
Consolidated Balance Sheet Data: Actual Pro Forma As Adjusted
--------- ------------- ------------
Working capital (deficit)........................... $ (647) $ (647) $ 12,432
Total assets........................................ 43,590 43,590 43,262
Total debt, including current portion............... 35,994 35,994 4,294
Common stock warrants............................... 4,294 -- --
Redeemable convertible preferred stock.............. 31,295 -- --
Total common shareholders' (deficit) equity......... (44,578) (7,056) 24,316
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RISK FACTORS

Investing in our common stock will provide you with an equity ownership
interest in Dollar Express. Your investment will be subject to the risks
inherent in our business. The price of our common stock may decline. You should
consider carefully the following factors as well as other information contained
in this prospectus before deciding to invest in shares of our common stock.

We do not have any long-term contracts to purchase merchandise for our Dollar
Express stores. If we have difficulty obtaining enough quality merchandise to
sell at our fixed $1.00 price point, we may be unable to sufficiently stock our
stores. If this occurs, our product offering may become significantly less
attractive to customers, leading to significantly lower sales and profits in
each of our stores.

Our future success depends upon our ability to purchase and sell an
interesting mix of quality merchandise while maintaining our fixed $1.00 price
point. We do not have continuing contracts for the purchase of merchandise for
our Dollar Express stores and must continuously seek out buying opportunities
from both our existing suppliers and new sources. We compete with mass
merchandisers, discount stores, closeout stores and other dollar stores for
merchandise. Even though we consider our relationships with our suppliers to be
strong, we may still experience disruptions in our ability to obtain
merchandise. Any disruptions in the availability of quality, affordable
merchandise in sufficient quantities to maintain our current operations or
support our continued growth could cause our product offering to become
significantly less attractive to customers, leading to significantly lower sales
and profits.

Our revenue and earnings growth rely, to a significant extent, on our ability to
open new stores. If we are unable to successfully open new stores, our future
growth will suffer.

Our sales have grown approximately 48% over the past three years,
primarily as a result of opening new stores. We intend to continue to pursue an
aggressive growth strategy for the foreseeable future, and our future operating
results will depend largely on our ability to open and operate new stores
successfully and to manage a larger business profitably. We plan to open 25
Dollar Express stores in 2000. Over the next several years we intend to increase
the number of Dollar Express stores that we operate at a rate of approximately
25% per year. We intend to fund these new store openings through working
capital, supplemented, as necessary, by our line of credit.

A number of factors could adversely affect our ability to successfully
open new stores on a timely basis. These factors could also adversely affect the
ability of any newly opened stores to achieve sales and profitability levels
comparable to those of our existing stores or to become profitable at all. These
factors include:

o our ability to identify appropriate new store sites and
negotiate acceptable leases for those sites;
o the amount of time a landlord may need to complete the work we
require prior to our taking possession of new store sites;
o our ability to hire, train and retain personnel to operate and
manage new stores;
o the ability of our distribution, operational and management
systems to support new stores; and

<PAGE>

o our ability to obtain sufficient amounts of merchandise to
supply the new stores.

We cannot assure you that we will be able to continue to achieve our
planned expansion on a timely or a profitable basis or that we will be able to
achieve results in our new stores similar to those we have historically achieved
in our existing stores. Further, we cannot be certain that any newly opened
stores will not adversely affect the revenues and profitability of our current
stores. If we are unable to successfully open new stores on a timely basis and
integrate them into our operations, we will not be able to increase sales and
earnings at rates similar to the rates our sales and earnings have increased in
the past.

We depend on a single distribution and office facility and any interruption at
that facility could limit our ability to stock our stores with merchandise,
leading to significantly lower sales and profits.

Almost all of the merchandise offered in our Dollar Express stores is
delivered to our distribution center in Philadelphia, Pennsylvania. The orderly
operation of this facility is critical to our success. Any delays or disruptions
in deliveries, distribution or shipping could limit our ability to stock our
stores with merchandise. If we are unable to stock our stores with sufficient
amounts and types of merchandise, our product selection will be significantly
less attractive to customers, leading to significantly lower sales and profits
in each of our stores.

In addition, because all of our distribution operations, management and
supporting services are centralized at one location, any natural or other
disaster such as a fire, explosion, hurricane, tornado, flood or earthquake at
this location could have a material adverse effect on our business. Although we
maintain business interruption, property and casualty insurance, any natural or
other disaster at this facility could cause losses that are not covered by
insurance.

Our current distribution system will not be adequate to support our anticipated
growth. If we are unable to build a new distribution center as scheduled, we
will be unable to open as many stores as we plan to open. In this event, growth
of our sales and profits would be significantly less than planned.

Our planned store growth will place significant demands on our
distribution system. At February 15, 2000, our current distribution center
supported 101 Dollar Express stores, and we believe that it can support the
approximately 40 additional stores that we intend to open prior to the planned
opening of our new distribution center in early 2001. However, we cannot be
certain whether our distribution center will be able to service all of these
stores in a cost efficient manner. The failure of our distribution center to
efficiently support our anticipated growth could limit our ability to stock our
stores with merchandise, which would significantly limit the growth of our sales
and profits.

Our current growth plans will require us to replace our distribution
center in early 2001. If we are unable to successfully open our new distribution
center by that time, we may not be able to achieve our growth plans. Even if our
planned new distribution center is open by early 2001, we may experience
difficulties in transferring our distribution functions to the new facility.
Failure to open and transfer functions to our new facility could adversely
affect our ability to distribute merchandise to our Dollar Express stores in a
timely and cost efficient manner. This would

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limit our ability to stock our stores with merchandise, leading to significantly
lower sales and profits.

We may in the future open new Dollar Express stores in areas that our
current distribution center will not be able to service in a cost efficient
manner. If we experience difficulties in opening and operating new distribution
centers to support those stores, we may not be able to continue to add
additional stores in those areas.

Adverse economic factors such as an increase in inflation or the minimum wage
could affect our ability to profitably maintain our current fixed price point
strategy.

Our ability to profitably provide high-quality merchandise to our
customers at our fixed $1.00 price point is subject to a variety of economic
factors beyond our control, including inflation and the minimum wage. We cannot
assure you that these factors will remain favorable. An increase in the rate of
inflation or in the minimum wage would lead to an increase in our cost of goods.
Since our fixed $1.00 price point strategy limits the sales price of our
merchandise, an increase in our cost of goods would lead to reduced profits.

Trade restrictions, import duties and foreign government regulations could
affect the cost and availability of our merchandise.

We estimate that we imported 18.0% of our merchandise during the first
nine months of 1999 and 12.0% of our merchandise during all of 1998. Most of
this merchandise was imported from China. In addition, many of the products that
we purchased from domestic sources were imported by these sources. Our ability
to purchase imported merchandise is subject to a number of risks, including:

o increases in import duties and quotas;
o China's loss of "normal trade relation" (NTR) status;
o the U.S. government's imposition of trade restrictions in
retaliation against foreign practices;
o foreign governments' changing of their regulations in a manner
that would adversely affect U.S. importers;
o work stoppages in our exporting countries;
o our exporting countries experiencing economic crises, such as
those experienced by the countries of Southeast Asia in 1998;
o our exporting countries experiencing political unrest; and
o our exporting countries experiencing residual year 2000
problems, which could result in disruptions in their
manufacturing processes.

We believe that we could find alternative sources for merchandise in
response to factors that increase the cost, or restrict the availability, of
goods from our foreign suppliers. However, the transition to alternative sources
may not occur in a timely manner. In addition, products from alternative sources
may be of lesser quality and/or more expensive than those we currently purchase.
If we are unable to timely obtain merchandise that is comparable in cost,
quality and variety to our current

<PAGE>

selection of merchandise, our product selection will be less attractive to
customers, leading to significantly lower sales and profits.

China is currently accorded NTR status by the United States. Loss of
this status by China or the imposition of trade restrictions such as punitive
tariffs or duties would result in significantly higher purchasing costs for us.
Although no punitive import duties are currently in place, these duties could
equal as much as 100% of the costs of certain Chinese goods. China's NTR status
automatically expires on July 3 of each year unless the United States Congress
receives a presidential determination to extend NTR status to China for another
12 months. If China's NTR status were not extended for any reason and we
continued to purchase merchandise from China, our profits would be significantly
reduced. If, as a result of China's loss of NTR status we chose to purchase our
merchandise from countries other than China, we may not be able to find suitable
replacement sources in a timely manner. As a result, our product selection would
be less attractive to customers, leading to significantly lower sales and
profits.

Because substantially all of our stores are located in the mid-Atlantic region
of the United States, our business could be negatively impacted by factors
related to this region of the country.

All but one of our stores are located in the mid-Atlantic region of the
United States, which includes Pennsylvania, New Jersey, Maryland, Delaware, and
New York. Consequently, our financial results are subject to regional economic
trends and other regional factors that impact retail spending, such as adverse
weather conditions and natural disasters, both of which may have a dramatic
impact on retail spending. In the event any of these regional factors decrease
retail spending, our sales and profits would be reduced.

Because a significant portion of our sales and net income are realized in the
fourth quarter, poor fourth quarter sales or net income could materially
adversely affect our annual financial results.

Historically, our highest sales and net income occur during the fourth
calendar quarter. During 1998, the fourth quarter accounted for 34.0% of our net
sales and 51.2% of our net income. Accordingly, any adverse trend in sales and
profits for the fourth quarter of any year could have a material adverse effect
on our business, financial condition and results of operations for the entire
year.

Our quarterly results could fluctuate significantly.

Our quarterly financial results may fluctuate significantly based on
such factors as:

o the timing of new store openings;
o the amount of net sales contributed by new and existing
stores;
o the timing of Easter, sales for which may occur primarily in
the first quarter of the year or may occur primarily in the
second quarter of the year;
o changes in our merchandise;
o general economic, industry and weather conditions that affect
consumer spending; and
o actions of our competitors.

<PAGE>

The loss of any of our executive officers or key employees could adversely
affect our growth and profitability.

Our future growth and profitability will be largely dependent on the
efforts and abilities of our Chief Executive Officer, Bernard Spain, our
President and Chief Operating Officer, Murray Spain, and our other executive
officers and key employees. We do not carry "key man" life insurance on any of
our executives. Our employment contracts with each of Bernard Spain and Murray
Spain expire on February 4, 2003. Although they have both indicated that they
plan to remain with us after the expiration of their employment agreements, we
cannot assure you that they will do so. The loss of the services of any
executive officer or key employee could have a material adverse effect on our
future growth and profitability, since their contributions are critical to our
success.

If we fail to compete effectively with our competition, our customers will
choose to shop somewhere else.

Our business is highly competitive, and we expect competition to
intensify in the future. We compete in both the purchase and sale of quality
merchandise. Our competitors include mass merchandisers, discount stores,
closeout stores, other dollar stores and cards and gifts stores, some of which
are owned by national or regional chains. Many of our current and future
competitors are likely to enjoy substantial competitive advantages over us,
including:

o greater financial resources;
o longer operating histories; and
o greater name recognition.

If we cannot continue to compete successfully with existing or future
competitors, our customers will choose to shop at our competitors' stores rather
than ours, which would significantly reduce our sales and profits.

Difficulties with labor negotiations may reduce our operating flexibility and
increase our costs.

All of our truck drivers belong to a labor union. Our collective
bargaining agreement with this union expires on February 8, 2002. Any failure to
renew this collective bargaining agreement, or any job action by this union,
could disrupt deliveries from our distribution center to our stores. If either
of these occurred, we would most likely ship merchandise to our stores by common
carrier, which would be more expensive and could result in a less flexible
delivery schedule.

In addition, a union is currently attempting to unionize our warehouse
employees. A vote of our warehouse employees has been scheduled for mid-March of
2000 in order for our warehouse employees to decide whether they will be
represented by a union. If a majority of our warehouse employees vote in favor
of union representation, we would have to enter into a collective bargaining
agreement covering these additional employees, which could increase our costs or
limit our operating flexibility. We cannot predict the effect, if any, that any
future actions by unions will have on our business and financial results.

<PAGE>

Failure of our management information systems could disrupt our operations.

Our business is supported by a customized inventory control system and
a standard accounting and financial reporting system. We depend on the
information from these systems to make timely and accurate business decisions.
We believe that our current systems will adequately provide for our current
operations and planned growth. However, any failure or destruction of, or
disruptions in, these systems could jeopardize our ability to manage our
existing operations or continue our growth . This could lead to reduced profits.

Our Chief Executive Officer, President and Chief Operating Officer, and other
current shareholders will continue to control a majority of our outstanding
common stock after the completion to this offering, and consequently could
prevent some transactions, such as a sale of Dollar Express, that could be
beneficial to other shareholders.

Upon the completion of this offering, the Spain brothers and Advent
International Corporation will collectively own approximately 69.6% of our
outstanding common stock, or 65.7% if the underwriters exercise their
over-allotment option. As a result, if these shareholders act together, they
will be able to control the outcome of all matters submitted for shareholder
action, including the election of members to our board of directors and the
approval of significant transactions, effectively giving these shareholders
control over our management and operations. These shareholders may also be able
to delay or prevent a change-in-control transaction that may be favored by our
other shareholders. The interests of any of these shareholders may conflict with
the interests of other holders of our common stock.

Our charter and bylaws will contain, and Pennsylvania law contains, provisions
that would make it difficult for us to be acquired if our board of directors did
not support the acquisition, even if the acquisition were beneficial to our
shareholders.

Our charter and bylaws will contain, and Pennsylvania law contains,
provisions that would make it difficult for us to be acquired if our board of
directors did not support the acquisition, even if the acquisition were
beneficial to our shareholders, including:

o a provision of Pennsylvania law prohibiting, under most
circumstances, a person who has acquired 20% of our stock from
acquiring us for five years after the acquisition of 20% of
our stock;
o a provision of Pennsylvania law permitting directors to
consider the effects an acquisition would have on our
employees, suppliers, customers, creditors and communities in
determining whether an acquisition was in our best interests;
o a provision in our charter permitting us to issue preferred
stock with rights that may discourage a person from acquiring
us;
o a provision in our bylaws providing that our directors serve
staggered terms and can only be removed for cause; and
o provisions in our bylaws providing that our shareholders can
only call a special meeting at the request of shareholders
owning at least 50% of our stock and that our shareholders may
only take action at a shareholders meeting or by the unanimous
written consent of all shareholders in lieu of a meeting.

<PAGE>

As a result, even if our shareholders supported an acquisition, it would be
difficult for a third party to acquire us if our board did not approve the
acquisition. Additionally, these provisions could have a depressive effect on
our stock price. See "Description of Capital Stock - Preferred Stock" and
"-Anti-Takeover Effects of Provisions of Our Charter, Our Bylaws and
Pennsylvania Law."

Our common stock has not been traded publicly and its market price may fluctuate
widely after this offering.

No public market has existed for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined by negotiations among us, the selling shareholders and the
underwriters' representatives. This price may not be indicative of prices that
will prevail for our common stock in the trading market. We also cannot predict
the extent to which investor interest in us will lead to the development of a
trading market for our common stock or how liquid that market might become. Our
common stock price could be subject to wide fluctuations in response to several
factors, including:

o quarterly fluctuations in our operating results;
o changes in earnings estimates or recommendations by equity
research analysts; o variations between our operating results
and analyst or investor expectations; and
o general market conditions or market conditions specific to our
industry.

Many of these factors are not in our control, and may adversely affect our stock
price, regardless of our operating performance.

New investors in this offering will experience immediate and substantial
dilution.

We expect that the initial public offering price of our common stock
will be substantially higher than the book value per share of the common stock
immediately prior to this offering. As a result, assuming an initial offering
price of $15.00, investors purchasing common stock in this offering will incur
dilution of $13.17 per share in their investment. Dilution means that investors
who purchase our common stock in this offering will pay a price per share that
exceeds the per share value of our tangible assets after subtracting our
liabilities. In the past, we have issued options to acquire common stock at a
price below the initial public offering price. To the extent these options are
ultimately exercised, there will be further dilution to investors in this
offering.

<PAGE>

Future sales of our common stock may depress our stock price.

Our principal shareholders have registration rights that facilitate
their sales of shares. If our shareholders sell substantial amounts of our
common stock in the public market following this offering, the market price of
our common stock may fall. These sales may also make it more difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem appropriate. See "Description of Capital Stock - Registration Rights"
and "Shares Eligible for Future Sale."

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements regarding our
performance, strategy, plans, objectives, expectations, beliefs and intentions.
When used in this prospectus, the words "intend," "anticipate," "believe,"
"estimate," "plan," and "expect," and similar expressions as they relate to us,
are included to identify forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. The actual outcome of the events described in these
forward-looking statements could differ materially. Therefore, this prospectus,
and especially the sections entitled "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
contains a discussion of some of the factors and risks that could contribute to
those differences.

<PAGE>

USE OF PROCEEDS

Based on an assumed initial public offering price of $15.00 per share,
the mid-point of the range set forth on the cover page of this prospectus, our
net proceeds from the sale of 2,333,333 shares of common stock will be
approximately $31.7 million, after deducting the underwriting discount and our
estimated offering expenses. We will not receive any proceeds from the sale of
shares of common stock by our selling shareholders.

We intend to use the net proceeds from this offering:

o To repay the approximately $19.5 million that we anticipate
will be outstanding under our term loan facility upon the
completion of this offering. Our term debt consists of a $20.0
million term loan facility, all of which was outstanding at
February 15, 2000. Borrowings under our term loan facility
bear interest at a variable rate. The interest rate at
February 15, 2000 was 8.75%. Our term loan facility expires on
December 31, 2003.

Our term debt was incurred in connection with our
recapitalization in order to fund, in part, dividends to the
Spain brothers. See "Related Party Transactions - The
Recapitalization."

o To repay the approximately $11.0 million that we anticipate
will be outstanding under our revolving credit facility upon
the completion of this offering. Our revolving debt consists
of a $20.0 million revolving credit facility, $9.0 million of
which was outstanding at February 15, 2000. Borrowings under
our revolving credit facility bear interest at a variable
rate. The weighted average interest rate at February 15, 2000
was 8.78%. Our revolving credit facility terminates on
December 31, 2003.

Approximately $7.0 million of our revolving debt was incurred
in connection with our recapitalization in order to repay our
then existing indebtedness for borrowed money, and pay costs
associated with our recapitalization. See "Related Party
Transactions - The Recapitalization."

o For general corporate purposes, including working capital.

From time to time, in the ordinary course of business, we expect to
evaluate potential acquisitions of businesses. However, we have no present
understandings, commitments or agreements with respect to any acquisition or
investment.

Pending use of the net proceeds for the purposes listed above, we
intend to invest these funds in short-term, interest-bearing, investment-grade
securities.

<PAGE>

DIVIDEND POLICY

We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We currently intend to retain future earnings, if any,
to finance operations and for the expansion of our business. Our credit
facilities prohibit us from paying cash dividends on our common stock.

CAPITALIZATION

The following table sets forth our total capitalization as of September
30, 1999, as follows:

o on an actual basis;

o on a pro forma basis to give effect to the conversion of
3,530,000 shares of our Series A convertible preferred stock
into 3,794,750 shares of our common stock and the cancellation
of warrants to purchase 447,917 shares of our common stock;
and

o on a pro forma, as adjusted basis to give effect to the
conversion of 3,530,000 shares of our Series A convertible
preferred stock into 3,794,750 shares of our common stock,
the cancellation of warrants to purchase 447,917 shares of our
common stock, and to reflect the application of the net
proceeds from this offering.

You should read this information together with the sections of this
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus.

<PAGE>

September 30, 1999
---------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Current debt:
Current portion of long-term debt ..... $ 1,623 $ 1,623 $ --
Line of credit ........................ 15,750 15,750 4,294
---------- ---------- ---------
Total current debt ................ $ 17,373 $ 17,373 $ 4,294
========== ========== =========

Long-term debt, less current portion ....... $ 18,621 $ 18,621 $ --
Accrued preferred stock dividends .......... 1,933 -- --
Common stock warrants ...................... 4,294 -- --

Series A cumulative convertible redeemable preferred stock, par value $0.01;
3,530,000 shares issued and outstanding, actual; none issued or outstanding,
pro forma or
pro forma, as adjusted................... 31,295 -- --

Common shareholders' equity (deficit):
Common stock, par value $0.01; 75,000,000 shares
authorized, 6,955,250 shares issued and
outstanding, actual; 10,750,000 shares issued and outstanding, 70 108 131
pro forma; 13,083,333 shares issued and outstanding,
pro forma, as adjusted...................................
Additional paid-in capital.................................... 2,460 39,944 71,621
Accumulated deficit........................................... (47,108) (47,108) (47,436)
---------- ---------- ---------
Total common shareholders' equity (deficit)............. (44,578) (7,056) 24,316
---------- ---------- ---------
Total capitalization.................................... $ 11,565 $ 11,565 $ 24,316
========== ========== =========

</TABLE>

The data presented in the above table excludes:

o 279,500 shares of common stock issuable upon exercise of
options granted under our 1999 Stock Option Plan at an
exercise price of $8.96 per share;
o _______ shares of common stock issuable upon the exercise of
options that will be granted under our 1999 Stock Option Plan
on the date of this prospectus at an exercise price equal to
the initial public offering price; and
o _______ shares of common stock issuable upon exercise of
options reserved for future grants under our 1999 Stock Option
Plan.

<PAGE>

DILUTION

Our pro forma net tangible book value as of September 30, 1999 was
$(7.7 million), or $(0.72) per share of common stock. We determined our pro
forma net tangible book value per share by subtracting our total liabilities
from our total tangible assets and dividing that number by 10,750,000 pro forma
shares of our common stock outstanding as of September 30, 1999. This pro forma
basis gives effect to the conversion of the 3,530,000 outstanding shares of our
Series A convertible preferred stock into 3,794,750 shares of common stock.

Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the as adjusted pro forma net tangible book
value per share of our common stock immediately following this offering.
Assuming an initial offering price of $15.00 per share, the mid-point of the
range set forth on the cover page of this prospectus, after giving effect to our
sale of shares of common stock in this offering and after deducting the
underwriting discount and our estimated offering expenses, our as adjusted pro
forma net tangible book value as of September 30, 1999 would have been $24.0
million, or $1.83 per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $2.55 per share to our existing
shareholders and an immediate and substantial dilution of $13.17 per share to
new shareholders purchasing shares of our common stock in this offering. The
following table illustrates this per share dilution:

<TABLE>
<S> <C>
Assumed initial public offering price per share......................................... $15.00
------
Pro forma net tangible book value per share as of September 30, 1999..... $(0.72)
Increase per share attributable to new shareholders...................... 2.55
------
As adjusted pro forma net tangible book value per share after this offering............. 1.83
------
Dilution per share to new shareholders.................................................. $13.17
======
</TABLE>

The following table summarizes the difference between the existing
shareholders and new shareholders with respect to the number of shares of common
stock purchased from us, the total consideration paid to us, and the average
price per share paid. The information is presented as of September 30, 1999. The
information presented is based on an assumed initial public offering price of
$15.00 per share, the mid-point of the range set forth on the cover page of this
prospectus, before deducting the underwriting discount and our estimated
offering expenses.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ ------------------------- Average Price
Number Percent Amount Percent Per Share
----------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........................ 10,750,000 82.2% $ 37,530,000 51.7% $ 3.49
New shareholders............................. 2,333,333 17.8 35,000,000 48.3 15.00
---------- ---- ------------ ----
Total............................... 13,083,333 100.0% $ 72,530,000 100.0%
========== ===== ============ =====
</TABLE>

<PAGE>

The discussion and tables above assume no exercise of any stock options
outstanding as of September 30, 1999. As of September 30, 1999, options were
outstanding to purchase a total of 279,500 shares of our common stock at an
exercise price of $8.96 per share and _______ shares were reserved for future
grants under our 1999 Stock Option Plan. In addition, _______ shares of our
common stock are issuable upon the exercise of options that will be granted
under our 1999 Stock Option Plan on the date of this prospectus at an exercise
price equal to the initial public offering price. To the extent that any of
these options are exercised, there will be further dilution to new shareholders.
In addition, the second table does not reflect the sale of 1,066,667 shares by
the selling shareholders. See "Capitalization," "Management -- Employee Benefit
Plans" and Note 8 to our audited annual financial statements.

<PAGE>

SELECTED FINANCIAL DATA

The selected financial data presented below have been derived from our
financial statements. The selected financial data as of and for the nine months
ended September 30, 1998 and as of and for the thirty nine weeks ended September
30, 1999 have been derived from, and are qualified by reference to, our
unaudited financial statements included elsewhere in this prospectus, which, in
our opinion, include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and results of operations. The results of operations for the thirty
nine weeks ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the full fiscal year ending December 30, 1999
or any other future period. Average annual net sales per store and average
annual net sales per estimated selling square foot include data only for stores
open for the entire year. The change in comparable store net sales includes data
only for stores open for at least 15 months. Effective January 1, 1999, we
adopted a 52/53 week fiscal year. You should read the data set forth below
together with "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included elsewhere in this prospectus.

The pro forma amounts give effect to the conversion of the 3,530,000
outstanding shares of our Series A convertible preferred stock into 3,794,750
shares of our common stock, as if it had occurred on February 5, 1999, as well
as the application of an effective tax rate of 40% to reflect our conversion
from an S to a C corporation as if this conversion had occurred on January 1,
1998. Prior to February 5, 1999, we were treated as an S corporation for federal
and most state income tax purposes. The pro forma amounts also give effect to
the termination of warrants to purchase 447,917 shares of our common stock as if
it had occurred on February 5, 1999. See "Use of Proceeds" and "Capitalization."
Also, the pro forma share and per share amounts for the year ended December 31,
1998 and the thirty nine weeks ended September 30, 1999 give effect to the
number of shares which would be required to be issued to satisfy the payment of
the dividend declared and paid by the Company in 1999 in connection with our
recapitalization.

<TABLE>
<CAPTION>
Nine Months Thirty Nine
Year Ended December 31, Ended Weeks Ended
---------------------------------------------------- September 30, September 30,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ................................ $ 60,492 $ 72,248 $ 88,362 $103,030 $130,802 $ 86,290 $100,438
Cost of sales, including
warehousing, distribution,
and store occupancy
costs (1) .............................. 37,140 44,821 65,745 77,314 92,307 62,199 71,297
-------- -------- -------- -------- -------- ------ --------
Gross profit ............................. 23,352 27,427 22,617 25,716 38,495 24,091 29,141
Selling, general and administrative
expenses ............................... 20,917 25,361 18,338 21,020 27,546 18,747 23,202
-------- -------- -------- -------- -------- ------ --------
Operating profit ......................... 2,435 2,066 4,279 4,696 10,949 5,344 5,939
Interest expense, net .................... 222 184 156 277 283 195 1,640
Accretion of common stock warrants to fair
value .................................. -- -- -- -- -- -- 282
Other income, net ........................ 22 22 136 258 187 164 95
-------- -------- -------- -------- -------- ------ --------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Nine Months Thirty Nine
Year Ended December 31, Ended Weeks Ended
---------------------------------------------------- September 30, September 30,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes ............... 2,235 1,904 4,259 4,677 10,853 5,313 4,112
Income taxes ............................. 12 8 35 28 50 26 1,757
Deferred income tax benefit resulting from
conversion from S to C Corporation ..... -- -- -- -- -- -- (2,090)
-------- -------- -------- -------- -------- ------- -------
Net income ............................... $ 2,223 $ 1,896 $ 4,224 $ 4,649 $ 10,803 $ 5,287 $ 4,445
======== ======== ======== ======== ======== ======= =======
Net income (loss) available to common
shareholders ........................... $ 2,223 $ 1,896 $ 4,224 $ 4,649 $ 10,803 $ 5,287 $ (639)
======== ======== ======== ======== ======== ======= =======
Net income (loss) per common share (2):
Basic .............................. $ 0.32 $ 0.27 $ 0.61 $ 0.67 $ 1.55 $ 0.76 $ (0.09)
======== ======== ======== ======== ======== ======= =======
Diluted ............................ $ 0.32 $ 0.27 $ 0.61 $ 0.67 $ 1.55 $ 0.76 $ (0.09)
======== ======== ======== ======== ======== ======= =======
Pro forma net income ..................... $ 6,512 $ 2,637
======== =======
Pro forma net income per common share (2):
Basic .............................. $ 0.76 $ 0.22
======== ========
Diluted ............................ $ 0.76 $ 0.22
======== ========
Weighted average number of common shares
and common share equivalents
outstanding (in thousands):
Basic .............................. 6,955 6,955 6,955 6,955 6,955 6,955 6,955
Diluted ............................ 6,955 6,955 6,955 6,955 6,955 6,955 6,955
Pro forma basic .................... 8,538 11,832
</TABLE>

<PAGE>

Dollar Express Stores Operating Data:
Number of stores at end of period........ 47 55 63 70 82 78 93
Average annual net sales per store....... $ 957 $ 1,074 $ 1,243 $ 1,303 $ 1,430 N/A N/A
Change in comparable store net sales .... N/A 5.7% 10.7% 0.5% 2.8% 1.4% 2.6%
Average annual net sales per estimated
selling square foot ................... $ 216 $ 234 $ 245 $ 232 $ 240 N/A N/A
Estimated selling square footage at
period end ............................ 222,196 269,488 341,252 406,586 531,263 483,350 670,115

Spain's Stores Operating Data:
Number of stores at end of period........ 25 25 24 23 24 24 24
Average annual net sales per store....... $ 616 $ 592 $ 587 $ 706 $ 797 N/A N/A
Changes in comparable store net sales.... N/A (3.9)% (4.0)% 16.8% 11.7% 18.9% (11.3)%
Average annual net sales per estimated
selling square foot ................... $ 186 $ 179 $ 180 $ 211 $ 236 N/A N/A
Estimated selling square footage at
period end ............................ 82,658 82,658 78,833 77,079 $ 81,541 81,541 81,541

December 31, September 30,
-------------------------------------------------------- ---------------------
Pro forma
1994 1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- -------- --------
Balance Sheet Data:
Working capital (deficit) ................. $ 2,995 $ 3,985 $ 5,031 $ 5,323 $ 8,673 $ (647) $ (647)
Total assets .............................. 11,439 14,495 18,632 21,583 31,581 43,590 43,590
Total debt, including current portion ..... 95 30 20 1,456 4,333 35,994 35,994
Common stock warrants ..................... -- -- -- -- -- 4,294 --
Redeemable convertible preferred stock .... -- -- -- -- -- 31,295 --
Total common shareholders' equity (deficit) 6,658 7,951 8,580 9,723 15,587 (44,578) (7,056)
</TABLE>

- ----------------------
(1) Cost of sales for the years ended December 31, 1994 and 1995 exclude
warehousing, distribution and store occupancy costs because the components
of these costs are not available to reclassify for comparability. These
amounts are included in operating and administrative expenses.

(2) Share and per share amounts give effect to the 1.075-for-1 split of our
common stock that will occur immediately before this offering.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and the related notes included elsewhere in this prospectus. This
discussion contains forward looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
discussed in these forward looking statements. See "Risk Factors."

Overview

Through our Dollar Express stores, we are a leading operator of fixed
$1.00 price point stores in the United States. We currently operate 101 stores
located in six states. These stores offer customers a wide assortment of
regularly available merchandise, such as housewares, food and other consumable
items, giftware, health and beauty care items and toys. We supplement this
merchandise with ever-changing seasonal and first quality closeout offerings. We
also operate Spain's Cards & Gifts stores, which is one of the largest specialty
greeting card vendors in the Philadelphia metropolitan area, based on number of
stores. For the thirty nine weeks ended September 30, 1999, our Dollar Express
stores generated 87.6% of our net sales, while our Spain's stores generated the
remaining 12.4%.

Two major factors tend to affect our net sales trends. The first is our
ability to successfully open new stores. The second is that net sales at our
existing stores change from one year to the next. We refer to this as a change
in "comparable store net sales." We begin including net sales from stores in the
calculation of comparable store net sales at the beginning of the location's
sixteenth month of operation, and then compare only subsequent store net sales
to those of the comparable prior period.

Most retailers can increase the price of their merchandise as well as sell
more merchandise in order to increase their comparable store net sales. In our
fixed $1.00 price point Dollar Express stores, our business strategy limits our
ability to raise our prices, so our comparable store net sales generally will
only increase if we sell more merchandise.

We anticipate that future net sales growth will come mostly from our
Dollar Express stores. We believe this growth will be predominately from new
store openings. We plan to open 25 Dollar Express stores in 2000. We intend to
fund these new store openings through working capital, supplemented, as
necessary, by our line of credit. We also expect our average store size to
increase, which we believe will result in a decrease in our average annual net
sales per estimated selling square foot. While we plan to open one Spain's store
in 2000, we do not anticipate significant growth in the number of Spain's
stores.

In calculating our cost of sales, in addition to the cost of merchandise,
we also include costs associated with our warehousing and distribution operation
as well as store occupancy costs.

Effective January 1, 1999 we adopted a 52/53 week fiscal year. As such,
our fiscal quarters will end on the Thursday closest to each of March 31, June
30 and September 30, and our fiscal year end will be the Thursday closest to
December 31.

<PAGE>

Results of Operations

The following table presents our financial data expressed as a percentage
of net sales for the periods indicated:

<TABLE>
<CAPTION>
Nine Thirty Nine
Months Weeks
Year Ended December 31, Ended Ended
---------------------------------------------- September 30, September 30,
1996 1997 1998 1998 1999
------------ ------------ ------------ -------------- ---------------

<S> <C> <C> <C> <C> <C>
Net sales ................................ 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of sales, including warehousing,
distribution, and store occupancy
costs ................................. 74.4 75.0 70.6 72.1 71.0
----- ----- ----- ----- -----
Gross profit ............................. 25.6 25.0 29.4 27.9 29.0
Selling, general and administrative
expenses .............................. 20.8 20.4 21.0 21.7 23.1
----- ----- ----- ----- -----
Operating profit ......................... 4.8 4.6 8.4 6.2 5.9
Interest expense, net .................... 0.2 0.3 0.2 0.2 1.6
Accretion of common stock warrants
to fair value ......................... -- -- -- -- 0.3
Other income, net ........................ 0.2 0.2 0.1 0.2 0.1
----- ----- ----- ----- -----
Income before income taxes ............... 4.8 4.5 8.3 6.2 4.1
Income taxes ............................. -- -- -- -- 1.8
Deferred income tax benefit resulting from
conversion from S to C corporation ....... -- -- -- -- (2.1)
----- ----- ----- ----- -----
Net income ............................... 4.8% 4.5% 8.3% 6.2% 4.4%
===== ===== ===== ===== =====
Pro forma net income (1) ................. 2.9% 2.7% 5.0% 3.7% 2.5%
===== ===== ===== ===== =====
</TABLE>

- ------------
(1) In February 1999, we converted from an S to a C corporation and therefore
became subject to federal and all applicable state income taxes. Pro forma
net income for all periods assumes an effective income tax rate of 40%.

Thirty Nine Weeks Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998

Net sales

Dollar Express

Net sales increased $15.4 million, or 21.1%, to $88.0 million for the 1999
period, from $72.6 million for the 1998 period. Of this increase, $13.3 million,
or 18.3%, was attributable to net sales that were not included in our comparable
store net sales calculation. We opened 12 stores and closed one store during the
1999 period, and opened eight stores and closed one store during the 1998
period. The remaining $2.1 million of the increase was primarily due to a 2.6%
increase in comparable store net sales during the period. The increase in
comparable store net sales was primarily due to an increase in our individual
average transaction size versus the prior period, which we attribute to an
increase in our offering of

<PAGE>

consumable products. The average number of customers visiting our stores also
increased versus the 1998 period.

Spain's

Net sales decreased $1.2 million, or 8.9%, to $12.4 million for the 1999
period, from $13.6 million for the 1998 period. This decrease was due to a $1.4
million decline in net sales attributable to an 11.3% decrease in comparable
store net sales. The decrease in comparable store net sales was primarily due to
reduced demand for Beanie Babies products and the incremental items that had
been purchased by customers seeking Beanie Babies products while shopping in our
Spain's stores. This decrease was offset by a $0.2 million increase in net sales
attributable to net sales from the one store opened in 1998 that was not
included in our comparable store net sales calculation.

Gross profit

Dollar Express

Gross profit increased $5.8 million, or 28.0%, to $26.4 million for the
1999 period, from $20.6 million for the 1998 period. This represents an increase
in gross profit margin to 30.0% for the 1999 period, from 28.4% for the 1998
period. The increase in gross profit margin was primarily due to the continued
increase in the proportion of imported merchandise in our product offering,
partially offset by the continued increase in the proportion of national name
brand consumable items. Imported items typically have higher gross profit
margins than products that we purchase domestically. National name brand
consumable items, which we believe carry a greater level of customer appeal and
generate increased customer traffic, typically have lower gross profit margins
than private label items. Additionally, we believe that economies of scale
resulting from our increased buying capacity improved our ability to negotiate
more favorable terms with our merchandise vendors.

Spain's

Gross profit decreased $0.7 million, or 21.0%, to $2.7 million for the
1999 period, from $3.5 million for the 1998 period. This represents a decrease
in gross profit margin to 22.0% for the 1999 period, from 25.4% for the 1998
period. The decrease in gross profit margin was due to a decrease in net sales
of Spain's without a commensurate decrease in the relatively fixed components of
our store occupancy costs.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $4.5 million, or
23.8%, to $23.2 million for the 1999 period, from $18.7 million for the 1998
period. This represents an increase in selling, general and administrative
expenses as a percentage of net sales to 23.1% for the 1999 period, from 21.7%
for the 1998 period. The increase as a percentage of net sales was primarily due
to an increase of approximately $1.3 million in payroll and benefit costs for
key management personnel who were hired to support the current and planned
growth of our Dollar Express stores.

<PAGE>

Interest expense, net

Interest expense, net increased $1.4 million to $1.6 million for the 1999
period, from $0.2 million for the 1998 period. This increase is due to an
increase in our weighted average borrowings resulting from our recapitalization.
See " Related Party Transactions - The Recapitalization."

Accretion of common stock warrants to fair value

The accretion of common stock warrants to fair value represents the pro
rata portion of the change in fair value of the common stock warrants issued in
connection with our recapitalization from their initial value at the date of
issuance, to September 30, 1999. The fair value adjustment is being recognized
over a five-year period from the date of issuance. Upon completion of the
offering, these common stock warrants will be canceled and any further accretion
will cease as of the cancellation date. See " Related Party Transactions - The
Recapitalization."

Deferred income tax benefit

Deferred income tax benefit relates to the effect of our change in tax
status from an S to a C corporation arising from our recapitalization. See "
Related Party Transactions - The Recapitalization."

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net Sales

Dollar Express

Net sales increased $25.3 million, or 29.4%, to $111.6 million for 1998,
from $86.3 million for 1997. Of this increase, $23.4 million, or 27.2%, was
attributable to net sales that were not included in our comparable store net
sales calculation. We opened 13 stores and closed one store during 1998, and
opened ten stores and closed three stores during 1997. The remaining $1.9
million of the increase is primarily due to a 2.8% increase in comparable store
net sales during 1998. The increase in comparable store net sales was primarily
due to improvements in the quality and variety of our merchandise offerings.

Spain's

Net sales increased $2.4 million, or 14.5%, to $19.2 million for 1998,
from $16.8 million for 1997. Of this increase, $1.9 million was due to an 11.7%
increase in comparable store net sales. The remaining $0.5 million increase was
due to an increase in sales from our wholesale business, which represents a
small portion of our Spain's business. We opened one store during 1998 and
closed one store during 1997. The increase in comparable store sales was
primarily due to increased sales of Beanie Babies products and the incremental
items purchased by customers seeking Beanie Babies products while shopping in
our Spain's stores.

