
                                                                    As Executed




                                MERGER AGREEMENT


                                  by and among


                            DOLLAR TREE STORES, INC.,


                           DOLLAR TREE NEW YORK, INC.,


                         TEHAN'S MERCHANDISING, INC. AND


                               THE SHAREHOLDERS OF


                           TEHAN'S MERCHANDISING, INC.


                               As of June 15, 1999




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                                TABLE OF CONTENTS

ARTICLE 1
   THE MERGER................................................................2
   1.1   Surviving Corporation...............................................2
   1.2   Certificate of Incorporation; Bylaws................................2
   1.3   Directors and Officers..............................................2
   1.4   Effective Time......................................................2
   1.5   Other Effects of the Merger.........................................3
   1.6   Tax-Free Reorganization.............................................3
   1.7   Registration of Shares..............................................3

ARTICLE 2
   PURCHASE PRICE; CONVERSION OF SHARES......................................3
   2.1   Conversion or Cancellation of Shares; Escrow........................3
         (a)  Exchange Ratio.................................................3
         (b)  Escrows of Shares..............................................4
         (c)  Stock Splits, etc..............................................4
         (d)  Stock of Sub...................................................4
   2.2   Fractional Shares...................................................4
   2.3   Procedures Relating to Company Shares...............................4
         (a)  Exchange of Certificates.......................................4
         (b)  Cash Payments..................................................5
         (c)  Lost, Mislaid, Stolen or Destroyed Certificates................5
         (d)  No Stock Transfers.............................................6
         (e)  Unclaimed Merger Consideration.................................6
         (f)  Dissenting Shares..............................................6
   2.4   Post-Closing Adjustment.............................................7

ARTICLE 3
   CLOSING...................................................................7
   3.1   The Closing.........................................................7

ARTICLE 4
   SHAREHOLDER REPRESENTATIONS AND WARRANTIES................................7
   4.1   Corporate Organization; Authorization...............................7
   4.2   No Violation........................................................8
   4.3   Enforceability......................................................9
   4.4   Capitalization......................................................9
   4.5   Subsidiaries; Affiliates; Conflict of Interest.....................10
   4.6   Investments in Others..............................................11
   4.7   Financial Statements...............................................11
   4.8   Unreported and Contingent Liabilities..............................11


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   4.9   Absence of Certain Changes.........................................12
   4.10  [Reserved].........................................................12
   4.11  Licenses and Permits...............................................13
   4.12  Litigation.........................................................13
   4.13  Inventory..........................................................13
   4.14  Real Property......................................................14
   4.15  Environmental Matters..............................................15
   4.16  Compliance With Laws Generally.....................................16
   4.17  Employee Benefit Plans.............................................17
   4.18  Intellectual Property..............................................19
   4.19  Tax Matters........................................................20
   4.20  No Broker Involved.................................................22
   4.21  Contracts..........................................................22
   4.22  Officers and Employees.............................................24
   4.23  Labor Relations....................................................24
   4.24  Insurance..........................................................26
   4.25  Title to Property and Related Matters..............................26
   4.26  Accounts and Notes Receivable......................................26
   4.27  Nondisclosed Payments..............................................26
   4.28  Credit Cards.......................................................26
   4.29  Business Practices.................................................27
   4.30  Bank Accounts......................................................27
   4.31  Affiliates.........................................................27
   4.32  Pooling............................................................27
   4.33  Reorganization Under Section 368 of the Code.......................28
   4.34  Full Disclosure....................................................28
   4.35  Securities Law Matters.............................................28
   4.36  Due Diligence......................................................29

ARTICLE 5
   REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.........................30
   5.1   Corporate Organization.............................................30
   5.2   Authorization and Approval of Agreement............................30
   5.3   Ability to Carry Out Agreement.....................................30
   5.4   Investment Representation..........................................31
   5.5   No Broker Involved.................................................31
   5.6   Parent Common Stock................................................31
   5.7   ...................................................................31

ARTICLE 6
   CERTAIN COVENANTS........................................................31
   6.1   Conduct of Business................................................31
   6.2   Public Announcements...............................................33


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   6.3   Supplements to Schedules...........................................34
   6.4   Pooling of Interests Accounting....................................34
   6.5   Antitrust Filing...................................................34
   6.6   No Solicitation of Transactions....................................34
   6.7   Shareholder Approval...............................................35
   6.8   Dissenters' Rights Notices.........................................35
   6.9   Shareholder Representative.........................................35
   6.10  Certain Shareholder Covenants......................................36
   6.11  Access to Information..............................................37
   6.12  Legal Requirements.................................................37
   6.13  Third Party Consents...............................................37
   6.14  FIRPTA.............................................................38
   6.15  Notification of Certain Matters....................................38
   6.16  Tax Matters........................................................38
         (a)  Termination of  S Corporation Election........................38
         (b)  Allocation of Income..........................................38
         (c)  Tax Returns...................................................38
         (d)  Post-Closing Tax Audits.......................................38
   6.17  Best Efforts and Further Assurances................................38
   6.18  Post-Closing Audit.................................................39
   6.19  Cooperation Following the Closing..................................40

ARTICLE 7
   SURVIVAL AND INDEMNIFICATION.............................................40
   7.1   Indemnification Obligations of the Shareholders....................40
   7.2   Indemnification Obligations of Parent..............................41
   7.3   Limitations on Indemnification.....................................42
   7.4   Indemnification Procedure..........................................43
   7.5   Survival; Claims Period............................................44
   7.6   Recovery...........................................................45

ARTICLE 8
   CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB....................45
   8.1   Conditions Precedent...............................................45
         (a)  Representations, Warranties and Covenants.....................45
         (b)  Legal Actions.................................................46
         (c)  Consents......................................................46
         (d)  Deliveries....................................................46
         (e)  Antitrust Filing..............................................46
         (f)  Pooling Opinion...............................................47
         (g)  Stock Price of Parent Common Stock............................47
         (h)  Escrow Agreement..............................................47
         (i)  Non-Competition Agreements....................................47


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         (j)  No Material Adverse Change....................................47
         (k)  Related Party Debt............................................47
         (l)  Dissenting Shares.............................................47
         (m)  Shareholder Approval..........................................48
         (n)  Corporate Documents...........................................48
         (o)  Registration Rights Agreement.................................48
         (p)  Termination of Certain Agreements.............................48
   8.2   Waiver.............................................................48

ARTICLE 9
   CONDITIONS PRECEDENT TO OBLIGATIONS
   OF THE SHAREHOLDERS AND COMPANY..........................................48
   9.1   Conditions Precedent...............................................48
         (a)  Representations, Warranties and Covenants.....................48
         (b)  Legal Actions.................................................48
         (c)  Deliveries....................................................48
         (d)  Antitrust Filing..............................................49
         (e)  Stock Price of  Parent Common Stock...........................49
         (f)  Registration Rights Agreement.................................49
         (g)  No Material Adverse Change....................................49
   9.2   Waiver.............................................................49

ARTICLE 10
   TERMINATION..............................................................50
   10.1  Termination........................................................50
   10.2  Effect of Termination..............................................51

ARTICLE 11
   CERTAIN EXPENSES.........................................................51
   11.1  Deal Expenses......................................................51
   11.2  Deal Expenses Paid in Event of Closing.............................51
   11.3  Deal Expenses Paid in Event of Termination.........................51

ARTICLE 12
   MISCELLANEOUS............................................................52
   12.1  Benefits and Burdens: Assignment...................................52
   12.2  Amendment..........................................................52
   12.3  Notices............................................................52
   12.4  Entire Agreement...................................................53
   12.5  Headings...........................................................53
   12.6  Construction.......................................................54
   12.7  Incorporation of Exhibits and Schedules............................54
   12.8  Counterparts.......................................................54


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   12.9  Governing Law......................................................54
   12.10 Enforcement; Jurisdiction; Waiver of Jury Trial....................54
   12.11 Severability.......................................................55
   12.12 Time...............................................................55
   12.13 Knowledge..........................................................55
   12.14 Statutes...........................................................55
   12.15 Specific Performance and Other Remedies............................55



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                                  DEFINED TERMS

    The following is a list of the defined terms used in this Agreement:

TERMS                                                                   SECTION
1996 Financial Statements.........................................Section 4.7(a)
1997 Financial Statements.........................................Section 4.7(a)
1998 Financial Statements.........................................Section 4.7(a)
Affiliate.........................................................Section 4.5(a)
Agreement..............................................Recitals and Section 12.7
Alternative Transaction........................................Section 6.6(a)(i)
Ancillary Agreements..............................................Section 4.1(b)
Antitrust Filing.....................................................Section 6.5
Average Closing Price.............................................Section 2.1(a)
Benefit Plans....................................................Section 4.17(b)
C Corporation Period.............................................Section 4.19(j)
CERCLA...........................................................Section 4.15(b)
Certificate(s)....................................................Section 2.3(a)
Certificate of Merger................................................Section 1.4
Claims Period........................................................Section 7.5
Closing..............................................................Section 3.1
Closing Balance Sheet............................................Section 6.18(a)
Closing Date.........................................................Section 3.1
Closing Equity...................................................Section 6.18(b)
COBRA............................................................Section 4.17(e)
Code....................................................................Recitals
Company.................................................................Recitals
Company Ancillary Agreements......................................Section 4.1(a)
Company Contracts...................................................Section 4.21
Company Shareholders Meeting......................................Section 4.1(a)
Company Shares.......................................................Section 2.1
Deal Expenses.......................................................Section 11.1
Deficit Amount.......................................................Section 2.4
Disclosure Schedule....................................................Article 4
Dissenting Shares..............................................Section 2.3(f)(i)
Effective Time.......................................................Section 1.4
Employees........................................................Section 4.17(b)
Environmental Laws...............................................Section 4.15(a)
ERISA............................................................Section 4.17(a)
Escrow Agreement.......................................Section 2.1(b) and 8.1(h)
Escrow Shares.....................................................Section 2.1(b)

Exchange Act.........................................................Section 5.3


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Exchange Ratio....................................................Section 2.1(a)
Financial Statement Date..........................................Section 4.7(a)
Financial Statements..............................................Section 4.7(a)
Fully Diluted Company Shares......................................Section 2.1(a)
HSR Act..............................................................Section 5.3
Indemnified Party.................................................Section 7.4(a)
Indemnifying Party................................................Section 7.4(a)
Intellectual Property............................................Section 4.18(a)
Interim Balance Sheet.............................................Section 4.7(b)
Interim Financial Statements......................................Section 4.7(b)
Inventory...........................................................Section 4.13
Leased Real Property.............................................Section 4.14(a)
Material Adverse Change..............................................Section 4.9
Merger..................................................................Recitals
Merger Consideration..............................................Section 2.1(a)
Multiemployer Plan...............................................Section 4.17(h)
Nasdaq ...........................................................Section 2.1(a)
New York Law............................................................Recitals
NLRB.............................................................Section 4.23(a)
Non-Competition Agreements........................................Section 8.1(i)
OSHA.............................................................Section 4.23(e)
Parent..................................................................Recitals
Parent Ancillary Agreements..........................................Section 5.2
Parent Basket Amount..............................................Section 7.3(b)
Parent Common Stock..................................................Section 1.7
Parent Losses........................................................Section 7.1
Parent Indemnified Parties...........................................Section 7.1
Parent SEC Reports..................................................Section 4.36
Personal Assets...................................................Section 6.1(m)
Proceeding..........................................................Section 4.12
Qualified Retirement Plan........................................Section 4.17(k)
Registration Rights Agreement........................................Section 1.7
Related Party Obligations.........................................Section 4.5(c)
Rule 145 Affiliates.................................................Section 4.31
S Corporation Period.............................................Section 4.19(j)
S Election.......................................................Section 4.19(j)
Securities Act.......................................................Section 1.7
Shareholder Ancillary Agreements..................................Section 4.1(b)
Shareholder Indemnification Parties..................................Section 7.2
Shareholder Losses...................................................Section 7.2
Shareholder Basket Amount.........................................Section 7.3(a)
Shareholder Representative........................................Section 6.9(a)
Shareholder(s)..........................................................Recitals


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Statement of Closing Equity......................................Section 6.18(b)
Sub.....................................................................Recitals
Surviving Corporation................................................Section 1.1
Target Amount........................................................Section 2.4
Tax..............................................................Section 4.19(a)
Tax Return.......................................................Section 4.19(b)
Termination Date....................................................Section 10.1
Third Party....................................................Section 6.6(a)(i)






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                                    EXHIBITS




Exhibit A              Registration Rights Agreement

Exhibit B              Escrow Agreement

Exhibit C              Opinion of Counsel for the Company and the Shareholders

Exhibit D              Non-Competition Agreement

Exhibit E              Opinion of Counsel for Parent and Sub

Exhibit F              One Year Employment Agreement Between Company and
                       Louis B. Tehan






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                                MERGER AGREEMENT

                  THIS  MERGER  AGREEMENT, dated  as  of  June  15,  1999 (the
"Agreement"),  by and among  DOLLAR TREE STORES,  INC.,  a Virginia  corporation
("Parent"),  DOLLAR TREE NEW YORK,  INC.,  a New York  corporation  and a wholly
owned  subsidiary of Parent  ("Sub"),  TEHAN'S  MERCHANDISING,  INC., a New York
corporation (the  "Company"),  and RICHARD J. TEHAN,  STEVEN A. TEHAN,  BASIL L.
TEHAN,  ROBERT J. TEHAN,  and FREDERICK J. TEHAN,  the sole  shareholders of the
Company (each may be referred to herein as a  "Shareholder"  or  collectively as
the "Shareholders").

                              W I T N E S S E T H:

                  WHEREAS, the respective Boards of Directors of Parent, Sub and
the  Company  have each  determined  that it is in the best  interests  of their
respective  shareholders  that,  upon the terms and subject to the conditions of
this  Agreement and in accordance  with the New York  Business  Corporation  Law
("New York  Law"),  Sub and the Company  will enter into a business  combination
transaction  pursuant  to which Sub will  merge with and into the  Company  (the
"Merger");

                  WHEREAS, Parent and Sub require the Merger to be accounted for
as a pooling  of  interests  and to  qualify  as a  "reorganization"  within the
meaning of Section 368 of the  Internal  Revenue  Code of 1986,  as amended (the
"Code");

                  WHEREAS,  the parties have  determined that the Merger and the
other transactions  contemplated  hereby are consistent with, and in furtherance
of, their respective business strategies and goals;

                  WHEREAS, the Board of Directors of Sub and Parent has approved
this  Agreement,  the  Merger,  and  the  transactions  contemplated  hereby  in
accordance with applicable law and the Articles or Certificate of  Incorporation
and By-laws of Parent and Sub;

                  WHEREAS,  the  Board  of  Directors  of the  Company  has  (i)
approved this Agreement, the Merger, and the transactions contemplated hereby in
accordance  with  the  requirements  of New  York  Law  and the  Certificate  of
Incorporation  and the By-laws of the Company;  (ii) found this  Agreement,  the
Merger, and the transactions contemplated hereby to be fair to the Shareholders;
and (iii)  directed  this  Agreement  and the  Merger to be  submitted  to,  and
recommended approval by, the Shareholders;

                  WHEREAS,  the Company and the  Shareholders,  on the one hand,
and Parent and Sub, on the other hand,  desire to make certain  representations,
warranties, covenants and other agreements in connection with the Merger; and

                  WHEREAS,  a portion  of the  shares of common  stock of Parent
otherwise  issuable by Parent in  connection  with the Merger shall be placed in
escrow by Parent for purposes of


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satisfying damages, losses, expenses and other similar charges which result from
breaches of the representations, warranties and covenants of the Company and the
Shareholders contained herein.

                  NOW,  THEREFORE,  in  consideration of the premises and of the
mutual  covenants and agreements  set forth herein,  the parties hereto agree as
follows:

                                    ARTICLE 1
                                   THE MERGER

                  1.1 Surviving  Corporation.  Upon the terms and subject to the
conditions set forth in this Agreement,  and in accordance with New York Law, at
the  Effective  Time (as defined in Section  1.4),  Sub shall be merged with and
into the Company.  The separate  corporate  existence of Sub shall cease and the
Company shall  continue as the surviving  corporation  of the Merger  (sometimes
referred to herein as the "Surviving  Corporation") as a wholly-owned subsidiary
of Parent under the name of the Sub and shall  continue its corporate  existence
under the laws of the State of New York.

                  1.2  Certificate of  Incorporation;  Bylaws.  At the Effective
Time,  the  Certificate  of  Incorporation  of the Surviving  Corporation  shall
amended to take the same form as the  Certificate  of  Incorporation  of the Sub
until  thereafter  amended as provided  by law.  The Bylaws of Sub, as in effect
immediately  prior  to the  Effective  Time,  shall  become  the  Bylaws  of the
Surviving Corporation until thereafter amended.

                  1.3 Directors and Officers.  The directors of Sub  immediately
prior to the Effective Time shall be the directors of the Surviving  Corporation
immediately after the Effective Time, each to hold the office of director of the
Surviving  Corporation in accordance  with the provisions of the applicable laws
of the State of New York and the Certificate of Incorporation  and Bylaws of the
Surviving Corporation until their successors are duly qualified and elected. The
officers of Sub immediately prior to the Effective Time shall be the officers of
the Surviving  Corporation  immediately  after the Effective  Time, each to hold
office  in  accordance  with  the  provisions  of the  Bylaws  of the  Surviving
Corporation.

                  1.4  Effective  Time.  As  promptly as  practicable  after the
satisfaction  or waiver of the  conditions  set forth in  Articles  8 and 9, the
parties  hereto shall cause the Merger to be consummated by filing a certificate
of merger (the  "Certificate  of Merger"),  together  with any required  related
certificates, with the Secretary of State of the State of New York, in such form
as required by, and executed in accordance with the relevant  provisions of, New
York Law and in such form as approved  by the  Company and Parent  prior to such
filing. The Merger shall become effective on the later of (i) the time of filing
by the Department of State of the State of New York in accordance  with New York
Law of the original, properly executed Certificate of Merger, or (ii) 11:59 p.m.
on June 30, 1999,  which is the time  specified to be the effective  time in the
Certificate  of Merger.  The time at which the Merger shall become  effective is
referred to herein as the


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"Effective Time." The Certificate of Merger shall be submitted for filing at the
time of the  Closing  and a draft  thereof may be  submitted  prior  thereto for
clearance.

                  1.5 Other Effects of the Merger.  At the Effective  Time,  the
effect of the Merger shall be as provided in the  applicable  provisions  of New
York Law. Without limiting the generality of the foregoing, and subject thereto,
at the  Effective  Time,  all the  rights,  privileges,  immunities,  powers and
purposes and all the property,  real and personal,  including  subscriptions  to
shares, causes of action and every other asset of the Company and Sub shall vest
in the Surviving  Corporation  without further act or deed, and all liabilities,
obligations  and penalties of the Company and Sub shall become the  liabilities,
obligations and penalties of the Surviving Corporation.

                  1.6  Tax-Free  Reorganization.   The  Merger  is  intended  to
constitute a  reorganization  within the meaning of Section  368(a) of the Code,
and this Agreement is intended to constitute a plan of reorganization within the
meaning of the regulations promulgated under Section 368(a) of the Code.

                  1.7  Registration  of Shares.  Parent and  Shareholders  shall
execute  and  deliver at Closing a  Registration  Rights  Agreement  in the form
attached hereto as Exhibit A (the "Registration Rights Agreement") regarding the
filing of a registration  statement  covering the resale by the  Shareholders of
the shares of voting  common  stock,  par value $.01 per share,  of Parent  (the
"Parent  Common  Stock") to be issued in the Merger and other matters all as set
forth in such Registration Rights Agreement.

                                    ARTICLE 2
                      PURCHASE PRICE; CONVERSION OF SHARES

                  2.1 Conversion or Cancellation of Shares;  Escrow.  Subject to
the provisions of this Article 2, at the Effective Time, by virtue of the Merger
and without any further action by the Shareholders,  the shares of capital stock
of the Company outstanding immediately prior to the Effective Time (the "Company
Shares") shall be canceled and  extinguished  and  automatically  converted into
shares of Parent Common Stock, as follows:

                           (a)   Exchange Ratio.  Each Company  Share issued and
outstanding immediately prior to the Effective Time shall be converted,  subject
to Sections 2.1(c) and 2.2, into that number of shares of Parent Common Stock as
is determined by  multiplying  such Company Share by a ratio equal to (i) Merger
Consideration  divided by (ii) Fully Diluted Company Shares (such ratio shall be
referred to herein as the "Exchange Ratio"). The "Merger Consideration" shall be
a number of shares of Parent  Common Stock equal to  $20,000,000  divided by the
arithmetic  average of the closing price per share of Parent  Common  Stock,  as
reported on the Nasdaq National  Market System (the  "Nasdaq"),  for each of the
four (4)  consecutive  trading  days ending  with the  trading day which  occurs
immediately  prior to the Closing Date (the  "Average  Closing  Price").  "Fully
Diluted Company Shares" means the total number of shares of Company common stock
issued and  outstanding  immediately  prior to the Effective  Time plus any such
shares which may be


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or become  issuable by the Company  pursuant to options,  warrants,  convertible
securities or other stock rights as of the Effective Time.

                           (b)  Escrows of Shares.  An aggregate of five percent
(5%) of the  shares of Parent  Common  Stock  issuable  with  respect to Company
Shares in the Merger  (together with any dividends or  distributions  accrued or
made with respect to such shares of Parent Common Stock after the Effective Time
and any other  securities  or property  which may be issued after the  Effective
Time in  exchange  for such  shares  of  Parent  Common  Stock in any  merger or
recapitalization or similar  transaction  involving Parent, the "Escrow Shares")
shall be  transferred  and pledged when and as issued on a pro rata basis to the
Escrow  Agent (as  defined in the "Escrow  Agreement"  attached as Exhibit B) to
secure the payment of any Deficit Amount  pursuant to Section 2.4 hereof and the
indemnification  obligations of the Shareholders  pursuant to this Agreement and
the Escrow Agreement.

                           (c)  Stock  Splits,  etc.  If  after  the date of the
signing of this Agreement but prior to the Effective  Time,  Parent should split
or combine  the Parent  Common  Stock,  or pay a stock  dividend  or other stock
distribution in Parent Common Stock, or otherwise change the Parent Common Stock
into any other  securities,  or make any other dividend or  distribution  on the
Parent Common Stock,  then the Exchange Ratio and the number of shares of Parent
Common Stock constituting the aggregate  consideration issuable in the Merger in
respect  of Company  Shares  shall be  appropriately  adjusted  to reflect  such
change.

                           (d) Stock of Sub.  Each  share of common  stock,  par
value $.01 per share,  of Sub issued and  outstanding  immediately  prior to the
Effective  Time  shall  be  converted  into and  exchanged  for one (1) duly and
validly  issued,  fully  paid and  nonassessable  share of  common  stock of the
Surviving Corporation.

                  2.2 Fractional Shares. No scrip or fractional shares of Parent
Common  Stock shall be issued in the Merger.  For  purposes of  determining  the
number of shares of Parent Common Stock to be issued to each  Shareholder in the
Merger,  all the Company  Shares owned by such  Shareholder  shall be aggregated
prior  to  applying  the  Exchange  Ratio.  If,  after  such  aggregation,   any
Shareholder  is to  receive  a  fractional  share,  such  Shareholder  shall  be
entitled, after the later of (a) the Effective Time or (b) the surrender of such
Shareholder's  Certificate(s)  (as defined  below) that  represent  such Company
Shares,  to  receive  from  Parent an amount in cash in lieu of such  fractional
share, based on the Average Closing Price.

                  2.3      Procedures Relating to Company Shares.

                           (a)    Exchange of Certificates.  On or prior to the
Closing Date, each  Shareholder  shall  surrender all  outstanding  certificates
which  immediately  prior to the Effective Time represented  Company Shares (the
"Certificate" or  "Certificates")  for payment therefor and conversion  thereof.
Delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to Parent. Upon surrender to
Parent of a Certificate, the


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<PAGE>



holder of such Certificate shall be entitled to receive in exchange therefor (i)
one or more certificates as requested by the holder (properly  issued,  executed
and countersigned,  as appropriate)  representing that number of whole shares of
fully paid and nonassessable  shares of Parent Common Stock to which such holder
of Company  Shares  shall have become  entitled  pursuant to the  provisions  of
Section 2.1 hereof;  (ii) as to any  fractional  share of Parent Common Stock, a
check representing the cash consideration to which such holder shall have become
entitled  pursuant  to  Section  2.2  hereof;  and (iii) any  dividend  or other
distribution to which such holder is entitled pursuant to Section 2.3(b) hereof,
and the Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on the cash payable upon the  surrender of the  Certificates.
If any portion of the consideration to be received pursuant to Sections 2.1, 2.2
and 2.3(b) upon  exchange of a Certificate  (whether a certificate  representing
shares of Parent  Common  Stock or by check  representing  cash for a fractional
share) is to be issued or paid to a person  other  than the person in whose name
the Certificate  surrendered in exchange  therefor is registered,  it shall be a
condition of such issuance and payment that the Certificate so surrendered shall
be properly  endorsed or  otherwise  in proper  form for  transfer  and that the
person requesting such exchange shall pay in advance any transfer or other taxes
required by reason of the issuance of a Certificate or a check representing cash
for a fractional share to such other person,  or established to the satisfaction
of Parent that such tax has been paid or that such tax is not  applicable.  From
the Effective  Time until  surrender in accordance  with the  provisions of this
Section 2.3, each Certificate shall represent for all purposes only the right to
receive the consideration provided in Sections 2.1, 2.2 and 2.3(b). All payments
of  respective  shares of Parent  Common  Stock that are made upon  surrender of
Certificates  in  accordance  with the terms hereof shall be deemed to have been
made in full  satisfaction of rights  pertaining to the Company Shares evidenced
by such Certificates.

                           (b)Cash Payments. No dividends or other distributions
with respect to Parent Common Stock with a record date after the Effective  Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock, and no cash payment in lieu of fractional  shares
shall be paid to any such holder pursuant to Section 2.2, in each case until the
surrender of such  Certificate  in  accordance  with this  Article 2.  Following
surrender  of any such  Certificate,  there  shall be paid to the  holder of the
certificate  representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional  share of Parent Common Stock to which such
holder is entitled  pursuant to Section 2.2 and the amount of dividends or other
distributions  with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock; and (ii) at the appropriate
payment date, the amount of dividends or other  distributions with a record date
after the  Effective  Time but prior to such  surrender  and with a payment date
subsequent to such surrender payable with respect to such whole shares of Parent
Common Stock.

                           (c) Lost, Mislaid, Stolen or Destroyed Certificates.
In the case of any lost, mislaid,  stolen or destroyed  Certificate,  the holder
thereof may be required,  as a condition precedent to delivery to such holder of
the  consideration  described in Sections 2.1, 2.2 and 2.3(b) hereof, to deliver
to Parent a bond in such reasonable sum or a reasonably  satisfactory  indemnity
agreement


                                        5

<PAGE>



as Parent may direct as  indemnity  against  any claim that may be made  against
Parent or the Surviving  Corporation with respect to the Certificate  alleged to
have been lost, mislaid, stolen or destroyed.

                           (d)    No Stock Transfers.  After the Effective Time,
there  shall be no  transfers  on the  stock  transfer  books  of the  Surviving
Corporation of the Company Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time,  Certificates are presented to the
Surviving Corporation for transfer, they shall be canceled and exchanged for the
consideration described in Sections 2.1, 2.2 and 2.3(b) hereof.

                           (e)    Unclaimed Merger Consideration.  Any shares of
Parent Common Stock or cash due former  shareholders of the Company  pursuant to
Sections  2.1,  2.2 and 2.3(b)  hereof  that  remain  unclaimed  by such  former
shareholders  for six (6)  months  after  the  Effective  Time  shall be held by
Parent, and any former holder of Company Shares who has not theretofore complied
with  Section  2.3(a) shall  thereafter  look only to Parent for issuance of the
number of shares of Parent  Common Stock and other  consideration  to which such
holder has become  entitled  pursuant to the provisions of Sections 2.1, 2.2 and
2.3(b) hereof; provided, however, that neither Parent nor any party hereto shall
be liable to a former  holder of Company  Shares for any amount  required  to be
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.

                           (f) Dissenting Shares.

                                    (i)   To the extent that the availability of
appraisal  rights are mandated under New York Law,  Company Shares that have not
been voted for adoption of the Merger and with respect to which appraisal rights
have been  properly  demanded in accordance  with New York Law (the  "Dissenting
Shares") shall not be converted pursuant to this Article 2 or transferred to the
Escrow Agent at or after the Effective  Time unless and until the holder of such
shares becomes  ineligible for such appraisal  rights. If a holder of Dissenting
Shares becomes  ineligible for appraisal,  then, as of the Effective Time or the
occurrence  of such event,  whichever  later occurs,  such  holder's  Dissenting
Shares shall cease to be  Dissenting  Shares and shall be converted  pursuant to
this Article 2 (subject to all of the rights and obligations of the Shareholders
hereunder).  The Company shall  immediately give Parent notice of such assertion
and  Parent  shall  have  the  right  to  participate  in all  negotiations  and
proceedings with respect to any such demands. The Company shall not, except with
the prior written consent of Parent,  voluntarily  make any payment with respect
to, or settle or offer to  settle,  any such  demand  for  payment.  Holders  of
Dissenting Shares shall have those rights,  but only those rights, of holders of
"dissenting  shares" under Sections 623 and 910 et seq. of the New York Law, and
payment for Dissenting Shares shall only be made as required by New York Law.

                                    (ii)  Each  Shareholder  hereby  irrevocably
disclaims  and   relinquishes,   for  himself,   his  personal   representative,
successors,  heirs and  assigns  any and all rights to demand or be paid for the
fair value of such Company Shares as described above.



                                        6

<PAGE>



                  2.4  Post-Closing   Adjustment.   If  the  Closing  Equity  as
determined in accordance  with Section 6.18 is less than $3,500,000 (the "Target
Amount"),  then the  excess of the Target  Amount  over the  Closing  Equity (as
defined in Section  6.18)  shall be  referred to as the  "Deficit  Amount"  and,
within  five (5)  business  days of the date on which  the  final  Statement  of
Closing  Equity (as defined in Section 6.18) is  determined  (or on such earlier
date as may be set  forth in the  Escrow  Agreement),  the  Escrow  Agent  shall
surrender  to  Parent,  out of the Escrow  Shares,  a number of shares of Parent
Common Stock for cancellation without  consideration  determined by dividing (i)
the Deficit Amount by (ii) the Average Closing Price;  provided,  however,  that
the  Shareholders  shall  be  responsible  for  paying  the  Deficit  Amount  in
accordance  with Article 7, if such Escrow  Shares are  insufficient  to pay the
Deficit Amount.

                                    ARTICLE 3
                                     CLOSING

                  3.1 The Closing.  The closing  ("Closing")  will take place at
10:00 a.m. New York time on a date to be specified by the parties, at a mutually
agreed location,  no later than the second business day after fulfillment of all
the conditions set forth in Article 8 which have not been waived by Parent,  and
all the  conditions  set forth in  Article 9 which  have not been  waived by the
Company.  The parties will use all commercially  reasonable  efforts to close on
June 25, 1999,  but shall have no obligation to waive any  conditions to closing
that have not been  fulfilled by June 25, 1999. The date on which the Closing is
held is  referred  to as the  "Closing  Date." In the event the  Closing is held
before the Effective  Time, all deliveries at Closing shall be held in escrow by
counsel to the parties  until the Effective  Time, at which time the  deliveries
shall be released.

                                    ARTICLE 4
                   SHAREHOLDER REPRESENTATIONS AND WARRANTIES

                  Each Shareholder severally and jointly represents and warrants
to Parent and Sub, that subject only to the  exceptions  specifically  stated in
this Article and contained in the disclosure  schedule  delivered by the Company
to  Parent  concurrently  and  identified  as  the  "Disclosure  Schedule,"  the
following  representations,  warranties  and schedules are true,  accurate,  and
complete as of the date of this Agreement and as of the Closing Date:

                  4.1   Corporate Organization; Authorization.

                           (a) The Company has the requisite power and authority
to  execute  and  deliver  this  Agreement  and all  agreements,  documents  and
instruments  executed  and  delivered  by the  Company  in  connection  with the
transactions contemplated by this Agreement (the "Company Ancillary Agreements")
and to fully perform its respective  obligations  hereunder and thereunder,  and
the  execution  and  delivery  of  this  Agreement  and  the  Company  Ancillary
Agreements  by the Company and the  Company's  performance  of the  transactions
contemplated  herein and  therein  have been duly  authorized  by all  requisite
corporate and shareholder action.  Pursuant to that certain unanimous consent in
writing dated June 15, 1999, a certified copy of which is attached as Schedule


                                        7

<PAGE>



4.1(a) hereto,  the Board of Directors and  Shareholders  of Company have, as of
the date of this Agreement,  determined  unanimously that this Agreement and the
Merger  is  fair  to,  and  in  the  best  interests  of  the  Company  and  its
shareholders,  recommended  that the  shareholders  of the Company  approve this
Agreement and irrevocably  approved the Agreement and the Merger subject only to
conditions  precedent set forth in Article 8. Pursuant to such consent,  (i) the
Company has, in accordance  with New York Law and other  applicable  law and its
Certificate of Incorporation and Bylaws,  convened a meeting of its shareholders
(the "Company Shareholders  Meeting") to consider and vote upon the Merger; (ii)
the Board of Directors  of the Company has  recommended  and declared  advisable
approval of this Agreement,  the Certificate of Merger, the Merger and the other
transactions contemplated hereby; and (iii) the shareholders of the Company have
voted the  requisite  number of Company  Shares for, or otherwise  granted their
approval of, the Merger, this Agreement, and the Certificate of Merger.

                           (b)  Each of the Shareholders has the requisite power
and capacity to execute and deliver this Agreement and all agreements, documents
and  instruments  executed and delivered by such  Shareholder in connection with
the  transactions  contemplated  by this Agreement (the  "Shareholder  Ancillary
Agreements"  and,  together  with  the  Shareholder  Ancillary  Agreements,  the
"Ancillary   Agreements")  and  to  fully  perform  his  respective  obligations
hereunder and thereunder, and the execution and delivery of this Agreement.

                           (c) The Company is a corporation validly existing and
in good  standing  under the laws of the State of New York and has all requisite
corporate  power and  authority  to own,  operate and lease its  property and to
carry on its business as now being  conducted.  The  ownership or leasing of the
Company's  properties  and the conduct of its  business do not require  that the
Company  be  qualified  to  conduct  business  as a foreign  corporation  in any
jurisdiction.

                           (d)  The Company has previously delivered to Parent a
true,  correct,  and complete copy of its Certificate of Incorporation,  By-laws
and all amendments to the foregoing.  The minute books of Company made available
to counsel  for  Parent  are the only  minute  books of  Company  and  contain a
reasonably  accurate  summary,  in all  material  respects,  of all  meetings of
directors (or  committees  thereof) and the  shareholders  or actions by written
consent since the time of incorporation of Company.

                  4.2      No Violation.

                           (a)  Neither  the  execution  and  delivery  of this
Agreement or any of the Ancillary  Agreements by the Company or the Shareholders
nor the consummation of the transactions  contemplated  hereby or thereby by the
Company  or the  Shareholders  shall  (i)  violate  or  result in a breach of or
constitute  a default  under  any  provision  of the  Company's  certificate  of
incorporation or bylaws;  (ii) violate any order,  arbitration award,  judgment,
decree,  law,  ordinance,  regulation  or any other  restriction  of any kind or
character to which the Company or any  Shareholder  is a party or is bound or to
which any  property  of the Company or any  Shareholder  is subject or is bound;
(iii) except as described in Section 4.2 (b) of the Disclosure Schedule, violate
or result in a breach


                                        8

<PAGE>



of or  constitute a default (or would result in or  constitute  such a breach or
default with notice or lapse of time or both) under any provision of any Company
Contract (as defined below);  (iv) except as described in Section 4.2 (b) of the
Disclosure Schedule,  require the consent of any other party to any of the items
described in this subsection; or (v) except as described in the last sentence of
Section 5.3, require the consent or approval of any governmental body, agency or
authority.