<PAGE>

Gross profit

Dollar Express

Gross profit increased $10.9 million, or 49.5%, to $32.9 million for 1998,
from $22.0 million for 1997. This represents an increase in gross profit margin
to 29.5% for 1998, from 25.5% for 1997. We believe the increase in gross profit
margin was primarily due to an increase in the proportion of imported
merchandise in our product offering, partially offset by the continued increase
in the proportion of national name brand consumable items. Additionally, we
believe that economies of scale resulting from our increased buying capacity
improved our ability to negotiate more favorable terms with our merchandise
vendors.

Spain's

Gross profit increased $1.9 million, or 50.5%, to $5.6 million for 1998,
from $3.7 million for 1997. This represents an increase in gross profit margin
to 29.3% for 1998, from 22.3% for 1997. The increase in gross profit margin was
primarily due to increased sales of Beanie Babies products, which have higher
gross profit margins than other items sold in Spain's.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $6.5 million, or
31.0%, to $27.5 million for 1998, from $21.0 million for 1997. This represents
an increase in selling, general and administrative expenses as a percentage of
net sales to 21.1% for 1998, from 20.4% for 1997. This increase as a percentage
of net sales was due primarily to an increase of $1.1 million in corporate
payroll costs and $0.1 million in professional services expenses to support our
current and future growth as well as $1.0 million in insurance costs as a result
of increased claim experience compared to 1997.

Interest expense, net

Interest expense, net remained consistent with the prior year due to
similar average borrowing levels and interest rates during the periods.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net Sales

Dollar Express

Net sales increased $12.1 million, or 16.4%, to $86.3 million for 1997,
from $74.1 million for 1996. Of this increase, $11.8 million, or 15.9%, was
attributable to net sales that were not included in our comparable store net
sales calculation. We opened ten stores and closed three stores during 1997, and
opened ten stores and closed two stores in 1996. The remaining $0.3 million of
the increase represents a 0.5% increase in comparable store net sales during the
period.

<PAGE>

Spain's

Net sales increased $2.5 million, or 17.7%, to $16.8 million for 1997,
from $14.2 million for 1996. Of this increase, $2.2 million, or 15.5%, was
attributable to a 16.8% increase in comparable store net sales. The increase in
comparable store sales was primarily due to the completion, in early 1997, of
the conversion to a new supplier of greeting cards. This process began in April
1996 and resulted in reduced 1996 sales while stores were being converted.
Additionally, $0.4 million, or 3.0%, of this increase was attributable to net
sales that were not included in our comparable store net sales calculation. We
closed one store during 1997, and opened one and closed two stores during 1996.
The net sales increase was offset by a $0.1 million decrease in the net sales of
our wholesale business.

Gross profit

Dollar Express

Gross profit increased $1.9 million, or 9.1%, to $22.0 million for 1997,
from $20.1 million for 1996. This represents a decrease in gross profit margin
to 25.5% for 1997, from 27.2% for 1996. The decrease in gross profit margin was
primarily due to a decision to increase the proportion of national name brand
consumable items in our product offering. Also contributing to the decrease in
gross profit margin was a decline in the proportion of imported items in our
product offering. As a result of stronger than expected sales of seasonal
imported merchandise in the second half of the year, our inventories were
depleted in several product categories and we had to purchase replacement
merchandise from domestic suppliers at higher costs.

Spain's

Gross profit increased $1.2 million, or 51.1%, to $3.7 million for 1997,
from $2.5 million for 1996. This represents an increase in gross profit margin
to 22.3% for 1997, from 17.3% for 1996. The increase in gross profit margin was
primarily due to a depressed gross profit margin in 1996 from price reductions
employed to liquidate a previous line of cards as a result of a change in our
primary greeting card supplier in April 1996. Additionally, the gross margin on
our newer line of cards was greater than that on our previous line of cards.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $2.7 million, or
14.6%, to $21.0 million for 1997, from $18.3 million for 1996. This represents a
decrease in selling, general and administrative expenses as a percentage of net
sales to 20.4% for 1997, from 20.8% for 1996. The decrease as a percentage of
net sales was primarily due to our maintaining a consistent level of office
support and executive level payroll costs while our net sales increased.

Interest expense, net

Interest expense, net increased $0.1 million to $0.3 million for 1997,
from $0.2 million for 1996. This increase was primarily due to greater average
outstanding borrowings during 1997.

<PAGE>

Quarterly Results of Operations and Seasonality

Our business is seasonal, with our highest net sales, gross profit and
operating profit historically occurring in the fourth quarter, which includes
the Halloween and Christmas selling seasons. We expect this trend to continue.
Additionally, our quarterly financial results may fluctuate significantly based
on such factors as:

o the timing of new store openings;
o the amount of net sales contributed by new and existing stores;
o the timing of Easter, sales for which may occur primarily in the
first quarter of the year or may occur primarily in the second
quarter of the year;
o changes in our merchandise;
o general economic, industry and weather conditions that affect
consumer spending; and
o actions of our competitors.

The following table presents certain results of operations for our seven
quarters ended September 30, 1999. Although this information is unaudited, we
have prepared it on the same basis as the audited financial statements included
elsewhere in this prospectus. We believe that this information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information shown. The results of operations for any
quarter are not necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
1998 1999
--------------------------------------------------------- -----------------------------------------
First Second Third Fourth First Second Third
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------------- ----------- ----------- ---------- ----------- ----------- -----------
(Dollars in thousands)
---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 25,242 $ 32,981 $ 28,067 $ 44,512 $ 31,348 $ 35,270 $ 33,820
Gross profit................. $ 8,083 $ 8,734 $ 7,274 $ 14,404 $ 9,136 $ 10,406 $ 9,599
Operating profit............. $ 1,046 $ 2,641 $ 1,657 $ 5,605 $ 2,172 $ 2,503 $ 1,264
Stores open at end of period. 97 100 101 106 108 112 117
Change in comparable store
net sales:
Dollar Express............. (10.3)% 13.3% 3.1% 6.0% 2.5% 3.4% 2.1%
Spain's.................... 13.8% 25.2% 8.4% 2.0% (8.0)% (7.9)% (19.5)%

<CAPTION>
1998 1999
-------------------------------------------------------- -----------------------------------------
First Second Third Fourth First Second Third
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------------ ----------- ----------- ---------- ----------- ----------- -----------
(Percent of annual total)
<S> <C> <C> <C> <C>
Net sales.................... 19.3% 25.2% 21.5% 34.0% N/M N/M N/M
Gross profit................. 21.0% 22.7% 18.9% 37.4% N/M N/M N/M
Operating profit............. 9.6% 24.1% 15.1% 51.2% N/M N/M N/M
</TABLE>

Liquidity and Capital Resources

We have historically financed our business with funds generated by our
operations and borrowings under our revolving credit facility. Our working
capital requirements for existing stores are seasonal in nature and typically
peak in September and October as we build inventory and start to hire

<PAGE>

temporary staff in advance of our Halloween and Christmas selling seasons. We
generally require cash to purchase inventory, provide working capital for
ongoing operations and finance the cost of opening new stores.

The following table compares certain cash-related information for the
periods indicated:

<TABLE>
<CAPTION>
Year Ended Nine Months Thirty Nine
December 31, Ended Weeks Ended
------------------------- September 30, September 30,
1997 1998 1998 1999
---------- ---------- -------------------- --------------------
(In millions)
<S> <C> <C> <C> <C>
Net cash provided by (used in):
Operating activities.................... $ 5.6 $ 14.5 $ 0.1 $ (6.1)
Investing activities.................... (3.4) (3.7) (2.5) (4.7)
Financing activities.................... (2.2) (2.1) 2.9 3.5
</TABLE>

Net cash used in our operating activities was $6.1 million for the
thirty nine weeks ended September 30, 1999, compared to cash provided by our
operating activities of $0.1 million for the nine months ended September 30,
1998. Net cash used in our operating activities for the thirty nine weeks ended
September 30, 1999 was primarily from an increase in merchandise inventories
to support the seasonal nature of our business, and prepaid expenses, offset by
net income. Net cash provided by our operating activities for the nine months
ended September 30, 1998 was primarily from net income, adjusted for
depreciation and amortization, offset by an increase in merchandise inventories
to support the seasonal nature of our business.

Net cash provided by our operating activities was $14.5 million in 1998
compared to $5.6 million in 1997. Net cash provided by our operating activities
in 1998 was primarily from net income, adjusted for depreciation and
amortization, an increase in accounts payable and accrued expenses and the
receipt of a volume rebate from a supplier, which is payable by the supplier
when we reach predetermined payment levels with this supplier. Net cash provided
by our operating activities in 1997 was primarily from net income, adjusted for
depreciation and amortization and an increase in accounts payable and accrued
expenses, offset by an increase in merchandise inventories and accretion of
deferred revenue and volume rebates.

Our net cash used in investing activities was primarily for new stores.
We opened ten stores in 1997, 14 stores in 1998 and 12 stores during the first
thirty nine weeks of 1999 versus nine stores opened during the first nine months
of 1998. The balance of our net cash used in investing activities was for
capital expenditures relating to our corporate headquarters and distribution
center.

Net cash provided by or used in financing activities reflects
transactions with owners or other providers of capital. Significant transactions
include the following:

o In 1997, funds were primarily used for subchapter S corporation
distributions relating to shareholders' tax liabilities, offset by
proceeds from the issuance of long-term debt.

<PAGE>

o In 1998, funds were used for subchapter S corporation distributions
relating to shareholders' tax liabilities and principal payments on
long-term debt, offset by proceeds from the issuance of long-term
debt and line of credit borrowings.

o During the thirty nine weeks ended September 30, 1999, in
conjunction with a private equity transaction and recapitalization,
we received $35.0 million from a group of investors led by Advent
International Corporation, $20.0 million in proceeds from the
issuance of long-term debt, and $11.8 million in proceeds from a
line of credit. These funds were used, in part, to repay debt
incurred during 1998, to pay $55.0 million of a $59.5 million
dividend to the Spain brothers, to pay $3.6 million in transaction
costs and to fund seasonal working capital needs.

In January 1999, Dollar Express Stores, Inc. declared and paid by means
of two promissory notes a dividend to Bernard Spain and Murray Spain, the two
shareholders of record on that date. The total dividend amounted to $59.5
million. The dividend was declared in order to allow the Spain brothers to
realize a portion of their investment in us.

In February 1999, Dollar Express Stores, Inc. completed a
recapitalization that resulted in changes in its ownership and capital
structure. The recapitalization was initially effected by the contribution by
the Spain brothers of all the outstanding common stock of Dollar Express Stores,
Inc. in exchange for 6,955,250 shares of our common stock. As a result, Dollar
Express Stores, Inc. became our wholly-owned subsidiary. Additionally, through a
private placement, we sold 3,530,000 shares of newly issued Series A convertible
preferred stock in exchange for $34.0 million. We also issued warrants to
purchase 447,917 shares of our common stock in exchange for $1.0 million.

In February 1999, we entered into a five-year credit facility, which
terminates on December 31, 2003, for an aggregate amount of $40.0 million, of
which $20.0 million is in the form of a term loan and $20.0 million is a
revolving credit facility. At our option, interest on the facility is calculated
at the lender's base rate plus a margin or LIBOR plus a margin based on a
leverage ratio. The margin ranges from 0% to 1% on base rate borrowings and
1.75% to 2.75% on LIBOR borrowings. At February 15, 2000, $20.0 million was
outstanding on the term loan and $9.0 million was outstanding on the revolver.
The weighted average interest rate was 8.73%. A portion of the proceeds of the
facility, together with funds provided from the private placement, were used to
satisfy the promissory notes to Bernard Spain and Murray Spain, repay the
outstanding amount on our line of credit and pay costs associated with the
recapitalization.

The term portion of the credit facility calls for increasing quarterly
payments beginning in 2000. Annual maturities are as follows: 2000 -- $2.0
million, 2001 -- $4.0 million, 2002 -- $6.0 million, 2003 -- $8.0 million.

Our credit facility contains customary operational and financial
covenants, including covenants regarding:

o our maintenance of specified financial ratios
o restrictions on our capital expenditures
o restrictions on our payment of cash dividends and other
distributions
o limits on our incurrence of debt

<PAGE>

o prohibitions on changes of control

A failure to comply with any of these covenants constitutes an event of default
that would give the bank the right to call our credit facility and enforce its
remedies against us. We were in compliance with all covenants as of and for the
thirty nine weeks ended September 30, 1999. The facility is secured by
substantially all of our assets, the shares of common stock held by the Spain
brothers, and the shares of our preferred stock held by our investors.

In the event that we are successful in negotiating acceptable terms for
a new revolving line of credit, a portion of which may be in the form of letters
of credit, upon completion of this offering we plan to repay all outstanding
amounts under our existing credit facilities, terminate these facilities and
enter into these new credit arrangements.

We have entered into an agreement for purchase of the land for our new
corporate headquarters and distribution facility. We anticipate commencing
construction during the first quarter of 2000 and expect to begin operating out
of the new distribution center during the first quarter of 2001. We estimate
that the cost of our new headquarters and distribution center, including land
acquisition, will be approximately $20.7 million. We expect to obtain permanent
construction financing to fund the cost of this facility.

We expect that capital expenditures for 2000 and 2001 will be incurred
primarily for construction of our new corporate headquarters and distribution
center, new store openings and upgrading existing stores. Over the next several
years, we plan to open new Dollar Express stores at a rate of approximately 25%
per year. Including all inventory and pre-opening costs, the average store
requires an investment of approximately $300,000, which varies based upon the
square footage of the location and the level of tenant's work required. We
currently plan to open 25 Dollar Express stores in 2000 and 32 Dollar Express
stores in 2001, requiring an estimated cash expenditure of $7.5 million in 2000
and $9.6 million in 2001. The capital required to upgrade an existing store
varies based on the size of the upgrade and the amount of tenant's work
required. During 1999, three locations were significantly upgraded by expanding
these locations requiring $300,000 in capital expenditures. Converting stores to
newer fixtures, without other significant upgrades, requires between $15,000 and
$20,000 per location.

As of December 31, 1998, our commitments for rental payments for 1999
were approximately $9.3 million. At September 30, 1999, rental obligations for
the next 12 months amounted to approximately $11.8 million. We believe that cash
flows from operations, together with the funds available under our existing
credit facility, to the extent not replaced by a new revolving line of credit,
and the net proceeds from this offering, will be sufficient to satisfy our
capital requirements for at least the next 12 months.

Inflation

We do not believe that inflation has had a material effect on our
financial position or results of operations during the past three years.
However, we cannot predict the future effects of inflation.

<PAGE>

Year 2000 Readiness Disclosure

We have completed a comprehensive review of our computer systems and
other microprocessor-based equipment to identify how we may be affected by the
Year 2000 issue. The Year 2000 issue results from the writing of computer
programs using two digits, rather than four, to define the applicable year. As a
result, commencing in 2000, date-sensitive software may recognize a date using
"00" as 1900 rather than as 2000. This could result in a systems failure or
miscalculations causing disruption of operations, including a temporary
inability to receive shipments, process financial information, process credit
card transactions, deliver products to our stores, or engage in other routine
business activities.

Information Technology Systems

Our inventory management system consists of a purchased software
package that has been modified to accommodate our specific processes. The
purchased software has been certified Year 2000 compliant by the Information
Technology Association of America. The modified portion of our inventory
management system required remediation to become Year 2000 compliant. The
necessary modifications to the system were implemented prior to January 1, 2000.
Since the modifications were completed, the system has performed without
disruption. This system runs on AS/400 hardware, which has been certified by IBM
to be Year 2000 compliant. Our current financial accounting software (comprising
general ledger, accounts payable and sales audit programs) is a proprietary
package developed for our use by a third party. During late December 1999 and
early January 2000 we completed the necessary modifications on our accounting
software to ensure Year 2000 compliance. We have purchased new financial
accounting software, which we plan to implement during 2000. This software is
intended to better integrate our inventory management and financial systems.
This software has been certified Year 2000 compliant.

Our in-store systems, through which our store managers order
merchandise using a customized polling program, have recently been upgraded to
achieve Year 2000 compliance. We utilize non-point-of-sale based registers to
process sales transactions, which have no date sensitive functions.

Non-Information Technology Systems

Non-information technology systems include phone systems, fax machines,
and the security systems in our stores, headquarters and distribution center.
These systems were not affected by the Year 2000 issue.

Costs of Year 2000 Compliance

We incurred $300,000 in costs associated with Year 2000 issues,
attributable primarily to upgrading our store polling software and hardware. The
costs associated with modifications, upgrades and replacements to become Year
2000 compliant were not material to our financial position or results of
operations. We have used a combination of funds from operations and borrowings
on our revolving line of credit to cover our Year 2000 costs.

<PAGE>

Contingency Plans

We experienced no significant disruptions in our computer related
systems or the operations of our business resulting from Year 2000 issues. We
have seen no evidence to indicate that any significant difficulties will arise
with regard to the Year 2000 issue. We have experienced no delay or cessation to
the supply of product from any of our suppliers, nor have any suppliers
indicated to us that they are experiencing any Year 2000 related difficulties.
In the event any unforeseen Year 2000 problems arise, we will address them as
they occur.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in
interest rates and foreign currency exchange rates. We are exposed to market
risk from changes in interest rates on borrowings under our revolving line of
credit that bears interest based on the lender's base rate or LIBOR. The balance
on our line of credit fluctuates throughout the year to fund seasonal cash flow
needs. As of September 30, 1999, the balance on our line of credit was $15.8
million. A portion of the proceeds from this offering will be used to pay off
this line, though we expect to continue to use short-term line of credit
borrowings as seasonal needs require.

We have no derivative instruments in our cash and cash equivalents. We
invest cash and cash equivalents not required for current operations in
investment grade, highly liquid investments, consisting of U.S. government
securities. We anticipate investing the net proceeds from this offering in
similar investment grade and highly liquid investments pending their use. See
"Use of Proceeds."

If market interest rates were to increase by 10% from rates as of
February 15, 2000, the effect would not be material to our business, financial
condition, or results of operations.

All of our purchases and sales are in U.S. dollars. Accordingly, we
believe that we have no material foreign exchange rate risk.

<PAGE>

BUSINESS

Our Company

Our Dollar Express Stores

We are a leading operator of fixed $1.00 price point stores in the
United States, based on sales. We currently operate 101 stores located in six
states. Almost all of our products are sold at our fixed $1.00 price point and
are intended to exceed customers' expectations of the range and quality of items
that can be purchased at this price. We offer our customers a wide assortment of
regularly available merchandise, such as housewares, food and other consumable
items, giftware, health and beauty care items and toys. We supplement this
merchandise with ever-changing seasonal and first quality closeout offerings.
This merchandise mix is selected to create a "treasure hunt" shopping
experience.

Our Dollar Express stores operate in the deep discount segment of the
discount retail industry. This is among the fastest growing segments in the $420
billion mass market retail industry, having grown at 43.5% from 1997 to 1998,
the latest year for which data is available. In this segment, retailers offer
some combination of consumables, such as food and cleaning supplies, in addition
to housewares, giftware, health and beauty care products, toys, clothing and
accessories. Several formats exist for the deep discount retailers, including:

<PAGE>

o the fixed price point format, where all or virtually all items are
sold at a fixed price point such as $1.00 or $0.99;
o the even dollar price point format, where all items are priced on
the even dollar and where most items are available for less than
$10.00; and
o the closeout format, where all of the items sold are priced at a
very deep discount to the regularly available price due to closeouts
or other special situations.

Our Dollar Express stores follow a fixed price point format, selling virtually
all items at $1.00.

Our Spain's Cards & Gifts Stores

We are one of the largest specialty greeting card vendors in the
Philadelphia metropolitan area, based on number of stores. Our Spain's Cards &
Gifts stores offer our customers a wide selection of greeting cards, moderately
priced giftware, fad and novelty products, candy and other consumer items. We
believe that the merchandise mix in our Spain's stores allows us to quickly
recognize new trends in merchandising, which we can take advantage of in our
Dollar Express stores. Our Spain's stores have a dedicated management team and
buying staff and are run separately from our Dollar Express stores.

During 1998, the Spain's stores generated net sales of $19.2 million.
We currently operate 25 Spain's stores, primarily in the Philadelphia
metropolitan area. We do not anticipate significant growth in the number of
Spain's stores, but will take advantage of attractive opportunities for new
stores as they arise.

Our History

Our founders, Bernard Spain and Murray Spain, opened their first
Spain's store in 1959. Over the next 25 years, they expanded the Spain's chain
to approximately its current size. In 1970, the Spain brothers were credited
with creating the national "smile face" fad, which was widely used on items such
as buttons, bumper stickers and note pads. We still use the yellow smile face,
which is part of the public domain, as the logo for our Spain's stores.

During the 1970's, we also established two gourmet cookware stores,
which evolved over the following decade into the "Merit Outlet" chain of
value-oriented general merchandise stores. The success of the "Merit Outlet"
format inspired us to experiment with the deep discount, dollar store concept by
opening a Dollar Express store in Philadelphia in 1989. The strong financial
performance of this Dollar Express store and subsequently opened stores led us
to convert our remaining Merit Outlet stores into Dollar Express stores over the
next two years. Since then, we have grown our Dollar Express stores operations
to 101 stores as of December 15, 1999.

<PAGE>

Our Operating Strategy

Our goal is to enhance our position as a leader in the fixed $1.00
price point store segment of the retail industry. The strategies that we employ
in our Dollar Express stores to help us achieve this goal include:

Carry a Broad and Value-Oriented Merchandise Mix. We offer our
customers a wide assortment of regularly available, seasonal and closeout
merchandise. We carry merchandise in the following product categories:

<TABLE>
<S> <C>
o Food and other consumables o Health and beauty care items
o Seasonal and holiday goods o Toys and baby items
o Housewares, glassware and kitchen items o Cleaning supplies
o Giftware o Other general merchandise
</TABLE>

Our wide variety of regularly available merchandise allows our
customers to shop at our stores for their everyday purchase needs. Much of our
regularly available merchandise consists of products from national brands, such
as Colgate-Palmolive, Hershey Foods, Kraft, Nestle and Procter & Gamble. These
national brands provide our customers with comfort regarding the value of our
products. In addition, we offer private label products that we believe are
comparable in value to national name brand products. We sell many of our
housewares under our own label, Today's Home, which includes high-quality
products that add variety and completeness to our product offerings. Our
seasonal and closeout products allow our stores to feature a constantly changing
portion of our product mix, which we believe adds to our customers' "treasure
hunt" shopping experience.

Focus on Product Merchandising. We are proud of our products and how we
merchandise them. We pay careful attention to how our products appear to our
customers. These details include the location of the products in the store, the
grouping of individual products, the manner in which products are displayed, and
the appearance of each product's packaging.

Our merchandise is organized according to a plan-o-gram, which
prescribes a uniform layout for the strategic grouping and placement of
categories of merchandise within our stores. For instance, seasonal and name
brand merchandise is featured prominently at the front of our stores to attract
customers into our stores and to create impulse purchases. The large format of
most of our stores allows us to feature items in multiple locations within the
store and in mass displays, which provides the customer with additional
opportunities to see and buy these products. Complementary products are
displayed together to encourage our customers to purchase related accessories.
The plan-o-gram is changed at least seven times a year to correspond with each
of our seasonal programs.

Our displays are designed to be reminiscent of those of higher priced
specialty retailers. We use a combination of colors, sizes, and product mix in
order to create visually appealing displays. For our Today's Home brand and
other private label products, we work closely with our manufacturers and
suppliers to design packaging and products that create a sense of uniformity and
that are desirable to our customers.

Use Our Large Format Stores to Create a Customer-Friendly Shopping
Environment. Our large format stores, which are typically larger than other
dollar stores, are designed to display more

<PAGE>

merchandise and to provide our customers with a comfortable and visually
appealing shopping experience. Of our 101 stores, 64 are of the large format
variety and include design features reminiscent of many of the successful large
mass merchandisers. These design features include wider aisles and shopping
carts to increase our customers' shopping comfort. We also offer supermarket
style checkout areas for our customers' convenience. We believe that these
features appeal across a wide range of demographics.

Maintain Flexibility in Selecting Sites for New Locations. Our stores
have been profitable across a wide range of sizes and formats. We believe that
this allows us to consider more potential store sites and at times negotiate
more favorable lease terms than less flexible retailers. Although our prototype
stores are 9,000 to 11,000 square feet, we profitably operate stores as large as
approximately 16,000 square feet. Additionally, we have been opportunistic in
leasing sites that do not conform to the standard layouts favored by many other
retailers. Finally, our stores have been successful in a variety of locations,
including free-standing locations and anchored and unanchored strip centers.
However, we have no stores in enclosed malls, which tend to charge much higher
rents than are charged for similar spaces in strip centers or free-standing
locations.

Operate in an Efficient, Low Cost Manner. Our fixed $1.00 price point
requires us to focus on controlling the cost of our operations. The cost of our
merchandise is the largest component of our cost of goods, and is also our
largest expense. Our experienced buyers, established reputation with our
suppliers, import purchasing program, and purchasing power each add to our
ability to control the cost of this merchandise. Our inventory management system
enables us to benefit from efficient logistics within our central distribution
center, further decreasing our cost of merchandise. The other major component of
our cost of goods is rent, which we attempt to minimize by not locating stores
in high rent locations and by utilizing our flexibility in site selection. Our
gross profit margin, which is net of warehousing, distribution and store
occupancy costs, was 29.4% for 1998 and 29.0% for the thirty nine weeks ended
September 30, 1999.

Payroll costs comprise the largest component of our operating costs. We
attempt to control payroll costs by centrally developing the payroll budget for
each store. We do not advertise, relying instead on attractive exterior signs
and in-store merchandising and signage in order to attract customers. Our
operating profit margin was 8.4% for 1998 and 5.9% for the thirty nine weeks
ended September 30, 1999.

Our Growth Strategy

The following table sets forth information with respect to the growth
of our operations (dollars in thousands, except average annual net sales per
estimated selling square foot):

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1997 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Dollar Express Stores
Sales Data:
Net sales ................................................... $ 74,125 $ 86,271 $ 111,618
Annual net sales growth rate ................................ 30.5% 16.4% 29.4%
Average annual net sales per store (1)....................... $ 1,243 $ 1,303 $ 1,430
Change in comparable store net sales......................... 10.7% 0.5% 2.8%
Average annual net sales per estimated selling square foot(1)(2) $ 245 $ 232 $ 240
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1997 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Store Data:
Number of stores at end of year ................................. 63 70 82
Estimated selling square footage at year end (2) ................ 341,252 406,586 531,263

Spain's Stores
Sales Data:
Net Sales ....................................................... $ 14,237 $ 16,759 $ 19,184
Annual net sales growth rate .................................... (7.4)% 17.7% 14.5%
Average annual net sales per store (1) .......................... $ 587 $ 706 $ 797
Change in comparable store net sales ............................ (4.0)% 16.8% 11.7%
Average annual net sales per estimated selling square foot (1)(2) $ 186 $ 211 $ 236

Store Data:
Number of stores at end of year ................................. 24 23 24
Estimated selling square footage at year end (2) ................ 78,833 77,079 81,541
</TABLE>

- ----------
(1) Includes data only for stores open for the entire year.
(2) Assumes 85% of total square footage is available as selling square
footage.

We believe that our growth will come from our Dollar Express stores. In
order to continue our revenue and income growth for these stores in the future,
we intend to pursue the following strategies:

Continue Opening Large Format Stores in our Current Distribution
Radius. Our future growth will primarily result from new store openings. We
operate 101 stores within our current 250 mile distribution radius and we
believe that we can operate up to 250 stores within this geographic region. By
continuing to focus our store openings in the geographic region served by our
existing distribution center for the immediate future, we can take advantage of
our significant brand awareness and operating experience in the region, as well
as management and other operating efficiencies. We plan to open 25 new Dollar
Express stores in 2000, and already have signed leases for 15 of these stores.
We intend to increase our store count at a rate of approximately 25% per year
over the next several years. We intend to fund these new store openings through
working capital, supplemented, as necessary, by our line of credit. Although we
will concentrate our efforts on our current geographic region, we will also
consider developing new markets in contiguous regions, to be serviced by new
distribution centers as necessary.

Support Our Growth with Strong New Store Economics. We have strong new
store economics. Our stores opened in 1998 generated an average first year
pre-tax cash-on-cash return on investment in excess of 100%. This return on
investment measures a store's first year operating income, exclusive of
depreciation expense, against the cash cost of opening and operating the new
store in its first year of operation. We believe that, historically, our new
stores have become profitable within their first full year of operation. Factors
contributing to this success include thoughtful store site selection, efficiency
in preparing our store space for use, and the speed with which our stores
mature. We believe these strong new store economics will facilitate our
continued growth by allowing us to recoup and redeploy the original capital
invested in each store.

Increase Variety and Number of Products Offered. We continuously strive
to offer exciting new products at our fixed $1.00 price point. These products
include new items within our existing range of

<PAGE>

product categories, as well as items in categories not previously carried in our
stores. We plan to increase the number of consumable and higher margin import
items that we offer. Introduction of new products is designed to further
increase our ability to attract customers into our stores by generating customer
interest throughout the year. It also is expected to increase sales per customer
by increasing our customers' length of stay and stimulating impulse purchases.

Convert Smaller Stores to Larger Stores and Older Stores to Modern
Stores. We believe that large format stores are more attractive to customers and
based on operating performance, are more competitive than smaller stores. We
currently have 37 small format stores. We continue to evaluate converting these
smaller stores into large format stores on an opportunistic basis. With some of
our smaller stores, this can be accomplished by expanding in our current
location. Otherwise, we seek to locate suitable large format space targeting the
same population as the current location.

We have also found that stores with modern fixtures generate greater
revenue and operating profit than stores with older fixtures. Approximately 25
of our stores continue to use their original fixtures. We will seek to replace
these fixtures with modern shelving, slat walls and adjustable displays. These
modern display units allow us the flexibility to display a larger selection of
certain items, and to rearrange merchandise to prominently display our featured
products. We intend to complete this process by the end of 2001. In all of our
stores, we continuously improve our fixtures as appropriate in order to enhance
our customers' shopping experience.

Acquisitions. Although we have no short-term plans regarding potential
acquisitions, we intend to consider potential acquisitions as we continuously
evaluate our position within our industry. We may in the future acquire
complementary businesses that can be integrated into our business operations,
ranging in size from small businesses with only a few stores to larger chains
with many stores.

Dollar Express Stores Concept

Store Design

We have established a style and look to our stores that we believe to
be more upscale than that of other retailers in our segment of the discount
retail industry. Our stores are attractively designed, use bright colors and
uniform decorative signs, and are well-lit and efficiently organized. Our large
format stores also have wide aisles and shopping carts to increase our
customers' shopping comfort. We also offer supermarket style checkout areas for
our customers' convenience.

<PAGE>

Prototype Store Layout

[GRAPHIC OMITTED]

We use a variety of merchandising fixtures, including slat walls, bins
and shelving, and platform and adjustable displays, which allow us the
flexibility to present a large selection of different items, and rearrange
merchandise to prominently display our featured products. Before and after hours
stocking of the stores helps ensure that our displays are always well stocked,
and also assists in maintaining our stores' clean, neat appearance.

Our stores are also designed to be customer friendly. Because speed of
checkout is a priority and because of our continuously changing merchandise mix,
we do not have a point of sale system for tracking sales of individual items of
merchandise. We have designed our stores with a supermarket style, centralized
check-out area at the front of the store. This design, together with our fixed
$1.00 price point, ensures efficient processing of sales and minimizes the time
customers wait to complete purchases. Our stores accept most major credit cards
and some debit cards, but do not accept personal checks.

We believe this shopping environment appeals across demographic
categories and provides our customers with an exciting and enjoyable shopping
experience that encourages longer stays, increases purchases and results in
repeat visits.

Products

Our stores offer quality, regularly available products in a wide range
of categories, as well as a frequently changing mix of seasonal and closeout
products. We utilize color and fashion in the design

<PAGE>

and packaging of our products. Our attractive and varied product mix, together
with our fixed $1.00 price point, are intended to create a "treasure hunt"
experience for our customers.

During the thirty nine weeks ended September 30, 1999, sales in our
Dollar Express stores (based on shipments from our distribution center) were
broken down by category as follows:

Percent of
Category Sales
- ----------------------------------------------------- -------------

Food and Other Consumables........................... 25%
Seasonal and Holiday Goods........................... 18%
Housewares, Glassware and Kitchen Items.............. 13%
Giftware............................................. 12%
Health and Beauty Care Items......................... 10%
Other General Merchandise ........................... 10%
Toys and Baby Items.................................. 6%
Cleaning Supplies.................................... 6%
-------
Total...................................... 100%
-------

Our wide variety of regularly available products allows our customers
to shop in our stores for their everyday needs. These products consist of both
branded and private label items. Although particular items and brands offered at
any time will vary, we offer nationally recognized, brand-name products from
manufacturers or suppliers including:

o Alberto Culver o Heinz o M&M/MARS
o Campbell Soup o Helene Curtis o Nabisco
o Coca-Cola o Hershey Foods o Nestle
o Colgate-Palmolive o Hormel Foods o Panasonic
o Dial o Kraft o Procter & Gamble
o Fisher-Price o Lever Brothers o Rubbermaid
o General Mills o Lipton o Wm. Wrigley Jr.

We also offer private label products that we believe are comparable in
value to national name brand products. Many of our imported products are
packaged under our label "Today's Home." We believe these products are
reminiscent of those carried by higher price specialty retailers. Our private
label also enables us to maintain tighter control over the look, quality and
availability of this merchandise.

The changing portion of our product mix is primarily composed of
seasonal and closeout merchandise. Our seasonal programs are built around the
following seven themes:

o Valentine's Day and St. Patrick's Day
o Easter
o Spring and Summer
o Graduation
o Back-to-school

<PAGE>

o Halloween and Thanksgiving
o Christmas and New Years

Holiday themes feature products such as Halloween candy, Easter gifts, and
Christmas ornaments. Seasonal themes feature products such as outdoor tableware
and cookware for summer, supplies for back-to-school, and gardening tools for
the spring. Closeout merchandise varies constantly depending upon availability,
and typically falls within our existing product categories.

Purchasing

In order to be successful in selling products at our fixed $1.00 price
point, we must control merchandise costs. Our experienced buyers, established
reputation with our suppliers, import purchasing program, and purchasing power
each allow us to control our merchandise costs by enabling us to purchase
products at favorable prices. Our principal buyers average more than 25 years
experience with us and have the authority to make immediate buying decisions,
enabling them to move quickly to purchase attractive products at favorable
prices.

We purchase merchandise from over 700 vendors annually, buying both
directly from manufacturers and indirectly from trading companies and brokers.
No vendor accounted for more than 6% of total merchandise purchased in any of
the last three years. We are constantly seeking new vendors in order to
encourage price competition, vary our product mix, and maintain high levels of
value.

During the thirty nine weeks ended September 30, 1999, approximately
64% of the merchandise we purchased consisted of regularly available consumer
goods purchased domestically, approximately 18% consisted of imported private
label and seasonal goods, and approximately 18% consisted of closeout items.
Regardless of the source, our buying decisions focus on items that can be sold
profitably at our fixed $1.00 price point and that we consider to be of real
value to our customers. We believe that this focus allows us to maintain gross
margins and inventory turnover rates that are not depressed by unsaleable
merchandise.

Our domestically sourced, regularly available merchandise is purchased
directly from domestic suppliers, although some of these products are imported
by these suppliers. Our imported merchandise is purchased directly from foreign
manufacturers or from commissioned trading companies. These trading companies
assist us in dealing with the actual vendors and in providing local market
knowledge and expertise. We believe that the products purchased through any one
of these companies could be obtained through others. Our principal foreign
suppliers are located in China, although we also import products from Hong Kong,
Taiwan and other countries. The pricing of and payment for imported products are
conducted in U.S. currency.

Closeout merchandise is typically available due to the need of
manufacturers, wholesalers and others to distribute merchandise outside their
normal channels. It also becomes available as a result of the discontinuance of
merchandise due to style or color changes, the cancellation of orders placed by
other retailers, or the termination of business by a manufacturer or wholesaler.
Although closeout merchandise is important to our merchandising strategy, we
limit the closeout portion of our merchandise mix. We believe depending too much
on closeout items would force us to purchase merchandise lots containing both
undesirable and obsolete products.

<PAGE>

We deal with our suppliers principally on an order-by-order basis.
Although we have no long-term purchase contracts or other contractual assurance
of continued supply or pricing, we have been purchasing from many of our
suppliers for more than 15 years. We believe that our strong relationships with
these suppliers will enable us to continue to receive a supply of attractive,
high-quality merchandise suited to our fixed $1.00 price point in sufficient
quantities to meet our future growth plans.

Store Operations

Our stores are generally open from 9:00 a.m. to 9:00 p.m. from Monday
through Saturday, and from 10:00 a.m. to 5:00 p.m. on Sundays. Store hours are
extended during holiday seasons. Each store is managed by a store manager and up
to two assistant managers, and typically has between 12 and 20 full-time and/or
part-time sales associates, depending upon sales volume and store size. Staffing
may also vary based on seasonal needs.

Store managers are responsible for merchandise presentation, hiring and
labor scheduling, customer service, store maintenance, inventory management and
in-store security. Store managers track inventory at the store level and place
re-orders utilizing our computerized merchandise ordering system. Store managers
and assistant managers are compensated with a base salary and a performance
award that is based on on-going store inspections and individual store goals.
Our store managers are supervised by 15 district managers who are, in turn,
overseen by three regional managers. We believe that this organizational
structure will facilitate our expansion program while maintaining the uniformity
and consistency in our stores that our customers have come to expect.

We recruit district and store managers from a variety of sources,
including traditional employment advertising, placement agencies, Internet job
postings, employee referrals and promotions. Prior to assuming full
responsibility for a store, newly hired managers complete a store operations
training program and work in another store directly with an experienced manager
and our Director of Manager Training. Newly hired district managers train with
experienced regional and district managers. Their training focuses on manager
supervision, as well as on how to effectively disseminate and enforce store
operating policies.

As part of our regular system of financial controls, we have an
experienced security department devoted to minimizing employee theft and
shoplifting. We also use an independent security firm to supplement our in-house
security measures.

Site Selection and Store Locations

We maintain a disciplined and creative approach to site selection, in
which we seek to locate high-volume, high-visibility locations while at the same
time minimize rent expense. Our stores are typically located in small strip
shopping centers as well as large strip shopping centers anchored by other large
format retailers and mass merchandisers. We also seek free-standing locations.
We believe that these locations require lower rental payments and generate
higher operating margins than stores located in enclosed shopping malls, and
therefore we do not open stores in enclosed malls. Of our 101 stores operating
as of February 15, 2000, 84 were located in strip centers, eight were located on
major streets in traditional shopping locations and eight were located in
free-standing locations.

<PAGE>

We have developed procedures for adapting our merchandising and store
design concepts to non-traditional spaces, such as irregularly shaped spaces and
spaces of varying size. We have found that often we can obtain these spaces for
significantly less rent than is typically being paid by the other retailers in
stores adjacent to ours.

We focus our site selection efforts on locating sites suitable for our
large format stores, which we consider to be stores with more than 8,000 square
feet. The average square footage of our newly opened stores was 10,400 in 1998
and 11,200 for the first nine months of 1999. Our current "prototype" store is a
large format store of 9,000 to 11,000 square feet, and we profitably operate
stores as large as approximately 16,000 square feet.

Our stores have been successful in a variety of locations, from small
towns to major metropolitan and suburban markets, based on operating profit.
Ideally, we seek to locate in middle and higher income markets with a
demographic composition that includes young married couples with children, and
older, value-conscious individuals. A summary of our stores by state as of the
end of each of the last three years is presented below:

Year Ended December 31,
-----------------------------------------
1996 1997 1998
------------ --------- ----------
Pennsylvania....................... 43 46 52
New Jersey......................... 17 19 22
Maryland........................... - 2 4
Delaware........................... 3 3 4
New York........................... - - -
Virginia........................... - - -
------ ------ ------
Total..................... 63 70 82
------ ------ ------

We opened 18 stores in 1999 and anticipate opening 25 new stores during 2000,
all of which will be located within our current distribution radius. We have
signed leases for 15 of these planned new stores. We intend to concentrate our
new store openings in this geographic area for the foreseeable future.