                           (b)     Attached as Section 4.2 (b) of the Disclosure
Schedule is a description of (i) all amounts that may become  payable;  (ii) all
Company Contracts that may be in default or be breached, assuming no consents or
waivers are obtained;  and (iii) any expense or loss that may be realized  under
GAAP,  as a result  of or in  connection  with the  Merger  or the  transactions
contemplated by this Agreement.

                  4.3 Enforceability. The Company and the Shareholders have duly
executed and delivered this Agreement and each of the Ancillary Agreements,  and
this  Agreement  and each of the  Ancillary  Agreements  constitutes a valid and
binding  agreement,  enforceable  against the Company  and the  Shareholders  in
accordance with its terms,  except as  enforceability  may be limited by laws of
general application relating to bankruptcy,  insolvency and debtors' relief, and
by general principles of equity.

                  4.4      Capitalization.

                           (a)   The authorized capital stock of the Company and
the issued  and  outstanding  shares of  capital  stock are set forth in Section
4.4(a) of the Disclosure  Schedule.  Section  4.4(a) of the Disclosure  Schedule
also  sets  forth a true and  complete  list of all of the  shareholders  of the
Company as of the date of this Agreement,  the number of shares of capital stock
owned  by  each  of  them,  the  date  such  shares  were   transferred  to  the
shareholders,  and each shareholder's social security number and address. All of
the  Company's  issued and  outstanding  shares of capital  stock have been duly
authorized and validly issued, are fully paid and nonassessable, are not subject
to preemptive  rights,  and have been issued in compliance  with all  applicable
federal and state securities laws.

                           (b)    Except for the Shareholders, no person owns or
has a  beneficial  or legal  interest  in any portion of the  Company's  capital
stock. Except as set forth in Section 4.4(b) of the Disclosure  Schedule,  there
are no  warrants,  options,  agreements,  calls,  rights  (including  preemptive
rights), convertible or exchangeable securities or other commitments pursuant to
which the Company is or may become obligated to grant, issue, extend, accelerate
vesting,  sell, purchase,  retire or redeem any shares of capital stock or other
securities.  There  is no  right  of  first  refusal,  co-sale  right,  right of
participation,  right of first offer demand, registration rights, restriction on
transfer (other than pursuant to applicable securities laws), or other agreement
or  understanding  applicable  to the  Company's  capital  stock or  securities.
Neither the Company nor any  Shareholder  is a party or subject to any agreement
or  understanding,  and, to the  Company's  knowledge,  there is no agreement or
understanding between or among any other persons, that affects or relates to the
voting


                                        9

<PAGE>



or giving of written  consent  with respect to any  outstanding  security of the
Company, other than as contemplated hereby.

                           (c)     The Company Shares set forth as owned by each
Shareholder  on  Section  4.4(a) of the  Disclosure  Schedule  are in fact owned
individually  only by such  Shareholder  and are  free and  clear of all  liens,
encumbrances,  security  interests,  mortgages,  pledges,  charges,  agreements,
rights, options, warrants, restrictions and claims.

                  4.5      Subsidiaries; Affiliates; Conflict of Interest.

                           (a)    The Company has no subsidiaries.  The business
of the Company is  conducted  by the Company and is not  directly or  indirectly
conducted through a subsidiary or Affiliate (as defined below) of Company, or by
any other  entity.  The term  "Affiliate"  with  respect to any person means any
person or entity which  controls  such person,  which that person  controls,  or
which is under common control with that person. In the case of the Company,  the
term "Affiliate" shall include,  but not be limited to, the Shareholders and the
Shareholders'  Affiliates.  Affiliates of  Shareholders  include the spouse of a
Shareholder,  siblings and lineal descendants or ancestors of Shareholders,  and
any  corporation,  partnership,  joint  venture or other entity which any of the
Shareholders,  any  spouse,  sibling  or  lineal  descendant  or  ancestor  of a
Shareholder,  or a trust for the benefit of any of them, controls.  For purposes
of the  preceding  sentences,  the term  "control"  means the  power,  direct or
indirect,  to direct or cause the direction of the  management and policies of a
person or entity through voting securities, contract or otherwise. Except as set
forth in Section 4.5(a) of the Disclosure Schedule,  no Affiliate of the Company
has any direct or indirect  interest  (other than an  investment  interest in no
more than five  percent (5%) of the stock of a publicly  traded  company) in any
creditor, competitor, supplier, customer, or lessor of Shareholders.

                           (b)      Except as set forth in Section 4.5(b) of the
Disclosure  Schedule,  no  Affiliate  of the Company is presently a party to any
agreement or arrangement  with the Company:  (i) providing for the furnishing of
raw materials,  products or services to or by, or (ii) providing for the sale or
rental of real or personal property to or from, any such entity.

                           (c)      Except as set forth in Section 4.5(c) of the
Disclosure  Schedule,  no  Affiliate of the Company has any interest in: (i) any
contract,  arrangement  or  understanding  with, or relating to, the business or
operations of the Company; (ii) any loan, arrangement,  understanding, agreement
or  contract  for or  relating  to  indebtedness  of the  Company;  or (iii) any
property (real,  personal or mixed),  tangible or intangible,  used or currently
intended to be used in, the business or operations of the Company. Following the
Closing,  the  Company  will  not  have  any  obligations  of  any  kind  to any
Shareholder or any Affiliate of a Shareholder  except for (i) accrued salary for
the pay period  commencing  immediately  prior to the Closing Date; and (ii) the
obligations   set  forth  at   Section   4.5(c)  of  the   Disclosure   Schedule
(collectively, the "Related Party Obligations").



                                       10

<PAGE>



                  4.6  Investments  in  Others.  The  Company  does not have any
investment in or advance or loan to or guarantee  of, or any  commitment to make
any investment in, advance or loan to or guarantee of, any person, except as set
forth in the Interim Balance Sheet (as defined below).

                  4.7      Financial Statements.

                           (a)    The Company's audited balance sheets as of the
end of, and related  audited  statements of income,  retained  earnings and cash
flow for, the fiscal years ended  December  31, 1998 (the  "Financial  Statement
Date"),  December 31, 1997, and December 31, 1996 are attached hereto at Section
4.7(a) of the Disclosure Schedule and are referred to herein collectively as the
"Financial  Statements" and  individually  as the "1998  Financial  Statements,"
"1997 Financial Statements" and "1996 Financial Statements,"  respectively.  The
Financial Statements (i) present fairly, in all material respects, the financial
position,  results of operations and changes in cash flows,  as the case may be,
of the  Company at the  Financial  Statement  Date;  and (ii) were  prepared  in
accordance  with GAAP in a manner  consistent  with the Company's  historic GAAP
accounting  practices  applied  on  a  consistent  basis,  except  as  otherwise
indicated in the text of such statements.

                           (b) The unaudited  balance sheet of the Company as of
May 31, 1999 (the "Interim Balance Sheet"), and the related statements of income
for the five (5) months  ended May 31, 1999  attached  at Section  4.7(b) of the
Disclosure   Schedule,   are  referred  to  herein  as  the  "Interim  Financial
Statements."  The  Interim  Financial  Statements  (i)  present  fairly,  in all
material respects, the financial position and results of operations, as the case
may be, of the Company at May 31, 1999;  and (ii) except as described in Section
4.7(b) of the Disclosure Schedule were prepared in conformity with GAAP and in a
manner consistent with the Company's historic accounting  practices applied on a
consistent basis,  subject to normal and customary year-end closing adjustments,
the lack of full  footnote  presentations,  and lack of statements of cash flows
and retained earnings.

                           (c)   Attached as Schedule 4.7(c) are reports showing
year-to-date  sales  information and comparable store net sales  information for
each of the Company's retail store locations (i) on an annual basis for the year
ended December 31, 1998 compared with the year ended December 31, 1997;  (ii) on
a monthly basis for the  five-month  period ended May 31, 1999 compared with the
five-month period ended May 31, 1998; and (iii) on a weekly basis for the period
from June 1, 1999 to the date hereof compared with the same period in 1998. Such
reports are true and complete and correctly  present actual  year-to-date  sales
and comparable store net sales of Seller in all material respects.

                  4.8 Unreported and Contingent Liabilities. Except as set forth
at Section 4.8 of the Disclosure  Schedule or as set forth in the 1998 Financial
Statements and the Interim Financial Statements,  the Company has no liabilities
or obligations,  whether accrued, absolute, fixed, known or unknown,  contingent
or otherwise,  existing,  arising out of or relating to any transaction  entered
into, or state of facts existing, on or prior to the date of this Agreement. The
Company's  liabilities  under Guardian Life Insurance  Company and State Workers
Compensation  claims have been fully accrued on the  Financial  Statements in an
amount not less than that required by GAAP.


                                       11

<PAGE>



                  4.9 Absence of Certain  Changes.  Since December 31, 1998, the
business of the  Company  has been  conducted  only in the  ordinary  course and
consistent  with past  practices,  and except as set forth at Section 4.9 of the
Disclosure Schedule,  there has not been (a) any material adverse change (or any
event that will have a material  adverse change) in the condition  (financial or
otherwise), assets, liabilities,  earnings, business, operations or prospects of
the Company ("Material Adverse Change"); (b) any damage,  destruction,  casualty
or other similar  occurrence or event  (whether or not insured  against),  which
either  singly or in the  aggregate  materially  adversely  affects  the assets,
liabilities,  earnings,  business or operations of the Company; (c) any mortgage
or pledge of or  encumbrance  attached to any of the properties or assets of the
Company not in the ordinary  course of business;  (d) any incurrence or creation
of any liability,  commitment or obligation in excess of $10,000 by the Company,
except unsecured trade payables and other unsecured  liabilities incurred in the
ordinary  course  of  business,   and  capital  expenditures  or  contracts  and
commitments for capital expenditures made or entered into in the ordinary course
of business;  (e) any sale,  transfer or other disposition by the Company of any
of its assets (other than the Personal  Assets as defined in Section  6.1(m)) in
excess of $50,000 in the aggregate,  except for inventory sold by the Company in
the  ordinary  course  of  business;  (f)  any  amendments  or  changes  to  the
Certificate of Incorporation or Bylaws of Company; (g) any labor trouble,  claim
of wrongful  discharge,  or unlawful labor practice or claim (except  matters in
the aggregate will not result in potential  damages  greater than $20,000);  (h)
any  change  in  accounting  methods  or  practices  (including  any  change  in
depreciation or amortization  policies or rates) by Company; (i) any revaluation
by Company of any of its assets;  (j) any declaration,  setting aside or payment
of a dividend or other distribution or deposit with respect to the capital stock
of Company or a Shareholder, or direct or indirect redemption, purchase or other
acquisition  by Company of any of its capital  stock  except such  dividends  or
other  distributions  totaling $1,410,000 which dividends and distributions were
consistent with the historical practice and policy of Company;  (k) any increase
in the salary or other  compensation  payable or to become payable to any of its
officers,  directors,  employees or  advisors,  or the  declaration,  payment or
commitment  or  obligation  of any  kind  for the  payment  of a bonus  or other
additional  salary or  compensation to any such person and except for increases,
payments or commitments in the ordinary  course of business and consistent  with
past  practices;  (l) any  amendment or  termination  of any material  contract,
agreement  or license to which  Company is a party or by which it is bound;  (m)
any loan by  Company  to any  person or  entity,  incurring  by  Company  of any
indebtedness,  guaranteeing by Company of any indebtedness,  issuance or sale of
any debt securities of Company or guaranteeing of any debt securities of others,
except  for  advances  to  employees  for travel and  business  expenses  in the
ordinary course of business,  consistent with past practices;  (n) any waiver or
release of any material  right or claim of Company,  including  any write-off or
other compromise of any account receivable of Company other than in the ordinary
course of business and consistent with past practices;  (o) any  commencement or
notice or  threat of  commencement  of any  lawsuit  or  proceeding  against  or
governmental  investigation  of Company or its  affairs;  or (p) any issuance or
sale by Company of any of its shares of capital  stock,  or securities or option
or warrants  exchangeable,  convertible or exercisable therefor, or of any other
of its securities.

                  4.10     [Reserved].


                                       12

<PAGE>



                  4.11 Licenses and Permits.  Section  4.11(a) of the Disclosure
Schedule sets forth all licenses and permits (including food stamp licenses, FDA
licenses,  food permits,  liquor licenses,  business  licenses,  fictitious name
certificates,  etc.) necessary for the conduct of the Company's  business as now
operated.  Such licenses and permits are valid and in full force and effect.  No
action or claim is pending, or, to the knowledge of the Company,  threatened, to
revoke or terminate  any such licenses or permits or declare any of them invalid
in any respect  and,  except as set forth on Section  4.11(b) of the  Disclosure
Schedule, the transactions contemplated by this Agreement will not result in the
revocation or  termination  of any such licenses or permits.  A list of all such
licenses and permits is attached at Section 4.11 of the Disclosure Schedule.

                  4.12  Litigation.  Except as set forth at Section  4.12 of the
Disclosure  Schedule,  there is not  pending  against  the  Company  or,  to the
knowledge  of the  Company,  threatened  against the Company any claim,  action,
suit, arbitration proceeding,  governmental proceeding or investigation or other
proceeding of any character (the  "Proceeding") (a) demanding money damages from
the  Company,  or (b)  demanding  a  temporary  restraining  order,  preliminary
injunction or a permanent  injunction or order of specific  performance  against
the  Company.  All of the  items  set forth on  Section  4.12 of the  Disclosure
Schedule are fully  covered by insurance  except as indicated on such section of
the Disclosure  Schedule.  All pending Proceedings  relating to or involving the
Company (or any of its officers or directors  as such) are  adequately  provided
for in the Interim  Balance  Sheet in accordance  with GAAP.  The Company is not
subject to any judgment, decree, injunction, rule or order of any court, and the
Company  is not  subject to any  governmental  restriction  which is  reasonably
likely (i) to have a material adverse effect on the assets, liabilities, results
of operations, financial condition, business or prospects of the Company or (ii)
to cause a material  limitation  on Parent's  ability to operate the business of
the Company after the Closing. There are no Proceedings pending, nor to the best
of the  Company's  knowledge,  threatened,  under or pursuant  to any  warranty,
whether expressed or implied, on products sold by the Company.

                  4.13 Inventory.  All of the Company's  Inventory was purchased
in the ordinary course of business. The Inventory is maintained on the financial
records  of  the  Company  using  historical  valuation  methods  and  practices
consistent  with those used in preparing the 1998 and 1997 Financial  Statements
as well as the Interim Financial  Statements.  All items of Inventory (i) are of
good  and  merchantable  quality  for  sale  or use in the  ordinary  course  of
business; (ii) are not spoiled, damaged, crushed, defaced, defective, past their
expiration  date,  or  subject  to  recall;  (iii)  are in  conformity  with all
applicable government  requirements  (including the Consumer Product Safety Act,
Federal Hazardous  Substances Act,  Flammable Fabrics Act, and other federal and
state  product  safety  and  labeling  laws);   and  (iv)  do  not  violate  the
intellectual  property rights of any third party (including  trademark,  service
mark,  patent, or trade dress).  Any items of Inventory which do not satisfy the
requirements  of the  foregoing  sentence  shall be marked  down to $0.00 on the
Closing  Balance  Sheet and removed and  retained by  Shareholders.  "Inventory"
shall mean all of the Company's inventory and merchandise whether located in the
stores, in a warehouse, or in transit to the stores, together with the Company's
packaging Inventory and displays.



                                       13

<PAGE>



                  4.14     Real Property.

                           (a)  The Company does not own, nor has it ever owned,
any real property.  Section 4.14(a) of the Disclosure Schedule sets forth a true
and correct list of all real property  currently leased by the Company (together
with all fixtures and improvements  thereon,  the "Leased Real Property," broken
down as follows:

                                (A)     all  leases for  retail  stores  of  the
                                        Company open on the date hereof;

                                (B)     all leases for retail  stores of the
                                        Company  that are not open as of the
                                        date hereof;

                                (C)     a list of all leases for retail stores
                                        of the Company under negotiation; and

                                (D)     all other  real  property  leases of
                                        the Company, including the warehouse
                                        and office leases.

                           (b)   The Company is not a tenant under any leases of
real property used by the Company except as reflected in Section  4.14(a) of the
Disclosure Schedule.  The Company has previously delivered to Parent correct and
complete  copies of all of the leases  and  related  amendments,  modifications,
subleases, and store, warehouse or headquarters license agreements.

                           (c)     Except as set forth at Section 4.14(c) of the
Disclosure  Schedule,  the Company has a valid leasehold  interest in the Leased
Real  Property,  free  and  clear of any  mortgages,  pledges,  liens,  security
interests or other encumbrances of any nature.

                           (d)    The leases of the Leased Real Property are in
full force and effect.  The Company has neither sent nor received written notice
of any default under the leases of the Leased Real Property, and the Company has
not  breached  any material  covenant,  agreement or condition  contained in any
lease of the Leased Real  Property,  nor has there occurred any event which with
the  passage  of time or the giving of notice or both  would  constitute  such a
breach by the  Company.  The Company has paid in full or accrued all amounts due
and owing,  and has  satisfied  in full or accrued  all of its  liabilities  and
obligations,  under the leases.  The Company has not  received any notice of any
pending  claim by any  landlord or other third party  adverse to the  possessory
rights of the Company under any leases,  nor any other written notice of uncured
default by the Company regarding any of the Leased Real Estate.  The Company has
the right to use such Leased Real Estate for the operations presently conducted.
The  Company is the tenant  under all of the  leases.  The leases for any Leased
Real Property which constitutes warehouse,  office or other non-retail space may
be  terminated  without  penalty  upon not more than six  months'  notice to the
landlord thereunder.



                                       14

<PAGE>



                           (e)    To the best of Company's knowledge, no portion
of the Leased Real Property,  or any of the buildings and  improvements  located
thereon, violates in any material respect any law, rule, regulation,  ordinance,
or  statute,   including   those  relating  to  zoning,   building,   land  use,
environmental,  health and safety,  fire, air,  sanitation and noise control. To
the  knowledge  of the  Company,  except as set forth in Section  4.14(e) of the
Disclosure Schedule, no pending or threatened condemnation or similar proceeding
exists with respect to the Leased Real Property.

                           (f)     Except as set forth at Section 4.14(f) of the
Disclosure  Schedule,  the  improvements and fixtures located on the Leased Real
Property are in good condition and working order, without any material defect of
any kind.  The Company is in  possession  of all of the Leased Real Property and
all  improvements  and fixtures  located  thereon,  and the Company has adequate
rights of ingress and egress with  respect to such Leased Real  Property and the
improvements and fixtures located thereon.

                  4.15 Environmental Matters.  Except  as set  forth at Section
4.15 of the Disclosure Schedule:

                           (a)   the Company possesses, and is in compliance in
all material respects with, all permits,  licenses and government authorizations
and has filed all notices that are required under local,  state and federal laws
and regulations  relating to protection of the environment,  pollution  control,
product registration and hazardous materials (as defined below)  ("Environmental
Laws"),  and the Company is in  compliance  in all  material  respects  with all
applicable  limitations,   restrictions,  conditions,  standards,  prohibitions,
requirements,  obligations,  schedules and timetables contained in those laws or
contained in any law, regulation,  code, plan, order, decree, judgment,  notice,
permit or demand letter issued, entered, promulgated or approved thereunder;

                           (b) the Company has not received any notice of actual
or threatened liability under the Federal Comprehensive  Environmental Response,
Compensation  and Liability Act ("CERCLA") or any similar state or local statute
or ordinance  from any  governmental  agency or any third party and there are no
facts or  circumstances  which could reasonably form the basis for the assertion
of any claim against the Company under any Environmental Laws including, without
limitation,  CERCLA or any similar  local,  state or foreign law with respect to
any on-site or off-site location;

                           (c)   the Company has not entered into, agreed to nor
contemplates  entering into any consent  decree or order,  and is not subject to
any judgment,  decree or judicial or administrative order relating to compliance
with, or the cleanup of hazardous materials under, any applicable  Environmental
Laws;

                           (d)   the  Company  has  not  been  alleged  to be in
violation  of,  and has not  been  subject  to any  administrative  or  judicial
proceeding pursuant to, applicable  Environmental Laws or regulations either now
or any time during the past five years;



                                       15

<PAGE>



                           (e)      the  Company is  not  subject to  any claim,
obligation,  liability,  loss,  damage or  expense of  whatever  kind or nature,
contingent or otherwise,  incurred or imposed or based upon any provision of any
Environmental  Law and  arising out of any act or omission of the Company or its
respective employees, agents or representatives or arising out of the ownership,
use, control or operation by the Company of any plant,  facility,  site, area or
property  (including,  without limitation,  any plant,  facility,  site, area or
property  currently or previously owned or leased by the Company) from which any
hazardous  materials  were released  into the  environment  (the term  "release"
meaning  any  spilling,   leaking,   pumping,   pouring,   emitting,   emptying,
discharging,  injecting,  escaping,  leaching,  dumping  or  disposing  into the
environment,  and the term  "environment"  meaning any surface or ground  water,
drinking  water supply,  soil,  surface or subsurface  strata or medium,  or the
ambient air);

                           (f)   the Company has heretofore provided Parent with
true,  correct  and  complete  copies of all files of the  Company  relating  to
environmental  matters (or an  opportunity  to review such  files),  and Section
4.15(f) of the Disclosure Schedule sets forth the amount of all fines, penalties
or  assessments  paid within the last five years by the Company  with respect to
environmental  matters,  including  the date of  payment  and the  basis for the
assertions of liability; and

                           (g)      to  the best of Company's and Shareholder's
knowledge,  neither the Leased  Real  Property  nor  improvements  or  equipment
included  within  the  Leased  Real  Property  contains  any  asbestos,  PCBs or
underground storage tanks.

As  used in  this  Section  4.15,  the  term  "hazardous  materials"  means  any
pollutant,   hazardous  substance,  toxic,  ignitable,   reactive  or  corrosive
substance,  hazardous waste, special waste,  industrial  substance,  by-product,
process intermediate product or waste, petroleum or petroleum-derived  substance
or waste,  chemical  liquids  or  solids,  liquid or  gaseous  products,  or any
constituent  of any such  substance or waste,  the use,  handling or disposal of
which by the Company is in any way governed by or subject to any applicable law,
rule or regulation of any governmental or regulatory authority.

                  4.16 Compliance With Laws Generally.  The Company has complied
and is in current compliance with all laws, rules, regulations and ordinances to
which it is subject or by which it is bound (including the Product Safety Laws),
except those that will not result in claims,  liabilities or obligations  which,
in the aggregate,  exceed $20,000.  The Company's purchasing and sales practices
comply  with  all  laws,  rules,  regulations  and  ordinances  as  well  as all
restrictions  to which the  Company is  subject.  No action,  suit,  proceeding,
hearing,  investigation,  charge,  complaint,  claim, demand, or notice has been
filed, commenced, or, to the best of the Company's knowledge, threatened against
the Company alleging any uncured failure so to comply. There are no existing or,
to the knowledge of the Company, proposed laws, rules, regulations or ordinances
of such a nature as could reasonably be expected to materially  adversely affect
the continued  conduct or profitability of the Company's  business in the manner
presently conducted.



                                       16

<PAGE>



                  4.17     Employee Benefit Plans.

                           (a)    Company has previously provided Parent with a
document  setting  forth a true  and  complete  list of (i) the  names,  titles,
locations of employment,  annual salaries and other compensation and benefits of
all employees of the Company; and (ii) the wage rates for non-salaried employees
of the  Company.  Except  as set  forth at  Section  4.17(a)  of the  Disclosure
Schedule, there are no employees of the Company who are on military, disability,
family  or  other  leave  of  absence  (whether  or not  approved)  and who have
reemployment rights or rights to health care continuation  coverage under Part 6
of Title I of the Employee  Retirement  Income  Security Act of 1974, as amended
("ERISA") or similar rights to benefits continuation.

                           (b)      Section  4.17(b) of the Disclosure Schedule
contains  a true and  complete  list of all the  following  agreements  or plans
("Benefit Plans") which are presently in effect or which have previously been in
effect and which  cover or covered any  current or former  employees,  officers,
directors or independent contractors of the Company ("Employees"):

                                    (i)  any employee benefit plan as defined in
Section 3(3) of ERISA, under which the Company has any outstanding,  present, or
future  obligation or liability,  or under which any Employee has any present or
future right to benefits which are covered by ERISA; or

                                    (ii)  any  other  pension,  profit  sharing,
retirement,  deferred  compensation,  stock purchase,  stock option,  incentive,
bonus,  vacation,   severance,   disability,   hospitalization,   medical,  life
insurance,  or other employee  benefit plan,  program,  policy,  or arrangement,
written or oral,  which the Company  maintains  or to or under which the Company
has any  outstanding,  present,  or future  obligations  to  contribute  or make
payments, whether voluntary, contingent or otherwise.

                           (c)    The Company has made available to Parent true,
correct and  complete  copies of all  documents  relating to the Benefit  Plans,
including  but  not  limited  to:  (i) all  plan  documents,  amendments,  trust
instruments and other material  agreements adopted or entered into in connection
with each of the Benefit Plans; (ii) all insurance and annuity contracts related
to any Benefit Plans;  (iii) all  administrative  notices and forms used for the
Benefit Plans, including the notices and election forms used to notify employees
and their dependents of their  continuation  coverage rights under the Company's
group  health  plans;  and (iv) the most  recently  available  Form 5500  annual
reports,  certified  financial  statements,   actuarial  reports,  summary  plan
descriptions and favorable  determination  letters for the Benefit Plans.  Since
the date these  documents were supplied to Parent,  no plan amendments have been
adopted,  no changes to these  documents  have been made,  and no  amendments or
changes will be adopted or made prior to the Closing Date.

                           (d)   All of the Benefit Plans and the related trusts
subject to ERISA comply and have been  administered  in compliance  with (i) the
provisions of ERISA;  (ii) all  provisions of the Code  applicable to secure the
intended tax  consequences;  (iii) all applicable  state and federal  securities
laws; and (iv) all other  applicable  laws,  rules,  regulations  and collective
bargaining


                                       17

<PAGE>



agreements, except where the failure to so comply or to be so administered would
not result in any  monetary  penalty  against the  Company.  The Company has not
received  any written  notice from any  governmental  agency or  instrumentality
questioning or challenging such compliance.

                           (e)    The Company has complied with the continuation
coverage  requirements  of  Section  1001  of the  Consolidated  Omnibus  Budget
Reconciliation  Act of 1985,  as  amended,  and ERISA  Sections  601 through 608
("COBRA").

                           (f)   Neither the Company, its ERISA Affiliates (that
is, any entity  which,  together  with the company,  will be treated as a single
employer  within the meaning of Code Section  414(b),  (c), (m) or (o)), nor any
administrator  or  fiduciary of any Benefit Plan (or agent or delegate of any of
the foregoing)  has engaged in any  transaction or acted or failed to act in any
manner that could  subject the Company to any direct or indirect  liability  (by
indemnity or otherwise) for a breach of any fiduciary or co-fiduciary duty under
ERISA.  No party in interest  (as defined in ERISA) or  disqualified  person (as
defined  in  the  Code)  of any  Benefit  Plan  has  engaged  in any  prohibited
transaction (within the meaning of ERISA Section 406 or Code Section 4975).

                           (g)  No Benefit Plan is subject to Title IV of ERISA,
and  neither  the  Company nor any of its ERISA  Affiliates  have  incurred  any
liability  under Title IV of ERISA arising in connection with the termination of
any plan covered or  previously  covered by Title IV of ERISA that could become,
after the Closing Date, an obligation of Sub or any of its ERISA Affiliates.

                           (h)      Neither  the  Company  nor any of its ERISA
Affiliates  currently  is a party  to any  pension  or  welfare  plan  that is a
multiemployer   plan   within   the   meaning   of  ERISA   Section   4001(a)(3)
("Multiemployer  Plan"). Neither the Company nor any of its ERISA Affiliates (i)
currently  has any  liability to make any  withdrawal  liability  payment to any
Multiemployer  Plan;  (ii) will  incur any such  liability  for which Sub or its
affiliates  may become liable;  (iii) is delinquent in making any  contributions
required  to be paid to any  Multiemployer  Plan;  or  (iv) is  involved  in any
pending dispute with any Multiemployer Plan.

                           (i)      None  of the  Benefit Plans provides welfare
benefits,  including,  without limitation, death or medical benefits (whether or
not  insured),  with  respect  to  current  or  former  Employees  beyond  their
retirement or other  termination  of service  (other than  coverage  required by
COBRA or any similar state law).

                           (j)   Levels of insurance reserves, trust funding and
accrued  liabilities with regard to all Benefit Plans (to which such reserves or
liabilities  do or  should  apply)  are  described  at  Section  4.17(j)  of the
Disclosure  Schedule,  and such levels are  reasonable and sufficient to provide
for all  incurred  but  unreported  claims and any  retroactive  or  prospective
premium adjustments.

                           (k)      Each   Benefit Plan which is intended to be
qualified under Code Section 401(a)  ("Qualified  Retirement Plan") is qualified
in form and  operation  under  Code  Section  401(a)  and its  related  trust is
tax-exempt under Code Section 501. For each such plan, the Company


                                       18

<PAGE>



has received from the Internal Revenue Service a favorable  determination letter
to the effect that the plan in form satisfies the requirements for qualification
under Code Section  401(a) (taking into account the provisions of the Tax Reform
Act of 1986 and all  subsequent  legislation).  No  amendment  to any  Qualified
Retirement Plan made since applying for such determination  letter could cause a
disqualification of such plan. Any noncompliance or failure prior to the Closing
Date properly to maintain,  operate, or administer any Qualified Retirement Plan
has not rendered and will not render:  (i) such plan or its related trust or Sub
or its ERISA Affiliates  subject to, or liable (directly or indirectly) for, any
taxes, penalties, or liabilities to any person or governmental agency; (ii) such
plan subject to disqualification;  or (iii) the trust under such plan subject to
any liability for taxes.

                           (l)      All  contributions  (including all employer
contributions  and employee  salary  reduction  contributions)  which are due or
withheld have been paid to each such Employee  Benefit Plan which is an Employee
Pension  Benefit Plan and all  contributions  for any period ending on or before
the  Closing  Date  which are not yet due have  been paid to each such  Employee
Pension  Benefit Plan or accrued in accordance with the past custom and practice
of the  Company.  All premiums or other  payments  for all periods  ending on or
before  the  Closing  Date have been paid  with  respect  to each such  Employee
Benefit Plan which is an Employee Welfare Benefit Plan.

                           (m)      The Company's records accurately reflect its
Employees' employment  histories,  including their hours of service and years of
vesting and eligibility service.

                           (n)      There is no pending or threatened complaint,
claim  (other  than  a  routine  claim  for  benefits),  proceeding,  audit,  or
investigation  of any kind in or before any  court,  tribunal,  or  governmental
agency with respect to any Benefit Plan.

                  4.18     Intellectual Property.

                           (a) "Intellectual Property" means (a) all inventions,
patents,  and patent  applications;  (b) all  trademarks,  service marks,  trade
dress,  logos, trade names and corporate names,  together with all translations,
adaptations,  derivations,  and combinations  thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals thereof,
including any such  Intellectual  Property  associated  with the name "Only $1",
"Only $One" or other  similar  store or trade name used by the Company;  (c) all
copyrightable  works and copyrights,  and all applications,  registrations,  and
renewals thereof;  (d) all trade secrets and confidential  business  information
(including ideas, research, and development,  know-how, formulas,  compositions,
manufacturing and production processes and techniques,  technical data, designs,
drawings,  specifications,   customer  and  supplier  lists,  pricing  and  cost
information,  and business and  marketing  plans and  proposals);  (e) all other
proprietary  rights;  and (f) all copies and  tangible  embodiments  thereof (in
whatever medium).

                           (b)   The Company owns (or has the royalty-free right
to  use  pursuant  to  license,   sublicense,   agreement,  or  permission)  all
Intellectual  Property  necessary  and used for the  operation  of its  business
activities as presently conducted. Each item of Intellectual Property owned


                                       19

<PAGE>



or available for use prior to the Closing  hereunder  will be owned or available
for the royalty-free use by the Company  immediately  subsequent to the Closing.
The Company has taken all necessary  action to protect each item of Intellectual
Property that it owns or uses.  The Company has not interfered  with,  infringed
upon,  misappropriated,  or otherwise  come into conflict with any  Intellectual
Property  rights of third  parties,  and neither  the Company nor any  officers,
directors, or employees of the Company has ever received any charge,  complaint,
claim,   demand,   or   notice   alleging   such   interference,   infringement,
misappropriation, or violation (including any claim that Company must license or
refrain from using any Intellectual  Property rights of any third party). To the
best of the  knowledge  of the  Company,  no third  party has  interfered  with,
infringed  upon,  misappropriated,  or  otherwise  come into  conflict  with any
Intellectual Property rights of the Company.

                           (c)     Section 4.18(c)(i) of the Disclosure Schedule
identifies each Intellectual  Property registration which has been issued to the
Company and each pending  Intellectual  Property application which has been made
by the Company.  Section  4.17(c)(ii) of the Disclosure Schedule identifies each
license,  agreement,  or other  permission  which the Company has granted to any
third  party  with  respect  to  any  of  its  Intellectual  Property.   Section
4.17(c)(iii) of the Disclosure Schedule identifies each license,  agreement,  or
other  permission  which has been granted to the Company by any third party with
respect to any  Intellectual  Property  used in the  operation of the  Company's
business.

                           (d)      Nothing  herein shall entitle Parent to the
post-closing  use or other right to the name "Tehan's"  either alone or in other
form.

                  4.19     Tax Matters.

                           (a) "Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment,  excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss.59A), customs duties, capital stock, franchise, profits, withholding,  social
security  (or  similar),  unemployment,   disability,  real  property,  personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.

                           (b)      "Tax Return" means any return, declaration,
report,  claim for refund, or information return or statement relating to Taxes,
including  any schedule or  attachment  thereto,  and  including  any  amendment
thereof.

                           (c)     The Company has filed all Tax Returns that it
was  required to file.  All such Tax Returns  were  correct and  complete in all
respects. All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. The Company is not currently the beneficiary of any extension of
time  within  which to file any Tax  Return.  No claim  has ever been made by an
authority in a jurisdiction  where the Company does not file Tax Returns that it
is or may


                                       20

<PAGE>



be subject to taxation by that jurisdiction.  There are no Security Interests on
any of the assets of the Company that arose in  connection  with any failure (or
alleged failure) to pay any Tax.

                           (d) The Company has withheld, paid or will pay before
Closing (subject to the terms of this Agreement) all Taxes required to have been
withheld,  paid or  will  pay  before  Closing  (subject  to the  terms  of this
Agreement) in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.

                           (e)   No director or officer (or employee responsible
for Tax matters) of the Company  expects any authority to assess any  additional
Taxes for any period for which Tax Returns have been filed.  There is no dispute
or claim  concerning  any Tax  Liability  of the  Company  either (A) claimed or
raised by any  authority in writing or (B) as to which any of the  directors and
officers  (and  employees  responsible  for  Tax  matters)  of the  Company  has
knowledge based upon personal contact with any agent of such authority.  Section
4.19(e) of the Disclosure Schedule lists all federal,  state, local, and foreign
income Tax Returns  filed with respect to the Company for taxable  periods ended
on or after  December  31,  1994,  indicates  those Tax  Returns  that have been
audited,  and  indicates  those Tax Returns  that  currently  are the subject of
audit.  The Company has delivered to Parent  correct and complete  copies of all
federal income Tax Returns,  examination reports, and statements of deficiencies
assessed against or agreed to by the Company since December 31, 1994.

                           (f)      The Company  has not  waived any statute of
limitations  in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.

                           (g)    The Company has not filed a consent under Code
ss.341(f)  concerning  collapsible  corporations.  The  Company has not made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code ss.280G.  The Company has not been a United States real
property holding  corporation within the meaning of Code ss.897(c)(2) during the
applicable  period  specified  in  Code  ss.897(c)(1)(A)(ii).  The  Company  has
disclosed on its federal  income Tax Returns all  positions  taken  therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code  ss.6662.  The Company is not a party to any Tax  allocation  or
sharing agreement.  The Company (A) has not been a member of an Affiliated Group
filing a  consolidated  federal income Tax Return (other than a group the common
parent of which was the  Target) or (B) has any  Liability  for the Taxes of any
Person  (other  than  any  of  the  Target  and  its  Subsidiaries)  under  Reg.
ss.1.1502-6  (or any similar  provision of state,  local,  or foreign law), as a
transferee or successor, by contract, or otherwise.