We currently lease all of our stores and we expect that our policy of
leasing rather than owning will continue. Our leases typically provide for an
initial lease term with a number of successive renewal options. This format
gives us the flexibility to pursue extension or relocation opportunities that
arise from changing market conditions. The following table lists the number of
leases for our current locations that will expire during each of the periods
listed (assuming the exercise of all lease renewal options):

Expiring in Calendar Year
- ------------------------------------------------------------------
2004 and
2000 2001 2002 2003 Beyond
- ---------- --------- --------- --------- -------------
3 5 3 5 85

We believe that our long, successful operating history, excellent
credit history, strong relationships with substantial real estate developers,
and ability to generate substantial customer traffic give us significant
bargaining power when negotiating lease terms. As current leases expire, we
believe

<PAGE>

that we will be able to obtain either renewals at present locations or leases
for equivalent or better locations in the same target area.

Spain's Cards & Gifts Stores

We operate 25 Spain's Cards & Gifts Stores, which, based on number of
stores, makes us one of the largest greeting card vendors in the Philadelphia
metropolitan area. Spain's sells a major, nationally recognized line of greeting
cards under a purchase agreement that extends to 2003. In addition, we carry
products sold by most of the leading small greeting card suppliers. Spain's also
offers moderately priced, year round and seasonal giftware and related products,
fad and novelty products, candy and other consumer goods.

Spain's stores average 4,000 square feet, and are situated in
neighborhood and large strip shopping centers, center city locations,
neighborhood street locations and regional malls. Although our Spain's stores
share headquarters and warehouse facilities with our Dollar Express stores, our
Spain's stores management team is and will continue to be dedicated exclusively
to Spain's stores. All of the members of Spain's management team have risen
through the ranks from stock positions to executive management. Spain's
management team averages over 18 years experience with our Spain's stores.

We plan to continue operating approximately 25 Spain's stores. We
opened one new Spain's store in 1999. We would consider selectively opening
additional Spain's stores in the region if appropriate locations were to become
available.

Warehousing and Distribution

Warehousing and distribution are managed centrally from our 200,000
square foot distribution center located in Philadelphia, Pennsylvania adjacent
to our 83,000 square foot corporate headquarters and warehouse facility. These
facilities provide convenient access to major interstate highways, as well as
the ports of Philadelphia, Wilmington and Baltimore. Our warehouse facility
primarily supports the Dollar Express stores. The Spain's stores require little
warehouse space, as nearly all of the merchandise carried in these stores is
shipped directly from the supplier to the individual store locations. We believe
that our distribution center has the capacity to service approximately 140
Dollar Express stores, which we expect will be sufficient to serve our needs
through the second quarter of 2001. In order to serve our expansion objectives,
we intend to replace our distribution center and warehouse with a new,
approximately 360,000 square foot facility. This facility will provide us with a
significant increase in warehousing and distribution capacity due to both the
increase in square footage in this facility and its higher ceilings. We estimate
the total cost of this new distribution center to be approximately $20.7
million. We have recently signed an agreement to acquire land located within
three miles of our current distribution center on which we will build this
facility, which we expect will be operational in the first quarter of 2001. We
believe that this new distribution center will be capable of servicing up to 250
stores within a 250 mile radius of the distribution center.

The bulk of our inventory is shipped directly from suppliers and
delivered to our distribution center, where the inventory is processed and then
distributed to our stores by our fleet of leased trucks. We can deliver
merchandise received at the distribution center to stores by the following day.

Our stores are supplied with a combination of new and re-ordered
merchandise on a regular delivery schedule that varies from two to five times
per week, depending on a store's size and inventory

<PAGE>

turnover. Inventory is managed and distributed to the stores through a
"push/pull" inventory management process. Approximately two-thirds of the
merchandise in the distribution center is "pushed" by the distribution center to
the stores to maintain pre-determined store inventory levels. The remaining
one-third is "pulled" into the stores from the distribution center by store
managers. Store managers log onto terminals at their stores to re-order
merchandise from lists of inventory available at the distribution center.

Information Systems

Our business is supported by a customized inventory control system
processed by an AS/400 computer, and a standard accounting and financial
reporting system utilizing a PC-based local area network.

The inventory control system tracks the full range of buying functions,
including purchase orders, purchase history by vendor, category and SKU. The
system utilizes radio frequency technology to manage receiving, storing and
shipping at our distribution center in a paperless environment. It also supports
preallocation by store of merchandise purchases. Our store managers use the
inventory control system to place daily orders for product deliveries from our
distribution center. Our inventory server polls the stores each night and
forwards the orders to the inventory control system, which then allocates the
orders according to preprogrammed priorities. Once products are allocated to a
store, the system generates an order confirmation, which it electronically
transmits to the store so that our store managers will know which products they
can expect to be delivered from our distribution center. Because of our
continuously changing merchandise mix and other factors, we have determined not
to install a point of sale system in our stores. We believe our inventory
control system is adequate to support our needs for the foreseeable future.

Our accounting and financial reporting system allows us to prepare
detailed reports to support our operational decisions and our cost control
efforts. Although this system supports our current needs, we will be replacing
this system with a more integrated, Year 2000 compliant accounting system that
is expected to be placed in operation during 2000. Our payroll is outsourced to
a commercial provider of payroll services.

We do not currently utilize a point-of-sale register system in our
stores. A point-of-sale system enables a retailer to track sales on an
item-by-item basis through scanning a unique product identification bar code on
each item during the checkout process. We have determined that the advantages of
such a system do not currently justify the costs of implementation and ongoing
operation in our stores. The principal factors contributing to this decision are
the large capital outlay required to purchase the necessary hardware and
software, our belief that it would take longer for a cashier to complete
customers' purchases because all items would need to be scanned rather than
simply counted by piece to determine the total purchase price, and our belief
that inventory management procedures would not benefit from point-of-sale
information on the closeout portion of our merchandise mix. The benefits of such
a system include delivery of more timely information regarding sales on an
individual item level, which could aid in more accurately determining order
quantities, and delivery of more timely determination of total sales by
electronic polling of point-of-sale registers.

If we were to decide to implement a point-of-sale system, we could
integrate our current inventory management system with point-of-sale technology.

<PAGE>

Competition

The retail industry is highly competitive. Although our Dollar Express
stores compete with many mass merchandisers, our primary dollar store
competitors are Dollar Tree Stores, Inc. and local dollar store chains. In 1999,
Dollar Tree's sales were significantly greater than ours. However, we believe
that our stores are more competitive than Dollar Tree's stores as they are, on
average, significantly larger than their stores. We believe that in 1999 our
sales were significantly larger than any of our local dollar store chain
competition. We compete with mass merchandisers and discount retailers primarily
on the basis of price. We compete with other dollar stores primarily on the
basis of perceived value through a broader, more exciting merchandise mix.

Spain's competes in a similar environment, although our primary
competitors are other card and gift stores. We believe that in 1999 our sales
were significantly larger than other card and gift stores in our market. We also
experience some competition from on-line greeting card providers. We compete
primarily on the basis of our merchandise mix.

We believe that our Dollar Express stores' fixed $1.00 price point
strategy and the low price point of most of our Spain's stores merchandise limit
the impact of most mail-order and e-commerce competition due to the high cost of
shipping required by those forms of retailing relative to the price of the items
ordered.

Intellectual Property Rights

We are the owners of federally registered service marks, trademarks or
pending federal service mark applications for DOLLAR EXPRESS(R), DOLLAR
EXPRES$(TM), DOLLAR EXPRES$ EVERYTHING $1.00 and Design(R), Today's Home and
Design(R). We also occasionally use various other names under which we market
products, although we believe that these names are not material to our
operations.

Employees

As of February 15, 2000 we employed approximately 2,500 employees, many
of whom were part-time. The number of our part-time employees fluctuates
depending on our seasonal needs. We consider our relationship with employees to
be good.

Our 35 truck drivers are unionized. The balance of our work force is
not unionized, although a union is currently attempting to unionize our
warehouse employees. A vote of our warehouse employees has been scheduled for
mid-March of 2000 in order for our warehouse employees to decide whether they
will be represented by a union. The collective bargaining agreement with our
currently unionized employees expires in February 2002.

Legal Proceedings

From time to time, we may become a party to litigation arising in the
ordinary course of our business. We are not currently a party to any material
litigation.

52
<PAGE>

MANAGEMENT

Executive Officers and Directors

Our executive officers and directors and their ages as of February 15,
2000 are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------ --------- ----------------------------------------------------------
<S> <C> <C>
Bernard Spain ............................ 65 Chairman of the Board and Chief Executive
Officer
Murray Spain.............................. 56 President, Chief Operating Officer and Director
Barry J. Susson........................... 37 Executive Vice President and Chief Financial
Officer
James Misterman........................... 45 Executive Vice President - Purchasing, Dollar
Express Operations
Vincent J. Navitsky....................... 41 Executive Vice President - Purchasing and
Merchandising
Howard B. Savage.......................... 44 Executive Vice President - Construction and
Corporate Operations
David Folkman............................. 49 Executive Vice President - Store Operations
Harvey Goldberg........................... 56 Director
David M. Mussafer......................... 36 Director
William C. Woo............................ 33 Director
David A. Cohen(1)......................... 59 Director
</TABLE>
- ----------------
(1) Mr. Cohen has been nominated and has consented to become a director
following the completion of this offering.

Bernard Spain is our co-founder and has been our Chief Executive
Officer since our inception in 1959. Mr. Spain is primarily responsible for
monitoring and directing the overall operations of our business. Mr. Spain
received his Bachelor of Science degree from Temple University and is a
certified public accountant. Mr. Spain is Murray Spain's brother.

Murray Spain is our co-founder and has been our President and Chief
Operating Officer since our inception in 1959. Mr. Spain is primarily
responsible for directing the day to day operations of our business, with
particular attention paid to retail operations, buying and supplier relations.
Mr. Spain received his Bachelor of Science degree from Temple University.

Barry J. Susson joined us in 1998 as our Executive Vice President and
Chief Financial Officer. Prior to joining us, Mr. Susson was at Ernst & Young
LLP for 14 years serving in various capacities, with his last position being
Senior Manager. Mr. Susson received his Bachelor of Science degree from The
Pennsylvania State University and is a certified public accountant.

James Misterman has been our Executive Vice President - Purchasing,
Dollar Express Operations since 1992. Mr. Misterman joined us in 1969 as a stock
person and since then has held various positions of increasing responsibility.
Prior to his current position, he was our Vice President and Head Buyer. Mr.
Misterman received his Bachelor of Science degree from LaSalle University.

53
<PAGE>

Vincent J. Navitsky has been our Executive Vice President - Purchasing
and Merchandising since 1992. Mr. Navitsky joined us in 1976 as a stock person
and since then has held various positions of increasing responsibility. Prior to
his current position, he was our Vice President and Buyer. Mr. Navitsky received
his Bachelor of Science degree from Temple University.

Howard B. Savage has been our Executive Vice President - Construction
and Corporate Operations since 1992. Mr. Savage joined us in 1970 as a stock
person and since then has held various positions of increasing responsibility.
Prior to his current position, he was our Vice President - Corporate Operations.
Mr. Savage received his Bachelor of Science degree from Temple University.

David Folkman has been our Executive Vice President - Store Operations
since 1992. Mr. Folkman joined us in 1966 as a stock person and since then has
held various positions of increasing responsibility. Prior to his current
position, he was our Vice President - Human Resources. Mr. Folkman received his
Bachelor of Science degree from Temple University.

Harvey Goldberg has been a director since February 1999. Mr. Goldberg
is presently the Executive Vice President and Co-owner of Narricot Industries,
Inc., a manufacturer of industrial textiles. Mr. Goldberg received his Bachelor
of Science degree and Masters of Business Administration from Temple University.

David M. Mussafer has been a director since February 1999. Mr. Mussafer
is a Managing Director of Advent International Corporation, a private equity
investment firm. Mr. Mussafer has held that position since 1997. Mr. Mussafer
joined Advent in 1991 and since then has held various positions of increasing
responsibility. Mr. Mussafer also serves on the board of directors of each of
Kirkland, Inc., Contact East, Inc., Managed Health Care Associates Incorporated
and O-Cedar Holdings, Inc. Mr. Mussafer received his Bachelor of Science degree
from Tulane University and a Masters of Business Administration from the Wharton
School of the University of Pennsylvania.

William C. Woo has been a director since February 1999. Mr. Woo is a
Principal of Advent International Corporation, a private equity investment firm.
Mr. Woo has held that position since 1996. Prior to 1996, Mr. Woo was an
investment manager with Advent. Mr. Woo also serves on the board of directors of
each of CountryBanc Holding Company and Maurice Corp. Mr. Woo received his
Bachelor of Arts degree from Columbia University and a Masters of Business
Administration from the Wharton School of the University of Pennsylvania.

David A. Cohen has been nominated and has consented to become a
director upon completion of this offering. Mr. Cohen is the Chairman of the
Board and Chief Executive Officer of MedQuist Inc., a medical transcription
firm. Mr. Cohen has been Chairman of the Board of MedQuist since July 1996 and
Chief Executive Officer since November 1995. Prior to 1995, Mr. Cohen was
President of Transcription, Ltd., a subsidiary of MedQuist. Mr. Cohen received
his Bachelor of Science degree from Temple University.

Messrs. Mussafer and Woo were appointed to our board in connection with
our recapitalization. See "Related Party Transactions - The Recapitalization."

54
<PAGE>

Classified Board of Directors

Upon completion of this offering, our board will consist of six
directors. In accordance with the terms of our amended charter and bylaws, each
of which will become effective upon the completion of this offering, our board
of directors will be divided into three classes that will serve staggered
three-year terms, as follows:

Initial
Class Expiration Member
- ------------------------- ---------------- -----------------------
Class I 2001 Messrs.
Class II 2002 Messrs.
Class III 2003 Messrs.

At each annual meeting of shareholders after the initial classification,
directors will be elected to serve from the time of election and qualification
until the third annual meeting following the election or special meeting held in
lieu of the annual meeting.

Our bylaws will provide that the authorized number of directors may be
changed by resolution of the board of directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of our board of directors may
have the effect of deterring or delaying any attempt by any group to obtain
control of us by a proxy contest. See "Description of Capital Stock -
Anti-Takeover Effects of Provisions of Our Charter, Our Bylaws and Pennsylvania
Law."

Board Committees

Our board of directors has established a compensation committee, and
prior to or immediately after the closing of this offering, our board will
establish an audit committee.

The compensation committee consists of Harvey Goldberg and David
Mussafer. Neither of the members of the compensation committee is one of our
officers or employees. The compensation committee reviews and makes
recommendations to the board regarding the compensation to be provided to our
executive officers. The compensation committee also administers our bonus and
other incentive arrangements, including the grant of stock options under our
1999 Stock Option Plan.

The audit committee will consist of Harvey Goldberg, David Cohen, and
William Woo. The audit committee will make recommendations to the board
regarding the selection of independent public accountants, review the results
and scope of the audit and other services provided by our independent public
accountants, and review and evaluate our control functions.

The board of directors does not have a nominating committee. The
selection of nominees for the board will be made by the entire board. The board
may from time to time establish other committees to facilitate our management.

55
<PAGE>

Compensation Committee Interlocks and Insider Participation

Prior to November 1999, our board of directors did not have a
compensation committee, and all compensation decisions relating to our executive
officers were made by the full board of directors, which in 1998 consisted of
Bernard Spain and Murray Spain. Since November 1999, our compensation committee
has made all compensation decisions regarding our executive officers. Each
member of the compensation committee is a member of the board of directors and
is not an employee. None of our directors or executive officers serves as a
member of the compensation committee or other board committee performing
equivalent functions of any other company whose directors or executive officers
serve on our compensation committee.

Director Compensation

While no director currently receives cash compensation for services
performed in his capacity as director, following the consummation of this
offering, _________. Directors receive reimbursement of out-of-pocket expenses
incurred in connection with attending meetings or attending to other company
business. Each director is eligible to receive discretionary stock option grants
under our 1999 Stock Option Plan. The term and vesting of options granted to
directors are determined by the compensation committee or, in the case of
outside directors, the full board of directors at the time of grant. A director
may not participate in deciding whether or not to grant himself or herself
options under our plan. Directors, like all other participants in the plan, are
limited to receiving options for no more than 226,315 shares of our common stock
in any 12 month period.

56
<PAGE>

The following table shows annual and long-term compensation information
for our Chief Executive Officer and our five other most highly compensated
executive officers for services rendered in all capacities during 1999.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------- ------------------
Securities All Other
Salary Bonus Underlying Compensation
Name and Principal Position Year ($) ($) Options (#) ($)
- --------------------------------------- --------- ------------- ------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Bernard Spain ......................... 1999 325,000 75,000 -- 2,565 (1)
Chief Executive Officer

Murray Spain .......................... 1999 325,000 75,000 -- 3,310 (2)
President and Chief Operating
Officer

James Misterman........................ 1999 134,885 42,500 43,000 2,833 (3)
Executive Vice President
-Purchasing, Dollar Express
Operations

Vincent J. Navitsky ................... 1999 134,885 42,500 43,000 2,833 (4)
Executive Vice President
-Purchasing and Merchandising

Howard B. Savage ...................... 1999 134,885 42,500 43,000 2,833 (5)
Executive Vice President
-Construction and Corporate
Operations

David Folkman ......................... 1999 134,654 42,500 43,000 2,830 (6)
Executive Vice President
-Store Operations
</TABLE>

- ---------------------------
(1) Represents premiums of $810 paid by us for group term life insurance
and a matching contribution by us of $1,755 to our 401(k) savings plan.
(2) Represents premiums of $810 paid by us for group term life insurance
and a matching contribution by us of $2,500 to our 401(k) savings plan.
(3) Represents premiums of $810 paid by us for group term life insurance
and a matching contribution by us of $2,023 to our 401(k) savings plan.
(4) Represents premiums of $810 paid by us for group term life insurance
and a matching contribution by us of $2,023 to our 401(k) savings plan.
(5) Represents premiums of $810 paid by us for group term life insurance
and a matching contribution by us of $2,023 to our 401(k) savings plan.
(6) Represents premiums of $810 paid by us for group term life insurance
and a matching contribution by us of $2,020 to our 401(k) savings plan.

57
<PAGE>

Option Grants

The following table sets forth information with respect to stock
options granted to our Chief Executive Officer and our five other most highly
compensated executive officers during 1999.

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants
------------------------------------------------------------------------- Potential Realizable Gain
Percent of at Assumed Annual Rates
Number of Total Options of Stock Appreciation for
Securities Granted to Exercise Option Terms
Underlying Employees in or Compounded Annually(3)
Options Last Fiscal Base Price Expiration -------------------------------
Name Granted (#) (1) Year ($/Sh) (2) Date 5% 10%
- ---------------------- ------------------ ----------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bernard Spain......... -- -- -- -- -- --

Murray Spain.......... -- -- -- -- -- --

James Misterman....... 43,000 15.4% $8.96 2/5/09 $242,294 $614,020

Vincent J. Navitsky... 43,000 15.4% $8.96 2/5/09 242,294 614,020

Howard B. Savage...... 43,000 15.4% $8.96 2/5/09 242,294 614,020

David Folkman......... 43,000 15.4% $8.96 2/5/09 242,294 614,020

</TABLE>

- -----------------
(1) All options granted to employees are incentive stock options and vest
in four equal installments, on February 5, 1999, February 5, 2000,
February 5, 2001, and February 5, 2002. Upon vesting, all options are
immediately exercisable.
(2) We granted options at an exercise price equal to the fair value of our
common stock on the date of grant as determined by our board of
directors.
(3) Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent
hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. The 5% and 10% assumed annual
rates of compounded stock price appreciation are mandated by rules of
the SEC and do not represent our estimate or projection of our future
common stock prices. These amounts represent assumed rates of
appreciation in the value of the common stock from the fair market
value on the date of grant. Actual gains, if any, on stock option
exercises are dependent on the future performance of our common stock
and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved.

58
<PAGE>

Option Exercises and Fiscal Year-End Option Values

No options granted by the Company were exercised by the named executive
officers during fiscal 1999. The following table sets forth certain information
regarding options for the purchase of common stock that were held by the named
executive officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

Number of Securities Value of Unexercised
Shares Unexercised Options at In-the-Money
Acquired Value FY - End (#) Options at FY-End ($)(1)
on Exercise Realized ---------------------------------- ----------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- -------------- ------------- ------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Bernard Spain......... -- -- -- -- -- --

Murray Spain.......... -- -- -- -- -- --

James Misterman....... -- -- 10,750 32,250 64,930 194,790

Vincent J. Navitsky... -- -- 10,750 32,250 64,930 194,790

Howard B. Savage...... -- -- 10,750 32,250 64,930 194,790

David Folkman......... -- -- 10,750 32,250 64,930 194,790

</TABLE>
- ------------------
(1) Based on the initial public offering price of $15.00 per share, less
the exercise price, multiplied by the number of shares underlying the
option, adjusted for our 1.075-for-1 stock split.

Employment Agreements

On February 5, 1999, we entered into four-year employment agreements
with Bernard Spain, our Chief Executive Officer, and Murray Spain, our President
and Chief Operating Officer. Each of these employment agreements provides for
annual compensation of $325,000 subject to increase as of January 1, 2001, as
determined by our board of directors. In addition, each of the Spain brothers is
entitled to receive an annual bonus in an amount determined by the board based
on our actual performance as compared to the approved budget, with a maximum
amount of $75,000. The annual compensation amount may be increased by our board
of directors after January 1, 2001. The employment agreements also contain
non-competition covenants, non-solicitation covenants and confidentiality
provisions. The non-competition covenants restrict each of them from competing,
directly or indirectly, with us in the large format dollar store or traditional
card and gift shops business until February 2006 in any geographic areas where
we do business. We may terminate either of the Spain brothers for excessive
absenteeism or otherwise for cause. Each is entitled to one year's annual salary
and 18 months of health insurance in case we terminate him without cause.

On March 1, 1999, we entered into one-year employment agreements with
James Misterman, Vincent J. Navitsky, Howard B. Savage and David Folkman. Each
of these employment agreements provides for annual compensation of $134,000,
subject to increase as of January 1, 2000, as determined by our board of
directors. In addition, each executive officer is entitled to receive an annual
bonus in an amount determined by the board based on our actual performance as
compared to the approved

59
<PAGE>

budget. The employment agreements also contain non-competition covenants,
non-solicitation covenants and confidentiality provisions. The non-competition
covenants restrict each of them from competing, directly or indirectly, with us
in the large format dollar store or traditional card and gift shops business
until March 2002 in any geographic areas where we do business. We may terminate
each of these executive officers for excessive absenteeism or otherwise for
cause. Each executive officer is entitled to six months' salary and six months
of health insurance in case we terminate him without cause.

Employee Benefit Plans

1999 Stock Option Plan. We adopted our 1999 Stock Option Plan at the
closing of our recapitalization and amended it on November 9, 1999. This plan is
intended to enable us to provide selected directors, officers, key employees and
consultants with incentives to maximize shareholder value, and to attract and
retain quality candidates for positions of substantial responsibility.

This plan provides for the grant of incentive stock options and
non-qualified stock options and is administered by our board of directors or a
subcommittee of our board of directors. Incentive stock options may only be
granted to individuals who are our employees at the date of grant. Non-qualified
stock options may be granted to our employees and non-employee directors as well
as consultants and other individuals who perform services for us, but are not
employed by us.

A grantee of an incentive stock option will not recognize taxable
income upon either the grant or exercise of the incentive stock option. A
grantee who disposes of the shares acquired upon exercise of an incentive stock
option after two years from the date the incentive stock option was granted and
after one year from the date such shares were transferred to him or her upon
exercise of the incentive stock option will recognize long-term capital gain or
loss in the amount of the difference between the amount realized on the sale and
the exercise price. We will not be entitled to any tax deduction by reason of
the grant or exercise of the incentive stock option. A disposition of shares
acquired upon exercise of an incentive stock option before satisfying both
holding period requirements referenced above is known as a "disqualifying
disposition." Generally, the gain recognized on such a disposition will be taxed
as ordinary income to the extent of the difference between the fair market value
of such shares on the date of exercise and the exercise price, and we will be
entitled to a deduction in that amount. The gain, if any, in excess of the
amount recognized as ordinary income on such a disqualifying disposition will be
long-term or short-term capital gain, depending upon the length of time the
grantee held his or her shares prior to the disposition.

There are no federal income tax consequences to a grantee or to us upon
the grant of a nonqualified stock option. Upon the exercise of a nonqualified
stock option, a grantee will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price of the nonqualified stock option, and we will
generally be entitled to a corresponding federal income tax deduction. Upon the
sale of shares acquired by the exercise of an nonqualified stock option, a
grantee will have a capital gain or loss, long-term or short-term depending upon
the length of time the shares were held, in an amount equal to the difference
between the amount realized upon the sale and the fair market value of the
shares on the date of exercise.

The exercise price of any option granted under the plan may not be less
than 100% of the fair market value of our common stock on the date of grant. The
persons receiving grants of options

60
<PAGE>

under the plan, the number of shares subject to those options, and the exercise
price, vesting conditions and other terms of individual options are determined
by our board of directors or its subcommittee. Options granted under this plan
may not be transferred, except by will or inheritance, and will expire no later
than 10 years following their date of grant. The plan itself will terminate on
February 5, 2009. Shares of common stock subject to an exercisable option may be
purchased by the option holder upon payment of the option exercise price in cash
or, at the discretion of our board of directors or its subcommittee, upon
delivery of shares of common stock with a fair market value equal to the option
exercise price.

Upon the disposition of more than 50% of our common stock, our
liquidation, a sale of substantially all of our assets, or other similar types
of transactions, this plan provides that our board of directors or its
subcommittee may, in its discretion, accelerate the vesting of outstanding
options, exchange outstanding options for new options to purchase shares of any
successor company, or cancel outstanding options in exchange for a payment of
the option "spread" (the difference between the option exercise price and the
then fair market value of the stock subject to the option). The offering
described in this prospectus will not trigger this discretionary right of our
board of directors or its subcommittee.

A total of 809,140 shares of common stock have been authorized for
issuance under this plan. Of this amount, 279,500 shares of common stock are
issuable upon exercise of options previously granted under our plan. In
addition, we expect to grant to employees, as of the date of this prospectus,
options to purchase an aggregate of _______ shares of common stock under this
plan at an exercise price equal to the initial public offering price per share.
Executive officers who will receive option grants as of the date of this
prospectus, include: Mr. Misterman (_____ shares); Mr. Navitsky (______ shares);
Mr. Savage (______ shares); Mr. Folkman (______ shares); and Mr. Susson (______
shares).

401K Plan. On May 1, 1998, we established the Dollar Express, Inc.
401(k) and Retirement Plan, a defined contribution profit sharing plan
containing elective deferral and employer matching components. This plan is
intended to satisfy the requirements of Sections 401(a), 401(k) and 401(m) of
the Internal Revenue Code. All our employees who are at least 21 years old and
who have completed one year of service are eligible to participate in this plan.
An eligible employee may begin participation in this plan on the first day of
the calendar quarter following the quarter in which he or she satisfies the
above-stated age and service conditions.

A participating employee may elect to defer up to 15% of his or her
compensation under this plan, subject to legal limits generally applicable to
all qualified 401(k) plans. Employee contributions and the investment earnings
thereon are fully vested at all times. For each $1.00 deferred under this plan
by a participating employee up to 6% of his or her compensation, we make a
matching contribution of $0.25 to that participating employee's plan account.
Matching contribution expense was $ 69,245 for the year ended December 30, 1999.
This plan also permits us to make discretionary profit sharing contributions to
be allocated among eligible employees based on the proportion that each such
employee's compensation bears to that of all other eligible employees. Matching
contributions, profit sharing contributions and earnings thereon vest ratably
over six years (or, if sooner, upon attainment of age 65). We did not make a
profit sharing contribution to this plan in fiscal 1999.

All of this plan's assets are invested in a group annuity contract and
mutual funds. Each participant is entitled to direct the investment of all
amounts allocated to his or her plan account.

61
<PAGE>

A participant is entitled to a distribution of his or her plan account upon the
earliest of death, disability, separation from service or attainment of age 59
1/2. Such distributions are made in the form of either a single lump sum or
installment payments. In addition, this plan permits hardship distributions and
participant loans.

Limitation of Liability of Directors and Indemnification of Directors and
Officers

Our charter provides that none of our directors will be personally
liable to us or our shareholders for monetary damages for any action taken or
failure to take any action, unless:

o such director has breached or failed to perform the duties of
his or her office under Pennsylvania law; and

o the breach or failure to perform constitutes willful
misconduct or recklessness.

In addition, our bylaws provide that we will indemnify our directors
and officers against any liability incurred in connection with any proceeding in
which the director or officer may be involved as a party or otherwise by reason
of the fact that such director or officer is or was serving as our director,
officer or employee or, at our request, as a director, officer, partner,
fiduciary or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, unless the act or failure to act
giving rise to the claim for indemnification is finally determined by a court to
have constituted willful misconduct or recklessness or to have been based upon
or attributable to the receipt by any director or officer from us of a personal
benefit to which such director or officer is not legally entitled. Our bylaws
also provide that we may advance expenses to any director or officer upon our
receipt of an undertaking by the director or officer to repay those amounts if
it is finally determined that he or she is not entitled to indemnification.

We maintain directors and officers liability insurance to provide
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts. At
present, there is no pending litigation or proceeding, and we are not aware of
any threatened litigation or proceeding, involving any director, officer,
employee or agent where indemnification will be required or permitted under our
bylaws.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.

62
<PAGE>

RELATED PARTY TRANSACTIONS

The Recapitalization

Recapitalization and Securities Acquisition

On February 5, 1999 we were recapitalized. In our recapitalization,
Bernard Spain and Murray Spain contributed to us all of the stock of Dollar
Express Stores, Inc. in exchange for an aggregate of 6,955,250 shares of our
common stock and Dollar Express Stores became our wholly-owned subsidiary.

In connection with our recapitalization, on February 5, 1999 we sold
the following persons 3,530,000 shares of our Series A convertible preferred
stock and warrants to purchase 447,917 shares of our common stock, for $35.0
million, as described below:

# of Shares of Series A
Purchase Price Convertible Preferred
Investor (in thousands) Stock # of Warrants
- ---------------------------------------------------- ----------------- ------------------------- ----------------
<S> <C> <C> <C>
Global Private Equity III Limited Partnership....... $28,210 2,845,180 361,020

Advent PGGM Global Limited Partnership.............. 4,323 435,990 55,323

Advent Partners GPE III Limited Partnership......... 426 42,960 5,451

Advent Partners Limited Partnership................. 185 18,676 2,369

Advent Partners (NA) GPE III Limited Partnership.... 126 12,708 1,613

Guayacan Private Equity Fund Limited Partnership.... 1,000 100,852 12,797

Dollar Express Investment, LLC...................... 730 73,636 9,344
------- --------- --------
Total...................................... $35,000 3,530,000 447,917
------- --------- --------
</TABLE>

As a result of arms-length negotiations between our investors and the
Spain brothers, the fair value of a share of our common stock was determined to
be $8.96 and our total pre-investment value was determined to be approximately
$65.0 million.

In connection with this sale of securities, we appointed to our board
two directors selected by our investors and agreed that as long as the Series A
convertible preferred stock was outstanding, the holders of this preferred stock
have the right to maintain two directors on our board. Prior to completion of
this offering, the 3,530,000 outstanding shares of Series A convertible
preferred stock will convert into 3,794,750 shares of our common stock. As a
result, this right will terminate. See "Description of Capital Stock -Preferred
Stock." In addition, the warrants we sold to our investors will be canceled
prior to the completion of this offering.See "Description of Capital Stock -
Common Stock Warrants."

63
<PAGE>

On January 1, 1999, prior to our recapitalization, Dollar Express
Stores paid a dividend of approximately $59.5 million to the Spain brothers. The
dividend was declared in order to allow the Spain brothers to realize a portion
of their investment in Dollar Express Stores. This dividend was funded through
the issuance of term notes that were satisfied with the proceeds received from
our investors and the credit facilities discussed below. The notes had a due
date of February 28, 1999, and carried no interest if satisfied prior to their
term. The default rate of interest on the notes was 5%. In addition, the notes
could be prepaid without charge or penalty by the maker at any time and provided
for all costs of collection and reasonable attorney's fees incurred by a holder
if collection in the event of default was required.

Credit Facilities

On February 5, 1999, we entered into a $20.0 million revolving credit
facility and a $20.0 million term loan facility with a syndicate of senior
lenders. We drew down the entire term loan facility and $7.2 million under the
revolving credit facility and used the proceeds from these facilities as
follows:

o we loaned $20.0 million to Dollar Express Stores to satisfy in
part the notes that Dollar Express Stores issued as a dividend
paid to the Spain brothers;

o we repaid our existing indebtedness for borrowed money
(approximately $4.0 million at the time); and

o we paid costs associated with our recapitalization.

Investors Rights

In connection with our recapitalization, we entered into an investors
rights agreement with our investors and the Spain brothers. Prior to the
completion of this offering, the agreement's provisions giving our investors the
right to nominate two directors for election to the boards of directors of each
of our subsidiaries will terminate.

However, the preemptive rights we granted to our investors will remain
in effect following the completion of this offering. These preemptive rights
require us to offer our investors the opportunity to purchase securities that we
desire to offer prior to our issuing the securities to someone else. Our
investors' preemptive rights do not apply to shares we issued upon the exercise
of stock options or warrants, or to our sale of securities pursuant to a
registered public offering.

In addition, rights of first refusal and co-sale rights, which the
Spain brothers granted to our investors, will also remain in effect following
the completion of this offering. These rights of first refusal require the Spain
brothers to first offer to our investors the opportunity to purchase any of
their shares that either or both of the Spain brothers desire to sell to any
third party prior to their selling these shares to someone else. The co-sale
rights permit our investors to sell a portion of their shares to any third party
purchasing shares from the Spain brothers. Our investors' rights of first
refusal and co-sale rights, however, would not apply in cases where the Spain
brothers intend to transfer their securities to a trust, family member or

64
<PAGE>

spouse, to sell their securities pursuant to an effective registration statement
under the Securities Act, or where the sale of securities is exempt from
registration under Rule 144.

Registration Rights

In connection with our recapitalization, we entered into a registration
rights agreement with the Spain brothers and our investors. Pursuant to that
agreement, we granted to our investors and the Spain brothers "demand" and
"piggy-back" registration rights. See "Description of Capital Stock --
Registration Rights."

Leases

Headquarters Lease

We currently lease our corporate headquarters from an entity that is
wholly-owned by the Spain brothers. This lease provides for an annual rental of
$403,749. The lease is year to year, and provides that either party to the lease
may terminate it upon 60 days written notice prior to the end of the term. While
we believe that the terms of the lease are fair to us, its terms were not
negotiated on an arms-length basis. Accordingly, while we believe these terms
are at least as favorable to us as those we would expect to negotiate with an
independent third party, there can be no assurance that the terms of the lease
are as favorable to us as those that we could have obtained from an independent
third party.

Store Leases

We currently lease 10 of our 126 stores from entities that are
wholly-owned by the Spain brothers and/or their immediate families. Aggregate
annual rent for all 10 stores is $814,260. Nine of these store leases are on a
year to year basis and are terminable by the landlord upon 60 days written
notice prior to the end of the term. The lease for one of the 10 stores expires
on June 30, 2004 and provides for four 5-year renewal options. While we believe
that the terms of the leases are fair to us, their terms were not negotiated on
an arms-length basis. Accordingly, while we believe these terms are at least as
favorable to us as those we would expect to negotiate with an independent third
party, there can be no assurance that the terms of the leases are as favorable
to us as those that we could have obtained from an independent third party.

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of our common stock by:

o each of our named executive officers;
o each of our directors;
o each selling shareholder;
o all of our directors and executive officers as a group; and
o each other person known to us to own beneficially more than 5%
of our outstanding shares.

As of February 15, 2000, there were 10,750,000 shares of our common
stock outstanding, after giving effect to the 1.075-for -1 split of our common
stock and the conversion of 3,530,000 outstanding shares of Series A convertible
preferred stock into 3,794,750 shares of common stock that will occur prior to
this offering. The table assumes that this conversion and the stock split have
occurred.

To calculate a shareholder's percentage of beneficial ownership, we
have included in the numerator and denominator those shares underlying options
that the shareholder is considered to beneficially own. A person has beneficial
ownership of shares if he has the power to vote or dispose of the shares. This
power can be exclusive or shared, direct or indirect. In addition, a person is
considered by SEC rules to beneficially own shares underlying options that are
presently exercisable or will become exercisable within 60 days. Shares
underlying options held by other shareholders, however, are disregarded in this
calculation. Therefore, the denominators used in calculating beneficial
ownership among our shareholders differ.

Shares Shares
Beneficially Shares Beneficially
Owned Prior to to be Sold Owned After
Offering in Offering (1) Offering (1)
----------------------------- ------------------- ----------------------------
Name Number Percent Number Number Percent
- ------------------------------------------- ------------- ----------- ------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Executive Officers and Directors:

Bernard Spain.............................. 3,074,224 28.6% 149,867 2,924,357 22.4%

Murray Spain (2)........................... 3,456,209 32.2% 149,867 3,306,342 25.3%

James Misterman (3)........................ 21,500 * -- 21,500 *

Vincent J. Navitsky (4).................... 21,500 * -- 21,500 *

Howard B. Savage (5)....................... 21,500 * -- 21,500 *

David Folkman (6).......................... 21,500 * -- 21,500 *

Harvey Goldberg............................ -- * -- -- *

David M. Mussafer (7)...................... 3,607,175 33.6% 729,354 2,877,821 22.0%

William C. Woo ............................ -- * -- -- *
</TABLE>

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<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Prior to to be Sold Owned After
Offering in Offering (1) Offering (1)
----------------------------- ------------------- ----------------------------
Name Number Percent Number Number Percent
- ------------------------------------------- ------------- ----------- ------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
David A. Cohen (8)......................... -- * -- -- *
Executive officers and directors as a
group (11 persons) (9) .............. 10,228,983 94.4% 1,029,088 9,199,895 70.3%

Other Shareholders:
Advent International Corporation
(7) (10)................................. 3,607,175 33.6% 729,354 2,877,821 22.0%
Global Private Equity III Limited
Partnership (10)......................... 3,058,569 28.5% 618,148 2,440,421 18.7%
Advent PGGM Global Limited
Partnership.............................. 468,689 4.4% 95,100 373,589 2.9%
Advent Partners GPE III Limited
Partnership.............................. 46,182 * 9,203 36,979 *
Advent Partners Limited
Partnership.............................. 20,075 * 3,835 16,240 *
Advent Partners (NA) GPE III
Limited Partnership...................... 13,661 * 3,068 10,593 *
Guayacan Private Equity Fund
Limited Partnership...................... 108,416 1.0% 22,240 86,176 *
Dollar Express Investment LLC.............. 79,159 * 15,339 63,820 *
</TABLE>

- ----------------
* Denotes ownership of less than one percent.
(1) Assumes no exercise of over-allotment option. If the underwriters'
over-allotment option is exercised in full, Bernard Spain intends to
sell 221,522 shares of common stock, Murray Spain intends to sell
221,522 of common stock, Global Private Equity III Limited Partnership
intends to sell 913,700 shares of common stock, Advent PGGM Global
Limited Partnership intends to sell 140,569 shares of common stock,
Advent Partners GPE III Limited Partnership intends to sell 13,603
shares of common stock, Advent Partners Limited Partnership intends to
sell 5,668 shares of common stock, Advent Partners (NA) GPE III Limited
Partnership intends to sell 4,534 shares of common stock, Guayacan
Private Equity Fund Limited Partnership intends to sell 32,875 shares
of common stock and Dollar Express Investment LLC intends to sell
22,672 shares of common stock.
(2) Includes 405,429 shares owned by a family limited partnership of which
Mr. Spain is a general partner. Mr. Spain disclaims beneficial
ownership of such shares.
(3) Represents 21,500 shares issuable upon exercise of stock options.
(4) Represents 21,500 shares issuable upon exercise of stock options.
(5) Represents 21,500 shares issuable upon exercise of stock options.
(6) Represents 21,500 shares issuable upon exercise of stock options.
(7) All of the shares indicated are held of record by as follows: Global
Private Equity III Limited Partnership, Advent PGGM Global Limited
Partnership, Advent Partners GPE III Limited Partnership, Advent
Partners Limited Partnership, Advent Partners (NA) GPE III Limited
Partnership, (collectively, the "Advent Entities"). Advent
International Corporation is the general partner of the Advent
Entities. Mr. Mussafer is a managing director of Advent International
Corporation and may be deemed to beneficially own the shares held of
record by the Advent Entities. Mr. Mussafer disclaims beneficial
ownership of all shares held by the Advent Entities. Mr. Mussafer's
address is 75 State Street, Boston, Massachusetts 02109.
(8) Mr. Cohen has been nominated and has consented to become a director
following the completion of this offering.
(9) Includes 96,750 shares issuable upon exercise of stock options.
(10) Advent International Corporation's and Global Private Equity III
Limited Partnership's address is 75 State Street, Boston, Massachusetts
02109.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

Our authorized capital stock consists of 75,000,000 shares of common
stock, par value $0.01 per share, and 25,000,000 shares of preferred stock, par
value $0.01 per share. Upon completion of this offering, we will have 13,083,333
shares of common stock issued and outstanding. No shares of preferred stock will
be outstanding.