                           (h)   Section 4.19(h) of the Disclosure Schedule sets
forth the  following  information  with  respect  to the  Company as of the most
recent  practicable  date (as well as on an estimated  pro forma basis as of the
Closing  giving  effect to the  consummation  of the  transactions  contemplated
hereby):  (A) the basis of the Company in its assets;  (B) the amount of any net
operating  loss,  net capital loss,  unused  investment or other credit,  unused
foreign tax, or excess


                                       21

<PAGE>



charitable  contribution  allocable  to the  Company;  and (C) the amount of any
deferred  gain or loss  allocable  to the Company  arising  out of any  Deferred
Intercompany Transaction.

                           (i)   The unpaid Taxes of the Company (A) did not, as
of the Most Recent  Fiscal  Month End,  exceed the reserve for Tax  Liability by
more than $5,000  (rather than any reserve for  deferred  Taxes  established  to
reflect timing differences between book and Tax income) set forth on the face of
the Most Recent  Balance Sheet (rather than in any notes thereto) and (B) do not
exceed  that  reserve by more than  $5,000 as  adjusted  for the passage of time
through the Closing Date in accordance  with the past custom and practice of the
Company in filing its Tax Returns.

                           (j) Company made a valid election under  Subchapter S
of the Code (the "S Election") to which all persons who were shareholders on the
date of such election gave their consent and which became  effective on February
1,  1993 (a copy of which is  attached  as  Section  4.19(j)  of the  Disclosure
Schedule  and Company is, has been at all times since  February 1, 1993 and will
continue to be an S  corporation  (as defined in Section 1361 of the Code) until
the day prior to the Effective Time (such period being called the "S Corporation
Period"). The cause of the termination of Company's status as an "S" corporation
will be the Merger.  The period after the S Corporation Period is referred to as
the "C Corporation Period."

                  4.20 No Broker  Involved.  Neither  the  Shareholders  nor the
Company has engaged any broker, finder or agent with respect to the transactions
contemplated  by this  Agreement or with respect to the Company's sale or merger
or any other transaction relating to the disposition of the Company's assets.

                  4.21  Contracts.  Section  4.21  of  the  Disclosure  Schedule
contains a true and complete list of the following  (hereinafter  referred to as
the "Company Contracts"):

                           (a)      all  bonds, debentures,  notes,  mortgages,
indentures  or guarantees to which the Company is a party or by which any of its
properties or assets (real,  personal or mixed, tangible or intangible) is bound
pursuant to which any  indebtedness  of the Company in the  aggregate  principal
amount in excess of $10,000 is outstanding;

                           (b)     all leases to which the Company is a party or
by which any of its properties or assets (real,  personal or mixed,  tangible or
intangible)  is bound  involving an annual  rental  payment in excess of $10,000
individually;

                           (c)   all loans and credit commitments to the Company
which are outstanding  and pursuant to which any  indebtedness of the Company in
the aggregate  principal  amount in excess of $10,000 is  outstanding,  together
with a brief  description  of such  commitments  and the name of each  financial
institution granting the same;

                           (d)      all contracts or agreements which limit  or
restrict  in any  respect  the  Company  from  engaging  in any  business in any
jurisdiction;


                                       22

<PAGE>



                           (e)   all agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;

                           (f)     all bonuses, deferred compensation, incentive
compensation, pension, profit-sharing or retirement plans, or any other employee
benefit plans or arrangements;

                           (g)      all  employment  or  consulting agreements,
contracts or commitments with any employee,  not terminable by Company on thirty
days notice without liability;

                           (h)      all agreements or plans, including, without
limitation,  any stock option  plans,  stock  appreciation  right plans or stock
purchase plans,  any of the benefits of which will be increased,  or the vesting
of  benefits  of which  will be  accelerated,  by the  occurrence  of any of the
transactions  contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;

                           (i)  all agreements of indemnification or guaranties;

                           (j)      all  agreements,  contracts  or commitments
containing any covenant limiting the freedom of Company to engage in any line of
business or compete with any person;

                           (k)      all agreements,  contracts  or  commitments
relating to capital  expenditures and involving future  obligations in excess of
$5,000 and not cancelable without penalty;

                           (l)      all  agreements,  contracts or  commitments
currently in force  relating to the  disposition or acquisition of assets not in
the ordinary  course of business or any ownership  interest in any  corporation,
partnership, joint venture or other business enterprise;

                           (m)     all joint marketing or development agreements
or distribution agreements; or

                           (n)      all  existing  agreements,  contracts  and
commitments,  written or oral  (other  than  those  described  in the  foregoing
provisions of this Section 4.21) to which the Company is a party or by which the
Company  or any of their  respective  properties  or  assets  may be  bound  (i)
involving an annual  commitment  or annual  payment by any party thereto of more
than  $10,000  individually;  (ii) which  cannot be  terminated  by the  Company
without  penalty or further  obligations  on not more than 90 days'  notice;  or
(iii) which is otherwise material to the Company.

                  True and complete copies of all Company  Contracts,  including
all  amendments  thereto,  have been  made  available  to  Parent.  The  Company
Contracts are valid and  enforceable in accordance with their  respective  terms
with  respect  to the  Company  (as  applicable)  and valid and  enforceable  in
accordance with their  respective terms with respect to any other party thereto,
except as the  enforceability  may be  limited  by laws of  general  application
relating to bankruptcy,


                                       23

<PAGE>



insolvency,  and debtor's  relief and by the general  principles of equity.  The
Company has physical  possession of all equipment  and other  tangible  physical
assets  which are  covered  by  leases.  There is not  under any of the  Company
Contracts  any  existing  breach,  default or event of default by the Company or
event  that with  notice  or lapse of time or both  would  constitute  a breach,
default or event of default by the  Company,  nor does the Company  know of, and
nor has the  Company  received  notice of, or made a claim with  respect to, any
breach or default by any other party  thereto.  To the knowledge of the Company,
no customer or supplier  which paid the Company or was paid by the Company  more
than  $10,000  during  calendar  year  1997  or 1998  intends  to  terminate  or
materially  alter  its level of  business  with the  Company  as a result of the
transactions contemplated by this Agreement.

                  4.22 Officers and  Employees.  Section 4.22 of the  Disclosure
Schedule  contains a true and complete  list of all of the officers and managers
(except for store  managers and warehouse  managers) of the Company,  specifying
their title and annual rate of  compensation,  bonus  eligibility and a true and
complete  list of all of the employees of the Company as of the date hereof with
whom the Company has a written  employment  agreement or to whom the Company has
made verbal  commitments  which are binding on the Company under applicable law.
To Company's  knowledge after reasonable  inquiry, no employee of Company (i) is
in  violation  of  any  term  of  any  employment  contract,  patent  disclosure
agreement,  non-competition  agreement,  or any restrictive covenant to a former
employer  relating  to the right of any such  employee to be employed by Company
because of the nature of the  business  conducted  or  presently  proposed to be
conducted by Company or to the use of trade secrets or  proprietary  information
of others; and (ii) has given notice to Company, nor is Company otherwise aware,
that any employee intends to terminate his or her employment with Company except
for terminations of a nature and number that are consistent with Company's prior
experience.

                  4.23     Labor Relations.

                           (a)      Since January 1, 1996, (1) employees of the
Company have not been and are not represented by a labor  organization which was
either  National  Labor  Relations  Board  ("NLRB")   certified  or  voluntarily
recognized or recognized  under foreign law; (2) the Company has not been and is
not  a  signatory  to  a  collective   bargaining   agreement   with  any  labor
organization;  (3)  no  representation  election  petition  has  been  filed  by
employees  of the  Company or is pending  with the NLRB and no union  organizing
campaign involving employees of the Company has occurred or is in progress;  (4)
no NLRB  unfair  labor  practice  claims  have been filed  and/or are  presently
pending  against  the  Company  or  any  labor  organization   representing  its
employees; (5) no grievance or arbitration demand, whether or not filed pursuant
to a collective bargaining  agreement,  has been filed or is pending against the
Company;  (6)  no  hand  billing,   picketing,  work  stoppage  (sympathetic  or
otherwise),  or other "concerted  action" involving the employees of the Company
has occurred or is in progress;  and/or (7) no breach of contract  and/or denial
of fair  representation  claim has been filed or is pending  against the Company
and/or any labor organization representing its employees;



                                       24

<PAGE>



                           (b)     Except as set forth in Section 4.23(b) of the
Disclosure  Schedule,  since  January  1,  1996,  no claim for  unpaid  wages or
overtime or for child labor or record  keeping  violations  has been filed or is
pending under the Fair Labor Standards Act,  Davis-Bacon Act,  Walsh-Healey Act,
or Service  Contract  Act or any other  Federal,  state,  local or foreign  law,
regulation, or ordinance;

                           (c)     Except as set forth in Section 4.23(c) of the
Disclosure Schedule, since January 1, 1996, no discrimination and/or retaliation
claim has been filed or is pending  against the  Company  under the 1866 or 1964
Civil Rights Acts,  as amended,  the Equal Pay Act,  the Age  Discrimination  in
Employment  Act, the  Americans  with  Disabilities  Act, the Family and Medical
Leave Act, the Fair Labor  Standards  Act, ERISA or any other Federal law or any
comparable  state  fair  employment  practices  act or  foreign  law  regulating
discrimination in the workplace;

                           (d)      Since  January 1, 1996,  if  the Company is
obligated to develop and maintain an affirmative  action plan, no discrimination
claim,  show cause  notice,  conciliation  proceeding,  sanctions  or  debarment
proceeding  has  been  filed  or is  pending  with  any  Federal  agency  or any
comparable  State or foreign agency or court and no desk audit or on-site review
is in progress;

                           (e)      Since January 1, 1996, no citation has been
issued by Occupational  Safety and Health  Administration  ("OSHA")  against the
Company and no notice of contest or OSHA administrative  enforcement  proceeding
involving the Company has been filed or is pending;

                           (f)   Since January 1, 1996, no workers' compensation
or retaliation claim has been filed or is pending against the Company;

                           (g)      Since  January 1, 1996,  no citation of the
Company has  occurred and no  enforcement  proceeding  has been  initiated or is
pending under Federal or foreign immigration law; and

                           (h)      The Company has not taken any action  which
would  constitute a "mass layoff" or "plant  closing"  within the meaning of the
Worker  Adjustment and Retraining  Notification Act or otherwise  trigger notice
requirements or liability under any local or state plant closing notice law.

                           (i)     No employee of the Company is indebted to the
Company except in the ordinary course of business consistent with past practices
and in no event in excess of $15,000 in the aggregate.

                           (j)     Except as disclosed on Section 4.23(j) of the
Disclosure  Schedule,  the Company has not entered into any written  employment,
covenant-not-to-compete,   confidentiality,   proprietary  rights,   restrictive
covenant,  severance,  or golden parachute  agreement with any present or former
employee, consultant, or Affiliate which is currently in effect. The Company has
not entered  into any  agreement,  oral or  written,  with any present or former
employee that by its terms


                                       25

<PAGE>



obligates  (either on an absolute or contingent  basis) the Company or Parent to
make any payment on, after,  or in connection with the Closing to any present or
former employee following his or her termination of employment.

                           (k)   Other than the Shareholders and Joe Burke, none
of the key  operations  employees  of the Company  has, to the best of Company's
knowledge,  expressed  an  intention  to  resign  or  retire  as a result of the
transaction contemplated by this Agreement or for any other reason.

                           (l)    All of Company's employees are employed at the
will of the Company and can be terminated  by Company  without cause at any time
after the Closing without liability,  penalty, salary continuation, or severance
obligations of any sort  whatsoever  (including  without  limitation  attorneys'
fees).

                  4.24 Insurance.  Section 4.24 of the Disclosure  Schedule sets
forth a true  and  complete  list of the  current  insurance  coverages  for the
Company, including names of carriers, amounts of coverage and premiums therefor.
The Company has made  available  to the Parent true and  complete  copies of all
such insurance policies.

                  4.25 Title to Property  and Related  Matters.  The Company has
good and valid title to or valid leasehold  interest in its assets and property,
as reflected  in the Interim  Balance  Sheet or acquired  after the date thereof
(other than  property  sold or otherwise  disposed of in the ordinary  course of
business since such date),  and all of such assets and property is held free and
clear  of  all  title  defects,  liens,  encumbrances,  security  interests  and
restrictions whatsoever,  except, with respect to all such properties, (a) liens
securing debt reflected as liabilities on the Interim  Balance Sheet and (b) (i)
liens for current  taxes and  assessments  not  overdue or in default;  and (ii)
mechanics',  carriers',  workmen's,  repairmen's,  statutory or common law liens
relating to payments that are not delinquent.

                  4.26  Accounts  and Notes  Receivable.  The accounts and notes
receivable of the Company reflected on the Interim Balance Sheet arose from bona
fide  transactions  in the ordinary  course of business,  have been  extended on
terms  consistent with the past practice of the Company,  and are not subject to
any  counterclaims  or setoffs other than in the ordinary course (except for the
amount of any applicable  existing reserves for  counterclaims or setoffs),  and
are fully collectible.  At Closing,  all loans payable to or receivable from any
employees or the Shareholders or their Affiliates will be paid in full.

                  4.27 Nondisclosed Payments. Neither the Company nor any of the
Company's officers or directors, nor anyone acting on behalf of any of them, has
made or received any payments not correctly  categorized  and fully disclosed in
the Company's  books and records in connection with or in any way relating to or
affecting the Company.

                  4.28 Credit  Cards.  Section 4.28 of the  Disclosure  Schedule
sets forth a complete  and correct  list of all credit cards issued or caused to
be issued  by the  Company  to any  person,  firm or  entity or under  which the
Company is or may be liable for charges or payments.


                                       26

<PAGE>



                  4.29     Business Practices.

                           (a)    Neither the Company nor any director, officer,
agent,  employee  or other  Person  acting on behalf of the Company has used any
Company  funds  for  improper  or  unlawful  contributions,  payments,  gifts or
entertainment,  or made  any  improper  or  unlawful  expenditures  relating  to
political activity to domestic or foreign governmental  officials or others. The
Company has adequate  financial  controls to prevent  such  improper or unlawful
contributions,  payments,  gifts,  entertainment  or  expenditures.  Neither the
Company nor any  current  director,  officer,  agent,  employee or other  Person
acting on behalf of the  Company  has  accepted  or  received  any  improper  or
unlawful contributions,  payments, gifts or expenditures. The Company has at all
times complied,  and is in compliance,  in all respects with the Foreign Corrupt
Practices  Act and all foreign laws and  regulations  relating to  prevention of
corrupt practices and similar matters.

                           (b)  There is no agreement (noncompete or otherwise),
commitment,  judgment,  injunction,  order or decree to which Company is a party
or, to the knowledge of Company,  otherwise  binding upon Company,  which has or
reasonably  could be expected to have the effect of prohibiting or impairing any
business  practice  of  Company,   any  acquisition  of  property  (tangible  or
intangible) by Company or the conduct of business by Company.  Without  limiting
the foregoing, Company has not entered into any agreement under which Company is
restricted from selling, licensing or otherwise distributing any of its products
to any class of customers,  in any geographic area, during any period of time or
in any segment of the market.

                  4.30 Bank  Accounts.  A true and correct list of the names and
locations of all banks, trust companies, savings and loan associations and other
financial  institutions  at which the Company  maintains  safe deposit  boxes or
accounts of any nature (together with the relevant account numbers and the names
of all Persons  authorized to draw thereon,  make withdrawals  therefrom or have
access thereto) has been furnished to Parent.

                  4.31 Affiliates. Section 4.31 of the Disclosure Schedule lists
each Person which is an  "affiliate"  of the Company  within the meaning of Rule
145(c) promulgated under the Securities Act (the "Rule 145 Affiliates"). None of
the  Shareholders  nor any Rule 145 Affiliates  has, within the 30 days prior to
the date of this Agreement,  sold,  transferred or otherwise  disposed of, or in
any other way reduced such  person's  risk with respect to, any shares of Parent
Common  Stock or other  shares of the  capital  stock of Parent or shares of the
capital stock of the Company held by such person.

                  4.32     Pooling.  Since the date two (2) years prior  to the
date hereof:

                           (a) the Company has not been a subsidiary or division
of another corporation or other entity;

                           (b)     the Company has not effected any transactions
changing the relative percentage ownership of the Shareholders in the Company;


                                       27

<PAGE>



                           (c) the Company has not purchased any treasury shares
or redeemed any shares of capital stock or effected any exchange of  securities;
or

                           (d)     the Company has not paid nor shall it pay any
dividend  or  made  any  distribution  in  excess  of  amounts  consistent  with
historical  Company  policies  and  practices  or paid any bonus to  shareholder
employees  that  are  not  consistent  with  historical   company  policies  and
practices.

In  addition,  the shares of Parent  Common  Stock  issued in the Merger will be
shared  ratably  by  the  Shareholders  based  on  their  respective  percentage
ownership of the Company  capital  stock,  and there is no  agreement  among the
Shareholders  providing for any  reallocation  of such Parent Common Stock among
the Shareholders.

                  4.33 Reorganization Under Section 368 of the Code. The Company
has not taken any  action  that  would  cause the Merger to fail to qualify as a
reorganization  with the meaning of Sections  368(a)(1)(A)  and (a)(2)(E) of the
Code.

                  4.34 Full Disclosure.  Shareholders have disclosed in writing,
or pursuant to this  Agreement  and the  Schedules  attached  hereto,  all facts
material  to  the  business,  assets,  prospects  and  condition  (financial  or
otherwise) of Company. No representation or warranty to Parent by the Company or
Shareholders  contained in this  Agreement,  and no  statement  contained in the
Schedules  attached hereto  (including the Financial  Statements and the Interim
Financial  Statements),  any  certificate,  list or other  writing  furnished to
Parent by the Company or  Shareholders  pursuant to the provisions  hereof or in
connection  with the  transactions  contemplated  hereby,  contains  any  untrue
statement  of a material  fact or omits to state a material  fact  necessary  in
order to make the statements  herein or therein not  misleading.  All statements
contained in this Agreement, the Schedules attached hereto, and any certificate,
list,  document or other writing delivered pursuant hereto or in connection with
the  transactions  contemplated  hereby  shall be  deemed a  representation  and
warranty  of  the  Shareholders  for  all  purposes  of  this  Agreement.   Each
representation, warranty, covenant, and agreement of the Company or Shareholders
contained  in  this  Agreement  is  independent  of each  other  representation,
warranty, covenant and agreement.

                  4.35     Securities Law Matters.

                           (a)   Each Shareholder is acquiring the Parent Common
Stock  issuable in the Merger for his own account,  and not as nominee or agent.
Such  Parent  Common  Stock is being and will be  acquired  for the  purpose  of
investment  and not with a view to  distribution  or  resale  thereof;  subject,
nevertheless,  to the condition that, except as otherwise  provided herein or in
the  Registration  Rights  Agreement and subject to compliance  with  applicable
securities  laws, the disposition of the property of such  Shareholder  shall at
all times be within his control.

                           (b)    Each Shareholder understands that he must bear
the economic risk of its investment for an indefinite period of time because the
Parent Common Stock issuable in the


                                       28

<PAGE>



Merger  is not,  and may not be,  registered  under  the  Securities  Act or any
applicable state  securities  laws,  except as may be provided in this Agreement
and the Registration Rights Agreement, and may not be resold unless subsequently
registered under the Securities Act and such other laws or unless in the opinion
of counsel to Parent an exemption from such registration is available.

                           (c)      Each  Shareholder  represents  that he is a
sophisticated  investor and has such  knowledge and  experience in financial and
business  matters that he is capable of  evaluating  the merits and risks of its
investment in the Parent Common Stock issuable in the Merger.  Such  Shareholder
further  represents that he is an "accredited  investor" as such term is defined
in Rule 501 of Regulation D of the SEC under the  Securities Act with respect to
the purchase of the Parent Common Stock pursuant to the Merger.

                           (d)     Each Shareholder hereby acknowledges that the
shares of Parent  Common  Stock to be issued  in the  Merger  (unless  no longer
required in the opinion of counsel to Parent) shall bear a legend  substantially
in the following form:

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED,  OR ANY APPLICABLE  STATE SECURITIES LAWS
                  AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
                  REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL
                  AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

                           (e)    Each Shareholder certifies that: (i) the name,
address and social security number set forth on Section 4.4(a) of the Disclosure
Schedule are each true,  complete and correct;  and (ii) such Shareholder is not
subject to backup withholding  because (A) the undersigned has not been notified
that the  undersigned is subject to backup  withholding as a result of a failure
to report all interest or  dividends;  or (B) the Internal  Revenue  Service has
notified the  undersigned  that the  undersigned  is no longer subject to backup
withholding.

                           (f) Each Shareholder represents that he has carefully
reviewed  this  Agreement  and  understands  its contents  and the  significance
thereof and has consulted  with counsel with regard  thereto.  Each  Shareholder
understands  that (i) in issuing the Parent Common Stock issuable in the Merger,
Parent is relying upon the representations and warranties of such Shareholder in
this  Section  4.35 and (ii)  receipt  by  Parent  of the  Certificates  and the
representations  in this  Agreement is an inducement and a condition to Parent's
obligation to deliver any shares of Parent Common Stock to such Shareholder. The
acquisition by such  Shareholder of such Parent Common Stock shall  constitute a
confirmation by him of the foregoing.

                  4.36 Due Diligence.  Each Shareholder acknowledges that he has
been given full and fair  opportunity  to review and  discuss,  and has in fact,
reviewed and discussed  information  relating to the Parent's business,  affairs
and current prospects with such officers of the Parent and


                                       29

<PAGE>



others  as he has  deemed  appropriate  or  desirable  in  connection  with  the
transactions  contemplated by this Agreement  (including without limitation each
registration  statement,  report  and proxy or  information  statement  filed by
Parent with the SEC (collectively,  the "Parent SEC Reports")). Such Shareholder
further  acknowledges  that  he  has  requested,   received  and  reviewed  such
information,  undertaken such  investigation  and made such further inquiries of
officers of the Parent and others as it has deemed  appropriate  or desirable in
connection with such transactions.

                                    ARTICLE 5
                REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

                  Parent and Sub jointly and severally  represent and warrant to
the Company that, as of the date of this Agreement and on the Closing Date:

                  5.1 Corporate  Organization.  Parent is a corporation  validly
existing and in good standing under the laws of the Commonwealth of Virginia and
has all requisite  corporate power and authority to own,  operate and, lease its
property  and to carry on its  business  as now  being  conducted.  The Sub is a
corporation validly existing and in good standing under the laws of the State of
New York and has all requisite  corporate  power and  authority to own,  operate
and, lease its property and to carry on its business as now being conducted.

                  5.2  Authorization  and Approval of Agreement.  Parent and Sub
have all  requisite  corporate  power and  authority to execute and deliver this
Agreement  and the other  agreements,  documents  and  instruments  executed and
delivered by Parent or Sub in connection with the  transactions  contemplated by
this Agreement  (the "Parent  Ancillary  Agreements"),  and to fully perform the
obligations  required to be  performed by them  hereunder  and  thereunder.  All
corporate   proceedings  required  by  Parent's  and  Sub's  respective  charter
documents or otherwise  required by law for the  execution  and delivery of this
Agreement and the Parent  Ancillary  Agreements and for the  consummation of the
transactions  provided  for  herein  and  therein  have  been duly  taken.  This
Agreement and each of the Parent Ancillary  Agreements has been duly and validly
executed and delivered by Parent and Sub and is  enforceable  against Parent and
Sub in accordance with its terms, except as the enforceability may be limited by
laws of general  application  relating to  bankruptcy,  insolvency  and debtors'
relief, and by the general principles of equity.

                  5.3 Ability to Carry Out Agreement. The execution and delivery
of this Agreement and the Parent Ancillary  Agreements by Parent and Sub and the
performance by Parent and Sub of their obligations hereunder and thereunder will
not conflict  with,  violate or result in any breach of or  constitute a default
under  any   provisions  of  Parent's  and  Sub's  Articles  or  Certificate  of
Incorporation  or Bylaws  or,  except for the  Parent's  credit  facilities  and
private  placement  notes, of any of the provisions of any indenture,  mortgage,
lease,  agreement,   license,  permit,  instrument,  order,  arbitration  award,
judgment,  decree,  law,  ordinance,  regulation or any other restriction of any
kind or  character  to which Parent or Sub is a party or by which either of them
is  bound.  Except  for  compliance  with  the  applicable  requirements  of the
Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976 (the "HSR  Act") and the
Securities Act, the Securities Exchange Act of 1934 (the


                                       30

<PAGE>



"Exchange  Act"),  applicable state securities laws, the bylaws of the NASD, any
listing agreement with respect to the Parent Common Stock, and the filing of the
Certificate of Merger with the State of New York, no consent of any governmental
authority  or other third party is required to be obtained on the part of Parent
in connection with Parent's execution, delivery or performance of this Agreement
or the Parent Ancillary Agreements.

                  5.4  Investment  Representation.  Parent and Sub are acquiring
the  Company  Shares  for  investment  and not with a view to, or for  resale in
connection with, any distribution of the Company Shares.

                  5.5 No Broker  Involved.  Parent and Sub have not expressly or
impliedly  engaged any broker,  finder or agent with respect to the transactions
contemplated by this Agreement.

                  5.6 Parent Common Stock.  The shares of Parent Common Stock to
be issued in the Merger will be validly issued,  fully paid,  nonassessable  and
free of preemptive rights.

                  5.7  Parent  Common  Stock  Price.  Between  the  date of this
Agreement and the Effective Time, Parent shall not make any public announcements
or governmental  filings which, as of their respective  release or filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading,  the effect of which is to cause an increase in the trading price of
Parent Common Stock. The foregoing sentence shall in no way restrict the ability
of Parent,  its officers  and  directors  and the officers and  directors of its
Affiliates from making public announcements or governmental filings,  presenting
at  investment   conferences  or  otherwise   communicating  with  shareholders,
analysts,  or the general  public  concerning  this  transaction or the Parent's
business, operations, or prospects.

                                    ARTICLE 6
                                CERTAIN COVENANTS

                  6.1 Conduct of Business. The Company covenants and agrees that
from the date of this  Agreement to the Closing Date,  the Company shall (except
as otherwise consented to in writing by Parent):

                           (a) carry on its business in a manner consistent with
prior  practice and only in the usual and ordinary  course,  and use  reasonable
efforts to preserve its business  organization intact and conserve the good will
and  relationships  of its  customers,  suppliers  and  others  having  business
relations with it;

                           (b)   maintain its existence and good standing in its
jurisdiction of organization plus in each jurisdiction in which the ownership or
leasing  of  its  property  or  the  conduct  of  its  business   requires  such
qualification;


                                       31

<PAGE>



                           (c)     duly and timely file or cause to be filed all
reports and returns required to be filed with any governmental  body,  agency or
authority  and promptly pay or cause to be paid when due all taxes,  assessments
and governmental  charges,  including interest and penalties levied or assessed,
unless diligently contested in good faith by appropriate proceedings;

                           (d)      maintain in existing condition and  repair,
consistent  with  past  practice,  all  buildings,   offices,  shops  and  other
structures located on the Leased Real Property, and all equipment,  fixtures and
other tangible personal property located on the Leased Real Property;

                           (e)      give Parent and Parent's employees, counsel,
accountants  and  advisors,  full access upon  reasonable  notice  during normal
business  hours to all of the  properties,  personnel,  financial  and operating
data, books, tax returns, contracts,  commitments, and records of the Company in
connection  with  reviewing  the  Company  and  its  respective  properties  and
operations;

                           (f)   maintain in full force and effect all existing
policies of insurance except for replacements or renewals in the ordinary course
of business;

                           (g)     use its reasonable best efforts to permit the
Company to retain the material benefits  provided by all existing  contracts and
licenses to which the Company is a party under arrangements  similar to those in
effect prior to the Closing Date;

                           (h)      use its reasonable best efforts  to  assist
Parent  and  Sub in  retaining  the  continued  services  of the  Company's  key
employees, except for Shareholders and Joe Burke.

                           (i)      not amend its charter documents or bylaws;

                           (j)      not authorize for issuance, issue or deliver
any  additional  shares of its capital stock or securities  convertible  into or
exchangeable  for  shares of its  capital  stock,  or issue or grant any  right,
option or other commitment for the issuance of shares of its capital stock or of
such  securities,  or split,  combine or  reclassify  any shares of its  capital
stock;

                           (k)not incur any liability, commitment or obligation,
except unsecured current and trade  liabilities and other unsecured  liabilities
incurred in the ordinary course of business;


                           (l)      not borrow, or agree to  borrow,  any funds
other than pursuant to its existing loan agreements or otherwise in the ordinary
course of business;

                           (m)      not sell, transfer or otherwise dispose  of
assets,  except for the sale or  disposition  of  obsolete  or damaged  tangible
personal  property and except for (i) the sale of inventory  and other assets in
the ordinary course of business; and (ii) sales of Company-owned  vehicles, art,
and other assets  identified on Schedule  6.1(m)  ("Personal  Assets") to one or
more Shareholders for cash equal to the book value of the Personal Assets);


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<PAGE>



                           (n)      except for  amounts committed for emergency
repairs, not make any material capital commitments;

                           (o)      not mortgage, pledge or encumber any of its
assets or guaranty the obligations of any party except in the ordinary course of
business;

                           (p)     except as set forth in Section 11.4, not make
any  adjustments  in the salary or wage rate of, or make or authorize any bonus,
severance,  or  termination  payments to or consulting  arrangements  with,  any
officer  or  employee  or amend or adopt  any  employee  benefit  plan,  without
Parent's prior written  consent,  other than salary  increases for the 1999 year
which shall be made in amounts consistent with past practices;

                           (q)     take any action with the intention of causing
any of the  representations  and warranties  made herein to be inaccurate on the
Closing Date;

                           (r)      not dispose of or permit to lapse any rights
to the use of any  patent,  trademark,  trade  name,  license or  copyright,  or
dispose of or  disclose  to any  person,  any trade  secret,  formula,  process,
technology or know-how not heretofore a matter of public knowledge;

                           (s)     not declare, pay or set aside for payment any
dividend or other  distribution  in respect of the capital stock or other equity
securities or equity interests of the Company and not redeem,  purchase or issue
any shares of the capital stock or other  securities or equity  interests of the
Company or rights or obligations convertible into or exchangeable for any shares
of the capital stock or other  securities or equity  interests of the Company or
obligations  convertible into such, or any options,  warrants or other rights to
purchase or subscribe to any of the foregoing;

                           (t)    deliver to Parent on or prior to the fifteenth
(15th)  business day of each month a balance sheet of the Company in the form of
the  Interim  Balance  Sheet  as of the end of the  prior  month  and an  income
statement for such month in each case  accompanied by a certificate  executed by
the chief  financial  officer on behalf of the Company that such statements have
been prepared in accordance with the standards set forth in Section 4.7(b); and

                           (u)       not  take any action outside  the ordinary
course of business  consistent with past practice  (unless  contemplated by this
Agreement)  without having  notified Parent and KPMG of such proposed action and
obtaining  the  advice  of  KPMG  that  such  action  will  not  jeopardize  the
characterization  of the  Mergers as a "pooling  of  interests"  for  accounting
purposes.

                  6.2  Public  Announcements.  As soon after  execution  of this
Agreement  as is  practicable,  Parent,  at its option,  shall have the right to
issue a press release  relating to the subject  matter of this Agreement and the
transactions   contemplated  thereby.  The  timing  and  content  of  all  other
announcements  regarding  any  aspect  of this  Agreement  or the  Merger to the
financial community,  government agencies, employees or the general public shall
be mutually agreed upon


                                       33

<PAGE>



by Parent and the Company in advance (unless Parent or the Company is advised by
counsel that any such  announcement or other disclosure not mutually agreed upon
in  advance  is  required  to be made by law,  SEC  policy  or  regulation,  any
applicable  bylaw of the NASD or any  listing  agreement  relating to the Parent
Common Stock).

                  6.3  Supplements to Schedules.  From time to time prior to the
Closing Date, the Company and Parent will each promptly  supplement or amend the
respective  disclosure  schedules  which they have  delivered  pursuant  to this
Agreement with respect to any matter  hereafter  arising  which,  if existing or
occurring at or prior to the date of this Agreement, would have been required to
be set forth or  described in the  disclosure  schedule or which is necessary to
correct any information in any such disclosure  schedule which has been rendered
inaccurate  thereby.  No supplement or amendment to any such disclosure schedule
shall  have any  effect  for the  purpose  of  determining  satisfaction  of the
conditions  set  forth  in  Sections  8.1(a)  or  9.1(a)  of this  Agreement  or
establishing the existence of any breach or inaccuracy of any  representation or
warranty made by the Company or any Shareholder in this Agreement.

                  6.4 Pooling of Interests  Accounting.  From and after the date
hereof and until the Closing Date, neither Company nor the Shareholders, nor any
of their  respective  subsidiaries  or other  Affiliates,  shall take any of the
actions  specified in Section 4.32 or any other action that might jeopardize the
characterization  of the  Merger as a  "pooling  of  interests"  for  accounting
purposes, except as expressly authorized by this Agreement.

                  6.5 Antitrust  Filing.  As soon as  practicable  following the
execution  of this  Agreement,  both Parent and Company  shall file an Antitrust
Improvements  Act Notification and Report Form under the HSR Act (the "Antitrust
Filing")  relating to the  transactions  contemplated by this Agreement with the
Federal Trade Commission and the Department of Justice. Parent and Company shall
use  their  respective  commercially  reasonable  efforts  to  take  all  action
necessary,  proper and advisable under  applicable laws and regulations to cause
the expiration or  termination of the waiting  periods under the HSR Act as soon
as practicable.

                  6.6      No Solicitation of Transactions.

                           (a)      Until the earlier of (i) the Closing or (ii)
the  termination  of this  Agreement  pursuant to Article 10, the Company agrees
that  neither  it  nor  its  officers,   directors,   key   employees,   agents,
representatives (including,  without limitation,  investment bankers, attorneys,
accountants,  financial  advisors and consultants),  Affiliates (or to Company's
knowledge, any other Shareholder) shall directly or indirectly:

                                    (i)  Solicit, encourage, initiate or further
the  submission  of  proposals  or offers from any Third  Party  relating to any
Alternative Transaction.  A "Third Party" is any individual,  firm, corporation,
partnership,  association, group (as defined in Section 13(d)(3) of the Exchange
Act) or person or  entity,  individually  or  collectively  (including,  without
limitation,  any managers or other  employees of the Company or any  affiliates)
other than Parent or Merger Sub.


                                       34

<PAGE>



An  "Alternative  Transaction"  is any  acquisition  or  purchase  of all or any
substantial  portion of the assets of, or any  equity  interest  (excluding  the
exercise of  outstanding  stock options under the Company Stock Option Plan) in,
the  Company or any  merger,  consolidation,  business  combination,  or similar
transaction with the Company,  other than the transactions  contemplated by this
Agreement;

                                    (ii)    Participate  in any discussions  or
negotiations  regarding,  or  furnish  to  any  Third  Party,  any  confidential
information  with  respect to the  Company in  connection  with any  Alternative
Transaction;

                                    (iii) Enter into or approve or recommend any
agreement,  plan or  understanding  with any Third  Party  with  respect  to any
Alternative Transaction; or

                                    (iv) Otherwise cooperate in any way with, or
assist or  participate  in,  facilitate or encourage,  or publicly  announce any
effort or attempt  by any Third  Party to  undertake  or seek to  undertake  any
Alternative Transaction.

                           (b)      In the event the Company receives any offer
or  indication  of  interest  from any Third Party  relating to any  Alternative
Transaction,  the Company  shall  promptly (and in no event later than 24 hours)
notify  Parent in writing of the details of the offer or indication of interest,
except that the identity of the Third Party is not required to be disclosed.

                           (c)     The Company shall immediately cease and cause
to be terminated any existing  activities,  discussions or negotiations with any
Third Party relating to Alternative Transaction,  whether conducted prior to the
date of this  Agreement  or  thereafter.  The Company  agrees not to release any
Third  Party  from any  confidentiality  or  standstill  agreement  to which the
Company is a party.

                           (d)      The Company shall ensure that the officers,
directors, key employees, agents,  representatives and Affiliates of the Company
are aware of the restrictions described in this Section 6.6.