The following is qualified in its entirety by reference to our charter
and our bylaws, copies of which are included as exhibits to the registration
statement of which this prospectus is a part, and by the provisions of
applicable law.

Common Stock

As of February 15, 2000, there were 6,955,250 shares of common stock
outstanding held by four shareholders. Holders of common stock are entitled to
one vote for each share held on all matters submitted to a vote of shareholders,
and do not have cumulative voting rights in the election of directors. Whenever
corporate action is to be taken by vote of the shareholders, it becomes
authorized upon receiving the affirmative vote of a majority of the votes cast
by all shareholders entitled to vote on the matter. Holders of common stock are
entitled to receive, as, when and if declared by the board of directors from
time to time, such dividends and other distributions in cash, stock or property
from our assets or funds legally available for such purposes subject to any
dividend preferences that may be attributable to our outstanding preferred
stock.

Other than our investors' preemptive rights described under " Related
Party Transactions - Investors Rights," no preemptive conversion, redemption or
sinking fund provisions apply to our common stock. All outstanding shares of
common stock are fully paid and non-assessable. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share ratably
in the assets available for distribution.

Preferred Stock

As of February 15, 2000, we had 3,530,000 shares of Series A
convertible preferred stock outstanding held by seven shareholders. The holders
of these shares are entitled to the following rights:

o Cumulative preferred dividends, in cash, equal to $0.78 per
share annually. Dividends are payable in arrears on March 31,
June 30, September 30 and December 31 of the year in which
they accrue. The payment of these dividends can be deferred
until August 3, 2001. Upon conversion, the holders of the
preferred shares are also entitled to payment of all accrued
and unpaid dividends, if any, so long as a qualified public
offering, merger, consolidation or any other recapitalization
or other business combination with and unaffiliated entity has
not occurred prior to August 3, 2001.

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<PAGE>

o To convert, at any time, any or all shares of preferred stock
into shares of our common stock. All preferred shares will
automatically convert into shares of our common stock on the
date at which a registration statement filed with the SEC,
with respect to shares of our common stock to be sold in a
qualified public offering, shall be declared effective by the
SEC. Accordingly, prior to the completion of this offering,
the preferred shares will automatically be converted into
shares of our common stock and we will have no outstanding
shares of preferred stock.

o A preference upon our liquidation with respect to the
distribution of our assets.

o To vote together with the holders of our common stock as one
class on all matters as to which the holders of our common
stock are entitled to vote.

o To elect, as a separate group, two directors to our board of
directors.

Our board of directors, without further action by the shareholders, is
authorized to issue an aggregate of 25,000,000 shares of preferred stock. We
have no plans to issue a new series of preferred stock. Our board of directors
may issue preferred stock with dividend rates, redemption prices, preferences on
liquidation or dissolution, conversion rights, voting rights and any other
preferences, which rights and preferences could adversely affect the voting
power of the holders of our common stock. An issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage or delay a third party from
acquiring control of us.

Common Stock Warrants

As of February 15, 2000, we had warrants outstanding to purchase
447,917 shares of our common stock held by seven persons. After August 3, 2001,
the holders of these warrants are entitled to exercise their right to purchase
shares of our common stock. Accordingly, none of these warrants have yet been
exercised. Prior to the completion of this offering, these warrants will
terminate and we will have no outstanding warrants to purchase shares of our
common stock.

Registration Rights

In connection with our recapitalization, we entered into a registration
rights agreement with the Spain brothers and our investors, which permits each
of them to demand, on not more than two occasions, that we file a registration
statement under the Securities Act covering the registration of the offer and
sale of all or a part of our investors' or the Spain brothers' common stock.
However, the Spain brothers may not make such a demand for registration until
such time as our investors have received gross proceeds in the aggregate of
$35.0 million from the registered sale of their common stock. No registration
rights have been exercised by either our investors or the Spain brothers in
connection with this offering.

In addition, our investors may demand, but not prior to one year after
the effective date of this offering, that we file a registration statement on
Form S-3 for the registration of the offer and sale of all or part of our
investors' common stock, provided that we are not

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<PAGE>

required to effect more than one such registration each year. We must offer to
register the common stock held by our investors or the Spain brothers any time
we intend to register our common stock for offer and sale on our own account or
the account of others. We have agreed to bear all expenses incurred in
connection with these registrations, except those expenses incurred by holders
of our common stock for underwriting discounts and commissions and some legal
fees of counsel retained by them. We have agreed to use our best efforts to
effect any registration subject to customary conditions and limitations.

Anti-Takeover Effects of Provisions of Our Charter, Our Bylaws and Pennsylvania
Law

Charter and Bylaws. The ability of our board of directors to establish
the rights of, and to issue, substantial amounts of preferred stock under our
charter without the need for shareholder approval may discourage, delay or
prevent a change in control. This preferred stock, among other things, may be
used to create voting impediments with respect to any changes in control or to
dilute the stock ownership of holders of common stock seeking to obtain control.

Our bylaws will provide that the board of directors will be divided
into three classes of directors, with each class constituting approximately
one-third of the total number of directors and with each class serving a
staggered three-year term. Our bylaws provide that directors may be removed only
for cause. Our bylaws will provide that our shareholders may call a special
meeting of shareholders only upon the request of shareholders owning at least
50% of our capital stock, and that our shareholders may only take action at a
meeting of shareholders or by the unanimous written consent of all of our
shareholders in lieu of a meeting. These provisions are intended to:

o enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies
formulated by the board of directors;

o discourage certain types of transactions that may involve an
actual or threatened change of our control;

o reduce our vulnerability to an unsolicited acquisition
proposal; and

o discourage certain tactics that may be used in proxy fights.

However, these provisions of our bylaws could discourage potential acquisition
proposals and could delay, deter or prevent a change in our control by delaying
any third party's ability to replace enough members of our board of directors in
order to control the board, and by restricting this party's ability to remove
members of our board except for cause. In addition, these provisions could have
the effect of discouraging others from making tender offers for our shares and,
as a consequence, these provisions also may inhibit fluctuations in the market
price of our shares that could result from actual or rumored takeover attempts.
These provisions also may have the effect of preventing changes in our
management.

Pennsylvania Anti-Takeover Law. Pennsylvania law contains a number of
statutory "anti-takeover" provisions applicable to us.

Subchapter F of the Pennsylvania Business Corporation Law generally
prohibits a "business combination" with a shareholder or group of shareholders
(and affiliates and associates of such shareholders) who beneficially own(s) at
least

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<PAGE>

20% of the voting power of a public corporation (an "interested shareholder")
for a five-year period following the date on which the holder became an
interested shareholder unless this business combination or the acquisition by
the shareholder or group of shareholders of at least 20% of the voting power of
the corporation is approved in advance by our board of directors. This provision
may discourage open market purchases of our stock or a non-negotiated tender or
exchange offer for our stock and, accordingly, may be considered disadvantageous
by a shareholder who would desire to participate in any such transaction.

Under Section 1715 of the Pennsylvania Business Corporation Law, our
directors are not required to regard the interests of the shareholders as being
dominant or controlling in considering our best interests. The directors may
consider, to the extent they deem appropriate, such factors as:

o the effects of any action upon any group affected by such
action, including our shareholders, employees, suppliers,
customers and creditors, and communities in which we have
stores, offices or other establishments;

o our short-term and long-term interests, including benefits
that may accrue to us from our long-term plans and the
possibility that these interests may be best served by our
continued independence;

o the resources, intent and conduct of any person seeking to
acquire control of us; and

o all other pertinent factors.

Section 1715 further provides that any act of our board of directors, a
committee of the board or an individual director relating to or affecting an
acquisition or potential or proposed acquisition of control to which a majority
of our disinterested directors have assented will be presumed to satisfy the
standard of care set forth in the Pennsylvania Business Corporation Law, unless
it is proven by clear and convincing evidence that our disinterested directors
did not consent to such act in good faith after reasonable investigation. As a
result of this and the other provisions of Section 1715, our directors are
provided with broad discretion with respect to actions that may be taken in
response to acquisitions or proposed acquisitions of corporate control.

Section 1715 may discourage open market purchases of our common stock
or a non-negotiated tender or exchange offer for our common stock and,
accordingly, may be considered disadvantageous by a shareholder who would desire
to participate in any such transaction. As a result, Section 1715 may have a
depressive effect on the price of our common stock.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is _____________.

Listing

We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"DLRX."

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. Based on the number of shares outstanding on February 15, 2000, upon
completion of this offering we will have outstanding an aggregate of 13,083,333
shares of our common stock, excluding any shares issued upon the exercise of
outstanding options. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by our "affiliates" as that
term is defined in Rule 144 under the Securities Act. The remaining 9,683,333
shares of common stock or 9,173,333 shares if the underwriters exercise their
over-allotment option, that are held by existing shareholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration , such as Rule 144
promulgated under the Securities Act, which rule is summarized below.

Shares will be available for sale in the public market as follows:

o __________ shares of common stock issuable upon exercise of
outstanding options will be eligible for sale, subject to
investing, following the effectiveness of a registration
statement on Form S-8 covering the common stock issuable upon
exercise of the options, which we expect to file shortly after
the completion of this offering, although 182,750 of those
shares are issuable upon the exercise of outstanding options,
subject to investing, held by our executive officers who have
signed a lock-up agreement and, as a result, will not be
eligible for sale until the expiration of the lock-up period;
and

o 5,825,269 shares of common stock, or 5,681,959 shares if the
underwriters exercise their over-allotment option, held by the
Spain brothers, 830,246 shares of common stock held by two
family limited partnerships, and 3,027,817 shares of common
stock, or 2,661,127 shares of common stock if the underwriters
exercise their over-allotment option, held by our investors,
will be eligible for sale from time to time after the
expiration of the lock-up period subject to the volume and
manner-of-sale requirements of Rule 144.

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<PAGE>

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this registration statement, a person who has beneficially
owned shares of our common stock for at least one year, including the holding
period of any prior owner since they were last held by us or one of our
affiliates would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

o 1% of the number of shares of common stock then outstanding,
which will equal approximately 130,833 shares immediately
after this offering; or

o the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 of the sale with
the SEC.

Sales under Rule 144 are also subject to manner-of-sale provisions and
notice requirements, and to the availability of current public information about
us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner since they were last held by us
or one of our affiliates, is entitled to sell his or her shares without
complying with the manner-of-sale, public information, volume limitation or
notice provisions of Rule 144.

Registration Rights

We entered into a registration rights agreement with the Spain brothers
and our investors pursuant to which we granted to each of them "demand" and
"piggy-back" registration rights. See "Description of Capital Stock--
Registration Rights."

Stock Options

As soon as practicable after completion of this offering, we plan to
file a registration statement on Form S-8 under the Securities Act covering the
809,140 shares of common stock reserved for issuance under our stock option
plan. As of February 15, 2000, options to purchase 279,500 shares of common
stock were issued and outstanding, 139,750 of which were vested. In addition,
options to purchase _____ shares of common stock will be granted upon the
completion of this offering. Accordingly, shares registered on Form S-8 under
the Securities Act will, subject to lock-up agreements, vesting provisions and
Rule 144 volume limitations applicable to our affiliates, be available for sale
into the public market immediately after such registration statement becomes
effective.

Market Price

We cannot estimate the number of shares that may be sold in the future
by our shareholders or the effect that sales of shares by our shareholders will
have on the market price of our common stock. Sales of substantial amounts of
our common stock, or the prospect of these sales, could have a material adverse
effect on the market price of our common stock and make it more difficult for us
to sell equity or equity related securities in the future at a time and price
that we deem appropriate.

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<PAGE>

MATERIAL U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF COMMON STOCK

The following discussion is a general summary of the material U.S.
federal income and estate tax consequences of the acquisition, ownership and
disposition of our common stock held by non-U.S. holders. A "non-U.S. holder"
means a beneficial owner of common stock who is not a U.S. holder. A U.S. holder
means a beneficial owner of common stock who, for U.S. federal income tax
purposes, is:

o A citizen or individual resident of the United States;

o A corporation, partnership or other entity created or
organized in the United States or under the laws of the United
States or of any political subdivision thereof ;

o An estate whose income is includable in gross income for
United States federal income tax purposes regardless of its
source; or

o A trust, if a United States court is able to exercise primary
supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust or the trust has elected to
be treated as a U.S. person.

An individual may, among other ways, be deemed to be a resident of the
United States with respect to any calendar year by virtue of being present in
the United States on at least 31 days in such calendar year and for an aggregate
of at least 183 days during the current calendar year and the two preceding
calendar years. You would count for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year.

This summary is included for general information and is based upon the
U.S. federal tax laws, including U.S. Treasury regulations and administrative
and judicial interpretations, now in effect, which are subject to change,
possibly retroactively, which could affect the continued validity of this
summary. The tax treatment of the holders of common stock may vary depending on
their particular situation, and this summary does not address specific facts and
circumstances that may be relevant to a particular holder's tax position. U.S.
holders acquiring common stock are subject to rules different from those
discussed below. In addition, certain holders, including insurance companies,
tax-exempt organizations, financial institutions, traders in securities,
subsequent purchasers of our common stock, U.S. expatriates and broker-dealers,
may be subject to special rules not discussed below. The discussion also does
not consider the tax consequences for any person who is a shareholder, partner
or beneficiary of a holder of the common stock. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed. In general, this
discussion assumes that a non-U.S. holder holds our common stock as a capital
asset and not as part of a "hedge," "straddle," "conversion transaction,"
"synthetic security" or other integrated investment. Prospective investors are
urged to consult their tax advisors regarding the U.S. federal tax consequences
of acquiring, holding and disposing of our common stock, as well as any tax
consequences that may arise under the laws of any foreign, state, local or other
taxing jurisdiction.

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Dividends

As described above, we do not expect to pay any dividends on our common
stock for the foreseeable future. In the event we pay dividends, except as
described below, we will have to withhold from dividends paid to a non-U.S.
holder a U.S. withholding tax at a rate of 30%, or a lower rate under a relevant
income tax treaty, of the gross amount of the dividends. Non-U.S. holders should
consult their tax advisors regarding their entitlement to benefits under a
relevant income tax treaty.

Prior to January 1, 2001, for purposes of determining whether tax is to
be withheld at the 30% rate or at a reduced treaty rate, we will ordinarily
presume that dividends paid to an address in a foreign country are paid to a
resident of such country, absent knowledge to the contrary. Under U.S. Treasury
regulations effective for payments after December 31, 2000, non-U.S. holders
will be required to satisfy applicable certification requirements in order for
us to withhold tax at a reduced treaty rate. These regulations also contain
special rules regarding treaty benefits available for payments made to some
intermediary or disregarded entities.

Except to the extent otherwise provided under an applicable income tax
treaty, dividends that are effectively connected with a non-U.S. holder's
conduct of a trade or business in the United States are subject to U.S. federal
income tax on a net income basis at applicable graduated individual or corporate
rates, and are not generally subject to withholding, if the holder complies with
applicable certification and disclosure requirements. Any such effectively
connected dividends received by a foreign corporation may also, under some
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.

Gain on Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income
tax in respect of gain recognized on a disposition of common stock unless:

o The gain is effectively connected with a trade or business of
the non-U.S. holder in the United States, or, alternatively,
if an income tax treaty applies, is attributable to a
permanent establishment maintained by the non-U.S. holder in
the United States ; in this case, the non-U.S. holder will be
subject to tax on the gain at the rates and in the manner
applicable to United States persons and, if the holder is a
foreign corporation, the branch profits tax described above
may also apply,

o The non-U.S. holder is an individual who holds the common
stock as a capital asset, is present in the United States for
183 or more days in the taxable year of the disposition and
either the income from the disposition is attributable to an
office or other fixed place of business maintained by the
holder in the United States or where the holder has a "tax
home" in the United States and certain other requirements are
met, or

o We are or have been a "United States real property holding
corporation" for U.S. federal income tax purposes at any time
during the shorter of the five-year period ending on the date
of the disposition and the period that the common stock was
held by the non-U.S. holder.

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The tax with respect to stock in a United States real property holding
corporation does not apply to a non-U.S. holder whose holdings, direct and
indirect, at all times during the applicable period, constitute 5% or less of
our common stock, provided that the common stock is regularly traded on an
established securities market. In general, we will be treated as a United States
real property holding corporation if the fair market value of our U.S. real
property interests equals or exceeds 50% of the total fair market value of our
U.S. and non-U.S. real property interests and our other assets used or held for
use in a trade or business. We believe that we currently are not, and we do not
anticipate becoming, a United States real property holding corporation.

Federal Estate Taxes

Common stock owned or treated as owned by a non-U.S. holder at the time
of death, or common stock of which the non-U.S. holder made certain lifetime
transfers, will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.

United States Information Reporting Requirements and Backup Withholding Tax --
Dividends

We must report annually to the U.S. Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends, regardless of whether any tax was
actually withheld. Copies of the information returns reporting such dividends
and withholding may also be made available to the tax authorities in the country
in which the non-U.S. holder resides under the provisions of an applicable
income tax treaty or agreement.

United States backup withholding, which generally is a withholding tax
imposed at the rate of 31% on some payments to persons that fail to furnish
information under the United States information reporting requirements, and
additional information reporting generally will not apply to dividends paid on
common stock before January 1, 2001 that are either:

o Subject to withholding at the 30% rate , or at a reduced rate
under an applicable income - tax treaty ; or -

o Paid to an address outside the United States.

Dividends paid after December 31, 2000 generally will be subject to
backup withholding at a 31% rate unless the non-U.S. holder certifies its status
as a non-U.S. holder in accordance with applicable Treasury regulations or is a
corporation or other exempt recipient.

Payment to or through a United States office of a broker of the
proceeds of a disposition of common stock is generally subject to both backup
withholding and information reporting unless either:

o The non-U.S. holder is a corporation or other exempt
recipient; or

o The non-U.S. holder certifies its status as a non-U.S. holder
in accordance with applicable Treasury regulations,

provided, however, the broker does not have actual knowledge that the holder is
a U.S. holder or that the conditions of any other exemption are not, in fact,
satisfied.

76
<PAGE>

United States Information Reporting and Back-up Withholding -- Disposition of
Common Stock

Payment of the proceeds of a disposition of common stock to or through
a foreign office of a foreign broker will not be subject to backup withholding
or information reporting unless the foreign broker is a "U.S.-related person."
After December 31, 2000, backup withholding will apply if information reporting
is required. Payments of proceeds from the disposition of common stock to or
through a foreign office of a broker that is a U.S. person or a "U.S.-related
person" will be subject to information reporting unless the holder certifies its
status as a non-U.S. holder in accordance with applicable Treasury regulations
or the broker has documentary evidence in its files that the holder is a
non-U.S. holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S.-related person" is:

o A controlled foreign corporation for U.S. federal income tax
purposes;

o A foreign person 50% or more of whose gross income from
certain periods is effectively connected with a United States
trade or business; or

o After December 31, 2000, a foreign partnership if, at any time
during the taxable year, (A) at least 50% of the capital or
profits interest of the foreign partnership is owned by U.S.
persons, or (B) the foreign partnership is engaged in a U.S.
trade or business.

After December 31, 2000, payments made to or through a qualified
foreign intermediary satisfying applicable requirements will not be subject to
either backup withholding or information reporting.

Prospective investors should consult with their own tax advisors
regarding these rules, and in particular with respect to whether the use of a
particular broker would subject the investor to information reporting and backup
withholding.

Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be allowed as a refund of or a credit to a
non-U.S. holder's U.S. federal income tax liability, provided the required
information is furnished to the Internal Revenue Service.

77
<PAGE>

UNDERWRITING
General

We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Prudential Securities
Incorporated, U.S. Bancorp Piper Jaffray Inc., First Union Securities, Inc. and
Legg Mason Wood Walker, Incorporated are acting as representatives of each of
the underwriters named below. Subject to customary closing conditions set forth
in the purchase agreement among us, the selling shareholders and the
underwriters, we and the selling shareholders have agreed to sell to each of the
underwriters, and each of the underwriters, severally and not jointly, has
agreed to purchase from us and the selling shareholders the number of shares of
our common stock set forth opposite its name below.

Number of
Underwriter Shares
------------ ------------------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
Prudential Securities Incorporated.....................
U.S. Bancorp Piper Jaffray, Inc........................
First Union Securities, Inc............................
Legg Mason Wood Walker, Incorporated...................
------------------
Total
==================

In the purchase agreement, the several underwriters have agreed,
subject to the terms and conditions set forth in that agreement, to purchase all
of the shares of common stock being sold under the terms of the purchase
agreement if any of the shares of common stock being sold under the purchase
agreement are purchased. In the event of a default by an underwriter, the
purchase agreement provides that, in some circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated.

We have agreed, as have the selling shareholders, to indemnify the
underwriters against some liabilities, including some liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of those liabilities.

The shares of common stock are being offered by the several
underwriters, subject to prior sales, when, as and if issued to and accepted by
them, subject to approval of customary legal matters by counsel for the
underwriters and other conditions. The underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.

Commissions and Discounts

The representatives have advised us and the selling shareholders that
they propose initially to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus,
and to certain dealers at such price less a concession not in excess of
$________ per share of common stock. The underwriters may allow, and such
dealers may reallow, a discount not in excess of $_________ per share of common
stock on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may change.

78
<PAGE>

The following table shows the per share and total public offering
price, the underwriting discount to be paid by us and the selling shareholders
to the underwriters and the proceeds before expenses to us and the selling
shareholders. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.

Per Share Without Option With Option
----------------- ------------------- ----------------
<S> <C> <S> <S>
Public offering price ................................ $ $ $
Underwriting discount ................................ $ $ $
Proceeds, before expenses, to Dollar Express ......... $ $ $
Proceeds to the selling shareholders.................. $ $ $
</TABLE>

The expenses of the offering, exclusive of the underwriting discount,
are estimated at $ 850,000 and are payable by us.

Over-allotment Option

The selling shareholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 510,000 additional shares of our common stock sold in this offering
at the public offering price set forth on the cover page of this prospectus,
less the underwriting discount. The underwriters may exercise this option from
time to time solely to cover over-allotments, if any, made on the sale of our
common stock offered hereby. To the extent that the underwriters exercise this
option, each underwriter will be obligated, subject to customary closing
conditions, to purchase a number of additional shares of our common stock
proportionate to such underwriter's initial amount reflected in the foregoing
table.

Reserved Shares

At our request, the underwriters have reserved for sale at the initial
public offering price up to ________ of the shares of our common stock offered
hereby to be sold to some of our directors, officers, employees, distributors,
dealers, business associates and related persons. The number of shares of our
common stock available for sale to the general public will be reduced to the
extent that those persons purchase the reserved shares. Any reserved shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.

No Sales of Similar Securities

We and our executive officers and directors and all of our shareholders
have agreed, without the prior written consent of Merrill Lynch, Pierce, Fenner
& Smith Incorporated on behalf of the underwriters for a period of 180 days
after the date of this prospectus, not to directly or indirectly:

o offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, lend or
otherwise dispose of or transfer any shares of our common
stock or any securities convertible into or exchangeable or
exercisable for our common stock, whether now

79
<PAGE>

owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement
later acquires the power of disposition, or file or cause or
request us to file a registration statement under the
Securities Act with respect to the foregoing; or

o enter into any swap or other agreement or any transaction that
transfers, in whole or in part, directly or indirectly the
economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of
our common stock or other securities, in cash or otherwise.

Quotation on the Nasdaq National Market

We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"DLRX."

Initial Public Offering Price

Before this offering, no public market has existed for our common
stock. The initial public offering price will be determined through negotiations
among us, the selling shareholders and the representatives. The factors
considered in determining the initial public offering price of our common stock,
in addition to prevailing market conditions, are:

o the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;

o our financial information;

o the history of, and the prospects for, our company and the
industry in which we compete;

o an assessment of our management;

o our past and present operations;

o the prospects for, and timing of, our future revenue;

o the present state of our development;

o the percentage interest of us being sold as compared to the
valuation for the entire company; and

o the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.

There can be no assurance that an active trading market will develop
for our common stock or that our common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.

80
<PAGE>

The underwriters have advised us that they do not expect sales to
accounts over which the underwriters exercise discretionary authority to exceed
five percent of the total number of shares of our common stock offered by them.

Qualified Independent Underwriter

We will use part of the proceeds of the offering to repay our debt.
Because more than 10% of the net proceeds of the offering may be paid to members
or affiliates of members of the National Association of Securities Dealers, Inc.
participating in the offering as an underwriter or selling group member, the
offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8). This
rule requires that the public offering price of an equity security be no higher
than the price recommended by a qualified independent underwriter that has
participated in the preparation of the registration statement and performed its
usual standard of due diligence. Merrill Lynch, Pierce, Fenner & Smith
Incorporated has agreed to act as qualified independent underwriter with respect
to the offering. The price of the common stock will be no higher than the price
recommended by Merrill Lynch.

Price Stabilization, Short Positions and Penalty Bids

Until the distribution of our common stock is completed, rules of the
SEC may limit the ability of the underwriters and selling group members to bid
for and purchase our common stock. As an exception to these rules, the
representatives are permitted to engage in transactions that stabilize the price
of our common stock. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of our common stock.

If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of this offering.

In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of our common stock to the extent
that it discourages resales of our common stock.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
or the lead managers will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

81
<PAGE>

Passive Market Making

In connection with the offering, underwriters and selling group members
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Regulation M under the Exchange Act
during a period before the commencement of offers or sales of common stock
hereunder.

Other Relationships

Legg Mason Wood Walker Incorporated acted as placement agent in
connection with our private placement in February 1999 of 3,530,000 shares of
our Series A convertible preferred stock and warrants to purchase 447,917 shares
of our common stock in return for an aggregate of $35.0 million, for which it
received a fee of $1.9 million.

First Union Securities Inc. is a lender under, and the administrative
agent of, our credit agreement. Placement fees paid to the lending syndicate
were approximately $0.5 million, of which $___ million was paid to First Union.
Additionally, interest of approximately $2.1 million was paid to the lending
syndicate in 1999, of which $ ___ million was paid to First Union.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be
passed upon for us and for the selling shareholders by Pepper Hamilton LLP. Some
legal matters related to this offering will be passed upon for the underwriters
by Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), which will rely on Pepper Hamilton LLP for purposes
of Pennsylvania law.

EXPERTS

The consolidated financial statements of Dollar Express Stores, Inc. as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998 included in this prospectus and in the registration
statement, of which this prospectus forms a part, have been audited by Grant
Thornton LLP, independent certified public accountants, whose report thereon
appears herein and in the registration statement. Such financial statements are
included in reliance upon the report of Grant Thornton LLP, given upon the
authority of such firm as experts in accounting and auditing.

CHANGE IN PRINCIPAL ACCOUNTANTS

In August 1999 our board of directors elected to engage Ernst & Young
LLP to audit our consolidated financial statements for the year ending December
30, 1999 and, accordingly, effective August 1999 the engagement of Grant
Thornton LLP as our independent accounting firm was discontinued. Grant Thornton
LLP performed additional procedures to update Dollar Express Stores, Inc.'s
financial statements as of December 31, 1998 and for each of the three years in
the period ended December 31, 1998 to comply with Regulation S-X under the
Securities Act. As a result of the additional procedures, Grant Thornton LLP
updated their opinion date through December 14, 1999 (except for note 9 as to
which the date is February 16, 2000). The report of Grant Thornton LLP on the
financial statements of Dollar Express Stores, Inc. as of December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998, did
not contain an adverse opinion or a disclaimer of opinion, and was not qualified
or modified as to uncertainty, audit scope or accounting principles. In our
opinion, there did not occur,

82
<PAGE>

during the year ended December 31, 1998 or any subsequent interim period prior
to August 1999, any "reportable events" between us and Grant Thornton LLP within
the meaning of Item 304(a)(l)(v) of Regulation S-K promulgated by the SEC. In
addition, during the years ended December 31, 1997 and 1998 and during any
subsequent interim period prior to August 1999, there were no disagreements
between us and Grant Thornton LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
During the period subsequent to August 1999, Grant Thornton LLP was not
consulted by us on the application of accounting principles except for matters
relating to the year ended December 31, 1998 and prior periods audited by Grant
Thornton LLP.

We have received a letter from Grant Thorton LLP stating that it agrees
with the statements made by us in the first paragraph of this "Change in
Principal Accountants" section.

During the years ended December 31, 1997 and 1998, Ernst & Young LLP
was not consulted by us on the application of accounting principles to a
specified transaction, either completed or proposed, or on the type of audit
opinion that might be rendered on our financial statements.

83
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-l under
the Securities Act with respect to the common stock offered in this offering.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits to the registration statement. For
further information about us and the securities offered hereby, reference is
made to the registration statement and to the financial statements, schedules
and exhibits filed as a part of the registration statement. While statements
contained in this prospectus concerning the contents of any contract, agreement
or other document filed with the registration statement as exhibits are
necessarily summaries of the material provisions of such documents, all material
information has been presented in this prospectus. However, each statement is
qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the registration statement.

Upon completion of the offering, we will be subject to the information
requirements of the Securities Exchange Act of 1934, and, in accordance
therewith, we will file reports and other information with the SEC. The
registration statement, the exhibits and schedules forming a part of the
registration statement and the reports and other information filed by us with
the SEC in accordance with the Exchange Act may be inspected without charge at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of these materials
may also be obtained from the Public Reference Room of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain
information regarding the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at
http://www.sec.gov that contains reports, proxy statements and other
information.

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Through December 1998, all of the outstanding stock of Dollar Express
Stores, Inc. was held by Bernard Spain and Murray Spain. Financial statements as
of and for periods ended prior to January 1999 are those of Dollar Express
Stores, Inc.

In January 1999, Bernard Spain and Murray Spain contributed all of the
outstanding stock of Dollar Express Stores, Inc. to Dollar Express, Inc., a
newly created holding company formed to hold all of the stock of Dollar Express
Stores, Inc. The condensed consolidated financial statements for periods ending
subsequent to January 1999 are those of Dollar Express, Inc., including its
subsidiary, Dollar Express Stores, Inc.

Audited Annual Financial Statements:

Report of Independent Certified Public Accountants...........................F-2

Balance Sheets...............................................................F-3

Statements of Operations.....................................................F-4

Statements of Changes in Shareholders' Equity................................F-5

Statements of Cash Flows.....................................................F-6

Notes to Financial Statements................................................F-7

Unaudited Interim Condensed Consolidated Financial Statements:

Unaudited Condensed Consolidated Balance Sheets.............................F-16

Unaudited Condensed Consolidated Statements of Operations...................F-17

Unaudited Condensed Consolidated Statements of Cash Flows...................F-19

Notes to Unaudited Interim Condensed Consolidated Financial Statements......F-20

F-1

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Shareholders
Dollar Express Stores, Inc.

We have audited the accompanying balance sheets of Dollar Express
Stores, Inc. (formerly Dollar Express, Inc. and Spain's Inc.) as of December 31,
1997 and 1998, and the related statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Dollar Express
Stores, Inc. as of December 31, 1997 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.

Philadelphia, Pennsylvania
December 14, 1999 (except for note 9 as
to which the date is
February 16, 2000)

F-2

<PAGE>

DOLLAR EXPRESS STORES, INC.
BALANCE SHEETS
(In thousands, except share data)

<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents............................................. $ 1,274 $ 10,070
Merchandise inventories............................................... 12,233 12,013
Prepaid expenses and other current assets............................. 204 481
--------- ---------
Total current assets............................................... 13,711 22,564

Property and equipment, net................................................. 7,252 8,958

Other assets................................................................ 620 59
--------- ---------
Total assets....................................................... $ 21,583 $ 31,581
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt..................................... $ 256 $ 123
Line of credit........................................................ -- 4,000
Accounts payable...................................................... 6,644 6,962
Accrued expenses and other liabilities................................ 1,488 2,806
--------- ---------
Total current liabilities.......................................... 8,388 13,891

Long-term debt, less current portion........................................ 1,200 210

Deferred credits............................................................ 2,272 1,893

Shareholders' equity
Common stock, $0.01 par value - authorized,
75,000,000 shares; issued and outstanding,
6,955,250 shares in 1997 and 1998.................................. 70 70
Additional paid-in capital............................................ 2,460 2,460

Retained earnings..................................................... 7,193 13,057
--------- ---------

Total shareholders' equity......................................... 9,723 15,587
--------- ---------
Total liabilities and shareholders' equity......................... $ 21,583 $ 31,581
======== ========

</TABLE>

See accompanying notes.

F-3

<PAGE>

DOLLAR EXPRESS STORES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Years ended December 31,
--------------------------------
1996 1997 1998
------- ---------- ---------
<S> <C> <C> <C>
Net sales................................................................. $88,362 $ 103,030 $ 130,802
Cost of sales, including warehousing, distribution and store
occupancy costs....................................................... 65,745 77,314 92,307
------- ---------- ---------
Gross profit........................................................ 22,617 25,716 38,495

Selling, general and administrative expenses:
Operating and administrative expenses............................... 17,228 19,526 25,601
Depreciation and amortization....................................... 1,110 1,494 1,945
------- ---------- ---------
Operating profit............................................... 4,279 4,696 10,949
Interest expense, net..................................................... 156 277 283
Other income, net......................................................... 136 258 187
------- ---------- ---------
Income before income taxes.......................................... 4,259 4,677 10,853
Income taxes.............................................................. 35 28 50
------- ---------- ---------
Net income................................................................ $ 4,224 $ 4,649 $ 10,803
======= ========== =========

Net income per common share:
Basic............................................................... $ 0.61 $ 0.67 $ 1.55
======= ========== =========
Diluted............................................................. $ 0.61 $ 0.67 $ 1.55
======= ========== =========
Weighted average number of common shares and common share equivalents
outstanding:
Basic............................................................... 6,955 6,955 6,955
======= ========== =========
Diluted............................................................. 6,955 6,955 6,955
======= ========== =========
Pro Forma Information (Unaudited):
Historical income before income taxes..................................... $ 10,853

</TABLE>

F-4

<PAGE>

<S> <C>
Pro forma provision for income taxes...................................... 4,341
----------
Pro forma net income...................................................... $ 6,512
==========
Pro forma net income per common share:
Basic............................................................... $ 0.76
==========
Diluted............................................................. $ 0.76
==========

</TABLE>

See accompanying notes.

F-5

<PAGE>

DOLLAR EXPRESS STORES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998
(In thousands)

Additional
paid-in Retained
Common stock capital earnings Total
----------------------- ---------- --------- ---------
Shares Amount
--------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996............... 6,955 $ 70 $ 2,460 $ 5,421 $ 7,951
Net income......................... -- -- -- 4,224 4,224
Shareholders' distributions........ -- -- -- (3,595) (3,595)
------- ------ --------- --------- ---------
Balance at December 31, 1996............. 6,955 70 2,460 6,050 8,580
Net income......................... -- -- -- 4,649 4,649
Shareholders' distributions........ -- -- -- (3,506) (3,506)
------- ------ --------- --------- ---------
Balance at December 31, 1997............. 6,955 70 2,460 7,193 9,723
Net income......................... -- -- -- 10,803 10,803
Shareholders' distributions........ -- -- -- (4,939) (4,939)
------- ------ --------- --------- ---------
Balance at December 31, 1998............. 6,955 $ 70 $ 2,460 $ 13,057 $ 15,587
======= ====== ========= ========= ==========

</TABLE>

See accompanying notes.

F-6

<PAGE>

DOLLAR EXPRESS STORES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................ $ 4,224 $ 4,649 $ 10,803
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................................ 1,110 1,494 1,945
Accretion of deferred revenue and volume rebate...................... (193) (686) (407)
Volume rebate received............................................... -- -- 1,000
(Increase) decrease in assets:
Merchandise inventories.............................................. (3,541) (469) 220
Prepaid expenses and other current assets............................ 237 1 (277)
Other assets......................................................... (78) 56 18
Increase in liabilities:
Accounts payable and accrued expenses and other liabilities.......... 1,711 514 1,207
Deferred revenue..................................................... 2,000 -- --
--------- --------- ---------

Net cash provided by operating activities................................... 5,470 5,559 14,509
--------- --------- ---------

INVESTING ACTIVITIES:
Purchase of property and equipment........................................ (2,412) (3,366) (3,651)
--------- --------- ---------

Net cash used in investing activities....................................... (2,412) (3,366) (3,651)
--------- --------- ---------

FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligation......... (10) (62) (2,123)
Proceeds from issuance of long-term debt.................................. -- 1,350 1,000
Shareholders' distributions............................................... (3,595) (3,506) (4,939)
Net proceeds from line of credit.......................................... -- -- 4,000
--------- --------- ---------

Net cash used in financing activities....................................... (3,605) (2,218) (2,062)
--------- --------- ---------

Net (decrease) increase in cash and cash equivalents........................ (547) (25) 8,796
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............................. 1,846 1,299 1,274
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................... $ 1,299 $ 1,274 $10,070
========= ======== =======

Supplemental disclosure of cash flow information:
Cash paid during the year for :
Interest.................................................................. $ 165 $ 282 $ 291
========= ======== =======
Income taxes.............................................................. $ 13 $ 64 $ 17
========= ======== =======
Noncash investing and financing activity:
Capital lease obligation incurred......................................... $ -- $ 149 $ --
========= ======== =======

</TABLE>

See accompanying notes.

F-7

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Dollar Express Stores, Inc. (the "Company") is a leading operator of
fixed $1.00 price point stores in the United States based on sales. These
stores offer customers a wide assortment of regularly available merchandise,
such as housewares, food and other consumable items, giftware, health and beauty
care items and toys. The Company supplements this merchandise with ever-changing
seasonal and first quality closeout offerings. The Company also operates Spain's
Cards & Gifts Stores, which is one of the largest specialty greeting card
vendors in the Philadelphia metropolitan area, based on number of stores.

All of the Company's Dollar Express and Spain's stores, as well as its
corporate headquarters and distribution facility, are located in the
Mid-Atlantic region of the United States, which includes Pennsylvania, New
Jersey, Maryland and Delaware. The Company is not dependent on any one supplier.
In August 1998, the Company changed its name to Dollar Express, Inc. from
Spain's Inc. In December 1999, the Company changed its name to Dollar Express
Stores, Inc.