                  6.7 Shareholder  Approval.  The Company and Shareholders  will
take all action necessary to carry out the purposes of this Agreement  including
without limitation acting by unanimous written consent to approve the Merger and
the adoption of this Agreement by Company.

                  6.8 Dissenters'  Rights Notices.  The Company,  in cooperation
with Parent,  shall timely provide all notices and other  communications  as are
required under New York Law in connection with statutory  dissenters' rights, to
the extent applicable to the Merger.

                  6.9      Shareholder Representative.



                                       35

<PAGE>



                           (a)      The Shareholders  hereby  select Richard J.
Tehan (the  "Shareholder  Representative")  to act for and on behalf of all such
Shareholders  with respect to all matters  arising in connection  with Article 8
and  the  Escrow  Agreement,   including,  without  limitation,  the  power  and
authority, in his or her sole discretion, to:

                                    (i)  negotiate, determine, defend and settle
any dispute which may arise under Article 8 or the Escrow Agreement; and

                                    (ii) make, execute,  acknowledge and deliver
any releases, assurances, receipts, requests, instructions, notices, agreements,
certificates and any other  instruments,  and to generally do any and all things
and to take any and all actions which may be  requisite,  proper or advisable in
connection with Article 7 or under the Escrow Agreement.

                           (b)     The Shareholders by majority vote may replace
the  Shareholder  Representative  at  any  time  with a  substitute  Shareholder
Representative  who  shall  have  all the  powers  and  responsibilities  of the
Shareholder Representative set forth in this Section 6.9.

                           (c)      Neither the Shareholder Representative, nor
any substitute Shareholder Representative, shall be liable to any Person for any
action  taken or any  omission  to act, in good faith,  in  connection  with the
Shareholder Representative's responsibilities as Shareholder Representative.

                           (d)      Upon  request  by  Parent,  the Shareholder
Representative,  or any substitute  Shareholder  Representative,  shall promptly
provide Parent with a written  certification  of his or her selection and of the
address for notices to such  Shareholder  Representative.  Parent may thereafter
deal  exclusively  with the  Shareholder  Representative  in connection with the
claims procedure in reliance on such certification.  Whenever in connection with
the provisions of this Agreement or the Escrow  Agreement,  Parent shall receive
any   certificate  or  other  written   correspondence   from  the   Shareholder
Representative,  such certificate or other written  correspondence shall be full
authorization  to Parent for any action  taken or  suffered  in good faith by it
under the  provisions  of this  Agreement  or the Escrow  Agreement  in reliance
thereon.

                  6.10     Certain Shareholder Covenants.

                           (a)  No Shareholder shall sell, transfer or otherwise
dispose of, or in any other way reduce such  person's  risk with respect to, any
shares of Parent  Common  Stock  received  in the Merger or other  shares of the
capital stock of Parent until after such time as financial  results  covering at
least 30 days of post merger combined  operations of Parent and the Company have
been published  (within the meaning of Section 201.01 of the SEC's  Codification
of  Financial  Reporting  Policies) by Parent,  in the form of a  post-effective
amendment,  issuance of a quarterly  earnings  report,  a Form 10-K, 10-Q or 8-K
filing,  or any other public  issuance which includes the combined sales and net
income. Parent shall use its commercially reasonable efforts to make such public


                                       36

<PAGE>



issuance promptly after such financial information becomes available;  provided,
however,  that Parent shall not be required to prepare such information on other
than a calendar-month basis.

                           (b)      Each Shareholder  hereby irrevocably waives
(a) any and all  restrictions  on the sale of Company  Shares  contained  in any
agreement in favor of such  Shareholder or to which such  Shareholder is a party
relating to Company  Shares and any rights such  Shareholder  may have under any
such agreement;  (b) any and all preemptive  rights,  rights of first refusal or
first offer and registration  rights with respect to any Company Shares or other
securities of the Company or any securities issued in exchange therefor; and (c)
any and all stock  purchase  agreements  or other  agreements  pursuant to which
securities  were  purchased  from  the  Company  and any  and  all  shareholders
agreements  or other  agreements  among  shareholders  of the Company or between
shareholders and the Company.

                           (c)    At Closing, each Shareholder agrees to release
and forever discharge the Company, its affiliates, officers, directors and their
respective heirs,  personal  representatives,  successors and assigns (including
Parent),  from  any and  all  claims,  damages,  losses,  liabilities,  demands,
charges,  suits,  penalties,  actions  and  causes of action,  whether  accrued,
absolute,  contingent,  known or  unknown,  which  such  Shareholder  may now or
hereafter have.

                  6.11 Access to  Information.  Each party will afford the other
party and its accountants,  counsel and other representatives  reasonable access
during normal business hours to the properties,  books, records and personnel of
the other  party  during the period  prior to the  Effective  Time to obtain all
information  concerning  the  business,  including  the status of  merchandising
efforts, leasing activities, distribution center relocation efforts, properties,
results of  operations  and  personnel  of such  party,  as the other  party may
reasonably  request.  No information or knowledge  obtained in any investigation
pursuant  to  this  Section  6.11  will  affect  or  be  deemed  to  modify  any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.

                  6.12  Legal  Requirements.  Each  of  Parent,  Merger  Sub and
Company  will take all  reasonable  actions  necessary  or  desirable  to comply
promptly with all legal  requirements  which may be imposed on them with respect
to  the  consummation  of  the  transactions   contemplated  by  this  Agreement
(including  furnishing all information  required in connection with approvals of
or filings with any governmental entity, and prompt resolution of any litigation
prompted hereby) and will promptly cooperate with and furnish information to any
party hereto necessary in connection with any such requirements imposed upon any
of them in connection with the consummation of the transactions  contemplated by
this Agreement.

                  6.13 Third Party  Consents.  As soon as practicable  following
the date hereof and before the  Closing,  Company  shall use its best efforts to
obtain all material consents,  waivers, estoppels and approvals under any of its
agreements,  contracts,  licenses or leases  reasonably  requested  by Parent or
required by this Agreement to be obtained in connection with the consummation of
the transactions contemplated hereby.


                                       37

<PAGE>




                  6.14 FIRPTA. At or prior to the Closing, Company shall deliver
to the IRS a notice that the Company  Capital  Stock is not a "US Real  Property
Interest"  as  defined  and in  accordance  with the  requirements  of  Treasury
Regulation Section 1.897-2(h)(2).

                  6.15  Notification of Certain  Matters.  Parent and Merger Sub
will give prompt  notice to  Company,  and  Company  will give prompt  notice to
Parent, of the occurrence,  or failure to occur, of any event,  which occurrence
or failure to occur would be reasonably  likely to cause (a) any  representation
or  warranty  contained  in this  Agreement  to be untrue or  inaccurate  in any
material  respect at any time from the date of this  Agreement to the  Effective
Time; or (b) any material  failure of Parent and Merger Sub or Shareholders  and
Company,  as the case may be, or of any  officer,  director,  employee  or agent
thereof,  to comply with or satisfy any  covenant,  condition or agreement to be
complied  with or  satisfied  by it under this  Agreement.  Notwithstanding  the
above,  the  delivery of any notice  pursuant to this  section will not limit or
otherwise  affect the remedies  available  hereunder to the party receiving such
notice.

                  6.16     Tax Matters.

                           (a)      Termination of  S Corporation Election.  The
parties  acknowledge and intend that Company's status as an "S" corporation will
end on the  last  day  of  the S  Corporation  Period  in  accordance  with  the
provisions of Section  1362(e)(1)(A)  of the Code and Company's  status as a "C"
corporation will begin immediately after the S Corporation  Period in accordance
with the provisions of Section 1362(e)(1)(B) of the Code.

                           (b)     Allocation of Income. The parties acknowledge
and intend that taxable  income shall be allocated  between  Company's  calendar
year  beginning  January  1, 1999  through  the  Effective  Time  between  its S
Corporation  Period and C Corporation Period based on the interim closing of the
books method in accordance with the provisions of Section  1362(e)(6)(D)  of the
Code.

                           (c)      Tax Returns.  Parent shall cause all income
tax returns due from Company for periods beginning January 1, 1999 and ending on
the day before  Effective  Time to be prepared  subject to review and consent by
Shareholders which consent will not be unreasonably withheld.

                           (d)      Post-Closing Tax Audits.  In the  event the
Company or  Shareholders  shall incur  additional  federal or State Income Taxes
(including,  for all  purposes  of this  Agreement,  New York  franchise  taxes)
relating to the Company's income and operations during the S Corporation  Period
due to a post-Closing tax audit,  the Shareholders  agree to pay such additional
Taxes.

                  6.17     Best Efforts and Further Assurances.  Subject to the
respective rights and obligations of Parent, Shareholders and Company under this
Agreement, each of the parties to this


                                       38

<PAGE>



Agreement  will use its best  efforts  to  effectuate  the  Merger and the other
transactions  contemplated  hereby and to fulfill and cause to be fulfilled  the
conditions to closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, will execute and deliver such other instruments
and do and perform  such other acts and things as may be  necessary or desirable
for effecting  completely  the  consummation  of the  transactions  contemplated
hereby.

                  6.18     Post-Closing Audit.

                           (a)     Promptly following the Effective Time, and in
any event not later than 60 days  following  the  Effective  Time,  Parent shall
cause Company to prepare a balance  sheet of the Company (the  "Closing  Balance
Sheet") as of the Effective  Time.  Such financial  statements  shall be derived
from and in accordance  with the books and records of the Company and determined
in accordance  with GAAP applied on a basis  consistent with the GAAP principles
used in the preparation of the 1998 Financial  Statements (as defined in Section
4.7(b)).  Such financial  statements shall be audited by KPMG and accompanied by
KPMG's  opinion that such  financial  statements  present fairly in all material
respects the financial position and results of operations of the Company.

                           (b)     Promptly following the Effective Time, and in
any event not later than 60 days following the Effective Time, Parent shall also
cause Company to prepare a statement of Closing  Equity  ("Statement  of Closing
Equity")  which shall  calculate  Closing  Equity,  and KPMG will opine that the
Statement of Closing Equity was prepared in accordance with the  requirements of
this Section 6.18.  For purposes of this  Agreement,  "Closing  Equity" shall be
defined as the assets of the Company  reduced by its liabilities as shown in the
Closing  Balance  Sheet  with the  following  clarifications,  adjustments,  and
exceptions  (regardless  of  whether  such  clarifications,   adjustments,   and
exceptions are in accordance with GAAP, GAAS, or the Company's past practices):

                                    (i)   Inventory shall be based on a physical
count of the Inventory  conducted by Parent's  designee at Parent's  expense and
rolled  forward to the  Effective  Time and valued in  accordance  with GAAP and
Section 4.13; and

                                    (ii)    Deal Expenses within the limitations
of  Sections  11.1 and 11.2 that have been paid prior to the  Effective  Date or
accrued on the  Closing  Balance  Sheet shall be added back to arrive at Closing
Equity.

                                    (iii) To the extent any of the  payments  to
be made pursuant to Section  11.4(i) are accrued before  closing,  they shall be
added back to arrive at Closing Equity.

                                    (iv)  The  matters   described   in  Section
11.4(ii)  together  with an estimate of the  Company's  calendar year 1999 bonus
payment (as described in Section 4.21(f) of the Disclosure Schedule),  pro-rated
as of June 30, 1999, shall be accrued and reduce Closing Equity.



                                       39

<PAGE>



                                    (v)    The amount accrued or reserved in the
Closing Balance Sheet for all pending or threatened Proceedings (including those
set forth on Section 4.12 of the Disclosure Schedule) shall be $95,000.00.

                           (c)     Company's CPA shall have the right to observe
all steps (including any physical  inventory) taken by Parent in connection with
the  preparation of the Closing  Balance Sheet and Statement of Closing  Equity.
Company's  CPA  shall  have a period of 30 days  following  his  receipt  of the
Closing  Balance  Sheet and  Statement  of  Closing  Equity to review  the same.
Promptly  following  completion  of Company's  CPA review,  Company's  CPA shall
submit to KPMG a letter  regarding  his  concurrence  or  disagreement  with the
accuracy of the Closing  Balance Sheet and Statement of Closing  Equity.  Unless
Company's CPA delivers a letter disagreeing with the accuracy within such 30-day
period,  the Closing  Balance  Sheet and  Statement  of Closing  Equity shall be
binding upon the parties.  Following  delivery of such letter,  if Company's CPA
shall disagree as to the  computation of any item,  Company's CPA and KPMG shall
attempt promptly to resolve such  disagreement in good faith. If a resolution of
such  disagreement has not been effected within 15 days (or longer,  as mutually
agreed by the parties) after delivery of such letter, such disagreement shall be
submitted to a nationally  recognized  independent  accounting  firm (other than
Company's  CPA or  KPMG)  jointly  selected  by  Parent  and  Shareholders.  The
determination of such firm with respect to such disagreement and the accuracy of
the Closing  Balance Sheet and Statement of Closing  Equity as a result shall be
completed  within 120 days of the effective  time and shall be final and binding
upon the parties.  The fees,  costs and expenses of the  independent  accounting
firm  selected in the event of a dispute  shall be shared  equally by Parent and
Shareholders.

                  6.19 Cooperation Following the Closing. Following the Closing,
Parent  and the  Shareholders  each  shall  deliver  to the other  such  further
information  and  documents  and shall  execute  and  deliver  to the other such
further  information  and  documents  and shall execute and deliver such further
instruments  and  agreements as the other shall  reasonably  request in order to
consummate or confirm the  transactions  provided for herein,  to accomplish the
purpose  of this  Agreement  or to  assure to the  other  the  benefits  of this
Agreement. Without reducing the generality of the foregoing,  Shareholders shall
permit  Parent to use the  services of Joseph  Burke at a  reasonable  charge to
Parent until the Statement of Closing  Equity has been finalized and to make him
reasonably  available  thereafter  from  time  to  time to  consult  on  various
operational and other post-Closing issues.

                                    ARTICLE 7
                          SURVIVAL AND INDEMNIFICATION

                  7.1  Indemnification  Obligations of the Shareholders.  To the
extent provided in Section 7.3, the Shareholders agree to indemnify,  defend and
hold harmless Parent and its subsidiaries and Affiliates  (including Sub and the
Surviving Corporation), each of their respective officers, directors, employees,
agents and  representatives  and each of the heirs,  executors,  successors  and
assigns of any of the foregoing (collectively, the "Parent Indemnified Parties")
from,  against and in respect of any and all claims,  liabilities,  obligations,
losses, costs, expenses, penalties, fines and


                                       40

<PAGE>



judgments  (at  equity  or at law)  and  damages  (consequential  or  otherwise)
whenever arising or incurred  (including,  without  limitation,  amounts paid in
settlement,  costs of investigation and reasonable attorneys' fees and expenses)
("Damages") arising out of or relating to:

                                    (i)     any  breach  or  inaccuracy  of any
representation  or  warranty  made  by or with  respect  to the  Company  or any
Shareholder in this Agreement;

                                    (ii) any breach of any  covenant,  agreement
or undertaking made by or with respect to the Company or any Shareholder in this
Agreement;

                                    (iii)  any fraud, fraud in the inducement or
intentional  misrepresentation  made by or with  respect  to the  Company or any
Shareholder in connection with this Agreement and the transactions  contemplated
hereby;

                                    (iv)  any  exercise  of  dissenters'  rights
incident to the Merger including, without limitation, the payment of any amounts
paid or incurred (including  reasonable expenses) with respect to Company Shares
held by any dissenter;

                                    (v)  attorney's fees incurred by the Company
in excess of $100,000 (as provided in Article 11) or aggregate Deal Expenses (as
defined in Article 11) incurred by the Company in excess of $150,000;

                                    (vi)    the Deficit Amount; and

                                    (vii) the aggregate  Damages paid,  accrued,
or  incurred  after  the  date  of this  Agreement  which  relate  to any of the
Company's  pending or threatened  Proceedings as of the Effective Time which are
described  on  Section  4.12 of the  Disclosure  Schedule  (as  supplemented  at
Closing).

The claims, liabilities,  obligations, losses, costs, expenses, penalties, fines
and damages of the Parent  Indemnified  Parties described in this Section 7.1 as
to which the Parent  Indemnified  Parties are  entitled to  indemnification  are
hereinafter collectively referred to as "Parent Losses."

                  7.2  Indemnification  Obligations  of  Parent.  To the  extent
provided  in  Section  7.3,   Parent  shall  indemnify  and  hold  harmless  the
Shareholders  and  each of the  affiliates,  heirs,  executors,  successors  and
assigns of such  Shareholders  (collectively,  the "Shareholder  Indemnification
Parties")  from,  against  and in  respect of any and all  claims,  liabilities,
obligations,  losses, costs, expenses, penalties, fines and judgments (at equity
or at law) and damages (consequential or otherwise) whenever arising or incurred
(including,   without   limitation,   amounts  paid  in  settlement,   costs  of
investigation  and reasonable  attorneys'  fees and expenses)  arising out of or
relating to:



                                       41

<PAGE>



                           (a)    any breach or inaccuracy of any representation
or warranty made by or with respect to Parent in this Agreement;

                           (b)      any  breach  of any  covenant, agreement or
undertaking made by or with respect to Parent or Sub in this Agreement; or

                           (c)      any fraud, or  fraud  in  the inducement or
intentional  misrepresentation  made by or with respect to Parent in  connection
with this Agreement and the transactions contemplated hereby.

The claims, liabilities,  obligations, losses, costs, expenses, penalties, fines
and damages of the Shareholder Indemnification Parties described in this Section
7.2  as to  which  the  Shareholder  Indemnification  Parties  are  entitled  to
indemnification  are  hereinafter   collectively  referred  to  as  "Shareholder
Losses."