Use of Estimates

The preparation of the financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions. These estimates and assumptions, which may differ
from actual results, will affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid, short-term
investments with a maturity, at purchase, of three months or less.

Merchandise Inventories

Merchandise inventories are stated at the lower of cost or market using
the retail inventory method for the stores' inventory and the average cost
method for warehouse inventory.

Property and Equipment

Property and equipment are recorded at cost, and depreciation and
amortization are provided using the straight-line method over the lesser of the
useful lives of the related assets or the terms of the related leases.

Effective January 1, 1999, the Company changed its method for
depreciating property and equipment from accelerated methods used in previous
periods to the straight-line method. The Company believes that the straight-line
method more appropriately reflects the timing of the economic benefits to be
received from these assets. This change also makes the Company's depreciation
policy more

F-8

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

comparable to those used within its industry. The retroactive application of the
new method resulted in a cumulative adjustment of $1.3 million. In accordance
with Accounting Principles Board Opinion No. 20, "Accounting Changes," prior
period financial statements have been restated to account for this change. The
effect of the change for the years ended December 31, 1996, 1997, and 1998 was
to increase income before income taxes by $184,000, $271,000, and $304,000,
respectively. Retained earnings as of January 1, 1996, was restated by $567,000,
to reflect the effect of the change through December 31, 1995.

Revenue Recognition

Revenue is recognized at the point of sale.

Cost of Sales

The Company includes the cost of merchandise, warehousing, distribution
and store occupancy costs in cost of sales.

Impairment of Long-Lived Assets

In the event that facts and circumstances indicate that the carrying
value of long-lived assets such as property, plant and equipment may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.

Store Opening Costs

The costs of opening new stores are expensed as incurred.

Earnings Per Common Share

Basic earnings per common share is calculated using the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. The Company has issued no options or other common stock
equivalents that would have caused the basic and diluted shares numbers to be
different.

All references to common shares and per common share, except for the
references to authorized common shares in the financial statements, have been
restated to give effect to the Recapitalization described in Note 8.

Deferred Rent

Certain of the Company's store leases contain periodic escalation
clauses. The Company expenses rent on a straight-line basis over the life of the
lease. During the initial years of a store lease,

F-9

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

cash payments are typically less than the straight-line expense. The
differential is included in accrued expenses and other liabilities in the
accompanying balance sheets.

Income Taxes

For each of the years shown in these financial statements, the Company
elected to be taxed pursuant to Subchapter S of the Internal Revenue Code.
Accordingly, federal and state income taxes or credits accrued personally to the
shareholders, with the exception of taxes paid on New Jersey source income,
which were paid at the corporate level.

Pro Forma Adjustments

The Company had, until the Recapitalization described in Note 8,
elected to be treated as an S corporation for federal and state income tax
purposes. On February 5, 1999, the Company's tax status changed from an S
corporation to a C corporation. The pro forma financial information shows the
historical financial statements as if the Company had been taxed as a C
corporation during 1998, assuming a 40% effective corporate tax rate.

Concentration of Credit Risk

The Company maintains its cash accounts at several financial
institutions. These accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000 per institution. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash.

Reclassifications

Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.

F-10

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

NOTE 2. PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following (Dollars in
thousands):

Estimated December 31,
useful lives -------------------
(in years) 1997 1998
------------ -------- ----------

Furniture and fixtures.......................... 3 to 5 $ 11,549 $ 13,727
Leasehold improvements.......................... 7 to 10 4,023 5,076
Transportation equipment........................ 3 to 5 35 35
Computer equipment.............................. 3 to 5 1,205 1,540
-------- ----------
16,812 20,378
Less accumulated depreciation and amortization.. 9,560 11,420
-------- ----------
Property and equipment, net..................... $ 7,252 $ 8,958
======== ==========

Depreciation and amortization amounted to $1.1 million, $1.5 million and $1.9
million for the years ended December 31, 1996, 1997 and 1998, respectively.

NOTE 3. REVOLVING CREDIT AND LONG-TERM DEBT

Revolving Credit Agreement

In June 1997, the Company entered into a revolving credit agreement
with a bank. At December 31, 1998, the facility had a borrowing limit of $7.5
million. Interest is charged at the bank's prime or the London Inter-Bank
offered rate plus 1.1%, and is payable monthly. As of December 31, 1998, $4.0
million was outstanding. The interest rate at December 31, 1998 was 6.56%.

At December 31, 1998, the Company had 12 standby letters of credit
outstanding, aggregating $300,000, with various expiration dates extending
through November 30, 1999. These obligations are unsecured.

Long-Term Debt

Long-term debt consists of the following (In thousands):

December 31,
---------------------
1997 1998
---------------------

Note payable (bank)................................... $ 1,000 $ --
--------- ----------
Note payable (other).................................. 348 275
Capital lease......................................... 108 58
--------- ----------
1,456 333
Less current portion.................................. 256 123
--------- ----------
$ 1,200 $ 210
========= ==========

F-11
<PAGE>

Note payable (bank) -- Unsecured note payable due in monthly installments of
principal and interest at 6.82%, totaling $20,000 per month. This was paid off
in 1998.

Note payable (other) -- Unsecured note payable with a local governmental agency
due in monthly installments of $6,000, maturing in 2000 and bearing interest at
4.25%.

Capital lease -- Obligation under a lease due in monthly installments of $4,000,
maturing in 2000 and bearing interest at 4.79%.

Long-term debt is due as follows (In thousands):

Year ending December 31,
------------------------
1999............................... $ 123
2000............................... 210
-------
$ 333
=======

Interest expense was $165,000, $282,000 and $291,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.

NOTE 4. COMMITMENTS AND CONTINGENCIES

Lease Obligations

The Company leases its warehouses, offices, and all of its stores.
Substantially all of these leases are non-cancellable. The leases generally
expire through 2009 and provide for renewals. The Company is required to pay for
taxes, maintenance, and insurance on the leased premises.

Future annual minimum lease payments under noncancellable operating
leases, in effect as of December 31, 1998, are as follows (In thousands):

1999....................................... $ 9,334
2000....................................... 8,579
2001....................................... 7,474
2002....................................... 6,308
2003....................................... 4,326
Thereafter................................. 9,389
---------
$45,410
=========

Included in the minimum lease payments above are amounts to be paid to
related parties as follows: 1999 through 2002 - $1.0 million per year; 2003 -
$525,000; and thereafter - $1.0 million.

Of total rent expense, $641,000, $765,000, and $1.2 million, was paid
to related parties in 1996, 1997, and 1998 respectively. No amounts were due to
related parties at December 31, 1996, 1997 and 1998.

F-12

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

The leases extend for varying periods up to 12 years. Rent expense for
the years ended December 31, 1996, 1997 and 1998 was $8.0 million, $9.7 million
and $11.0 million, respectively. Contingent rentals are applicable principally
to retail facilities, and are based on percentages of gross receipts
attributable to the related facilities. Contingent rent expense was not
significant in 1996, 1997 and 1998.

Purchase Contracts

In 1996, the Company entered into a purchase agreement with a vendor
that extends to 2003. The Company is required to purchase and pay for at least
$39.5 million in vendor products whereupon the agreement will terminate. The
agreement also entitles the Company to receive volume rebates upon meeting
certain net paid cash receipts thresholds, as defined in the agreement.

These volume rebates are based upon net paid cash receipt levels and
decrease incrementally over the life of the agreement. Such rebates are
recognized on a straight-line basis over the total net paid receipts. Volume
rebates earned in 1996, 1997 and 1998 were $87,000, $456,000 and $255,000,
respectively and are included in cost of sales. A $1.0 million volume rebate was
paid to us in February 1998.

The Company also received a $2.0 million payment at the signing of the
agreement, which is being amortized over the life of the agreement, based upon
total purchases made during the period as a percentage of the total purchase
requirement. Total net paid receipts through 1998 approximated $6.5 million. The
unamortized portion of this payment, amounting to $1.7 million and $1.5 million
at December 31, 1997 and 1998, respectively, is included in deferred credits in
the accompanying balance sheet.

NOTE 5. EMPLOYEE BENEFIT PLAN

During 1998, the Company established a 401(k) savings plan that covers
substantially all employees who meet specified age and service requirements.
Under the plan, the Company matches 25% of employee contributions, limited to 6%
of a participant's salary. The Company's matching contribution was $42,000 for
the year ended December 31, 1998.

NOTE 6. STOCK OPTIONS

During 1998, the Company adopted a stock option plan (the "1998 Plan"),
which provided for the granting of incentive stock options and nonqualified
stock options to employees of the Company. A total of 556,420 shares was
authorized to be granted under the 1998 Plan. As of December 31, 1998, no
options were granted. The 1998 Plan was terminated and replaced with the option
plan discussed in Note 8.

NOTE 7. SEGMENT REPORTING

In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information"

F-13

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

("SFAS No. 131"). The adoption of SFAS No. 131 has no impact on the Company's
results of operations, financial position or cash flows. Its effect is limited
to the disclosures contained in the financial statements.

The Company owns and operates fixed $1.00 price point stores under the
name Dollar Express. These stores sell substantially all items for $1.00. Dollar
Express' merchandise includes housewares, food and other consumable items,
giftware, health and beauty care items and toys. The Company also operates a
chain of specialty greeting card stores under the name Spain's Cards & Gifts.
These stores carry a national line of greeting cards, as well as products sold
by most of the leading small greeting card suppliers. Spain's also offers
moderately priced giftware and related products, fad and novelty products, candy
and other consumer items.

The Company has aggregated its operations into these two reportable
segments based upon their unique sources of supply, customer base and economic
characteristics. Reporting in this format provides management with the financial
information necessary to evaluate the success of the segments and the overall
business. The Company evaluates the performance of the segments based on net
sales and gross profit, which is determined net of warehousing, distribution and
store occupancy costs. Operating and administrative expenses, as well as
interest expense and other income, comprise amounts that are not allocated to
segments. The principal identifiable asset for each operating segment is
inventory. Other assets consist primarily of cash and cash equivalents, and
property and equipment. Both the Dollar Express and Spain's segments are highly
diversified. No customer or merchandise vendor comprises more than 10% of sales
or purchases. The accounting policies of the operating segments are the same as
the policies described in Note 1. A summary of the information about the
Company's operations by segment is as follows (In thousands):

1996 1997 1998
--------- --------- -----------
Net Sales:
Dollar Express....................... $ 74,125 $ 86,271 $ 111,618
Spain's.............................. 14,237 16,759 19,184
--------- --------- -----------
Total............................. $ 88,362 $ 103,030 $ 130,802
========= ========= ===========
Gross Profit:
Dollar Express....................... $ 20,149 $ 21,986 $ 32,880
Spain's.............................. 2,468 3,730 5,615
--------- --------- -----------
Total............................. $ 22,617 $ 25,716 $ 38,495
========= ========= ===========
Inventory:
Dollar Express....................... $ 8,658 $ 8,531 $ 8,751
Spain's.............................. 3,106 3,702 3,262
--------- --------- -----------
Total............................. $ 11,764 $ 12,233 $ 12,013
========= ========= ===========

NOTE 8. SUBSEQUENT EVENTS

Corporate Recapitalization

On January 1, 1999, the Company declared and paid by means of two
promissory notes (the "Promissory Notes") a dividend to the two shareholders of
record of its common stock in an amount equal to approximately $59.5 million.

F-14

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

In February 1999, the Company completed a recapitalization that
resulted in changes in its ownership and capital structure (the
"Recapitalization"). Dollar Express, Inc., a newly formed entity, authorized the
issuance of up to 75,000,000 shares of common stock having a par value of $0.01
per share and also authorized the issuance of up to 25,000,000 shares of
preferred stock having a par value of $0.01 per share. The Recapitalization was
initially effected by the contribution by the Company's shareholders of all the
outstanding common stock of the Company to Dollar Express, Inc. in exchange for
6,955,250 shares of Dollar Express, Inc.'s common stock, which resulted in the
Company becoming a wholly-owned subsidiary of Dollar Express, Inc. Additionally,
through a private placement, Dollar Express, Inc. sold 3,530,000 shares of newly
issued Series A 8.75% cumulative convertible preferred stock with a par value of
$0.01 in exchange for $34.0 million. The Preferred Stock ranks senior to all
other shares of capital stock. Dividends are payable in arrears on March 31,
June 30, September 30 and December 31 of the year in which such dividends
accrue, in an amount equal to the stated rate times $34.0 million. All dividend
payments are to be made in cash. Warrants to purchase 447,917 shares of Dollar
Express, Inc. common stock were also issued in exchange for $1.0 million. The
fair values of common and preferred stock as well as the common stock warrants
were determined pursuant to arms-length negotiations among our investors in the
private placement and the two shareholders of record.

The holders of Preferred Stock have the right, at any time, to
convert any or all shares into shares of common stock. Additionally, all shares
of Preferred Stock will be automatically converted into common stock on the date
at which a registration statement filed with the Securities and Exchange
Commission ("SEC"), in respect of shares of common stock to be sold in a
qualified public offering, shall be declared effective by the SEC. Upon
conversion, the holders of Preferred Stock shall also be entitled to payment of
all accrued and unpaid dividends, if any, so long as a qualified public
offering, merger or consolidation or any other recapitalization or other
business combination with an unaffiliated entity has not occurred prior to the
date which is 910 days after February 5, 1999.

In connection with the Recapitalization, the Company converted from an
S to a C corporation.

In February 1999, Dollar Express, Inc. entered into a five-year credit
facility for an aggregate amount of $40.0 million, of which $20.0 million is in
the form of a term loan and $20.0 million is a revolving credit facility. At the
option of Dollar Express, Inc., interest on the facility is calculated at the
lender's base rate plus a margin or LIBOR plus a margin based on a leverage
ratio. The margin ranges from 0% to 1% on base rate borrowings and 1.75% to
2.75% on LIBOR borrowings. A portion of the proceeds of the facility, together
with funds provided from the aforementioned private placement, were used to
satisfy the Promissory Notes, repay the outstanding amount on the line of credit
at December 31, 1998 and pay costs associated with the recapitalization.

F-15

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

Stock Option Plan

The Company established the 1999 Stock Option Plan, which reserved
809,140 shares of common stock for future issuance. Under the terms of the plan,
option prices are 100% of the fair market value of the shares on the date of
option grant. In February 1999, options to purchase 279,500 shares of common
stock were granted. These options vest over a three-year period and have an
exercise price of $8.96 per share, which is equal to the per share price paid by
the investors in the private placement.

F-16

<PAGE>

DOLLAR EXPRESS STORES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1996, 1997 and 1998

Authorization for Initial Public Offering

Note 9 Subsequent Events -- Stock Split

Prior to the initial public offering, the Company intends to effect a
1.075-for-1 stock split. All references to shares and per share amounts, except
for references to authorized shares, have been restated to give effect to the
stock split.

F-17

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<TABLE>
<CAPTION>

Dollar Express, Inc.
--------------------

Dollar Express
Stores, Inc. Pro Forma
December 31, September 30, September 30,
1998 1999 1999
---------------- --------------- ---------------
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents........................................... $ 10,070 $ 2,907 $ 2,907
Merchandise inventories............................................. 12,013 23,768 23,768
Prepaid expenses and other current assets........................... 481 2,437 2,437
---------------- --------------- ---------------
Total current assets............................................ 22,564 29,112 29,112

Property and equipment, net.............................................. 8,958 11,674 11,674

Deferred tax and other assets............................................ 59 2,804 2,804
---------------- --------------- ---------------
Total assets.................................................... $ 31,581 $ 43,590 $ 43,590
================ =============== ===============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt................................... $ 123 $ 1,623 $ 1,623
Line of credit...................................................... 4,000 15,750 15,750
Accounts payable.................................................... 6,962 9,668 9,668
Accrued expenses and other liabilities.............................. 2,806 2,718 2,718
---------------- --------------- ---------------
Total current liabilities....................................... 13,891 29,759 29,759

Long-term debt, less current portion..................................... 210 18,621 18,621

Deferred credits......................................................... 1,893 2,266 2,266
Accrued preferred stock dividends........................................ -- 1,933 --
--

Common stock warrants.................................................... -- 4,294 --
--
Redeemable convertible preferred stock................................... -- 31,295 --
--

Common shareholders' equity (deficit)

Common stock........................................................ 70 70 108
Additional paid-in capital.......................................... 2,460 2,460 39,994

Retained earnings (deficit) ........................................ 13,057 (47,108) (47,108)
---------------- --------------------------------
Total common shareholders' equity (deficit) .................... 15,587 (44,578) (7,056)
---------------- --------------- ---------------
Total liabilities and common shareholders' equity (deficit)..... $ 31,581 $ 43,590 $ 43,590
================ =============== ===============

</TABLE>

See accompanying notes.

F-18

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Dollar Express Dollar
Stores, Inc. Express, Inc.
----------------- ---------------
Nine months Thirty nine
ended weeks ended
September 30, September 30,
1998 1999
----------------- ---------------
<S> <C> <C>
Net sales......................................................................... $ 86,290 $ 100,438
Cost of sales, including warehousing, distribution and store
occupancy costs................................................................. 62,199 71,297
----------------- ---------------

Gross profit................................................................. 24,091 29,141

Selling, general and administrative expenses:

Operating and administrative expenses........................................ 17,340 21,154
Depreciation and amortization................................................ 1,407 2,048
----------------- ---------------
Operating profit......................................................... 5,344 5,939
Interest expense, net............................................................. 195 1,640
Accretion of common stock warrants to fair value.................................. -- 282
Other income, net................................................................. 164 95
----------------- ---------------
Income before income taxes................................................... 5,313 4,112
Income taxes...................................................................... 26 1,757
Deferred income tax benefit resulting from
conversion from S to C corporation........................................... -- (2,090)
----------------- ---------------
Net income........................................................................ $ 5,287 $ 4,445
================= ===============

Less preferred stock dividends and accretion...................................... -- 5,084
----------------- ---------------
Net income (loss) available to common shareholders................................ $ 5,287 $ (639)
================= ===============
Net income (loss) per common share:

Basic........................................................................ $ 0.76 $ (0.09)
================= ===============

Diluted...................................................................... $ 0.76 $ (0.09)
================= ===============

Weighted average number of common shares and common share equivalents
outstanding:

Basic........................................................................ 6,955 6,955

================= ===============

Diluted...................................................................... 6,955 6,955
================= ===============

</TABLE>

F-19

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

Dollar Express Dollar
Stores, Inc. Express, Inc.
----------------- ---------------
Nine months Thirty nine
ended weeks ended
September 30, September 30,
1998 1999
----------------- ---------------

<S> <C>
Pro Forma Information:
Pro forma net income.............................................................. $ 2,637
---------------
Pro forma net income per common share:
Basic........................................................................ $ 0.22
===============
Diluted...................................................................... $ 0.22
===============

</TABLE>

See accompanying notes.

F-20

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Dollar Express Dollar
Stores, Inc. Express, Inc.
---------------- ----------------
Nine months Thirty nine
ended weeks ended
September 30, September 30,
1998 1999
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................ $ 5,287 $ 4,445
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization......................................... 1,407 2,048
Accretion of deferred revenue and volume rebate....................... (280) (390)
Accretion of common stock warrants to fair value...................... -- 282
Volume rebate received................................................ 1,000 --
Deferred income taxes ................................................ -- (2,090)
(Increase) decrease in assets:
Merchandise inventories............................................... (6,676) (11,755)
Prepaid expenses and other current assets............................. 92 (1,971)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses and other liabilities .......... (550) 2,949
Deferred revenue...................................................... (143) 430
---------------- ---------------

Net cash provided by (used in) operating activities............................ 137 (6,052)
---------------- ---------------

INVESTING ACTIVITIES:
Purchase of property and equipment........................................ (2,513) (4,660)
---------------- ---------------

Net cash used in investing activities.......................................... (2,513) (4,660)
---------------- ---------------

FINANCING ACTIVITIES:
Net borrowings under revolving credit facility ........................... 4,000 11,750
Proceeds from issuance of long term debt.................................. -- 20,000
Payments on long-term debt and capital lease obligations.................. (94) (89)
Issuance of redeemable convertible preferred stock and common stock
warrants, net of offering expenses........................................ -- 32,156
Payment of deferred financing costs .................................... -- (744)
Shareholders distributions ............................................. (1,003) (59,524)
---------------- ---------------

Net cash provided by financing activities...................................... 2,903 3,549
---------------- ---------------

Net increase (decrease) in cash and cash equivalents........................... 527 (7,163)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................... 1,274 10,070
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................................... $ 1,801 2,907
================ ===============

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................. $ 195 1,296
================ ===============
Income taxes ............................................................. $ -- $ 2,231
================ ===============
</TABLE>

See accompanying notes.

F-21

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1999

NOTE 1. BASIS OF PRESENTATION

Dollar Express, Inc. (the "Company") was incorporated in December 1998
to hold 100% of the outstanding shares of Dollar Express Stores, Inc. and was
initially capitalized primarily by issuing its capital stock in exchange for all
of the outstanding capital stock of Dollar Express Stores, Inc. The controlling
shareholders of the Company and Dollar Express Stores, Inc. were the same before
and after the transaction. Therefore, the historical basis of Dollar Express
Stores, Inc.'s assets and liabilities is carried over in the accompanying
consolidated financial statements. The results of operations of all companies
are combined for all periods presented.

The accompanying unaudited condensed consolidated financial statements
present the consolidated financial position, results of operations and cash
flows of the Company and its wholly-owned subsidiaries as of the dates and for
the periods indicated. All intercompany transactions and balances have been
eliminated. Effective January 1, 1999, the Company adopted a 52/53 week fiscal
year. As such, our fiscal quarters will end on the Thursday closest to each of
March 31, June 30 and September 30, and our fiscal year end will be the Thursday
closest to December 31.

The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. In the opinion of management, this
information contains all adjustments, consisting only of normal recurring
adjustments, considered necessary to present fairly the financial position of
the Company as of September 30, 1999, and the results of its operations and its
cash flows for the nine months and thirty nine weeks ended September 30, 1998
and 1999, respectively. The results of operations for the thirty nine weeks
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the full fiscal year ending December 30, 1999.

Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission, although the Company
believes the disclosures are adequate to make the information presented not
misleading. The accompanying unaudited consolidated financial statements should
be read in conjunction with the audited financial statements and notes thereto
included elsewhere herein.

NOTE 2. USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

F-22

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

NOTE 3. CORPORATE RECAPITALIZATION

On January 1, 1999, Dollar Express Stores, Inc. declared and paid by
means of two promissory notes (the "Promissory Notes") a dividend to the two
shareholders of record of its common stock in an amount equal to approximately
$59.5 million.

In February 1999, Dollar Express Stores, Inc. completed a
recapitalization that resulted in changes in its ownership and capital structure
(the "Recapitalization"). The Company, a newly formed entity, authorized the
issuance of up to 75,000,000 shares of common stock having a par value of $0.01
per share and also authorized the issuance of up to 25,000,000 shares preferred
stock having a par value of $0.01 per share. The Recapitalization was initially
effected by the contribution by Dollar Express Stores, Inc. shareholders of all
outstanding common stock to Dollar Express Stores, Inc. in exchange for
6,955,250 shares of the Company's common stock, which resulted in Dollar Express
Stores, Inc. becoming a wholly-owned subsidiary of the Company. Additionally,
through a private placement, the Company sold 3,530,000 shares of newly issued
Series A 8.75% cumulative convertible preferred stock with a par value of $0.01
in exchange for $34.0 million. Warrants to purchase up to 447,917 shares of the
Company's common stock were also issued, in exchange for $1.0 million. The fair
values of common and preferred stock as well as the common stock warrants were
determined pursuant to arms-length negotiations among our investors in the
private placement and the two shareholders of record.

In February 1999, the Company adopted its 1999 Stock Option Plan, which
provides for the granting of stock options to acquire up to 809,140 shares of
common stock to employees of the Company, members of the Board of Directors and
others, at a price not less than the fair market value of the common stock on
the date the option is granted. The option terms and vesting periods are
determined at the date of grant by a committee of the Board of Directors.
Options expire ten years after the date of grant unless an earlier expiration
date is set at the time of grant. In February 1999, options to purchase 279,500
of common stock were granted to employees at the then fair market value of $8.96
per share.

In connection with the Recapitalization, the Dollar Express Stores,
Inc. converted from an S to a C corporation.

In February 1999, the Company entered into a five-year credit facility
for an aggregate amount of $40.0 million, of which $20.0 million is in the form
of a term loan and $20.0 million is a revolving credit facility. At the option
of the Company, interest on the facility is calculated at the lender's base rate
plus a margin or LIBOR plus a margin based on a leverage ratio. The margin
ranges from 0% to 1% on base rate borrowings and 1.75% to 2.75% on LIBOR
borrowings. A portion on the proceeds of the facility, together with funds
provided from the private placement, were used to satisfy the Promissory Notes,
repay the outstanding amount on the line of credit at December 31, 1998 and pay
costs associated with the Recapitalization.

The term portion of the facility calls for increasing quarterly
payments beginning in 2000. Annual maturities are as follows: 2000 - $2.0
million, 2001 - $4.0 million, 2002 - $6.0 million, 2003 - $8.0 million.

F-23

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

NOTE 4. REDEEMABLE CONVERTIBLE PREFERRED STOCK

In connection with the Recapitalization, the Company issued 3,530,000
shares of its Series A 8.75% cumulative convertible preferred stock ("Preferred
Stock") with a par value of $0.01 per share. The Preferred Stock ranks senior to
all other shares of capital stock. Dividends are payable in arrears on March 31,
June 30, September 30 and December 31 of the year in which such dividends
accrue, in an amount equal to the stated rate times $34.0 million. All dividend
payments are to be made in cash. Dividends for 1999 of $1.9 million have been
accrued and are unpaid at September 30, 1999. The payment of these dividends can
be deferred for up to 910 days from February 5, 1999, and therefore have been
classified as long-term in the accompanying consolidated balance sheet.

The holders of the Preferred Stock have the right, at any time, to
convert any or all shares into shares of common stock . Additionally, all shares
of Preferred Stock will be automatically converted into common stock on the date
at which a registration statement filed with the Securities and Exchange
Commission ("SEC"), in respect of shares of common stock to be sold in a
qualified public offering, shall be declared effective by the SEC. Upon
conversion, the holders of Preferred Stock shall also be entitled to payment of
all accrued and unpaid dividends, if any, so long as a qualified public
offering, merger or consolidation or any other recapitalization or other
business combination with an unaffiliated entity has not occurred prior to the
date which is 910 days after February 5, 1999.

Each share of Preferred Stock shall have the number of votes equal to
the number of shares of common stock into which each share of Preferred Stock is
convertible. Additionally, so long as the Preferred Stock is outstanding the
Preferred Stock holders have the right to elect two of the current five
directors to the Board of Directors of the Company.

Beginning on the fifth anniversary from February 5, 1999 and continuing
until the date at which a registration statement filed with the SEC in respect
of shares of common stock to be sold in a qualified public offering, shall be
declared effective by the SEC, at the option of the holders of a majority of the
outstanding Preferred Stock, such holders may require the Company to redeem, at
any time, all, but not less than all, of the Preferred Stock then outstanding.
The Company is obligated to pay to the holders of Preferred Stock an amount in
cash, in aggregate, equal to the greater of: 1) $34.0 million plus all accrued
and unpaid dividends; and 2) the fair market value of shares of Common Stock
into which such Preferred Stock would have been convertible, plus all accrued
and unpaid dividends.

In the event of any liquidation of the Company each issued and
outstanding share of Preferred Stock will entitle the holder to payment at the
rate of approximately $8.96 per share, plus all accrued and unpaid dividends.

NOTE 5. COMMON STOCK WARRANTS

In connection with the Recapitalization, the Company issued 447,917
warrants to the holders of Preferred Stock to purchase shares of its Common
Stock ("Warrants"), par value $0.01 per share, for cash proceeds of $1.0
million. Beginning on the date that is 910 days after February 5, 1999, and
thereafter until expiration, the Warrants may be exercised by the holders to
purchase shares of Common Stock. The exercise price is $0.009 per share, of
Common Stock.

F-24
<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

The Warrants were issued in conjunction with the Preferred Stock, and
as such, in the event the holders of the Preferred Stock exercise their
redemption rights, as discussed in Note 4, the Company will be required to also
repurchase the Warrants then outstanding. Each Warrant is to be repurchased by
the Company in cash equal to the fair market value of shares of Common Stock,
less the exercise price for each Warrant, plus an amount up to $2.23 per share,
which is dependent on the fair market value of the Common Stock at the date of
repurchase.

NOTE 6. INCOME TAXES

The Company was taxed as an S corporation for the nine months ended
September 30, 1998. Accordingly, federal and state income taxes or credits for
that period accrued personally to the shareholders, with the exception of taxes
paid on New Jersey source income, which were paid at the corporate level.
Concurrent with the Recapitalization (discussed in Note 3.), the Company
converted from an S corporation to a C corporation under the Internal Revenue
Code. Accordingly, earnings are now taxed at the company level rather than
passed through to the Company's shareholders. The Company's effective tax rate
for the thirty nine weeks ended September 30, 1999 was 40%. Upon conversion from
an S to a C corporation, the Company recognized a deferred income tax benefit of
$2.1 million. Significant components of the deferred income tax benefit include
book over tax depreciation, deferred revenue and merchandise inventories.

NOTE 7. ACCOUNTING CHANGE

Effective January 1, 1999, the Company changed the depreciable lives of
its existing as well as future leasehold improvements to more closely reflect
their expected remaining lives. Specifically, the depreciable lives were changed
to the shorter of the lease term or estimated useful life of the asset,
excluding any renewal options on the leases. Prior to the change, leasehold
improvements were depreciated over the shorter of the lease term, including
renewal options, or the estimated useful life of the asset. The effect of the
change on the thirty nine weeks ended September 30, 1999 was to decrease net
income by $104,000, or $0.02 per common share.

NOTE 8. EARNINGS (LOSS) PER COMMON SHARE

The table below sets forth the reconciliation of net income to net
income (loss) available to common shareholders (In thousands):

F-25

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

<TABLE>
<CAPTION>
Dollar
Express, Inc.
---------------
Thirty nine
weeks ended
September 30,
1999
---------------
<S> <C>
Net income......................................................... $ 4,445
Dividends on redeemable convertible preferred stock........... (1,933)
Accretion of fair market value adjustment on redeemable
convertible preferred stock................................ (2,391)
Accretion of discount on redeemable convertible preferred
stock.................................................... (760)
------------
Net loss available to common shareholders.......................... $ (639)
============
Weighted average number of common shares and common

share equivalents outstanding - basic and diluted............. 6,955
============
Net loss per common share.......................................... $ (0.09)
============
</TABLE>

Options to purchase 279,500 shares of common stock, warrants to
purchase 447,917 shares of common stock, and 3,530,000 shares of redeemable
convertible preferred stock, eligible for conversion into 3,794,750 shares of
common stock were outstanding during the 1999 period. These common stock
equivalents are not included in the calculation of diluted weighted average
number of common shares and common share equivalents outstanding during the 1999
period because their effect would be anti-dilutive.

Staff Accounting Bulletin ("SAB") Topic 1.B.3. is applicable to
distributions made to owners at or prior to the closing of an initial public
offering. SAB Topic 1.B.3 requires that pro forma earnings per share be
presented to give effect to the number of shares whose proceeds would be
necessary to pay the distribution. Accordingly, the weighted average number of
common shares and common share equivalents outstanding, used to calculate basic
and diluted pro forma net income per common share, includes the number of shares
that would be required to be issued to satisfy the payment of the dividend
discussed in Note 3 after deducting the net proceeds from the issuance of
preferred stock discussed in Note 3 and the prior year's net income less
distributions to shareholders. Also, the pro forma information gives effect to
the conversion of all outstanding shares of Series A convertible preferred stock
into 3,794,750 shares of common stock, as well as the termination of the common
stock warrants to occur upon consummation of the securities offering discussed
in Note 11. The following table sets forth the computation of pro forma basic
and diluted net income per common share assuming the conversion of the Series A
convertible preferred stock and the application of SAB Topic 1.B.3.

F-26

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

Dollar
Express, Inc.
-----------------
Thirty nine
weeks ended
September
30, 1999
-----------------
<S> <C>
Net loss available to common shareholders............................................... $ (639)
Accretion on common stock warrants.................................................... 282
Dividends on redeemable convertible preferred stock................................... 1,933
Accretion of fair market value adjustment on redeemable
convertible preferred stock......................................................... 2,391
Accretion of discount on redeemable convertible preferred stock....................... 760
-----------------

Pro forma net income before pro forma tax adjustments (see Note 6)...................... $ 4,727
=================

Pro forma net income after pro forma tax adjustments (see Note 6)....................... $ 2,637
=================

Weighted average number of common shares and common share equivalents
outstanding - basic.................................................................... 6,955
Assumed conversion of convertible preferred stock to common stock..................... 3,294
Assumed issuance of common stock to satisfy the payment of the dividend
declared and paid in 1999........................................................... 1,583
-----------------

Pro forma weighted average number of common shares and common share
equivalents outstanding - basic....................................................... 11,832
=================

Dilutive effect of stock options........................................................ 85
-----------------

Pro forma weighted average number of common shares and common share
equivalents outstanding - diluted..................................................... 11,917
=================

Pro forma net income per common share - basic........................................... $ 0.22
=================

Pro forma net income per common share - diluted......................................... $ 0.22
=================

</TABLE>

All share and per share information for periods prior to 1999 reflect
common shares outstanding as if the Recapitalization occurred at the beginning
of 1998.

As discussed in Note 11, the Company intends to effect a 1.075-for-1
stock split. The above share and per share amounts have been adjusted for the
split.

NOTE 9. SEGMENT INFORMATION

The Company has two reportable segments -- Dollar Express stores and
Spain's Cards & Gifts stores.

The following are the relevant data for the nine months ended September
30, 1998 and the thirty nine weeks ended September 30, 1999 (in thousands):

F-27

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

<TABLE>
<CAPTION>
Dollar Express Dollar Express,
Stores, Inc. Inc.
----------------- ----------------
Nine months Thirty nine
ended weeks ended
September 30, September 30,
1998 1999
----------------- ----------------
<S> <C> <C>
Net sales:
Dollar Express.....................................................$ 72,647 $ 88,008
Spain's............................................................ 13,643 12,430
----------------- ----------------
Total...........................................................$ 86,290 $ 100,438
================= ================
Gross profit:
Dollar Express.....................................................$ 20,630 $ 26,406
Spain's............................................................ 3,461 2,735
----------------- ----------------
Total...........................................................$ 24,091 $ 29,141
================= ================

December 31, September 30,
1998 1999
----------------- ----------------
Inventory:
Dollar Express.....................................................$ 8,751 $ 20,386

Spain's............................................................ 3,262 3,382
----------------- ----------------
Total...........................................................$ 12,013 $ 23,768
================= ================

</TABLE>

NOTE 10. PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following (Dollars in
thousands):

<TABLE>
<CAPTION>
Estimated
useful lives December 31, September 30,
(in years) 1998 1999
------------- -------------- --------------

<S> <C> <C> <C> <C>
Furniture and fixtures............................... 3 to 5 $ 13,727 15,948
Leasehold improvements............................... 7 to 10 5,076 6,643
Transportation equipment............................. 3 to 5 35 35
Computer equipment................................... 3 to 5 1,540 2,212
-------------- --------------
20,378 24,838

Less accumulated depreciation and amortization....... 11,420 13,164
-------------- --------------
Property and equipment, net.......................... $ 8,958 11,674
============== ==============

</TABLE>

Depreciation and amortization amounted to $1.4 million and $1.9 million for the
nine months ended September 30, 1998 and thirty nine weeks ended September 30,
1999, respectively.

F-28

<PAGE>

DOLLAR EXPRESS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
September 30, 1998 and 1999

NOTE 11. SUBSEQUENT EVENT

In December 1999, our board of directors authorized Dollar Express,
Inc. to file a registration statement with the U.S. Securities and Exchange
Commission for an initial public offering of its common stock. If the offering
is consummated under the terms presently anticipated, all of the currently
outstanding shares of Series A convertible preferred stock will be automatically
converted into 3,794,750 shares of common stock and the 447,917 common stock
warrants will automatically terminate. Prior to the initial public offering, the
Company intends to effect a 1.075-for-1 stock split. All references to share
and per share amounts, except for references to authorized shares, have been
restated to give effect to the stock split.

F-29

<PAGE>

================================================================================
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

3,400,000 Shares

(R)
[GRAPHIC OMITTED]

Common Stock

------------------

PROSPECTUS
------------------

Merrill Lynch & Co.

Prudential Securities

U.S. Bancorp Piper Jaffray

First Union Securities, Inc.

Legg Mason Wood Walker
Incorporated

_________ ___, 2000

================================================================================

<PAGE>

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.......................................... $ 16,632
NASD fees and expenses....................................................................... 6,800
Blue Sky fees and expenses................................................................... 10,000
Nasdaq National Market listing fee........................................................... 105,500
Accountants' fees and expenses............................................................... 300,000
Legal fees and expenses...................................................................... 200,000
Transfer Agent's fees and expenses........................................................... 10,000
Printing and engraving expenses.............................................................. 125,000
Directors and Officers Insurance............................................................. 50,000
Miscellaneous................................................................................ 26,068
Total Expenses...............................................................................
$ 850,000
================
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Pennsylvania Business Corporation Law, our charter and our bylaws
limit the monetary liability of our directors to us and to our shareholders and
provide for indemnification of our officers and directors for liabilities and
expenses that they may incur in such capacities. In general, we will indemnify
our directors and officers against any liability except where indemnification
would be expressly prohibited by law or where a court has determined that the
director's or officer's actions were reckless or willful or resulted in an
unlawful personal benefit to the director or officer from us. Reference is made
to our bylaws filed as Exhibit 3.5 hereto.

We have an insurance policy that insures our directors and officers
against certain liabilities that might be incurred in connection with the
performance of their duties. Prior to the completion of the offering, we will
amend our policy to include coverage against liabilities with respect to the
Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of the registrant and
its officers and directors severally, but not jointly, and by the registrant and
the selling shareholders of the underwriters for certain liabilities, including
liabilities arising under the Securities Act and affords certain rights of
contribution with respect thereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the registrant has sold the securities set
forth below, which were not registered under the Securities Act:

II-1

<PAGE>

Shares of Common Stock

1. On February 5, 1999, pursuant to a Securities Purchase and Contribution
Agreement dated as of February 3, 1999 (the "Securities Purchase
Agreement"), we issued an aggregate of 6,955,250 shares of common stock
to Bernard Spain and Murray Spain in exchange for all of issued and
outstanding shares of our now wholly-owned operating subsidiary, Dollar
Express Stores, Inc. As a result of arms-length negotiations among the
registrant, the Spain brothers and the investors referred to in Item 2
below, the fair value of these shares was determined to be
approximately $62.0 million.

Shares of Preferred Stock

2. On February 5, 1999, pursuant to the Securities Purchase Agreement, we
issued an aggregate of 3,530,000 shares of Series A convertible
preferred stock to seven accredited investors for an aggregate cash
purchase price of $34.0 million.

Warrants

3. On February 5, 1999, pursuant to the Securities Purchase Agreement, we
issued warrants to purchase an aggregate of 447,917 shares of our
common stock to seven accredited investors for an aggregate purchase
price of $1.0 million.

Options to Purchase Common Stock

4. In 1999, we granted stock options to employees for the first time.
Pursuant to the 1999 Stock Option Plan, we granted options to purchase
279,500 shares of our common stock, in the aggregate. These 279,500
options have an exercise price of $8.96 per share.

We believe that all of the transactions described above were exempt
from registration under Section 4(2) of the Securities Act because the subject
securities were sold to a limited group of persons, each of whom was believed to
have been a sophisticated, accredited investor or to have had a pre-existing
business or personal relationship with us or our management and to have been
purchasing for investment without a view to further distribution. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access to information about us.

We further believe that the transactions described in 4 above were
exempt from registration pursuant to Rule 701 under the Securities Act.

II-2

<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) The following exhibits are filed herewith or incorporated
herein by reference:

Exhibit

No. Description

1.1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of DE&S Holding Co.
3.2** Articles of Amendment of DE&S Holding Co. changing its name to Dollar
Express, Inc.
3.3** Bylaws of DE&S Holding Co.
3.4* Amended and Restated Articles of Incorporation of Dollar Express, Inc.
3.5* Amended and Restated Bylaws of Dollar Express, Inc.
4.1* Specimen Stock Certificate of Dollar Express.
5.1* Opinion of Pepper Hamilton LLP.
10.1* Headquarters Lease.
10.2** 1999 Stock Option Plan of Dollar Express, including forms of Incentive
Stock Option Agreement and Non-Qualified Stock Option Agreement.
10.3** Securities Purchase and Contribution Agreement, dated February 15,1999.
10.4 Employment Agreement with Bernard Spain.
10.5 Employment Agreement with Murray Spain.
10.6 Employment Agreement with James Misterman.
10.7 Employment Agreement with Vincent J. Navitsky.
10.8 Employment Agreement with Howard B. Savage.
10.9 Employment Agreement with David Folkman.
10.10** Investor Rights Agreement.
10.11** Registration Rights Agreement.
10.12** Credit Agreement dated February 5, 1999, among Dollar Express, First
Union National Bank and BankBoston, N.A.
10.13 Collective Bargaining Agreement dated February 8, 1999, among Dollar
Express and Teamsters Local 830.
16.1** Letter from Grant Thornton LLP, re: Change in Certifying Accountant
21 Dollar Express' Subsidiaries.
23.1 Consent of Grant Thornton LLP.
23.2* Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
23.3** Consent of David A. Cohen, director nominee.
24.1** Powers of Attorney (included in the signature page to the registration
statement).
27.1 Financial Data Schedule (in electronic format only).

- --------------------
* To be filed by amendment.
** Previously filed.

(b) Financial statements.

None.

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.

II-3

<PAGE>

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(i) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(ii) For purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Philadelphia,
Pennsylvania on the 18th day of February, 2000.

DOLLAR EXPRESS, INC.

By: /s/ Bernard Spain
Bernard Spain
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act, this Amendment No.
1 to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C>

/s/ Bernard Spain Chairman of the Board and 02/18/00
- -------------------------------- Chief Executive Officer
Bernard Spain (principal executive officer)

* President, Chief Operating Officer 02/18/00
- -------------------------------- and Director
Murray Spain

* Executive Vice President, Chief Financial 02/18/00
- -------------------------------- Officer (principal financial and accounting
Barry J. Susson officer)

</TABLE>

II-5

<PAGE>

<S> <C> <C>
* Director 02/18/00
- -----------------------------
Harvey Goldberg

* Director 02/18/00
- -----------------------------
David Mussafer

* Director 02/18/00
- -----------------------------
William Woo

*By: /s/ Bernard Spain
Attorney-in-Fact
</TABLE>

II-6

<PAGE>

EXHIBITS INDEX

No. Description

1.1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of DE&S Holding Co.
3.2** Articles of Amendment of DE&S Holding Co. changing its name to Dollar
Express, Inc.
3.3** Bylaws of DE&S Holding Co.
3.4* Amended and Restated Articles of Incorporation of Dollar Express, Inc.
3.5* Amended and Restated Bylaws of Dollar Express, Inc.
4.1* Specimen Stock Certificate of Dollar Express.
5.1* Opinion of Pepper Hamilton LLP.
10.1* Headquarters Lease.
10.2** 1999 Stock Option Plan of Dollar Express, including forms of Incentive
Stock Option Agreement and Non-Qualified Stock Option Agreement.
10.3** Securities Purchase and Contribution Agreement, dated February 15,1999.
10.4 Employment Agreement with Bernard Spain.
10.5 Employment Agreement with Murray Spain.
10.6 Employment Agreement with James Misterman.
10.7 Employment Agreement with Vincent J. Navitsky.
10.8 Employment Agreement with Howard B. Savage.
10.9 Employment Agreement with David Folkman.
10.10** Investor Rights Agreement.
10.11** Registration Rights Agreement.
10.12** Credit Agreement dated February 5, 1999, among Dollar Express, First
Union National Bank and BankBoston, N.A.
10.13 Collective Bargaining Agreement dated February 8, 1999, among Dollar
Express and Teamsters Local 830.
16.1** Letter from Grant Thornton LLP, re: Change in Certifying Accountant
16.2 Letter from Grant Thornton LLP dated February 18, 2000, re: Change in
Certifying Accountant.
21 Dollar Express' Subsidiaries.
23.1 Consent of Grant Thornton LLP.
23.2* Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
23.3** Consent of David A. Cohen, director nominee.
24.1** Powers of Attorney (included in the signature page to the registration
statement).
27.1 Financial Data Schedule (in electronic format only).

- --------------------
* To be filed by amendment.
** Previously filed.

<PAGE>

DOLLAR EXPRESS, INC.
1700 TOMLINSON ROAD
Philadelphia, PA 19116

February 5, 1999

Mr. Bernard Spain
c/o Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

Dear Bernard:

In recognition of your contribution to the growth and success of Dollar
Express, Inc. and its related companies (the "Company") and in connection with
the transactions contemplated by that certain Securities Purchase & Contribution
Agreement dated as of February 3, 1999 among the Company, DE&S Holdings Co.
("DE&S") (the parent corporation of the Company), and certain shareholders of
DE&S, we are pleased to offer to you ("Executive") continued employment with the
Company as Chief Executive Officer, subject to the following terms of this
letter agreement (the "Agreement").

1. Term and Duties. Executive shall be employed for a term commencing
on the date hereof and expiring on the fourth anniversary of the date hereof,
unless earlier terminated pursuant to Section 6 hereof (the "Term"). Thereafter,
the Term shall continue for successive one (1) year periods unless either the
Company or Executive shall have given the other at least ninety (90) days notice
of a desire to terminate and not to renew at the expiration of the then current
period. During the Term, Executive shall devote his best efforts and
substantially all of his business time and services to the Company to perform
such duties as may be customarily incident to such position and as may
reasonably be assigned from time to time by the Board of Directors of DE&S (the
"Board").

2. Annual Salary. Executive hereby agrees to accept, as compensation
for all services rendered by Executive in any capacity hereunder and for the
Restrictive Covenants made by Executive in Section 5 hereof, an initial base
salary at an annual rate of $325,000 (as the same may hereafter be adjusted, the
"Annual Salary") commencing on the date hereof and continuing until expiration
or termination of the Term. The Annual Salary shall be reviewed by the Board and
considered for increase as of January 1, 2001 and annually thereafter. The
Annual Salary shall be inclusive of all applicable income, social security and
other taxes and charges which are required by law to be withheld by the Company,
and which shall be withheld and paid in accordance with the Company's normal
payroll practices from time to time in effect.

<PAGE>

February ___, 1999
Page 2

3. Bonuses. With respect to each fiscal year of the Company that ends
within the Term, the Executive will be entitled to receive an annual bonus of
$75,000 if the Company performs in conformity with its Approved Budget. For
purposes of this Agreement, "Annual Budget" means the annual operating budget of
the Company and its related entities which is approved by the Board in
accordance with Article X of the Bylaws of DE&S. The Company may pay Executive
such other bonus or bonuses, if any, as the Board in its sole discretion, shall
determine.

4. Benefits.

4.1. Generally. Executive shall be entitled to the same benefits
(including as of the date hereof: medical insurance, 401(k) Plan participation
and a $250,000 term life insurance policy) as other senior salaried officers of
the Company, as determined by the Board, in its absolute discretion (the
"Benefits").

4.2. Expense Reimbursements. The Company shall reimburse Executive,
upon proper accounting, for reasonable expense and disbursements incurred by him
in the course of his performance of the duties hereunder.

4.3. Automobile Allowance. The Company shall make available to
Executive an automobile (with a fair market value consistent with past
practices, but in any case, not in excess of $59,999) for business related use.

5. Non-Compete; Confidentiality; Intellectual Property.

5.1. Restrictive Covenants. Executive and the Company agree that,
because Executive has had and will continue to have access to the Company's most
confidential business and technical information and has had and will continue to
have responsibility for developing and maintaining vendor relationships, the
following covenants by the Executive are reasonable and necessary for the
protection of the Company's legitimate business interests:

(a) Non-Compete. Executive shall not, during the Term and for a
period thereafter of three (3) years (the "Restricted Period"), in the United
States or any other place where the Company, its subsidiaries or affiliates
conduct business, directly or indirectly (except in Executive's capacity as an
officer or director of the Company or its subsidiaries or affiliates) do any of
the following, directly or indirectly, without the prior written consent of the
Company:

(i) engage or participate in any business activity which is
in any way competitive with the Company's business of operating large format
dollar stores or traditional card and gift shops (a "Competing Business");

<PAGE>

February ___, 1999
Page 3

(ii) become interested in (as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent or consultant) any
person, firm, corporation, association or other entity engaged in any Competing
Business. Notwithstanding the foregoing, Executive may hold up to one percent
(1%) of the outstanding securities of any class of any publicly-traded
securities of any company;

(iii) solicit or call on any supplier with whom the Company
shall have dealt at any time during the two (2) year period immediately
preceding the termination of Executive's employment hereunder if such
solicitation or call could in any way adversely impact the Company's (or any of
the Company's subsidiaries' or affiliates') relationship with that supplier;

(iv) influence or attempt to influence any supplier,
service provider, partner or any other person to terminate or modify any written
or oral agreement or course of dealing with the Company;

(v) influence or attempt to influence any person to
terminate or modify his employment, consulting, agency or other arrangement with
the Company; or

(vi) employ or retain, or arrange to have any other person
employ or retain, any person (other than members of Executive's family) who has
been employed or retained by the Company as an employee, consultant or agent of
the Company at any time during the two year period immediately preceding the
termination of Executive's employment hereunder.

For purposes of this Agreement, the term "person" refers to not only
individuals, but also to any corporation, partnership, association, trust,
proprietorship or any other entity or organization.

(b) Confidentiality. Employee recognizes and acknowledges that
the Propriety Information (as hereinafter defined) is a valuable, special and
unique asset of the Company's business. Accordingly, during and after the
Restricted Period, Executive shall keep secret and retain in strictest
confidence, and will not, for any reason divulge to any third-party or use for
his own benefit (without the prior written consent of the Company) any
confidential, proprietary, business or technical information or trade secrets of
the Company or of any subsidiary or affiliate of the Company ("Proprietary
Information"); provided, however, that this paragraph will not restrict
Executive's ability to make such disclosures during the course of his employment
as may be necessary for the effective and efficient discharge of the duties
hereunder or as such disclosures may be required by law. In the event that
Executive or any of its representatives becomes legally compelled to disclose
any of the Proprietary Information, Executive will provide the Company with
prompt written notice so that the Company may seek a protective order or other
appropriate remedy. Failure by the Company to mark any of the Proprietary
Information as confidential or proprietary shall not affect its status as
Proprietary Information under the terms of this Agreement.

<PAGE>

February ___, 1999
Page 4

(i) All right, title and interest in and to Proprietary
Information shall be and remain the sole and exclusive property of the Company.
During the Term, Executive shall not remove from the Company's offices or
premises any documents, records, notebooks, files, correspondence, reports,
memoranda or similar materials of or containing Proprietary Information, or
other materials or property of any kind belonging to the Company unless
necessary or appropriate in accordance with the duties and responsibilities
required by or appropriate for his position. If any such materials or property
are removed, they shall be returned to their proper files or places of
safekeeping as promptly as possible after the removal shall serve its specific
purpose. Executive shall not make, retain, remove and/or distribute copies of
such materials or property and shall not divulge to any third person the nature
of and/or contents of such materials or property, except as may be necessary or
appropriate in the performance of his duties. Upon the termination of
Executive's employment with the Company, Executive will return to the Company
all originals and copies of such materials and property then in his possession,
whether prepared by Executive or by others.

(ii) Executive agrees that all the Intellectual Property
(as defined below) will be considered "works made for hire" as that term is
defined in Sections 101 and 201 of the Copyright Act (17 U.S.C. ss.ss. 101 and
201) and that all right, title and interest in such Intellectual Property
(including, without limitation, any available patents or copyrights) will be the
sole and exclusive property of the Company. To the extent that any of the
Intellectual Property may not by law be considered a work made for hire, or to
the extent that, notwithstanding the foregoing, Employee retains any interest in
the Intellectual Property, Employee hereby irrevocably assigns and transfers to
the Company any and all right, title, or interest that Employee may have in the
Intellectual Property under patent, copyright, trade secret and trademark law,
in perpetuity or for the longest period otherwise permitted by law, without the
necessity of further consideration. The Company will be entitled to obtain and
hold in its own name all copyrights, patents, trade secrets, and trademarks with
respect to such Intellectual Property. Employee further agrees to execute any
and all documents and provide any further cooperation or assistance reasonably
required by the Company to perfect, maintain or otherwise protect its rights in
the Intellectual Property. If the Company is unable after reasonable efforts to
secure Employee's signature, cooperation or assistance in accordance with the
preceding sentence, whether because of Employee's incapacity or any other reason
whatsoever, Employee hereby designates and appoints the Company or its designee
as Employee's agent and attorney-in-fact, to act on his behalf, to execute and
file documents and to do all other lawfully permitted acts necessary or
desirable to perfect, maintain or otherwise protect the Company's rights in the
Intellectual Property. Employee acknowledges and agrees that such appointment is
coupled with an interest and is therefore irrevocable. For purposes of this
Agreement, "Intellectual Property" means any technical information, inventions,
developments, discoveries, improvements, software, methods, techniques,
formulae, data, processes, systems, documentation and work results
(collectively, the "Inventions") that are first discovered, developed, fixed in
a tangible medium or reduced to practice by Employee: (i) in the course and
within the scope of his employment, (ii) at any time and place while Employee is
employed by the Company, provided

<PAGE>

February ___, 1999
Page 5

that such Invention is related to or used in connection with the business of the
Company, (iii) which is the result of tasks assigned to Employee by the Company,
or (iii) which results from the use of premises or personal property (whether
tangible or intangible) owned, leased or contracted for by the Company.

5.2. Rights and Remedies Upon Breach. If Executive breaches, or
threatens to commit a breach of, any of the provisions contained in Section 5.1
(the "Restrictive Covenants"), the Company will have the following rights and
remedies, each of which rights and remedies shall be independent of the others
and severally enforceable, and each of which is in addition to, and not in lieu
of, any other rights and remedies available to the Company under law or in
equity:

(a) Special Enforcement. The Company will have the right and
remedy to have the Restrictive Covenants enforced by injunction of any court of
competent jurisdiction.

(b) Accounting and Restitution. The Company will have the
right and remedy to require Executive to account for and pay over to the Company
all compensation, profits, monies, accruals, increments or other benefits
derived or received by Executive as the result of any breach of the Restrictive
Covenants.

(c) Extension of Restricted Period. If Executive breaches any
of the Restrictive Covenants, then the Restricted Period shall be extended for a
period of time equal to the period of time that Executive was in breach of such
restriction.

5.3. Acknowledgments. Executive acknowledges that the Restrictive
Covenants are included herein in order to induce the Company to continue to
employ Executive pursuant to the other terms of this Agreement and that the
Company would not have entered into this Agreement in the absence of such
restrictions. Executive also acknowledges that any breach or threatened breach
of the Restrictive Covenants would cause irreparable injury to the Company, that
money damages would not provide an adequate remedy to the Company and that the
Company would be entitled to a temporary restraining order, preliminary
injunction, and/or permanent injunction to prevent any breach or threatened
breach of the Restrictive Covenants. Executive agrees that he will not, in any
action or proceeding to enforce any of the provisions of this Agreement, assert
the claim or defense that such an adequate remedy at law exists. Executive
further acknowledges that the duration and geographic scope of Section 5.1 are
reasonable given the nature of this Agreement.

5.4. Judicial Modification. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, such court shall have the
power to modify such provision and, in its modified form, such provision shall
then be enforceable.

<PAGE>

February ___, 1999
Page 6

5.5. Disclosure of Restrictive Covenants. Executive agrees to
disclose the existence and terms of the Restrictive Covenants to any employer
that Executive may work for after the termination of Executive's employment with
the Company.

6. Termination. Executive's employment hereunder may be terminated
during or at the end of the Term as described below. Upon termination, Executive
shall be entitled only to such compensation and benefits as described in this
Section 6.

6.1. Termination for Absenteeism.

(a) Regular attendance at work or conducting work is an
essential element of the job for which Executive has been hired. Without
limiting the Company's right to terminate Executive pursuant to Section 6.2 or
6.3 hereof, in the event that Executive is absent from work for 180 consecutive
days, Executive's employment hereunder may be terminated by the Company.

(b) In the event of a termination of Executive's employment
hereunder pursuant to Section 6.1(a), Executive will be entitled to receive all
accrued and unpaid Annual Salary and Benefits through the date of such
termination. Except as specifically set forth in this Section 6.1(b), subject to
the terms of any benefits or compensation plans then in force and applicable to
Executive, the Company shall have no liability or obligation to Executive for
compensation or benefits hereunder by reason of such termination.

6.2. Termination by Death. In the event that Executive dies during
the Term, Executive's employment hereunder shall be terminated thereby and the
Company shall pay to Executive's executors, legal representatives or
administrators an amount equal to all accrued and unpaid Annual Salary and
Benefits through the date of such termination. Except as specifically set forth
in this Section 6.2, the Company shall have no liability or obligation hereunder
to Executive's executors, legal representatives, administrators, heirs or
assigns or any other person claiming under or through him by reason of
Executive's death, except that Executive's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under any
death or disability benefits plan(s) in which he is a participant as an employee
of the Company, and to exercise any rights afforded under any compensation or
benefit plan(s) then in effect.

6.3. Cause. The Company shall have the right to terminate
Executive's employment under this Agreement for "Cause." In the event of the
termination of employment for Cause, all rights, benefits and obligations of the
parties under this Agreement (except for Executive's obligations under Section
5) shall immediately terminate except for benefits accrued to the date of
termination. For purposes of this Agreement, "Cause" shall mean the occurrence
of any of the following material violations: (i) alcohol abuse or use of
controlled drugs (other than in accordance with a physician's prescription);
(ii) refusal, failure or inability to perform any material obligation or fulfill
any duty to the Company (other than due to disability), which failure, refusal
or inability is not cured within ten (10) days after delivery of notice thereof
from

<PAGE>

February ___, 1999
Page 7

the Board; (iii) gross negligence or willful misconduct in the course of
employment; (iv) other conduct involving any type of disloyalty to the Company
or any of its affiliates or subsidiaries, including, without limitation, fraud,
embezzlement, theft or proven dishonesty; and (v) conviction of (or the entry of
a plea of guilty or nolo contendere to) a misdemeanor involving moral turpitude
or a felony.

6.4. Severance Event.

(a) For the purposes of this Agreement:

(i) "Severance Event" means the termination of Executive's
employment prior to the expiration of this Agreement: (A) by the Company other
than pursuant to Sections 6.1, 6.2 or 6.3, or (B) by Executive for Good Reason.

(ii) "Good Reason" means a material breach by the Company
or any material provision of this Agreement, which breach is not remedied within
thirty (30) days after receipt by the Company of written notice thereof from
Executive.

(b) Upon the occurrence of a Severance Event:

(i) the Company shall pay to Executive an amount equal to
his Annual Salary in the calendar year in which the Severance Event occurred,
which amount shall be paid (subject to required withholdings) in twelve (12)
equal consecutive monthly installments commencing one (1) month after the date
of the Severance Event; and

(ii) subject to the terms of any insurance policy funding
any group health plan(s) maintained by the Company and in which the Executive
participated immediately prior the Severance Event, the Company will provide
Executive with eighteen months of continuation coverage under such group health
plan(s) at a cost to Executive equal to the employee cost (if any) of such
coverage immediately prior to the Severance Event.

7. [Reserved]

8. Miscellaneous.

8.1. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Executive and their respective
successors, executors, administrators, heirs and/or permitted assigns; provided,
however, that neither Executive nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party, except that, without such consent, 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.

<PAGE>

February ___, 1999
Page 8

8.2. Entire Agreement. 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 between the parties hereto relating to the
employment of Executive with the Company.

8.3. Amendments. This Agreement may not be changed or modified,
except by an Agreement in writing signed by each of the parties hereto.

8.4. Waiver. Any waiver by either party of any breach of any term
or condition in this Agreement shall not operate as a waiver of any other breach
of such term or condition or of any other term or condition, not shall nay
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof or constitute, or be deemed a waiver or release of
any other rights, in law or in equity.

8.5. Governing Law. This Agreement shall be governed by, and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania
without regard to conflicts of laws principals.

8.6. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law; provided, however, that if any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect in a particular
jurisdiction; (i) this Agreement will be reformed, construed and enforced in
that jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein; and (ii) such invalidity, illegality or
unenforceability will not affect the effectiveness or validity of that provision
in any other jurisdiction.

9. Notice. Any notice or communication required or permitted under
this Agreement shall be made in writing and (i) sent by overnight courier, (ii)
mailed by certified or registered mail, return receipt requested or (iii) sent
by telecopier, addressed to the addresses of the parties set forth herein, or to
such other address as either party may from time to time specify by notice given
to the other party in the manner specified above.

10. Survival of Provisions. The provisions of this Agreement set forth
in Sections 5 and 8 hereof will survive the termination of Executive's
employment hereunder or the expiration of this Agreement.

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

<PAGE>

February ___, 1999
Page 9

Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by executing
and returning the enclosed copy of this letter.

Sincerely,

DOLLAR EXPRESS, INC.

By: /s/ Murray Spain
---------------------------
Name: Murray Spain
Title: President

Accepted and Agreed to on this 5th
day of February, 1999:

/s/ Bernard Spain
- -----------------------------
Bernard Spain

<PAGE>

Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

February 5, 1999

Mr. Murray Spain
c/o Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

Dear Murray:

In recognition of your contribution to the growth and success of Dollar
Express, Inc. and its related companies (the "Company") and in connection with
the transactions contemplated by that certain Securities Purchase & Contribution
Agreement dated as of February 3, 1999 among the Company, DE&S Holdings Co.
("DE&S") (the parent corporation of the Company), and certain shareholders of
DE&S, we are pleased to offer to you ("Executive") continued employment with the
Company as President, subject to the following terms of this letter agreement
(the "Agreement").

<PAGE>

February ___, 1999
Page 2

4. Benefits.

5. Non-Compete; Confidentiality; Intellectual Property.

<PAGE>

February ___, 1999
Page 3

(iv) influence or attempt to influence any supplier,
service provider, partner or any other person to terminate or modify any written
or oral agreement or course of dealing with the Company;

(v) influence or attempt to influence any person to
terminate or modify his employment, consulting, agency or other arrangement with
the Company; or

For purposes of this Agreement, the term "person" refers to not only
individuals, but also to any corporation, partnership, association, trust,
proprietorship or any other entity or organization.

<PAGE>

February ___, 1999
Page 4

<PAGE>

February ___, 1999
Page 5

(a) Special Enforcement. The Company will have the right and
remedy to have the Restrictive Covenants enforced by injunction of any court of
competent jurisdiction.

(b) Accounting and Restitution. The Company will have the right
and remedy to require Executive to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Executive as the result of any breach of the Restrictive Covenants.

<PAGE>

February ___, 1999
Page 6

6.1. Termination for Absenteeism.

<PAGE>

February ___, 1999
Page 7

6.4. Severance Event.

(a) For the purposes of this Agreement:

(b) Upon the occurrence of a Severance Event:

7. [Reserved]

8. Miscellaneous.

<PAGE>

February ___, 1999
Page 8

8.3. Amendments. This Agreement may not be changed or modified,
except by an Agreement in writing signed by each of the parties hereto.

8.5. Governing Law. This Agreement shall be governed by, and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania
without regard to conflicts of laws principals.

10. Survival of Provisions. The provisions of this Agreement set forth
in Sections 5 and 8 hereof will survive the termination of Executive's
employment hereunder or the expiration of this Agreement.

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

<PAGE>

February ___, 1999
Page 9

Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by executing
and returning the enclosed copy of this letter.

Sincerely,

DOLLAR EXPRESS, INC.

By:/s/ Bernard Spain
-----------------------
Name: Bernard Spain
Title: Chief Executive Officer

Accepted and Agreed to on this 5th
day of February, 1999:

/s/ Murray Spain
- -----------------------
Murray Spain

<PAGE>

DOLLAR EXPRESS, INC.
1700 Tomlinson Road
Philadelphia, PA 19116

March 1, 1999

Mr. James Misterman
c/o Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

Dear Mr. Misterman:

In recognition of your contribution to the growth and success of Dollar
Express, Inc. and its related companies (the "Company"),we are pleased to offer
to you ("Executive") continued employment with the Company as Executive Vice
President-Dollar Express Merchandise, subject to the following terms of this
letter agreement (the "Agreement").

1. Term and Duties. Executive shall be employed for a term commencing
on the date hereof and expiring on the first anniversary of the date
hereof, unless earlier terminated pursuant to Section 6 hereof (the
"Term"). Thereafter, the Term shall continue for successive one (1)
year periods unless either the Company or Executive shall have given
the other at least ninety (90) days prior notice of a desire to
terminate and not renew Executive's employment at the expiration of the
then current period. During the Term, Executive shall devote his best
efforts and substantially all of his business time and services to the
Company to perform such duties as may be customarily incident to such
position and as may reasonably be assigned from time to time by the
Board of Directors (the "Board") of DE&S Holding Co. ("DE&S") (the
parent corporation of the Company).

2. Annual Salary. Executive hereby agrees to accept, as compensation
for all services rendered by Executive in any capacity hereunder and
for the Restrictive Covenants made by Executive in Section 5 hereof, an
initial base salary at an annual rate of $134,000.00 (as the same may
hereafter be adjusted, the "Annual Salary") commencing on the date
hereof and continuing until expiration or termination of the Term. The
Annual Salary shall be reviewed by the Board and considered for
increase as of January 1, 2000 and annually thereafter. The Annual
Salary shall be inclusive of all applicable income, social security and
other taxes and charges which are required by law to be withheld by the
Company, and which shall be withheld and paid in accordance with the
Company's normal payroll practices from time to time in effect.

<PAGE>

Mr. James Misterman
March 1, 1999
Page 2

3. Bonuses. With respect to each fiscal year of the Company that ends
within the Term, the Executive will be entitled to receive an annual
bonus to be determined by the Board if the Company performs in
conformity with its Approved Budget. For purposes of this Agreement,
"Annual Budget" means the annual operating budget of the Company and
its related entities which is approved by the Board in accordance with
Article X of the Bylaws of DE&S. The Company may pay Executive such
other bonus or bonuses, if any, as the Board in its sole discretion,
shall determine.

4. Benefits.

4.1. Generally. Executive shall be entitled to the same
benefits (including as of the date hereof: medical insurance, 401(k)
Plan participation and a $250,000 term life insurance policy) as the
senior salaried officers of the Company, as determined by the Board, in
its absolute discretion (the "Benefits").

4.2. Expense Reimbursements. The Company shall reimburse
Executive, upon proper accounting, for reasonable expense and
disbursements incurred by him in the course of his performance of the
duties hereunder.

5. Non-Compete; Confidentiality; Intellectual Property.

5.1. Restrictive Covenants. Executive and the Company agree
that, because Executive has had and will continue to have access to the
Company's most confidential business and technical information and has
had and will continue to have responsibility for developing and
maintaining vendor relationships, the following covenants by the
Executive are reasonable and necessary for the protection of the
Company's legitimate business interests:

(a) Non-Compete. Executive shall not, during the Term
and for a period thereafter of one (1) year (the "Restricted
Period"), in the United States or any other place where the
Company, its subsidiaries or affiliates conduct business,
directly or indirectly (except in Executive's capacity as an
officer or director of the Company or its subsidiaries or
affiliates) do any of the following, directly or indirectly,
without the prior written consent of the Company:

(i) engage or participate in any business
activity which is in any way competitive with the
Company's business of operating

<PAGE>

Mr. James Misterman
March 1, 1999
Page 3

large format dollar stores or traditional card and
gift shops (a "Competing Business");

(ii) become interested in (as owner,
stockholder, lender, partner, co-venturer, director,
officer, employee, agent or consultant) any person,
firm, corporation, association or other entity
engaged in any Competing Business. Notwithstanding
the foregoing, Executive may hold up to one percent
(1%) of the outstanding securities of any class of
any publicly-traded securities of any company;

(iii) solicit or call on any supplier with
whom the Company shall have dealt at any time during
the two (2) year period immediately preceding the
termination of Executive's employment hereunder if
such solicitation or call could in any way adversely
impact the Company's (or any of the Company's
subsidiaries' or affiliates') relationship with that
supplier;

(iv) influence or attempt to influence any
supplier, service provider, partner or any other
person to terminate or modify any written or oral
agreement or course of dealing with the Company;

(v) influence or attempt to influence any
person to terminate or modify his employment,
consulting, agency or other arrangement with the
Company; or

(vi) employ or retain, or arrange to have
any other person employ or retain, any person who has
been employed or retained by the Company as an
employee, consultant or agent of the Company at any
time during the two year period immediately preceding
the termination of Executive's employment hereunder.

For purposes of this Agreement, the term "person" refers to not only
individuals, but also to any corporation, partnership, association, trust,
proprietorship or any other entity or organization.

<PAGE>

Mr. James Misterman
March 1, 1999
Page 4

confidential, proprietary, business or technical information
or trade secrets of the Company or of any subsidiary or
affiliate of the Company ("Proprietary Information");
provided, however, that this paragraph will not restrict
Executive's ability to make such disclosures during the course
of his employment as may be necessary for the effective and
efficient discharge of the duties hereunder or as such
disclosures may be required by law. In the event that
Executive or any of its representatives becomes legally
compelled to disclose any of the Proprietary Information,
Executive will provide the Company with prompt written notice
so that the Company may seek a protective order or other
appropriate remedy. Failure by the Company to mark any of the
Proprietary Information as confidential or proprietary shall
not affect its status as Proprietary Information under the
terms of this Agreement.

(i) All right, title and interest in and to
Proprietary Information shall be and remain the sole
and exclusive property of the Company. During the
Term, Executive shall not remove from the Company's
offices or premises any documents, records,
notebooks, files, correspondence, reports, memoranda
or similar materials of or containing Proprietary
Information, or other materials or property of any
kind belonging to the Company unless necessary or
appropriate in accordance with the duties and
responsibilities required by or appropriate for his
position. If any such materials or property are
removed, they shall be returned to their proper files
or places of safekeeping as promptly as possible
after the removal shall serve its specific purpose.
Executive shall not make, retain, remove and/or
distribute copies of such materials or property and
shall not divulge to any third person the nature of
and/or contents of such materials or property, except
as may be necessary or appropriate in the performance
of his duties. Upon the termination of Executive's
employment with the Company, Executive will return to
the Company all originals and copies of such
materials and property then in his possession,
whether prepared by Executive or by others.

<PAGE>

Mr. James Misterman
March 1, 1999
Page 5

patents or copyrights) will be the sole and exclusive
property of the Company. To the extent that any of
the Intellectual Property may not by law be
considered a work made for hire, or to the extent
that, notwithstanding the foregoing, Employee retains
any interest in the Intellectual Property, Employee
hereby irrevocably assigns and transfers to the
Company any and all right, title, or interest that
Employee may have in the Intellectual Property under
patent, copyright, trade secret and trademark law, in
perpetuity or for the longest period otherwise
permitted by law, without the necessity of further
consideration. The Company will be entitled to obtain
and hold in its own name all copyrights, patents,
trade secrets, and trademarks with respect to such
Intellectual Property. Employee further agrees to
execute any and all documents and provide any further
cooperation or assistance reasonably required by the
Company to perfect, maintain or otherwise protect its
rights in the Intellectual Property. If the Company
is unable after reasonable efforts to secure
Employee's signature, cooperation or assistance in
accordance with the preceding sentence, whether
because of Employee's incapacity or any other reason
whatsoever, Employee hereby designates and appoints
the Company or its designee as Employee's agent and
attorney-in-fact, to act on his behalf, to execute
and file documents and to do all other lawfully
permitted acts necessary or desirable to perfect,
maintain or otherwise protect the Company's rights in
the Intellectual Property. Employee acknowledges and
agrees that such appointment is coupled with an
interest and is therefore irrevocable. For purposes
of this Agreement, "Intellectual Property" means any
technical information, inventions, developments,
discoveries, improvements, software, methods,
techniques, formulae, data, processes, systems,
documentation and work results (collectively, the
"Inventions") that are first discovered, developed,
fixed in a tangible medium or reduced to practice by
Employee: (i) in the course and within the scope of
his employment, (ii) at any time and place while
Employee is employed by the Company, provided that
such Invention is related to or used in connection
with the business of the Company, (iii) which is the
result of tasks assigned to Employee by the Company,
or (iii) which results from the use of premises or
personal property (whether tangible or intangible)
owned, leased or contracted for by the Company.

<PAGE>

Mr. James Misterman
March 1, 1999
Page 6

5.2. Rights and Remedies Upon Breach. If Executive breaches,
or threatens to commit a breach of, any of the provisions contained in
Section 5.1 (the "Restrictive Covenants"), the Company will have the
following rights and remedies, each of which rights and remedies shall
be independent of the others and severally enforceable, and each of
which is in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity:

(a) Special Enforcement. The Company will have the right
and remedy to have the Restrictive Covenants enforced by
injunction of any court of competent jurisdiction.

(b) Accounting and Restitution. The Company will have the
right and remedy to require Executive to account for and pay
over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by
Executive as the result of any breach of the Restrictive
Covenants.

(c) Extension of Restricted Period. If Executive breaches
any of the Restrictive Covenants, then the Restricted Period
shall be extended for a period of time equal to the period of
time that Executive was in breach of such restriction.

5.3. Acknowledgments. Executive acknowledges that the
Restrictive Covenants are included herein in order to induce the
Company to continue to employ Executive pursuant to the other terms of
this Agreement and that the Company would not have entered into this
Agreement in the absence of such restrictions. Executive also
acknowledges that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company, that money
damages would not provide an adequate remedy to the Company and that
the Company would be entitled to a temporary restraining order,
preliminary injunction, and/or permanent injunction to prevent any
breach or threatened breach of the Restrictive Covenants. Executive
agrees that he will not, in any action or proceeding to enforce any of
the provisions of this Agreement, assert the claim or defense that such
an adequate remedy at law exists. Executive further acknowledges that
the duration and geographic scope of Section 5.1 are reasonable given
the nature of this Agreement.

5.4. Judicial Modification. If any court determines that any
of the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographical scope of such provision, such
court shall have the power to modify such provision and, in its
modified form, such provision shall then be enforceable.

<PAGE>

Mr. James Misterman
March 1, 1999
Page 7

5.5. Disclosure of Restrictive Covenants. Executive agrees to
disclose the existence and terms of the Restrictive Covenants to any
employer that Executive may work for after the termination of
Executive's employment with the Company.

6. Termination. Executive's employment hereunder may be terminated
during or at the end of the Term as described below. Upon termination,
Executive shall be entitled only to such compensation and benefits as
described in this Section 6.

6.1. Termination for Absenteeism.

(a) Regular attendance at work or conducting work is an
essential element of the job for which Executive has been
hired. Without limiting the Company's right to terminate
Executive pursuant to Section 6.2 or 6.3 hereof, in the event
that Executive is absent from work for 120 consecutive days,
Executive's employment hereunder may be terminated by the
Company.

(b) In the event of a termination of Executive's employment
hereunder pursuant to Section 6.1(a), Executive will be
entitled to receive all accrued and unpaid Annual Salary and
Benefits through the date of such termination. Except as
specifically set forth in this Section 6.1(b), subject to the
terms of any benefits or compensation plans then in force and
applicable to Executive, the Company shall have no liability
or obligation to Executive for compensation or benefits
hereunder by reason of such termination.

6.2. Termination by Death. In the event that Executive dies
during the Term, Executive's employment hereunder shall be terminated
thereby and the Company shall pay to Executive's executors, legal
representatives or administrators an amount equal to all accrued and
unpaid Annual Salary and Benefits through the date of such termination.
Except as specifically set forth in this Section 6.2, the Company shall
have no liability or obligation hereunder to Executive's executors,
legal representatives, administrators, heirs or assigns or any other
person claiming under or through him by reason of Executive's death,
except that Executive's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under
any death or disability benefits plan(s) in which he is a participant
as an employee of the Company, and to exercise any rights afforded
under any compensation or benefit plan(s) then in effect.

<PAGE>

Mr. James Misterman
March 1, 1999
Page 8

except for benefits accrued to the date of termination. For purposes of
this Agreement, "Cause" shall mean the occurrence of any of the
following material violations: (i) alcohol abuse or use of controlled
drugs (other than in accordance with a physician's prescription); (ii)
refusal, failure or inability to perform any material obligation or
fulfill any duty to the Company (other than due to disability), which
failure, refusal or inability is not cured within ten (10) days after
delivery of notice thereof from the Board; (iii) gross negligence or
willful misconduct in the course of employment; (iv) other conduct
involving any type of disloyalty to the Company or any of its
affiliates or subsidiaries, including, without limitation, fraud,
embezzlement, theft or proven dishonesty; and (v) conviction of (or the
entry of a plea of guilty or nolo contendere to) a misdemeanor
involving moral turpitude or a felony.

6.4. Severance Event.

(a) For the purposes of this Agreement:

(i) "Severance Event" means (1) the
termination of Executive's employment prior to the
expiration of this Agreement: (a) by the Company
other than pursuant to Sections 6.1, 6.2 or 6.3, or
(b) by Executive for Good Reason; or (2) the
non-renewal of this Agreement by the Company pursuant
to Section 1 of this Agreement.

(ii) "Good Reason" means a material breach
by the Company or any material provision of this
Agreement, which breach is not remedied within thirty
(30) days after receipt by the Company of written
notice thereof from Executive.

(b) Upon the occurrence of a Severance Event:

(i) the Company shall pay to Executive an
amount equal to fifty percent (50%) of his Annual
Salary in the calendar year in which the Severance
Event occurred, which amount shall be paid (subject
to required withholdings) in six (6) equal
consecutive monthly installments commencing one (1)
month after the date of the Severance Event; and

(ii) subject to the terms of any insurance
policy funding any group health plan(s) maintained by
the Company and in which the Executive participated
immediately prior the Severance Event, the Company
will provide Executive with six (6) months of
continuation coverage under such group health plan(s)
at a cost to Executive equal

<PAGE>

Mr. James Misterman
March 1, 1999
Page 9

to the employee cost (if any) of such coverage
immediately prior to the Severance Event.

7. Miscellaneous.

7.1. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Company and Executive and their
respective successors, executors, administrators, heirs and/or
permitted assigns; provided, however, that neither Executive nor the
Company may make any assignments of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written
consent of the other party, except that, without such consent, 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.

7.2. Entire Agreement. 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 between the parties hereto relating to the employment of
Executive with the Company.

7.3. Amendments. This Agreement may not be changed or
modified, except by an Agreement in writing signed by each of the
parties hereto.

7.4. Waiver. Any waiver by either party of any breach of any
term or condition in this Agreement shall not operate as a waiver of
any other breach of such term or condition or of any other term or
condition, not shall nay failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof
or constitute, or be deemed a waiver or release of any other rights, in
law or in equity.

7.5. Governing Law. This Agreement shall be governed by, and
enforced in accordance with, the laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws principals.

7.6. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and
valid under applicable law; provided, however, that if any provision of
this Agreement is held to be invalid, illegal or unenforceable in any
respect in a particular jurisdiction; (i) this Agreement will be
reformed, construed and enforced in that jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein; and (ii) such invalidity, illegality or

<PAGE>

Mr. James Misterman
March 1, 1999
Page 10
unenforceability will not affect the effectiveness or validity of that
provision in any other jurisdiction.

8. Notice. Any notice or communication required or permitted under
this Agreement shall be made in writing and (i) sent by overnight
courier, (ii) mailed by certified or registered mail, return receipt
requested or (iii) sent by telecopier, addressed to the addresses of
the parties set forth herein, or to such other address as either party
may from time to time specify by notice given to the other party in the
manner specified above.

9. Survival of Provisions. The provisions of this Agreement set forth
in Sections 5 and 7 hereof will survive the termination of Executive's
employment hereunder or the expiration of this Agreement.

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

Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by executing
and returning the enclosed copy of this letter.

Sincerely,

DOLLAR EXPRESS, INC.

By: /s/ Bernard Spain
-------------------------------
Bernard Spain
Chief Executive Officer

Accepted and Agreed to on this ____
day of March, 1999:

/s/ James Misterman
- -----------------------
James Misterman

<PAGE>

DOLLAR EXPRESS, INC.
1700 Tomlinson Road
Philadelphia, PA 19116

March 1, 1999

Mr. Vincent Navitsky
c/o Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

Dear Mr. Navitsky:

In recognition of your contribution to the growth and success of Dollar
Express, Inc. and its related companies (the "Company"),we are pleased to offer
to you ("Executive") continued employment with the Company as Executive Vice
President-Spain's Merchandise, subject to the following terms of this letter
agreement (the "Agreement").

2. Annual Salary. Executive hereby agrees to accept, as compensation
for all services rendered by Executive in any capacity hereunder and
for the Restrictive Covenants made by Executive in Section 5 hereof, an
initial base salary at an annual rate of $134,000.00 (as the same may
hereafter be adjusted, the "Annual Salary") commencing on the date
hereof and continuing until expiration or termination of the Term. The
Annual Salary shall be reviewed by the Board and considered for
increase as of January 1, 2000 and annually thereafter. The Annual
Salary shall be inclusive of all applicable income, social security and
other taxes and charges which are required by law to be withheld by the
Company, and which shall be withheld and paid in accordance with the
Company's normal payroll practices from time to time in effect.

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 2

4. Benefits.

4.1. Generally. Executive shall be entitled to the same
benefits (including as of the date hereof: medical insurance, 401(k)
Plan participation and a $250,000 term life insurance policy) as the
senior salaried officers of the Company, as determined by the Board, in
its absolute discretion (the "Benefits").

4.2. Expense Reimbursements. The Company shall reimburse
Executive, upon proper accounting, for reasonable expense and
disbursements incurred by him in the course of his performance of the
duties hereunder.

5. Non-Compete; Confidentiality; Intellectual Property.

5.1. Restrictive Covenants. Executive and the Company agree
that, because Executive has had and will continue to have access to the
Company's most confidential business and technical information and has
had and will continue to have responsibility for developing and
maintaining vendor relationships, the following covenants by the
Executive are reasonable and necessary for the protection of the
Company's legitimate business interests:

(i) engage or participate in any business
activity which is in any way competitive with the Company's
business of operating large format dollar stores or
traditional card and gift shops (a "Competing Business");

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 3

(ii) become interested in (as owner,
stockholder, lender, partner, co-venturer, director, officer,
employee, agent or consultant) any person, firm, corporation,
association or other entity engaged in any Competing Business.
Notwithstanding the foregoing, Executive may hold up to one
percent (1%) of the outstanding securities of any class of any
publicly-traded securities of any company;

(iii) solicit or call on any supplier with
whom the Company shall have dealt at any time during the two
(2) year period immediately preceding the termination of
Executive's employment hereunder if such solicitation or call
could in any way adversely impact the Company's (or any of the
Company's subsidiaries' or affiliates') relationship with that
supplier;

(iv) influence or attempt to influence any
supplier, service provider, partner or any other person to
terminate or modify any written or oral agreement or course of
dealing with the Company;

(v) influence or attempt to influence any
person to terminate or modify his employment, consulting,
agency or other arrangement with the Company; or

(vi) employ or retain, or arrange to have
any other person employ or retain, any person who has been
employed or retained by the Company as an employee, consultant
or agent of the Company at any time during the two year period
immediately preceding the termination of Executive's
employment hereunder.

For purposes of this Agreement, the term "person" refers to not only
individuals, but also to any corporation, partnership, association, trust,
proprietorship or any other entity or organization.

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 4

the duties hereunder or as such disclosures may be required by
law. In the event that Executive or any of its representatives
becomes legally compelled to disclose any of the Proprietary
Information, Executive will provide the Company with prompt
written notice so that the Company may seek a protective order
or other appropriate remedy. Failure by the Company to mark
any of the Proprietary Information as confidential or
proprietary shall not affect its status as Proprietary
Information under the terms of this Agreement.

(i) All right, title and interest in and to
Proprietary Information shall be and remain the sole
and exclusive property of the Company. During the
Term, Executive shall not remove from the Company's
offices or premises any documents, records,
notebooks, files, correspondence, reports, memoranda
or similar materials of or containing Proprietary
Information, or other materials or property of any
kind belonging to the Company unless necessary or
appropriate in accordance with the duties and
responsibilities required by or appropriate for his
position. If any such materials or property are
removed, they shall be returned to their proper files
or places of safekeeping as promptly as possible
after the removal shall serve its specific purpose.
Executive shall not make, retain, remove and/or
distribute copies of such materials or property and
shall not divulge to any third person the nature of
and/or contents of such materials or property, except
as may be necessary or appropriate in the performance
of his duties. Upon the termination of Executive's
employment with the Company, Executive will return to
the Company all originals and copies of such
materials and property then in his possession,
whether prepared by Executive or by others.

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 5

Employee may have in the Intellectual Property under
patent, copyright, trade secret and trademark law, in
perpetuity or for the longest period otherwise
permitted by law, without the necessity of further
consideration. The Company will be entitled to obtain
and hold in its own name all copyrights, patents,
trade secrets, and trademarks with respect to such
Intellectual Property. Employee further agrees to
execute any and all documents and provide any further
cooperation or assistance reasonably required by the
Company to perfect, maintain or otherwise protect its
rights in the Intellectual Property. If the Company
is unable after reasonable efforts to secure
Employee's signature, cooperation or assistance in
accordance with the preceding sentence, whether
because of Employee's incapacity or any other reason
whatsoever, Employee hereby designates and appoints
the Company or its designee as Employee's agent and
attorney-in-fact, to act on his behalf, to execute
and file documents and to do all other lawfully
permitted acts necessary or desirable to perfect,
maintain or otherwise protect the Company's rights in
the Intellectual Property. Employee acknowledges and
agrees that such appointment is coupled with an
interest and is therefore irrevocable. For purposes
of this Agreement, "Intellectual Property" means any
technical information, inventions, developments,
discoveries, improvements, software, methods,
techniques, formulae, data, processes, systems,
documentation and work results (collectively, the
"Inventions") that are first discovered, developed,
fixed in a tangible medium or reduced to practice by
Employee: (i) in the course and within the scope of
his employment, (ii) at any time and place while
Employee is employed by the Company, provided that
such Invention is related to or used in connection
with the business of the Company, (iii) which is the
result of tasks assigned to Employee by the Company,
or (iii) which results from the use of premises or
personal property (whether tangible or intangible)
owned, leased or contracted for by the Company.

5.2. Rights and Remedies Upon Breach. If Executive breaches,
or threatens to commit a breach of, any of the provisions contained in Section
5.1 (the "Restrictive Covenants"), the Company will have the following rights
and remedies, each of which rights and remedies shall be independent of the
others and severally enforceable, and each of which is in addition to, and not
in lieu of, any other rights and remedies available to the Company under law or
in equity:

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 6

(a) Special Enforcement. The Company will have the
right and remedy to have the Restrictive Covenants enforced by
injunction of any court of competent jurisdiction.

(b) Accounting and Restitution. The Company will have
the right and remedy to require Executive to account for and
pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by
Executive as the result of any breach of the Restrictive
Covenants.

(c) Extension of Restricted Period. If Executive
breaches any of the Restrictive Covenants, then the Restricted
Period shall be extended for a period of time equal to the
period of time that Executive was in breach of such
restriction.

5.3. Acknowledgments. Executive acknowledges that the
Restrictive Covenants are included herein in order to induce the
Company to continue to employ Executive pursuant to the other terms of
this Agreement and that the Company would not have entered into this
Agreement in the absence of such restrictions. Executive also
acknowledges that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company, that money
damages would not provide an adequate remedy to the Company and that
the Company would be entitled to a temporary restraining order,
preliminary injunction, and/or permanent injunction to prevent any
breach or threatened breach of the Restrictive Covenants. Executive
agrees that he will not, in any action or proceeding to enforce any of
the provisions of this Agreement, assert the claim or defense that such
an adequate remedy at law exists. Executive further acknowledges that
the duration and geographic scope of Section 5.1 are reasonable given
the nature of this Agreement.

5.4. Judicial Modification. If any court determines that any
of the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographical scope of such provision, such
court shall have the power to modify such provision and, in its
modified form, such provision shall then be enforceable.

5.5. Disclosure of Restrictive Covenants. Executive agrees to
disclose the existence and terms of the Restrictive Covenants to any
employer that Executive may work for after the termination of
Executive's employment with the Company.

6. Termination. Executive's employment hereunder may be terminated
during or at the end of the Term as described below. Upon termination,
Executive shall be entitled only to such compensation and benefits as
described in this Section 6.

P
<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 7

6.1. Termination for Absenteeism.

(a) Regular attendance at work or conducting work is
an essential element of the job for which Executive has been
hired. Without limiting the Company's right to terminate
Executive pursuant to Section 6.2 or 6.3 hereof, in the event
that Executive is absent from work for 120 consecutive days,
Executive's employment hereunder may be terminated by the
Company.

(b) In the event of a termination of Executive's
employment hereunder pursuant to Section 6.1(a), Executive
will be entitled to receive all accrued and unpaid Annual
Salary and Benefits through the date of such termination.
Except as specifically set forth in this Section 6.1(b),
subject to the terms of any benefits or compensation plans
then in force and applicable to Executive, the Company shall
have no liability or obligation to Executive for compensation
or benefits hereunder by reason of such termination.

6.2. Termination by Death. In the event that Executive dies
during the Term, Executive's employment hereunder shall be terminated
thereby and the Company shall pay to Executive's executors, legal
representatives or administrators an amount equal to all accrued and
unpaid Annual Salary and Benefits through the date of such termination.
Except as specifically set forth in this Section 6.2, the Company shall
have no liability or obligation hereunder to Executive's executors,
legal representatives, administrators, heirs or assigns or any other
person claiming under or through him by reason of Executive's death,
except that Executive's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under
any death or disability benefits plan(s) in which he is a participant
as an employee of the Company, and to exercise any rights afforded
under any compensation or benefit plan(s) then in effect.

6.3. Cause. The Company shall have the right to terminate
Executive's employment under this Agreement for "Cause." In the event
of the termination of employment for Cause, all rights, benefits and
obligations of the parties under this Agreement (except for Executive's
obligations under Section 5) shall immediately terminate except for
benefits accrued to the date of termination. For purposes of this
Agreement, "Cause" shall mean the occurrence of any of the following
material violations: (i) alcohol abuse or use of controlled drugs
(other than in accordance with a physician's prescription); (ii)
refusal, failure or inability to perform any material obligation or
fulfill any duty to the Company (other than due to disability), which
failure, refusal or inability is not cured within ten (10) days after
delivery of notice thereof from the Board; (iii) gross negligence or
willful misconduct in the course of employment; (iv) other conduct
involving any type of disloyalty to the Company or any of its
affiliates or subsidiaries, including, without limitation, fraud,

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 8

embezzlement, theft or proven dishonesty; and (v) conviction of (or the
entry of a plea of guilty or nolo contendere to) a misdemeanor
involving moral turpitude or a felony.

6.4. Severance Event.

(a) For the purposes of this Agreement:

(ii) "Good Reason" means a material breach
by the Company or any material provision of this
Agreement, which breach is not remedied within thirty
(30) days after receipt by the Company of written
notice thereof from Executive.

(b) Upon the occurrence of a Severance Event:

(ii) subject to the terms of any insurance
policy funding any group health plan(s) maintained by
the Company and in which the Executive participated
immediately prior the Severance Event, the Company
will provide Executive with six (6) months of
continuation coverage under such group health plan(s)
at a cost to Executive equal to the employee cost (if
any) of such coverage immediately prior to the
Severance Event.

7. Miscellaneous.

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 9

operation of law or otherwise, without the prior written consent of the
other party, except that, without such consent, 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.

7.3. Amendments. This Agreement may not be changed or
modified, except by an Agreement in writing signed by each of the
parties hereto.

7.5. Governing Law. This Agreement shall be governed by, and
enforced in accordance with, the laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws principals.

8. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and (i) sent by overnight courier,
(ii) mailed by certified or registered mail, return receipt requested
or (iii) sent by telecopier, addressed to the addresses of the parties
set forth herein, or to such other address as either party may from
time to time specify by notice given to the other party in the manner
specified above.

<PAGE>

Mr. Vincent Navitsky
March 1, 1999
Page 10

9. Survival of Provisions. The provisions of this Agreement set forth
in Sections 5 and 7 hereof will survive the termination of Executive's
employment hereunder or the expiration of this Agreement.

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

Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by executing
and returning the enclosed copy of this letter.

Sincerely,

DOLLAR EXPRESS, INC.

By:/s/ Bernard Spain
------------------------------
Bernard Spain
Chief Executive Officer

Accepted and Agreed to on this
____ day of March, 1999:

/s/ Vincent Navitsky
- --------------------------------
Vincent Navitsky

<PAGE>

DOLLAR EXPRESS, INC.
1700 Tomlinson Road
Philadelphia, PA 19116

March 1, 1999

Mr. Howard B. Savage
c/o Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

Dear Mr. Savage:

In recognition of your contribution to the growth and success of Dollar
Express, Inc. and its related companies (the "Company"),we are pleased to offer
to you ("Executive") continued employment with the Company as Executive Vice
President-Operations, subject to the following terms of this letter agreement
(the "Agreement").

2. Annual Salary. Executive hereby agrees to accept, as compensation
for all services rendered by Executive in any capacity hereunder and
for the Restrictive Covenants made by Executive in Section 5 hereof, an
initial base salary at an annual rate of $134,000.00 (as the same may
hereafter be adjusted, the "Annual Salary") commencing on the date
hereof and continuing until expiration or termination of the Term. The
Annual Salary shall be reviewed by the Board and considered for
increase as of January 1, 2000 and annually thereafter. The Annual
Salary shall be inclusive of all applicable income, social security and
other taxes and charges which are required by law to be withheld by the
Company, and which shall be withheld and paid in accordance with the
Company's normal payroll practices from time to time in effect.

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 2

4. Benefits.

4.1. Generally. Executive shall be entitled to the same
benefits (including as of the date hereof: medical insurance, 401(k)
Plan participation and a $250,000 term life insurance policy) as the
senior salaried officers of the Company, as determined by the Board, in
its absolute discretion (the "Benefits").

4.2. Expense Reimbursements. The Company shall reimburse
Executive, upon proper accounting, for reasonable expense and
disbursements incurred by him in the course of his performance of the
duties hereunder.

5. Non-Compete; Confidentiality; Intellectual Property.

5.1. Restrictive Covenants. Executive and the Company agree
that, because Executive has had and will continue to have access to the
Company's most confidential business and technical information and has
had and will continue to have responsibility for developing and
maintaining vendor relationships, the following covenants by the
Executive are reasonable and necessary for the protection of the
Company's legitimate business interests:

(i) engage or participate in any business
activity which is in any way competitive with the
Company's business of operating large format dollar
stores or traditional card and gift shops (a
"Competing Business");

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 3

(ii) become interested in (as owner,
stockholder, lender, partner, co-venturer, director,
officer, employee, agent or consultant) any person,
firm, corporation, association or other entity
engaged in any Competing Business. Notwithstanding
the foregoing, Executive may hold up to one percent
(1%) of the outstanding securities of any class of
any publicly-traded securities of any company;

(iii) solicit or call on any supplier with
whom the Company shall have dealt at any time during
the two (2) year period immediately preceding the
termination of Executive's employment hereunder if
such solicitation or call could in any way adversely
impact the Company's (or any of the Company's
subsidiaries' or affiliates') relationship with that
supplier;

(iv) influence or attempt to influence any
supplier, service provider, partner or any other
person to terminate or modify any written or oral
agreement or course of dealing with the Company;

(v) influence or attempt to influence any
person to terminate or modify his employment,
consulting, agency or other arrangement with the
Company; or

For purposes of this Agreement, the term "person" refers to not only
individuals, but also to any corporation, partnership, association, trust,
proprietorship or any other entity or organization.

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 4

employment as may be necessary for the effective and efficient
discharge of the duties hereunder or as such disclosures may
be required by law. In the event that Executive or any of its
representatives becomes legally compelled to disclose any of
the Proprietary Information, Executive will provide the
Company with prompt written notice so that the Company may
seek a protective order or other appropriate remedy. Failure
by the Company to mark any of the Proprietary Information as
confidential or proprietary shall not affect its status as
Proprietary Information under the terms of this Agreement.

(i) All right, title and interest in and to
Proprietary Information shall be and remain the sole
and exclusive property of the Company. During the
Term, Executive shall not remove from the Company's
offices or premises any documents, records,
notebooks, files, correspondence, reports, memoranda
or similar materials of or containing Proprietary
Information, or other materials or property of any
kind belonging to the Company unless necessary or
appropriate in accordance with the duties and
responsibilities required by or appropriate for his
position. If any such materials or property are
removed, they shall be returned to their proper files
or places of safekeeping as promptly as possible
after the removal shall serve its specific purpose.
Executive shall not make, retain, remove and/or
distribute copies of such materials or property and
shall not divulge to any third person the nature of
and/or contents of such materials or property, except
as may be necessary or appropriate in the performance
of his duties. Upon the termination of Executive's
employment with the Company, Executive will return to
the Company all originals and copies of such
materials and property then in his possession,
whether prepared by Executive or by others.

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 5

transfers to the Company any and all right, title, or
interest that Employee may have in the Intellectual
Property under patent, copyright, trade secret and
trademark law, in perpetuity or for the longest
period otherwise permitted by law, without the
necessity of further consideration. The Company will
be entitled to obtain and hold in its own name all
copyrights, patents, trade secrets, and trademarks
with respect to such Intellectual Property. Employee
further agrees to execute any and all documents and
provide any further cooperation or assistance
reasonably required by the Company to perfect,
maintain or otherwise protect its rights in the
Intellectual Property. If the Company is unable after
reasonable efforts to secure Employee's signature,
cooperation or assistance in accordance with the
preceding sentence, whether because of Employee's
incapacity or any other reason whatsoever, Employee
hereby designates and appoints the Company or its
designee as Employee's agent and attorney-in-fact, to
act on his behalf, to execute and file documents and
to do all other lawfully permitted acts necessary or
desirable to perfect, maintain or otherwise protect
the Company's rights in the Intellectual Property.
Employee acknowledges and agrees that such
appointment is coupled with an interest and is
therefore irrevocable. For purposes of this
Agreement, "Intellectual Property" means any
technical information, inventions, developments,
discoveries, improvements, software, methods,
techniques, formulae, data, processes, systems,
documentation and work results (collectively, the
"Inventions") that are first discovered, developed,
fixed in a tangible medium or reduced to practice by
Employee: (i) in the course and within the scope of
his employment, (ii) at any time and place while
Employee is employed by the Company, provided that
such Invention is related to or used in connection
with the business of the Company, (iii) which is the
result of tasks assigned to Employee by the Company,
or (iii) which results from the use of premises or
personal property (whether tangible or intangible)
owned, leased or contracted for by the Company.

5.2. Rights and Remedies Upon Breach. If Executive breaches,
or threatens to commit a breach of, any of the provisions contained in
Section 5.1 (the "Restrictive Covenants"), the Company will have the
following rights and remedies, each of which rights and remedies shall
be independent of the others and severally enforceable, and each of
which is in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity:

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 6

(a) Special Enforcement. The Company will have the
right and remedy to have the Restrictive Covenants enforced by
injunction of any court of competent jurisdiction.

(b) Accounting and Restitution. The Company will have
the right and remedy to require Executive to account for and
pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by
Executive as the result of any breach of the Restrictive
Covenants.

(c) Extension of Restricted Period. If Executive
breaches any of the Restrictive Covenants, then the Restricted
Period shall be extended for a period of time equal to the
period of time that Executive was in breach of such
restriction.

5.3. Acknowledgments. Executive acknowledges that the
Restrictive Covenants are included herein in order to induce the
Company to continue to employ Executive pursuant to the other terms of
this Agreement and that the Company would not have entered into this
Agreement in the absence of such restrictions. Executive also
acknowledges that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company, that money
damages would not provide an adequate remedy to the Company and that
the Company would be entitled to a temporary restraining order,
preliminary injunction, and/or permanent injunction to prevent any
breach or threatened breach of the Restrictive Covenants. Executive
agrees that he will not, in any action or proceeding to enforce any of
the provisions of this Agreement, assert the claim or defense that such
an adequate remedy at law exists. Executive further acknowledges that
the duration and geographic scope of Section 5.1 are reasonable given
the nature of this Agreement.

5.4. Judicial Modification. If any court determines that any
of the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographical scope of such provision, such
court shall have the power to modify such provision and, in its
modified form, such provision shall then be enforceable.

5.5. Disclosure of Restrictive Covenants. Executive agrees to
disclose the existence and terms of the Restrictive Covenants to any
employer that Executive may work for after the termination of
Executive's employment with the Company.

6. Termination. Executive's employment hereunder may be terminated
during or at the end of the Term as described below. Upon termination,
Executive shall be entitled only to such compensation and benefits as
described in this Section 6.

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 7

6.1. Termination for Absenteeism.

(a) Regular attendance at work or conducting work is an
essential element of the job for which Executive has been
hired. Without limiting the Company's right to terminate
Executive pursuant to Section 6.2 or 6.3 hereof, in the event
that Executive is absent from work for 120 consecutive days,
Executive's employment hereunder may be terminated by the
Company.

(b) In the event of a termination of Executive's employment
hereunder pursuant to Section 6.1(a), Executive will be
entitled to receive all accrued and unpaid Annual Salary and
Benefits through the date of such termination. Except as
specifically set forth in this Section 6.1(b), subject to the
terms of any benefits or compensation plans then in force and
applicable to Executive, the Company shall have no liability
or obligation to Executive for compensation or benefits
hereunder by reason of such termination.

6.2. Termination by Death. In the event that Executive dies
during the Term, Executive's employment hereunder shall be terminated
thereby and the Company shall pay to Executive's executors, legal
representatives or administrators an amount equal to all accrued and
unpaid Annual Salary and Benefits through the date of such termination.
Except as specifically set forth in this Section 6.2, the Company shall
have no liability or obligation hereunder to Executive's executors,
legal representatives, administrators, heirs or assigns or any other
person claiming under or through him by reason of Executive's death,
except that Executive's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under
any death or disability benefits plan(s) in which he is a participant
as an employee of the Company, and to exercise any rights afforded
under any compensation or benefit plan(s) then in effect.

6.3. Cause. The Company shall have the right to terminate
Executive's employment under this Agreement for "Cause." In the event
of the termination of employment for Cause, all rights, benefits and
obligations of the parties under this Agreement (except for Executive's
obligations under Section 5) shall immediately terminate except for
benefits accrued to the date of termination. For purposes of this
Agreement, "Cause" shall mean the occurrence of any of the following
material violations: (i) alcohol abuse or use of controlled drugs
(other than in accordance with a physician's prescription); (ii)
refusal, failure or inability to perform any material obligation or
fulfill any duty to the Company (other than due to disability), which
failure, refusal or inability is not cured within ten (10) days after
delivery of notice thereof from the Board; (iii) gross negligence or
willful misconduct in the course of employment; (iv) other conduct
involving any type of disloyalty to the Company or any of its
affiliates or subsidiaries, including, without limitation, fraud,

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 8

embezzlement, theft or proven dishonesty; and (v) conviction of (or the
entry of a plea of guilty or nolo contendere to) a misdemeanor
involving moral turpitude or a felony.

6.4. Severance Event.

(a) For the purposes of this Agreement:

(ii) "Good Reason" means a material breach
by the Company or any material provision of this
Agreement, which breach is not remedied within thirty
(30) days after receipt by the Company of written
notice thereof from Executive.

(b) Upon the occurrence of a Severance Event:

(ii) subject to the terms of any insurance
policy funding any group health plan(s) maintained by
the Company and in which the Executive participated
immediately prior the Severance Event, the Company
will provide Executive with six (6) months of
continuation coverage under such group health plan(s)
at a cost to Executive equal to the employee cost (if
any) of such coverage immediately prior to the
Severance Event.

7. Miscellaneous.

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 9

7.3. Amendments. This Agreement may not be changed or
modified, except by an Agreement in writing signed by each of the
parties hereto.

7.5. Governing Law. This Agreement shall be governed by, and
enforced in accordance with, the laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws principals.

8. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and (i) sent by overnight courier,
(ii) mailed by certified or registered mail, return receipt requested
or (iii) sent by telecopier, addressed to the addresses of the parties
set forth herein, or to such other address as either party may from
time to time specify by notice given to the other party in the manner
specified above.

<PAGE>

Mr. Howard Savage
March 1, 1999
Page 10

9. Survival of Provisions. The provisions of this Agreement set forth
in Sections 5 and 7 hereof will survive the termination of Executive's
employment hereunder or the expiration of this Agreement.

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

Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by
executing and returning the enclosed copy of this letter.

Sincerely,

DOLLAR EXPRESS, INC.

By:/s/Bernard Spain
--------------------------------
Bernard Spain
Chief Executive Officer

Accepted and Agreed to on this
____ day of March, 1999:

/s/ Howard B. Savage
- ----------------------------
Howard B. Savage

<PAGE>

DOLLAR EXPRESS, INC.
1700 Tomlinson Road
Philadelphia, PA 19116

March 1, 1999

Mr. David Folkman
c/o Dollar Express, Inc.
1700 Tomlinson Road
Philadelphia, PA 19116

Dear Mr. Folkman:

In recognition of your contribution to the growth and success of Dollar
Express, Inc. and its related companies (the "Company"),we are pleased to offer
to you ("Executive") continued employment with the Company as Executive Vice
President-Director of Store Operations, subject to the following terms of this
letter agreement (the "Agreement").

2. Annual Salary. Executive hereby agrees to accept, as compensation
for all services rendered by Executive in any capacity hereunder and
for the Restrictive Covenants made by Executive in Section 5 hereof, an
initial base salary at an annual rate of $134,000.00 (as the same may
hereafter be adjusted, the "Annual Salary") commencing on the date
hereof and continuing until expiration or termination of the Term. The
Annual Salary shall be reviewed by the Board and considered for
increase as of January 1, 2000 and annually thereafter. The Annual
Salary shall be inclusive of all applicable income, social security and
other taxes and charges which are required by law to be withheld by the
Company, and which shall be withheld and paid in accordance with the
Company's normal payroll practices from time to time in effect.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 2

4. Benefits.

4.1. Generally. Executive shall be entitled to the same
benefits (including as of the date hereof: medical insurance, 401(k)
Plan participation and a $250,000 term life insurance policy) as the
senior salaried officers of the Company, as determined by the Board, in
its absolute discretion (the "Benefits").

4.2. Expense Reimbursements. The Company shall reimburse
Executive, upon proper accounting, for reasonable expense and
disbursements incurred by him in the course of his performance of the
duties hereunder.

5. Non-Compete; Confidentiality; Intellectual Property.

5.1. Restrictive Covenants. Executive and the Company agree
that, because Executive has had and will continue to have access to the
Company's most confidential business and technical information and has
had and will continue to have responsibility for developing and
maintaining vendor relationships, the following covenants by the
Executive are reasonable and necessary for the protection of the
Company's legitimate business interests:

(i) engage or participate in any business
activity which is in any way competitive with the
Company's business of operating large format dollar
stores or traditional card and gift shops (a
"Competing Business");

<PAGE>

Mr. David Folkman
March 1, 1999
Page 3

(ii) become interested in (as owner,
stockholder, lender, partner, co-venturer, director,
officer, employee, agent or consultant) any person,
firm, corporation, association or other entity
engaged in any Competing Business. Notwithstanding
the foregoing, Executive may hold up to one percent
(1%) of the outstanding securities of any class of
any publicly-traded securities of any company;

(iii) solicit or call on any supplier with
whom the Company shall have dealt at any time during
the two (2) year period immediately preceding the
termination of Executive's employment hereunder if
such solicitation or call could in any way adversely
impact the Company's (or any of the Company's
subsidiaries' or affiliates') relationship with that
supplier;

(iv) influence or attempt to influence any
supplier, service provider, partner or any other
person to terminate or modify any written or oral
agreement or course of dealing with the Company;

(v) influence or attempt to influence any
person to terminate or modify his employment,
consulting, agency or other arrangement with the
Company; or

For purposes of this Agreement, the term "person" refers to not only
individuals, but also to any corporation, partnership, association, trust,
proprietorship or any other entity or organization.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 4

Executive's ability to make such disclosures during the course
of his employment as may be necessary for the effective and
efficient discharge of the duties hereunder or as such
disclosures may be required by law. In the event that
Executive or any of its representatives becomes legally
compelled to disclose any of the Proprietary Information,
Executive will provide the Company with prompt written notice
so that the Company may seek a protective order or other
appropriate remedy. Failure by the Company to mark any of the
Proprietary Information as confidential or proprietary shall
not affect its status as Proprietary Information under the
terms of this Agreement.

(i) All right, title and interest in and to
Proprietary Information shall be and remain the sole
and exclusive property of the Company. During the
Term, Executive shall not remove from the Company's
offices or premises any documents, records,
notebooks, files, correspondence, reports, memoranda
or similar materials of or containing Proprietary
Information, or other materials or property of any
kind belonging to the Company unless necessary or
appropriate in accordance with the duties and
responsibilities required by or appropriate for his
position. If any such materials or property are
removed, they shall be returned to their proper files
or places of safekeeping as promptly as possible
after the removal shall serve its specific purpose.
Executive shall not make, retain, remove and/or
distribute copies of such materials or property and
shall not divulge to any third person the nature of
and/or contents of such materials or property, except
as may be necessary or appropriate in the performance
of his duties. Upon the termination of Executive's
employment with the Company, Executive will return to
the Company all originals and copies of such
materials and property then in his possession,
whether prepared by Executive or by others.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 5

notwithstanding the foregoing, Employee retains any
interest in the Intellectual Property, Employee
hereby irrevocably assigns and transfers to the
Company any and all right, title, or interest that
Employee may have in the Intellectual Property under
patent, copyright, trade secret and trademark law, in
perpetuity or for the longest period otherwise
permitted by law, without the necessity of further
consideration. The Company will be entitled to obtain
and hold in its own name all copyrights, patents,
trade secrets, and trademarks with respect to such
Intellectual Property. Employee further agrees to
execute any and all documents and provide any further
cooperation or assistance reasonably required by the
Company to perfect, maintain or otherwise protect its
rights in the Intellectual Property. If the Company
is unable after reasonable efforts to secure
Employee's signature, cooperation or assistance in
accordance with the preceding sentence, whether
because of Employee's incapacity or any other reason
whatsoever, Employee hereby designates and appoints
the Company or its designee as Employee's agent and
attorney-in-fact, to act on his behalf, to execute
and file documents and to do all other lawfully
permitted acts necessary or desirable to perfect,
maintain or otherwise protect the Company's rights in
the Intellectual Property. Employee acknowledges and
agrees that such appointment is coupled with an
interest and is therefore irrevocable. For purposes
of this Agreement, "Intellectual Property" means any
technical information, inventions, developments,
discoveries, improvements, software, methods,
techniques, formulae, data, processes, systems,
documentation and work results (collectively, the
"Inventions") that are first discovered, developed,
fixed in a tangible medium or reduced to practice by
Employee: (i) in the course and within the scope of
his employment, (ii) at any time and place while
Employee is employed by the Company, provided that
such Invention is related to or used in connection
with the business of the Company, (iii) which is the
result of tasks assigned to Employee by the Company,
or (iii) which results from the use of premises or
personal property (whether tangible or intangible)
owned, leased or contracted for by the Company.

5.2. Rights and Remedies Upon Breach. If Executive breaches,
or threatens to commit a breach of, any of the provisions contained in
Section 5.1 (the "Restrictive Covenants"), the Company will have the
following rights and remedies, each of which rights and remedies shall
be independent of the others and severally enforceable, and each of
which

<PAGE>

Mr. David Folkman
March 1, 1999
Page 6

is in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:

(a) Special Enforcement. The Company will have the
right and remedy to have the Restrictive Covenants enforced by
injunction of any court of competent jurisdiction.

(b) Accounting and Restitution. The Company will have
the right and remedy to require Executive to account for and
pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by
Executive as the result of any breach of the Restrictive
Covenants.

(c) Extension of Restricted Period. If Executive
breaches any of the Restrictive Covenants, then the Restricted
Period shall be extended for a period of time equal to the
period of time that Executive was in breach of such
restriction.

5.3. Acknowledgments. Executive acknowledges that the
Restrictive Covenants are included herein in order to induce the
Company to continue to employ Executive pursuant to the other terms of
this Agreement and that the Company would not have entered into this
Agreement in the absence of such restrictions. Executive also
acknowledges that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to the Company, that money
damages would not provide an adequate remedy to the Company and that
the Company would be entitled to a temporary restraining order,
preliminary injunction, and/or permanent injunction to prevent any
breach or threatened breach of the Restrictive Covenants. Executive
agrees that he will not, in any action or proceeding to enforce any of
the provisions of this Agreement, assert the claim or defense that such
an adequate remedy at law exists. Executive further acknowledges that
the duration and geographic scope of Section 5.1 are reasonable given
the nature of this Agreement.

5.4. Judicial Modification. If any court determines that any
of the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographical scope of such provision, such
court shall have the power to modify such provision and, in its
modified form, such provision shall then be enforceable.

5.5. Disclosure of Restrictive Covenants. Executive agrees to
disclose the existence and terms of the Restrictive Covenants to any
employer that Executive may work for after the termination of
Executive's employment with the Company.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 7

6. Termination. Executive's employment hereunder may be terminated
during or at the end of the Term as described below. Upon termination,
Executive shall be entitled only to such compensation and benefits as described
in this Section 6.

6.1. Termination for Absenteeism.

(a) Regular attendance at work or conducting work is an
essential element of the job for which Executive has been
hired. Without limiting the Company's right to terminate
Executive pursuant to Section 6.2 or 6.3 hereof, in the event
that Executive is absent from work for 120 consecutive days,
Executive's employment hereunder may be terminated by the
Company.

(b) In the event of a termination of Executive's employment
hereunder pursuant to Section 6.1(a), Executive will be
entitled to receive all accrued and unpaid Annual Salary and
Benefits through the date of such termination. Except as
specifically set forth in this Section 6.1(b), subject to the
terms of any benefits or compensation plans then in force and
applicable to Executive, the Company shall have no liability
or obligation to Executive for compensation or benefits
hereunder by reason of such termination.

6.2. Termination by Death. In the event that Executive dies
during the Term, Executive's employment hereunder shall be terminated
thereby and the Company shall pay to Executive's executors, legal
representatives or administrators an amount equal to all accrued and
unpaid Annual Salary and Benefits through the date of such termination.
Except as specifically set forth in this Section 6.2, the Company shall
have no liability or obligation hereunder to Executive's executors,
legal representatives, administrators, heirs or assigns or any other
person claiming under or through him by reason of Executive's death,
except that Executive's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under
any death or disability benefits plan(s) in which he is a participant
as an employee of the Company, and to exercise any rights afforded
under any compensation or benefit plan(s) then in effect.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 8

Company (other than due to disability), which failure, refusal or
inability is not cured within ten (10) days after delivery of notice
thereof from the Board; (iii) gross negligence or willful misconduct in
the course of employment; (iv) other conduct involving any type of
disloyalty to the Company or any of its affiliates or subsidiaries,
including, without limitation, fraud, embezzlement, theft or proven
dishonesty; and (v) conviction of (or the entry of a plea of guilty or
nolo contendere to) a misdemeanor involving moral turpitude or a
felony.

6.4. Severance Event.

(a) For the purposes of this Agreement:

(ii) "Good Reason" means a material breach
by the Company or any material provision of this
Agreement, which breach is not remedied within thirty
(30) days after receipt by the Company of written
notice thereof from Executive.

(b) Upon the occurrence of a Severance Event:

(ii) subject to the terms of any insurance
policy funding any group health plan(s) maintained by
the Company and in which the Executive participated
immediately prior the Severance Event, the Company
will provide Executive with six (6) months of
continuation coverage under such group health plan(s)
at a cost to Executive equal to the employee cost (if
any) of such coverage immediately prior to the
Severance Event.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 9

7. Miscellaneous.

7.3. Amendments. This Agreement may not be changed or
modified, except by an Agreement in writing signed by each of the
parties hereto.

7.5. Governing Law. This Agreement shall be governed by, and
enforced in accordance with, the laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws principals.

<PAGE>

Mr. David Folkman
March 1, 1999
Page 10
8. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and (i) sent by overnight courier,
(ii) mailed by certified or registered mail, return receipt requested
or (iii) sent by telecopier, addressed to the addresses of the parties
set forth herein, or to such other address as either party may from
time to time specify by notice given to the other party in the manner
specified above.

9. Survival of Provisions. The provisions of this Agreement set forth
in Sections 5 and 7 hereof will survive the termination of Executive's
employment hereunder or the expiration of this Agreement.

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

Please indicate your acceptance of employment and your agreement to
render services to the Company subject to the terms set forth above by executing
and returning the enclosed copy of this letter.

Sincerely,

DOLLAR EXPRESS, INC.

By: /s/ Bernard Spain
---------------------------
Bernard Spain
Chief Executive Officer
Accepted and Agreed to on this ___
day of March, 1999: 6/21/99

/s/ David Folkman
- ---------------------------
David Folkman

<PAGE>

Exhibit 10.13

COLLECTIVE BARGAINING AGREEMENT

BETWEEN

DE&S HOLDING COMPANY

and

TEAMSTERS LOCAL 830
(Effective: February 8, 1999 - February 8, 2002)

<PAGE>

TABLE OF CONTENTS

ARTICLE 1 RECOGNITION ...................................................... 1
ARTICLE 2 UNION SECURITY.................................................... 1
ARTICLE 3 CHECK-OFF......................................................... 2
ARTICLE 4 PROBATIONARY PERIOD............................................... 3
ARTICLE 5 HOURS OF EMPLOYMENT............................................... 3
ARTICLE 6 OVERTIME.......................................................... 4
ARTICLE 7 WAGES............................................................. 5
ARTICLE 8 SENIORITY......................................................... 5
ARTICLE 9 JOB BIDDING....................................................... 7
ARTICLE 10 SHOP STEWARDS..................................................... 7
ARTICLE 11 UNION ACTIVITIES.................................................. 8
ARTICLE 12 DISCHARGE AND DISCIPLINE.......................................... 9
ARTICLE 13 GRIEVANCES & ARBITRATIONS......................................... 10
ARTICLE 14 HOLIDAYS.......................................................... 12
ARTICLE 15 SICK/PERSONAL DAYS................................................ 12
ARTICLE 16 VACATION.......................................................... 13
ARTICLE 17 LEAVES OF ABSENCE................................................. 13
ARTICLE 18 FUND CONTRIBUTIONS................................................ 15
ARTICLE 19 UNIFORMS.......................................................... 15
ARTICLE 20 EXTRA CONTRACTUAL AGREEMENTS...................................... 15
ARTICLE 21 LIE DETECTOR TEST................................................. 15
ARTICLE 22 MANAGEMENT AUTHORITY.............................................. 16
ARTICLE 23 PROHIBITION OF STRIKES AND LOCKOUTS............................... 17
ARTICLE 24 BENEFITS.......................................................... 18
ARTICLE 25 SUBCONTRACTING.................................................... 19
ARTICLE 26 TRAINING PROGRAMS................................................. 19
ARTICLE 27 SANITARY CONDITIONS............................................... 19
ARTICLE 28 WORK BY SUPERVISORS............................................... 20
ARTICLE 29 SEPARABILITY...................................................... 20
ARTICLE 30 SAFETY............................................................ 20
ARTICLE 31 TRANSFER OR SALE OF BUSINESS...................................... 21
ARTICLE 32 CURTAILMENT OR CHANGE IN OPERATIONS............................... 21
ARTICLE 33 NO DISCRIMINATION................................................. 21
ARTICLE 34 DRUG/ALCOHOL POLICY............................................... 22
ARTICLE 35 DURATION.......................................................... 24

<PAGE>

W I T N E S S E T H:

WHEREAS, the Employer, DE&S Holding Company ("Employer") recognizes
Teamsters Local 830 ("Union") as the only Union representing the employees
covered hereunder, and agrees to deal collectively only with this Union with
respect to such employees.

NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements herein contained, the parties DO HEREBY AGREE AS FOLLOWS:

ARTICLE 1

RECOGNITION

ARTICLE 1.1 The Employer recognizes the Union as the sole and exclusive
bargaining representative of a unit of its full time and regular part-time
drivers employed by the Employer at its Tomlinson Road facility in Philadelphia,
Pennsylvania, but excluding all other employees, receivers, storage employees,
picking employees, inventory control employees, maintenance employees, wrappers,
loaders, confidential employees, office and clerical employees, guards and
supervisors as defined in the National Labor Relations Act.

ARTICLE 2

UNION SECURITY

ARTICLE 2.1 All present employees who are members of the Union on the
effective date of this subsection or on the date of execution of this Agreement,
whichever is the later, shall remain members of the Union in good standing as a
condition of employment. All present employees who are not members of the Union
and all employees who are hired shall become and remain members in good standing
of the Union as a condition of employment on and after the 31st day following
the beginning of their employment or on and after the 31st day following the
effective day of this subsection or the execution date of this Agreement,
whichever is the later. This provision shall be made and become effective as of
such time as it may be made and become effective under the provisions of the
National Labor Relations Act, but not retroactively.

ARTICLE 2.2 The failure of any person to become a member of the Union
at the required time obligates the Employer, upon written notice from the Union
to such effect and to the further effect that Union membership was available to
such person on the same terms and conditions uniformly available to other
members, to forthwith discharge such person. Further, the failure of any person
to maintain his Union membership in good standing as required herein shall, upon

<PAGE>

written notice to the Employer by the Union to such effect, obligates the
Employer to discharge such person.

ARTICLE 2.3 No provision of this Article shall apply in any state to
the extent that it may be prohibited by state law. If under applicable state law
additional requirements must be met before any such provision may become
effective, such additional requirements shall first be met.

ARTICLE 2.4 If any provision of this Article is invalid under the law
or any state wherein this Agreement is executed, such provision shall be
modified to comply with the requirements of state law or shall be renegotiated
for the purpose of adequate replacement. If such negotiations shall not result
in a mutually satisfactory Agreement, the Union shall be permitted all legal or
economic recourse.

ARTICLE 2

CHECK-OFF

ARTICLE 3.1 The Employer agrees that upon the receipt of a lawfully
executed written authorization from the employee, it will deduct weekly from the
pay of all employees covered by this Agreement the dues, initiation fees, long
term disability and/or uniform assessments of the Union, Credit Union and
"D.R.I.V.E." deductions. With respect to the Credit Union and D.R.I.V.E.
deductions, employees may not modify or revoke their authorization more than
once each quarter.

ARTICLE 3.2 The Employer agrees to remit monthly to the Union all such
deductions.

ARTICLE 3.3 When an employee is not on the payroll during the week or
weeks in which the deduction is to be made, or has no earnings during such week
or weeks, the deductions shall be taken from his wages the following week or
weeks upon return to work. If the employee is out more than one (1) month,
employee must make arrangements with the Union to pay his dues, initiation fees
and/or uniform assessments of the Union. It is intended that this clause and the
check off procedure hereunder shall not be in conflict with the Labor Management
Relations Act of 1947 or any amendments thereto.

ARTICLE 3.4 The Union agrees that it will indemnify and hold the
Employer harmless against any damage or expense incurred by reason of any action
taken under this article. Once the funds are remitted to the Union, their
disposition thereafter shall be the sole and exclusive obligation and
responsibility of the Union.

<PAGE>

ARTICLE 4

PROBATIONARY PERIOD

ARTICLE 4.1 Newly hired employees shall be on a probationary period for
the first eight (8) weeks of their employment. If the Employer rehires an
employee whose employment with the Employer terminated for any reason except for
layoff, such employee shall be considered a new employee for the purpose of this
Agreement and shall be subject to the provisions of this article.

ARTICLE 4.2 Within the probationary period, the Employer may discharge
or otherwise discipline said employees for any reason and such discharge or
other disciplinary action shall not be subject to the grievance and arbitration
provisions of this Agreement.

ARTICLE 4.3 Except as specifically provided in this Agreement,
employees employed during their probationary period shall not be covered by the
provisions of this Agreement.

ARTICLE 5

HOURS OF EMPLOYMENT

ARTICLE 5.1 The normal work week shall consist of five (5) consecutive
days of eight (8) hours work each, exclusive of a thirty (30) minute unpaid
lunch period, scheduled at reasonable times. Any employee whose regular shift of
eight (8) hours requires him to work after 7:00 o'clock p.m. shall receive fifty
($.50) cents per hour in addition to his regular hourly rate. This shall not
apply when the only time worked after 7:00 o'clock p.m. is at the overtime rate.

ARTICLE 5.2 For the length of this Agreement, no more than five (5)
drivers may be assigned to a Tuesday through Saturday schedule. Each driver so
assigned shall receive twenty-five ($.25) cents per hour in addition to his
regular hourly rate.

ARTICLE 5.3 Employees shall be entitled to two (2) paid rest periods of
fifteen (15) minutes each shift one in the first half of the shift and one in
the second half of the shift - as assigned by the Employer to each employee.

ARTICLE 5.4 Employees will not ordinarily work through lunch without
the permission of the supervisor.

ARTICLE 5.5 The Employer shall be required to pay an employee four (4)
hours of pay for any day the employee reports to work unless the employee has
been notified twenty-four (24) hours in advance that he is not required to
report to work that day, in which event no payment is due. If the employee is
sent home after working at least four (4) hours, the employee shall receive
eight (8) hours pay.

<PAGE>

ARTICLE 6

OVERTIME

ARTICLE 6.1 Employees shall be paid one and one-half (1 1/2) times
their regular hourly rate of pay for authorized time worked in excess of forty
(40) hours per week. Employees shall be paid one and one-half (1 1/2) times
their regular hourly rate of pay for authorized time worked on the sixth
consecutive day and two (2) times their regular hourly rate for authorized time
worked on the seventh consecutive day. For this purpose all paid time off shall
be considered time worked.

ARTICLE 6.2 Employees who work on a contractual holiday shall be paid
at two (2) times their regular hourly rate of pay in addition to the holiday
pay.

ARTICLE 6.3 There shall be no pyramiding of overtime or premium pay.

ARTICLE 6.4 Whenever practical, the Employer will notify the employee
that overtime is needed at least four (4) hours prior to the end of the shift.
With respect to Saturday or Sunday overtime, the Employer will notify the
employee at least twenty-four (24) hours prior to the Saturday or Sunday
overtime.

ARTICLE 7

WAGES

ARTICLE 7.1 The job rates for the term of this Agreement shall be as
follows:

(a) Effective February 8, 1999

<TABLE>
<CAPTION>
Start Rate Job Rate (After 90 days)

<S> <C> <C> <C>
Class A Driver $13.00 $13.50
Class B Driver $12.00 $12.50
Other Driver $11.00 $11.50

(b) Effective February 8, 2000

Start Rate Job Rate (After 90 days)

Class A Driver $13.50 $14.00
Class B Driver $12.50 $13.00
Other Driver $11.50 $12.00

Start Rate Job Rate (After 90 days)
Class A Driver $14.00 $14.50
Class B Driver $13.00 $13.50
Other Driver $12.00 $12.50
</TABLE>

4
<PAGE>

ARTICLE 7.2 All bargaining unit employees hired prior to February 8,
1999 with more than ninety (90) days of service as of that date shall receive
the higher of the job rate or a 3.5% increase to their hourly rate on each of
the above dates.

ARTICLE 8

ARTICLE 3 SENIORITY

ARTICLE 8.1 All employees employed for more than eight (8) weeks shall
be entitled to seniority rights as set forth below. Probationary employees will
accumulate no seniority, but upon completion of the probationary period, their
seniority shall be retroactive to their most recent date of hire.

ARTICLE 8.2 Layoffs shall take place on the basis of company seniority
provided that the remaining employees have the present skill and ability to
perform the required work.

ARTICLE 8.3 Employees with more than eight (8) weeks of seniority, but
less than six (6) months shall have recall rights equal to the length of their
employment. Employees with more than six (6) months seniority at the time of
layoff shall have recall rights for a period of twelve (12) months following
their layoff. Recall from layoff shall be in reverse seniority order provided
that the employee has the present skill and ability to perform the required
work. Recall shall be by mail to the last address in the employer's records with
a copy to the union. Failure to respond to a recall notice within five (5) days
after the notice has been sent shall result in forfeiture of all recall rights,
unless the employer agrees to a longer period.

ARTICLE 8.4 Company seniority shall apply for purposes of determining
vacation and overtime eligibility as well as other areas where seniority would
be appropriate. It is further agreed, however, that overtime availability and
assignment will be handled as follows:

(a) during the regular work week, the employer may first offer overtime
to the employee whose job assignment for the day is connected with the overtime
work;

(b) on the sixth and seventh day of the work week and holidays,
overtime will be offered on the basis of company seniority as long as the
employee has the present skill and ability to do the work scheduled for that
day.

ARTICLE 3.5 A person's employment and seniority will be considered
terminated for any of the following reasons:

(a) Discharge, resignation or retirement.

(b) Absence for two (2) consecutive working days without notifying the
dispatching office.

(c) Failure to return to work when recalled or at the conclusion of a
leave of absence, vacation or suspension within five days of notification;

(d) If an employee is laid off for a period in excess of the period he
or she has rights to be recalled hereunder.

(e) Employees absent because of non-work related illness or injury for
a consecutive period of fifty-two (52) weeks or more shall not be entitled to
retain their position with the Employer. The Employer may, at the expiration of
such fifty-two week period, dismiss such employee. If the employee returns to
work prior to the expiration of such fifty-two (52) week period and is
physically able to carry on his/her duties, he/she shall return to his/her
employment at the former position. Employees absent due to work related illness
or injury shall return to his/her employment at the former position when
physically able to carry on his/her duties.

<PAGE>

ARTICLE 9

JOB BIDDING

ARTICLE 9.1 All employees shall have bidding rights to all job
openings, based on seniority and general qualifications.

ARTICLE 9.2 Job openings shall be posted on the union bulletin board
for a period of five (5) working days.

ARTICLE 9.3 Successful bidders may not bid for any additional openings
for a period of one (1) year after accepting his new position.

ARTICLE 10

SHOP STEWARDS

ARTICLE 10.1 The Employer recognizes the right of the Union to
designate job stewards and alternates.

The authority of the job stewards and alternates so designated by the
Union shall be limited to, and shall not exceed the following duties and
activities.

(a) The investigation and presentation of grievances in accordance with
the provisions of the collective bargaining agreement;

(b) The collection of dues when authorized by appropriate local union
action;

(c) The transmission of such message and information which shall
originate with, and are authorized by the local union or its officers, provided
such messages and information

(i) have been reduced to writing, or

(ii) if not reduced to writing, are of a routine nature
and do not involve work stoppages, slowdowns, refusal to handle goods, or any
other interference with the Employer's business.

ARTICLE 10.2 Job stewards and alternates have no authority to take
strike action, or any other action interrupting the employer's business, except
as authorized by official action of the Union.

ARTICLE 10.3 The Employer recognizes these limitations upon the
authority of job stewards and their alternates, and shall not hold the Union
liable for any unauthorized acts.

ARTICLE 10.4 It is agreed that Shop Stewards shall be permitted to
participate in the investigations of grievances and the grievance procedure for
a reasonable period of time during regularly scheduled working hours. Shop
Stewards will be paid at their straight time hourly rate of pay for time spent
in this manner. However, before they leave their jobs for the above stated
purpose, they must receive permission from their supervisor which will not be
unduly denied.
8

<PAGE>

Shop Stewards will not be paid for such time spent beyond quitting
time. It is agreed that whenever possible, the investigation and processing of
grievances shall be scheduled so as to not conflict with business requirements.

Permission to engage in the duties of the Shop Steward will not be
unreasonably withheld.

ARTICLE 10.5 Shop Stewards shall have "super seniority" for layoff and
recall purposes only.

ARTICLE 11

UNION ACTIVITIES

ARTICLE 11.1 Employees shall refrain from participation in Union
activities during work hours, except as otherwise provided in this Agreement or
protected under the National Labor Relations Act.

ARTICLE 11.2 Designated union representatives shall, upon prior
notification, have the right to visit the Employer's establishment at reasonable
times to confer with bargaining unit members, to investigate wages, hours,
working conditions, grievances, and other matters covered by this Agreement.
Such visits, however, shall not be made at such times or in such manner as shall
interfere with the operations of the Employer's business. Access to the
Employer's premises will not be unreasonably denied. Union representatives shall
notify the Employer's Personnel office or designated representative in advance
and pick up the appropriate security badge which will be furnished upon arrival
at the Employer's establishment.

ARTICLE 11.3 The Employer shall provide a bulletin board which shall be
used for the purpose of posting official union notices. The bulletin board shall
be in an area accessible to all bargaining unit employees.

ARTICLE 12

DISCHARGE AND DISCIPLINE

ARTICLE 12.1 The Employer has the right to discipline, suspend and/or
discharge employees for just cause. The parties acknowledge that certain
circumstances constitute just cause for immediate termination and that those
causes include, but are not limited to dishonesty; incompetence;
insubordination; intoxication; possession or use of liquor or any controlled
substance on the premises, except as pursuant to a valid prescription;
possession of a gun, deadly instrument or weapon on the premises; fighting;
assault; and willful destruction of company property. The Employer reserves the
right to immediately terminate for any other reason, provided such reason
constitutes just cause. In the event of a disagreement between the Union and the
Employer as to any discipline or discharge, the disagreement may be submitted to
the grievance and arbitration procedure according to the provisions of this
Agreement. The Employer shall notify the Union, in writing, of all discharges,
suspensions and written warnings.

7
<PAGE>

ARTICLE 12.2 The Employer shall have the right to establish from time
to time other reasonable rules of conduct not inconsistent with this Agreement
and the right to discipline, including the right to immediately terminate, for
violating same.

ARTICLE 13

GRIEVANCES & ARBITRATIONS

ARTICLE 13.1 A grievance is defined as a dispute between the Employer
and its regular employees over the application, interpretation, or alleged
violation of a provision of this Agreement. Such grievance shall be settled in
the following manner:

STEP 1

Any regular employee, who believes he has a grievance, shall within
five (5) working days of the occurrence giving rise to the grievance discuss the
matter with his supervisor. A shop steward shall be present at this meeting.
Unless time limits are mutually extended, failure to observe the time limitation
shall be deemed as a waiver and the grievance will be regarded as abandoned.

The supervisor shall give an oral reply to the employee within five (5)
working days after submission of the grievance. If the supervisor fails to give
an oral reply within the time provided, the grievance may be appealed to the
next step of the Grievance Procedure. The use of Step 1 shall not be mandatory
and any grievance may be filed initially at Step 2.

STEP 2

If the grievance is not adjusted under STEP 1, then within five (5)
working days of the supervisor's reply, or if no reply was given, the date on
which a reply should have been given under STEP 1, the grievance shall be
reduced to writing which shall set forth the relevant information concerning the
grievance, including a short description of the alleged grievance, the date on
which the grievance occurred, and an identification of the Section of the
Agreement alleged to have been violated, the remedy desired, and shall be
submitted to the Director of

<PAGE>

Human Resources. The Director of Human Resources or his designee and the Union
representative shall meet within five (5) working days after the receipt of the
written grievance in an attempt to settle the grievance. The Director of Human
Resources or his designee shall provide the employee and the Union
representative with a written reply within five (5) working days after the
parties have met. If the Director of Human Resources or his designee fails to
give a written reply to the Union representative within the time limits
provided, the grievance may be appealed to the next step of the Grievance
Procedure regardless of time limits.

STEP 3

If a grievance is not adjusted under STEP 2, then within ten (10)
working days after the reply was given under STEP 2, or, if no reply was given,
the date on which a reply should have been made under STEP 2, the Union or the
Company may refer the grievance to Arbitration.

ARTICLE 13.1 Time limits as set forth in the Grievance Procedure and
the Arbitration clause are to be strictly construed. If the Employer neglects to
perform any function in the above Grievance procedure within the time limits
specified, the Union may immediately go to the next step of the Grievance
Procedure. Time is of the essence. These time limits set forth may be extended
by agreement of the parties.

ARTICLE 13.2 Arbitration shall be conducted pursuant to the voluntary
labor arbitration rules of the American Arbitration Association, unless the
parties agree to a different procedure. With respect to arbitrations:

(a) No more than one dispute shall be submitted to an arbitrator except
for disputes arising out of the same facts, unless otherwise agreed to in
writing by the parties.

(b) The decision of the arbitrator shall be final and binding on both
parties, and the costs of the arbitrator shall be borne equally by both parties.

(d) The Arbitrator shall have no power to add to, subtract from, or
modify in any way any of the terms of this Agreement.

<PAGE>

ARTICLE 14

HOLIDAYS

ARTICLE 14.1 The following paid holidays shall be recognized under this
Agreement:

New Year's Day
Easter Monday
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Eve Day
Christmas Day

ARTICLE 14.2 In the event any of the above holidays fall on a Sunday,
said holiday shall be observed on the following Monday. If any of said holidays
fall on a Saturday, said holiday shall be observed on the preceding Friday.

ARTICLE 14.3 If a holiday falls during an employee's vacation, the
employee's vacation shall be extended by one (1) day or, at the employee's
option, he shall receive one day's straight time pay.

ARTICLE 14

SICK/PERSONAL DAYS

ARTICLE 14.1 Employees shall accrue 2.47 hours per bi-weekly pay period
for use as sick and/or personal leave days.

ARTICLE 14.2 Personal days must be scheduled at least seventy-two (72)
hours in advance, unless approved by the Employer.

ARTICLE 14.3 In order to obtain paid sick leave an employee must notify
his department head or supervisor at least one (1) hour prior to the employee's
required reporting time, except in cases of bona fide emergency in which event
the notice shall be given as soon as possible.

ARTICLE 14.4 Sick/personal leave pay shall be at the employee's regular
hourly rate of pay, plus differentials.

<PAGE>

ARTICLE 15.5 Unused sick/personal days shall be paid by the Employer
between December 15 and December 22 of each year in which the day was earned.

ARTICLE 16

VACATION

ARTICLE 16.1 The Employer shall grant paid vacations in accordance with
the following schedule:

Years of Service Vacation
----------------- --------
One year of service One week
Three years of service Two weeks
Six years of service Three weeks
Twelve years of service Four weeks
Eighteen years of service Five weeks

ARTICLE 16.2 Vacation time can be carried over to the next eligibility
year. First preference for time off for vacation shall be granted to employees
based on seniority. Vacation shall be earned by company seniority.

ARTICLE 16.3 The employee's vacation pay shall be computed on the basis
of his regular straight-time pay including shift differential if applicable, and
at the rate at which he is being compensated at the time that he takes his
vacation.

ARTICLE 16.4 If an employee leaves the Employer after one (1) year,
he/she shall be entitled to vacation pay on a pro rata basis.

ARTICLE 16.5 Employees who are absent due to illness or injury for 26
weeks in the accruing year shall have his vacation pro-rated for each month
worked. Example: Employee absent 26 weeks shall receive 1/12 of entitlement for
each month worked. This paragraph shall not be applicable to employee absent due
to a work related injury.

ARTICLE 17

LEAVES OF ABSENCE

ARTICLE 17.1 Personal Leave

An employee desiring an unpaid personal leave of absence shall give at
least thirty (30) days' written notice of his/her desire to obtain same. The
Employer may, at its discretion, subject to Union approval, grant such a request
up to a maximum of forty-five (45) calendar days. During the period of any leave
of absence, the employee shall not engage in employment elsewhere. Should an
employee work elsewhere while on a leave of absence or should an employee fail
to return to work as scheduled, said employee shall lose all rights to his/her
employment with the Employer.

<PAGE>

ARTICLE 17.2 Jury Duty Leave

Employees called for jury duty shall be paid the difference between
their appropriate job rate and the amount they receive as jury pay up to a
maximum of two (2) weeks' pay for service in federal court and one week for
service in state court. In order to receive a jury duty leave of absence the
employee must submit to the Employer the subpoena and/or notice to report for
jury duty.

ARTICLE 17.3 Bereavement Leave

In the event of death in an employee's immediate family (parent,
step-parent, spouse, child, brother, sister), said employee shall be entitled to
three (3) days of paid leave at such time and in the event of the death of a
mother or father-in-law or grandparent one (1) day of paid leave.

ARTICLE 17.4 Family and Medical Leave

The Employer shall grant leaves of absence to eligible Employees in
accordance with the Family and Medical Leave Act of 1993 ("FMLA") for "serious
health conditions" of the Employee or a Qualifying Family Member, or the birth,
adoption or placement for foster care of a son or daughter, as defined by the
FMLA and regulations thereunder.

(a) Eligible Employees shall be entitled to take up to twelve (12)
workweeks of leave in each "leave year", defined under the "rolling backward"
methodology.

(b) The Employer shall continue health care benefits under the same
terms and conditions as though the Employee was actively employed during FMLA
leave.

<PAGE>

ARTICLE 18

FUND CONTRIBUTIONS

ARTICLE 18.1 The Employer agrees to contribute fifty ($.50) cents per
week per employee to the Local 830 Scholarship Fund.

ARTICLE 18.2 The Employer agrees to contribute five ($5.00) dollars per
week per employee to the Local 830 Severance Fund.

ARTICLE 18.3 Effective February 8, 2000, the Employer agrees to
contribute five ($5.00) dollars per week per employee to the Local 830 Legal
Fund.

ARTICLE 19

UNIFORMS

ARTICLE 19.1 The Employer agrees that if any employee is required to
wear any kind of uniform as a condition of his continued employment, such
uniform shall be furnished by the Employer free of charge, at the standard
required by the Employer.

ARTICLE 19.2 Employer will be responsible for the maintenance of all
required uniforms.

ARTICLE 19.3 In the event the Employer requires safety shoes, Employer
will be responsible for the cost of the shoes.

ARTICLE 20

EXTRA CONTRACTUAL AGREEMENTS

ARTICLE 20.1 The Employer agrees not to enter into any agreement or
contract with its employees, individually or collectively, which in any way
conflicts with the terms and provisions of this Agreement. Any such agreement
shall be null and void.

ARTICLE 21

LIE DETECTOR TEST

ARTICLE 21.1 The Employer shall not require, request or suggest that an
employee or applicant for employment take a polygraph or any other form of lie
detector test.

<PAGE>

ARTICLE 22

MANAGEMENT AUTHORITY

ARTICLE 22.1 The management of the Employer and the direction of the
working force is vested exclusively with the Employer. Except where expressly
abridged by a specific provision of this Agreement, the Employer retains the
sole right to hire, discipline or discharge for cause, lay off, promote,
transfer and assign its employees; to determine or change the starting and
quitting time and number of hours worked; to promulgate reasonable working rules
and regulations; to assign duties to the work force; to establish new job
classifications; to organize, discontinue, enlarge or reduce a department,
function or division; to introduce new or improved facilities; to carry out the
ordinary and customary functions of management whether or not possessed or
exercised by the Employer prior to the execution of this Agreement.

ARTICLE 22.2 The Employer may introduce a change in the methods of
operation, which will produce a change in job duties and reduction in personnel
in any department. Nothing contained in this Agreement shall prevent the
implementation of any program and of work force reductions on any program to be
hereafter undertaken by the Employer provided that the Employer agrees to
discuss such change with the Union.

ARTICLE 22.3 The Union, on behalf of the employees, agrees to cooperate
with the Employer to attain and maintain maximum service and full efficiency.

ARTICLE 22.4 There shall be no individual agreements between employees
and the Employer.

ARTICLE 1.5 Nothing herein contained is to be construed to mean that a
worker or groups have inherent rights to a particular job.

ARTICLE 22.6 The Employer's failure to exercise any function or right
hereby reserved to it, or its exercising any function or right in a particular
way, shall not be deemed a waiver of its right to exercise such function or
right, nor preclude the Employer from exercising the same in some other way not
in conflict with the express provision of this Agreement.

ARTICLE 23

PROHIBITION OF STRIKES AND LOCKOUTS

ARTICLE 23.1 Employees shall not engage in any strike, sympathy strike,
slowdown, sitdown, work stoppage, picketing or any other concerted activities
which interrupt or tend to interrupt the full performance of work without regard
to the cause therefor. Neither the employees, the Union nor any officers, agents
or other representatives of the Union shall directly or indirectly authorize,
assist, encourage, condone, ratify, lend support or in any way participate in
any strike, refusal to handle merchandise (unless sanctioned by Joint Council
53), sympathy strike, slowdown, sitdown, work stoppage, picketing or any other
concerted activities which interrupt or tend to interrupt the full performance
of work during the life of this Agreement. It shall not be a violation of this
Agreement for an employee to honor a picket line sanctioned by Joint Council 53.

<PAGE>

ARTICLE 23.2 No Lockouts. Employer agrees not to engage in any lockout
during the term of this Agreement or during the negotiations of a renewal
thereof. Complete or partial reduction of operations for economic reasons shall
not be considered a lockout.

ARTICLE 23.3 Additional Procedure. In the event of a violation of this
Section, No Strikes, Lockouts and Work Stoppages, and in addition to any other
remedy, Employer may file a grievance regarding such violation by notice thereof
to the Union and to the American Arbitration Association which shall within
twenty-four (24) hours upon receipt of the grievance, appoint an arbitrator to
hear the matter. The arbitrator shall hold a hearing within twelve (12) hours of
his appointment upon telegraphic notice to Employer and the Union, and shall
have jurisdiction to issue a cease and desist order with respect to such
violation of paragraph No Strikes, Work Stoppages, etc. No opinion shall be
required but only a written award and order by the arbitrator. It is agreed that
such award and order may be immediately confirmed without notice to any other
interested party by any court of competent jurisdiction upon the motion,
application or petition of Employer. The same procedure shall be applicable in
the event of a violation of paragraph No Lockouts by Employer.

ARTICLE 23.4 Employees participating in any strike, slowdown or
concerted work stoppage shall be subject to discharge.

ARTICLE 24

BENEFITS

ARTICLE 24.1 All employees covered by this Agreement will be covered by
Spain's, Inc. Group Health Benefits Plan. For the length of this Agreement, all
coverage shall be maintained at a level no less than those provided upon
ratification. Should Spain's, Inc. provide an increased level of benefits to
non-bargaining unit employees, it agrees to offer such improvements to the
bargaining unit.

(a) Employees shall be entitled to all medical coverage upon completion
of his trial period.

(b) Employees laid off shall continue to receive all medical benefits
for the two (2) months following the month in which layoff occurs.

<PAGE>

(c) Employees shall not be responsible for any contributions towards
medical benefits and may continue to opt out of the plan and receive an
additional fifty ($.50) cents per hour to their pay.

(d) On the anniversary date of the contract, if Union can present a
program equal in cost and/or benefit, the Company will agree to meet with the
Union to discussion conversion.

ARTICLE 24.2 The Employer shall continue in place its 401(k) Plan for
bargaining unit members.

ARTICLE 24.3 The Employer shall continue in place its current life
insurance coverages for bargaining unit members.

ARTICLE 24.4 All benefits contained in this Agreement shall be
continued for a period of twenty-six (26) weeks for an employee absent due to
illness or injury.

ARTICLE 24.5 In the event the absence is due to a work related illness
or injury, all benefits will continue for one (1) year.

ARTICLE 25

SUBCONTRACTING

ARTICLE 1.1 There shall be no subcontracting of bargaining unit work
except in the following circumstances:

(a) during the two (2) weeks preceding the Christmas and Easter
holidays provided that all bargaining unit members are
working at least forty (40) hours per week at that time and
that any Saturday or Sunday work first be offered to
bargaining unit members;

(a) to supply the initial stock to a new store and for no more
than two (2) weeks following the opening of a new store;

(a) runs where the roundtrip exceeds 450 miles or involves an
overnight stay.

<PAGE>

ARTICLE 26

TRAINING PROGRAMS

ARTICLE 26.1 In the event the Employer acquires new equipment for which
special training is needed, it is agreed that present employees in the
bargaining unit shall be afforded the opportunity to be trained and qualified to
operate such equipment before a new employee is hired to operate such equipment.

ARTICLE 26.2 The Employer further agrees that continuing programs for
the education, training and upgrading of its employees inures to the benefit of
both the Employer and the employee. The Employer agrees therefore, to provide
such job-related training to its employees at no cost the employees whenever the
Employer determines that training is necessary.

ARTICLE 27

SANITARY CONDITIONS

ARTICLE 27.1 The Employer agrees to maintain a clean, sanitary washroom
having hot and cold running water and with toilet facilities, unless otherwise
mutually agreed.

ARTICLE 28

WORK BY SUPERVISORS

ARTICLE 28.1 Supervisors shall not do work normally performed by
employees, except for the purpose of instruction, supervision or emergencies. An
emergency is herein defined as any suddenly arising situation necessitating
immediate action by the Company to maintain safety, to prevent damage to
equipment, facilities, property, and/or materials, to aid in correcting or
repairing malfunctions, inadequate staffing due to absenteeism and unforeseen
increases in workload of a temporary nature and no bargaining unit employees are
available to do the work.

ARTICLE 29

SEPARABILITY

ARTICLE 29.1 In the event that any terms, conditions or provisions of
this Agreement, in whole or in part, are declared by any court of competent
jurisdiction or any administrative agency having jurisdiction to be illegal,
void and/or invalid, all of the other terms, conditions and provisions of this
Agreement shall remain in full force and effect to the same extent as if that
part declared illegal, void and/or invalid had never been incorporated in this
Agreement, and in such form the remainder of this Agreement shall continue to be
binding upon the parties hereto.

17
<PAGE>

ARTICLE 30

SAFETY

ARTICLE 30.1 A safety committee shall be established consisting of an
equal number of non- bargaining and bargaining employees. All safety issues
shall be presented to the committee for disposition. Committee shall act within
ten (10) days of awareness of safety complaints. In the event of a failure to
correct a valid safety problem, such problem may be submitted to binding
arbitration.

ARTICLE 31

TRANSFER OR SALE OF BUSINESS

ARTICLE 31.1 The Employer shall give notice of the existence of this
Agreement to any purchaser, transferee, lessee, assignee, etc., of the business
or license covered by this Agreement. Such notice shall be in writing with a
copy to the Union not later than five (5) days after the sale of such Employer's
business and/or license. The Employer shall give the Union the name and address
of the purchaser transferee, lessee, assignee, etc. In the event the Employer
fails to give the notice herein required, the Employer shall be liable to the
Union and the employees covered for all damages sustained as a result of such
failure to give notice.

ARTICLE 32

CURTAILMENT OR CHANGE IN OPERATIONS

ARTICLE 32.1 Employer is entering into this Agreement in contemplation
of being able to conduct substantially normal operations. If shortage of
materials, equipment or supplies due to emergency conditions, or if any
Governmental regulation, shall necessitate a substantial curtailment or change
in the method of operations of Employer, so that the provisions of this
Agreement become onerous or impracticable, Union agrees to sit down with the
Employer in an endeavor amicably to revise this Agreement to meet such changed
conditions. If Union and Employer shall not agree as to the occasion for, or the
nature or scope of, any such revision, the matter shall be submitted to
arbitration in accordance with Article 13 hereof. In such event, the Arbitrator
shall have the power to alter, amend or eliminate any clause of this Agreement
which, in his opinion, shall seem necessary or equitable in view of the changed
conditions.

<PAGE>

ARTICLE 33

NO DISCRIMINATION

ARTICLE 33.1 In accordance with applicable law, the Employer and the
Union agree not to discriminate against any individual with respect to hiring,
compensation, terms or conditions of employment because of such individual's
race, color, religion, sex, national origin, pregnancy, disability or age, nor
will they limit, segregate or classify employees in any way to deprive any
individual employee of employment opportunities because of race, color,
religion, sex, national origin, pregnancy, disability or age.

ARTICLE 33.2 The Company and the Union agree that there will be no
discrimination by the Company or the Union against any employee because of his
or her membership in the Union, because of any employee's lawful activity and/or
support of the Union, or because of any employee's decision to refrain from such
Union activities.

ARTICLE 33.3 The term "he" or "his" as used in this Agreement his not
meant to be discriminatory and shall apply equally to male and female employees.

ARTICLE 34

DRUG/ALCOHOL POLICY

ARTICLE 34.1 The manufacture, use, sale, purchase, transfer or
possession of any alcoholic beverage or illegal drug during working hours,
including breaks or lunch time whether on or away from company property, is
cause for immediate discharge.

ARTICLE 34.2 Any employee who is convicted of the manufacture or sale
of a controlled substance while off duty will be subject to disciplinary action
up to and including termination.

ARTICLE 34.3 Employees must report to the Employer any conviction for a
drug violation within five (5) days of the conviction. Failure to do so will
result in immediate discharge.

ARTICLE 34.4 Reporting to work or working while under the influence of
alcohol, illegal drugs, or excessive amounts of prescribed drugs will also
subject an employee to immediate discharge.

ARTICLE 34.5 The Employer may require that an employee be tested for
the presence of drugs or alcohol only under the following circumstances: (1)
When the Employer reasonably suspects that the employee has reported to work or
is working while under the influence of alcohol or drugs. (Provided that when
feasible prior to an employee being required to submit to testing, the Employer
will afford a Steward the opportunity to observe the employee); (2) when the
employee is participating in a treatment program of which regular testing is a
part. A determination that an employee is "under the influence" of alcohol or
drugs will be based upon the standards of a positive test result as set forth in
United States' Dept. of Transportation Regulations.

19
<PAGE>

ARTICLE 34.6 In the case of drivers required to carry a C.D.L., testing
will also be performed as part of a physical examination or as otherwise
required in accordance with any Department of Transportation regulation or other
legislative requirement. Any employee testing positive as a result of a test
performed in accordance with a government regulation or legislation shall be
given an opportunity to submit to a certified rehabilitation program in lieu of
discipline. This opportunity, however, shall only apply to the first failure of
such a test. The second failure of such a test will result in the immediate
discharge of the employee involved.

ARTICLE 34.7 Any employee tested hereunder shall be given the
opportunity to have a portion of the blood or urine sample tested by an
independent certified laboratory. If the test by the independent laboratory is
positive, the cost for the test will be paid by the employee. If the test result
is negative, the cost will be paid by the Employer.

ARTICLE 34.8 The Employer may conduct unannounced searches for illegal
drugs or alcohol on the Employer's property. Such searches are to be confined to
company property, but under no circumstances may the search include the
employee's body, a uniform being worn by the employee, or the employee's
personal motor vehicle.

ARTICLE 34.9 This policy will be strictly enforced. If any employee is
having an alcohol or drug related problem and desires professional help, he
should contact the Union. Employees who voluntarily report such a problem, in
advance of detection under this policy, will be afforded assistance and will not
be subject to discipline under this policy.

ARTICLE 34.10 (a) No driver tested who is found to have an alcohol
concentration of 0.02 or greater but less than 0.04 shall perform or continue to
perform safety-sensitive functions for the Employer, including driving a
commercial motor vehicle, nor shall the Employer permit the driver to perform or
continue to perform safety-sensitive functions, until the start of the driver's
next regularly scheduled duty period, but not less than 24 hours following
administration of the test.

<PAGE>

(b) Except as provided in paragraph (a) of this section, no
Employer shall take any action under this part against a driver based solely on
test results showing an alcohol concentration less than 0.04.

ARTICLE 35

DURATION

ARTICLE 35.1 This Agreement shall be effective as of February 8, 1999
and shall continue in full force and effect until February 8, 2002.

ARTICLE 35.2 In the absence of written notice given at least sixty (60)
days prior to the expiration date of this Agreement by either party to the other
of its intention to terminate or renegotiate, this Agreement shall automatically
be renewed for a period of one (1) year and from year to year thereafter until
such time as sixty (60) days' notice is given prior to the annual expiration
date.

DE&S HOLDING COMPANY

By: /s/ Bernard Spain
-----------------------------------

TEAMSTERS LOCAL 830

By: /s/ Joseph Brock Jr.
-----------------------------------

By: /s/ Daniel Grace
-----------------------------------

<PAGE>

DE&S HOLDING COMPANY
1700 Tomlinson Road
Philadelphia, PA 19116-3848

February __, 1999

Mr. Joseph Brock, Jr.
Teamsters Local Union No. 830
12298 Townsend Road
Philadelphia, PA 19154

Dear Mr. Brock:

In addition to those agreements reached at the bargaining
table which are reflected in the Collective bargaining Agreement executed by the
parties, the parties have agreed to the following:

1. Effective with the ratification of the Collective Bargaining
Agreement, the current drivers' routes will be rebid to allow bargaining unit
members to utilize their seniority. After the rebid, vacancies will be handled
in accordance with the terms of the Collective Bargaining Agreement.

2. Notwithstanding the provisions of Article 26, Subcontracting, the
Employer agrees to meet with the Union to discuss overnight routes when it
becomes economically feasible for such work to be handled by employees rather
than contractors.

3. In addition to the wage provisions of the Collective Bargaining
Agreement, the parties have agreed that effective upon ratification of the
Agreement, drivers classified as A and B drivers shall receive a signing bonus
of $500 and all other drivers will receive a signing bonus of $250. All bonuses
shall be less lawful deductions.

4. The Union agrees to withdraw all charges pending with the National
Labor Relations Board.

Please signify your agreement to the foregoing by signing and dating a
copy of this letter.

DE&S Holding Company

By: /s/ Bernard Spain
-------------------------------------

AGREED: TEAMSTERS LOCAL 830

By: /s/ Joseph Brock, Jr.
-------------------------------------

<PAGE>

February 18, 2000

Securities and Exchange Commission
Washington, D.C. 20549

Re: Dollar Express, Inc.
File No. 333-93601

We have read the Change in Principal Accountants section of Amendment
No. 1 of Form S-1 of Dollar Express, Inc. and agree with the statements
contained therein.

Very truly yours,

/s/ GRANT THORNTON LLP
----------------------

<PAGE>

Exhibit 21

SUBSIDIARIES OF DOLLAR EXPRESS, INC.

Name State of Incorporation
- ---- ----------------------
Dollar Express Stores, Inc. Pennsylvania
Dollar Express Royalties, Inc. Delaware
DE&S Finance Company Delaware
Dollar Express Management, Inc. Pennsylvania

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated December 14, 1999 (except for note 9 as
to which date is February 16, 2000) accompanying the financial statements of
Dollar Express Stores, Inc. (formerly Dollar Express, Inc. and Spain's, Inc.)
contained in the Registration Statement and Prospectus. We consent to the use of
the aforementioned report in Amendmemt No. 1 of Form S-1 (File No. 333-93601)
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."

February 18, 2000

<ARTICLE> 5

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<FISCAL-YEAR-END> DEC-31-1998 DEC-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
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<SECURITIES> 0 0
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0 31,295
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