                  7.3      Limitations on Indemnification.

                           (a)      Except for the specific exceptions contained
in this Section 7.3(a), the Parent  Indemnified  Parties will not be entitled to
seek indemnification  under Section 7.1(i) (excepting  misrepresentations  under
Sections 4.1 (Corporate Organization;  Authorization),  4.2 (No Violation),  4.3
(Enforceability), 4.4 (Capitalization), 4.5 (Subsidiaries; Affiliates; Conflicts
of Interest),  4.15 (Environmental Matters), 4.17 (Employee Benefit Plans), 4.19
(Tax Matters), 4.25 (Title to Property and Related Matters), or 4.32 (Pooling)),
which is referred to as "Parent Basket  Losses,"  unless and until the aggregate
of all Parent Basket Losses incurred by the Parent  Indemnified  Parties exceeds
$75,000 (the  "Shareholder  Basket Amount").  In the event that the aggregate of
all Parent Basket  Losses  exceeds the  Shareholder  Basket  Amount,  the Parent
Indemnified Parties will only be entitled to seek  indemnification in respect of
Parent Basket Losses in excess of the Shareholder Basket Amount, but in no event
will the Shareholders obligations for Parent Losses under Section 7.1 (excepting
Section  7.1(iii),  Section  7.1(iv) or a  misrepresentation  under Sections 4.4
(Capitalization),  4.32 (Pooling),  or 4.35 (Securities Law Matters)) be greater
than Ten Million Dollars  ($10,000,000.00).  The Parent Indemnified Parties will
not be entitled to seek  indemnification  under Section 7.1(vii),  except to the
extent the aggregate of all Parent Losses under Section 7.1(vii) incurred by the
Parent Indemnified Parties exceeds $195,000.00.

                           (b)      The Shareholder Indemnification Parties will
not be entitled to seek  indemnification  under Section  7.2(a) for  Shareholder
Losses unless and until the aggregate amount of all Shareholder  Losses incurred
by the Shareholder  Indemnification  Parties exceeds $75,000 (the "Parent Basket
Amount").  In the event that the aggregate of all Shareholder Losses exceeds the
Parent  Basket  Amount,  the  Shareholder  Indemnification  Parties will only be
entitled to seek  indemnification  in respect of Shareholder Losses in excess of
the  Parent  Basket  Amount,  but  in no  event  will  Parent's  obligation  for
Shareholder  Losses  under  Section  7.2 (a) or (b) be greater  than Ten Million
Dollars ($10,000,000.00).



                                       42

<PAGE>



                           (c)  The obligation of the Shareholders under Section
7.1 to indemnify,  defend and hold  harmless  Parent  Indemnified  Parties from,
against  and in respect of Parent  Losses  arising out of or relating to Section
7.1 (v), (vi), or (vii) or arising out of or relating to any fraud, fraud in the
inducement,  breach or inaccuracy  of any  representation,  warranty,  covenant,
undertaking,  or  agreement  made by or with  respect  to the  Company  shall be
several in accordance with stock ownership (i.e.,  each of the five Shareholders
shall be liable for twenty  percent  (20%) of such  Damages).  Each  Shareholder
shall  indemnify,  defend and hold  harmless  Parent  Indemnified  Parties from,
against  and in  respect of one  hundred  percent  (100%) of all  Parent  Losses
arising  out of or  relating to any fraud,  fraud in the  inducement,  breach or
inaccuracy of any representation,  warranty, covenant, undertaking, or agreement
made by or with respect to such Shareholder or any dissenter's rights claimed by
such Shareholder,  but in no event will any single Shareholder's obligations for
such Parent Losses  described in this last sentence of Section 7.3(c) be greater
than Four Million Dollars ($4,000,000.00).

                  7.4      Indemnification Procedure.

                           (a)    Promptly after receipt by a Parent Indemnified
Party or a Shareholder  Indemnified Party (hereinafter  collectively referred to
as an "Indemnified  Party") of notice from a third party of any complaint or the
commencement  of any  action,  proceeding  or claim  with  respect to which such
Indemnified  Party may be entitled to receive  payment  from the other party for
any Parent Losses or  Shareholder  Losses (as the case may be and subject to the
limitation  on Parent  Losses  and  Shareholder  Losses in  Section  7.3),  such
Indemnified  Party  shall  notify  Parent  or  the  Shareholders   (through  the
Shareholder  Representative),  whoever  is the  appropriate  indemnifying  party
hereunder  (the  "Indemnifying  Party"),  of the  commencement  of such  action,
proceeding  or claim;  provided,  however,  that the  failure  to so notify  the
Indemnifying  Party shall not relieve the Indemnifying  Party from liability for
such claim arising  otherwise  than under this  Agreement and such failure to so
notify  the  Indemnifying  Party  shall  relieve  the  Indemnifying  Party  from
liability  under this Agreement with respect to such matter only if, and only to
the extent that,  such failure to notify the  Indemnifying  Party results in the
forfeiture by the Indemnifying Party of rights and defenses otherwise  available
to the Indemnifying  Party with respect to such matter.  The Indemnifying  Party
shall have the right,  upon written notice  delivered to the  Indemnified  Party
within  twenty  (20) days  thereafter,  to assume the  defense  of such  matter,
including the employment of counsel  reasonably  satisfactory to the Indemnified
Party and the  payment of the fees and  disbursements  of such  counsel.  In the
event,  however,  that the  Indemnifying  Party  declines or fails to assume the
defense  of the  matter  or to employ  counsel  reasonably  satisfactory  to the
Indemnified Party, in either case within such twenty (20) day period,  then such
Indemnified  Party may  employ  counsel  to  represent  or defend it in any such
action or proceeding and the  Indemnifying  Party shall pay the reasonable  fees
and  disbursements  of such counsel as  incurred;  provided,  however,  that the
Indemnifying  Party shall not be required to pay the fees and  disbursements  of
more than one counsel for all  Indemnified  Parties in any  jurisdiction  in any
single action or proceeding.  In any action or proceeding  with respect to which
indemnification  is  being  sought  hereunder,  the  Indemnified  Party  or  the
Indemnifying Party,  whichever is not assuming the defense of such action, shall
have the right to  participate  in such  matter and to retain its own counsel at
such party's own expense. The


                                       43

<PAGE>



Indemnifying  Party or the  Indemnified  Party, as the case may be, shall at all
times use reasonable  efforts to keep the Indemnifying  Party or the Indemnified
Party, as the case may be,  reasonably  apprised of the status of the defense of
any action the defense of which they are  maintaining  and to  cooperate in good
faith with each other with respect to the defense of any such action.

                           (b)     No Indemnified Party may settle or compromise
any  claim  or  consent  to the  entry of any  judgment  with  respect  to which
indemnification  is being sought hereunder  without the prior written consent of
the Indemnifying  Party,  unless (i) the Indemnifying  Party fails to assume and
maintain  the  defense of such claim  pursuant to Section  7.4(a);  or (ii) such
settlement,  compromise  or consent  includes  an  unconditional  release of the
Indemnifying Party from all liability arising out of such claim. An Indemnifying
Party may not,  without  the prior  written  consent of the  Indemnified  Party,
settle or  compromise  any claim or  consent to the entry of any  judgment  with
respect  to  which   indemnification  is  being  sought  hereunder  unless  such
settlement,  compromise  or consent  includes  an  unconditional  release of the
Indemnified  Party  from all  liability  arising  out of such claim and does not
contain  any  equitable  order,  judgment  or term which in any manner  affects,
restrains or interferes with the business of the Indemnified Party or any of the
Indemnified Party's respective affiliates.

                           (c) In the event an  Indemnified  Party shall claim a
right to payment (or, a credit towards the Shareholders  Basket Amount or Parent
Basket Amount)  pursuant to this Agreement,  such  Indemnified  Party shall send
written notice of such claim to the appropriate  Indemnifying Party. Such notice
shall  specify  the basis for such claim.  As  promptly  as  possible  after the
Indemnified  Party  has  given  such  notice,  such  Indemnified  Party  and the
appropriate  Indemnifying  Party shall  establish  the merits and amount of such
claim (by mutual  agreement,  litigation,  arbitration or otherwise) and, within
five business days of the final  determination  of the merits and amount of such
claim, the  Indemnifying  Party shall pay to the Indemnified  Party  immediately
available  funds (or, if  applicable,  shall provide  notice to the escrow agent
regarding  disbursement  of the  appropriate  portion of the escrow  fund) in an
amount  equal  to such  claim  as  determined  hereunder  (or  shall  record  an
appropriate  credit  against  the  Shareholder  Basket  Amount or Parent  Basket
Amount).

                  7.5  Survival;   Claims  Period.   All   representations   and
warranties contained in this Agreement or any certificate  delivered pursuant to
Sections 8.1(d)(i) and 9.1(c)(i) hereof shall survive the Effective Time for the
applicable  Claims Period specified in this Section 7.5, and shall not be deemed
waived or otherwise affected by any investigation made or any knowledge acquired
with respect thereto.  The covenants and agreements  contained in this Agreement
shall also survive the Effective Time and shall continue until the expiration of
the applicable Claims Period specified in this Section 7.5. For purposes of this
Agreement,  a  "Claims  Period"  shall be the  period  during  which a claim for
indemnification  may be asserted under this  Agreement by an Indemnified  Party.
The Claims  Periods  under this  Agreement  shall  commence  on the date of this
Agreement and shall terminate as follows:



                                       44

<PAGE>



                           (a)      with respect to Parent Losses arising under
Section  7.1(i)  with  respect to  Sections  4.7  (Financial  Statements),  4.10
(Absence of Certain  Changes),  and 4.26 (Accounts and Notes Receivable) or with
respect to Section 7.1(vi),  the Claims Period shall terminate on the date which
is thirty (30) days  following the final  determination  of the Closing  Balance
Sheet;

                           (b) with respect to any other Parent  Losses  arising
under Section 7.1(i) or any Parent Losses arising under Section 7.1(ii),  (iii),
(iv) or (v),  the Claims  Period  shall  terminate  one (1) year  following  the
Closing Date;

                           (c)      with respect to Parent Losses arising under
Sections  7.1(vii),  the Claims Period shall  continue  indefinitely,  except as
limited by law (including by applicable statutes of limitation);

                           (d)      with  respect to Shareholder Losses arising
under Section 7.2, the Claims Period shall terminate one (1) years following the
Closing date;

                  Notwithstanding  the  foregoing,  if,  prior  to the  close of
business on the last day of the applicable Claims Period, an Indemnifying  Party
shall have been properly notified as provided hereunder of a claim for indemnity
hereunder and such claim shall not have been finally  resolved or disposed of at
such date,  such claim shall  continue  to survive and shall  remain a basis for
indemnity  hereunder  until such claim is finally  resolved  or  disposed  of in
accordance with the terms hereof.

                  7.6 Recovery.  Parent may recover  Parent Losses in accordance
with the provisions of the Escrow Agreement;  provided,  however,  that Parent's
ability to recover Parent Losses in accordance  with the Escrow  Agreement shall
not in any way be  construed  to limit any remedy  Parent may have  against  the
Shareholders under this Article 7.

                                    ARTICLE 8
              CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB

                  8.1  Conditions  Precedent.  Parent's and Sub's  obligation to
consummate  the Merger and the  transactions  contemplated  by this Agreement is
subject  to the  fulfillment  on or  before  the  Closing  Date  of  each of the
following conditions:

                           (a)      Representations, Warranties and Covenants.
The representations and warranties of the Shareholders set forth herein shall be
accurate in all  material  respects on and as of the Closing  Date as if made on
and as of such date (or any date, including the date of this Agreement, at which
a  representation  or  warranty  is  expressly  made),  and the  Company and the
Shareholders  shall have complied in all material  respects with or performed in
all material respects all agreements,  covenants and conditions on their part to
be performed or complied with on or prior to the Closing Date.



                                       45

<PAGE>



                           (b)      Legal Actions.  No  suit, action  or  other
proceeding by any third party shall be pending before any court or  governmental
agency seeking to restrain or prohibit,  or to obtain damages or other relief in
connection  with,  this  Agreement  or  the  consummation  of  the  transactions
contemplated hereby or which is likely to materially  adversely affect the value
of the assets or business of the Company (taken as a whole).

                           (c)   Consents.  All consents, authorizations, orders
and approvals of (or filings or registrations with) any governmental commission,
board or other  regulatory  body  required  in  connection  with the  execution,
delivery  and  performance  of this  Agreement  by the  Company  shall have been
obtained or made,  except for filing of the  Certificate of Merger and any other
documents  required to be filed after the  Effective  Time and except  where the
failure  to have  obtained  or  made  any  such  consent,  authorization,  order
approval, filing or registration would not have a material adverse effect on the
business of Parent and the Company  following the Effective  Time.  Parent shall
also have received  consents to assignment of all Company  Contracts  (including
leases for the Leased Real Estate) or written  waivers of the  provisions of any
Company  Contracts  (including  leases for the Leased Real Estate) requiring the
consents of third parties.

                           (d)      Deliveries.  The Company and/or Shareholders
shall have delivered to Parent:

                                    (i)  A certificate executed by the
Shareholders  certifying to the accuracy on the Closing Date of their respective
representations and warranties set forth in Article 4;

                                    (ii) A  certificate  by the Secretary of the
Company as to the Board of  Directors  and  Shareholders  of the Company  having
taken all actions necessary to authorize the execution, delivery and performance
of this  Agreement  by the  Company  and the  consummation  of the  transactions
contemplated thereby;

                                    (iii) The minute books, stock transfer books
(containing  canceled  stock  certificates  representing  all  transfers  of its
capital stock prior to the Closing Date) and corporate seal of the Company which
are in the Company's possession;

                                    (iv) The  opinion of counsel for the Company
and the Shareholders in the form of Exhibit C hereto; and

                                    (v)    Such other documents and items as are
contemplated by this Agreement or as Parent may reasonably request.

                           (e)    Antitrust Filing.  The waiting period required
in connection  with the  Antitrust  Filing,  if any,  shall have expired or been
terminated.



                                       46

<PAGE>



                           (f)     Pooling Opinion. KPMG shall have delivered to
Parent a letter  dated as of the  Closing  Date to the effect  that,  based upon
discussions with officials responsible for financial and accounting matters, and
information  to be  furnished  to KPMG  through  such date,  KPMG  concurs  with
management's  conclusion  that, as of such date, no conditions exist which would
preclude  Parent from accounting for the merger with the Company as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations.  In addition,  Company's CPA shall deliver to Parent, and
the  Company  and  KPMG,  an  opinion  letter  dated as of the  Closing  Date in
customary  form  satisfactory  to Parent that,  based upon  inquiries  and their
examination  of the  financial  statements  of the  Company,  stating  that  the
accounting  for the  Merger as a pooling  of  interest  under  Opinion 16 of the
Accounting  Principles  Board  and  applicable  SEC  rules  and  regulations  is
appropriate if the Merger is closed and consummated in accordance with the terms
of this Agreement.

                           (g)  Stock Price of Parent Common Stock.  The Average
Closing Price shall not be less than $25.00 per share.

                           (h)  Escrow Agreement. The Shareholder Representative
shall have  executed and delivered the Escrow  Agreement,  substantially  in the
form attached  hereto as Exhibit B (the "Escrow  Agreement"),  pursuant to which
there shall be deposited with the Escrow Agent named therein on the Closing Date
the Escrow Shares to secure the Shareholders' obligations under this Agreement.

                           (i)      Non-Competition Agreements. The Shareholders
shall  have  executed  and  delivered  to  Parent   Non-Competition   Agreements
substantially  in the  form  attached  hereto  as  Exhibit  D  ("Non-Competition
Agreements").

                           (j)      No Material Adverse Change.  There shall not
have occurred after the date hereof any material adverse change in the financial
condition,  properties,  business,  or results  of  operations  of the  Company;
provided,  however,  any material  adverse change that relates  primarily to (i)
general economic conditions  (including those in the United States or any region
of the United States); (ii) general political conditions (including those in the
United States or any region of the United States); (iii) the announcement of the
transactions  contemplated  hereby;  or (iv) any  combination  of the foregoing,
shall not be considered a material adverse change.

                           (k)      Related Party Debt.  Each Shareholder or its
Affiliate  shall  have  paid  in  full  all  amounts  of any  kind  owed by such
Shareholder  or its  Affiliate  to the  Company,  or such amount shall have been
offset on a dollar-for-dollar  basis against any indebtedness for borrowed money
owed by the Company to such Shareholder or its Affiliate.

                           (l)  Dissenting Shares.  No holders of Company Shares
shall have the right to elect to  exercise  dissenters'  rights  pursuant to New
York Law.



                                       47

<PAGE>



                           (m)      Shareholder  Approval.  This Agreement, the
Certificate  of Merger,  and the Merger  shall  have been duly  approved  by the
shareholders  of the  Company  in  accordance  with  all  applicable  laws,  the
Certificate of Incorporation and Bylaws of the Company and otherwise.

                           (n)   Corporate Documents.  The Certificate of Merger
relating to the Merger and the related  officers'  certificates  required by New
York Law shall have been  executed by the Company  and  delivered  to Parent for
filing.

                           (o)  Registration Rights Agreement.  The Shareholders
shall have executed and delivered to Parent the  Registration  Rights  Agreement
substantially in the form attached hereto as Exhibit A.

                           (p) Termination of Certain Agreements. The agreements
described on Schedule  8.1(p) shall have been  terminated by all parties thereto
or assigned to affiliates of Shareholders  without any obligation on the part of
the Company,  in each case in a form and upon such terms as shall be  reasonably
acceptable to Parent.

                  8.2  Waiver.  The  Parent  and the Sub shall have the right to
waive the foregoing  conditions,  or any of them,  wholly or in part;  provided,
however, that no such waiver shall be deemed to have occurred unless the same is
set out in writing and executed by the Parent and the Sub.

                                    ARTICLE 9
                       CONDITIONS PRECEDENT TO OBLIGATIONS
                         OF THE SHAREHOLDERS AND COMPANY

                  9.1 Conditions  Precedent.  The obligation of the Shareholders
and Company to consummate the Merger and the  transactions  contemplated by this
Agreement is subject to the fulfillment,  on or before the Closing Date, of each
of the following conditions:

                           (a)      Representations, Warranties and Covenants.
The  representations  and  warranties  made by Parent  and Sub  herein  shall be
accurate in all  material  respects  on and as of the  Closing  Date to the same
extent as if made on and as of such date, and Parent and Sub shall have complied
in all  material  respects  with  or  performed  in all  material  respects  all
agreements,  covenants and  conditions on their part to be performed or complied
with on or prior to the Closing Date.

                           (b)      Legal Actions.  No  suit, action  or  other
proceeding by any third party shall be pending before any court or  governmental
agency seeking to restrain or prohibit,  or to obtain damages or other relief in
connection  with,  this  Agreement  or  the  consummation  of  the  transactions
contemplated  hereby or which is likely to have a material adverse effect on the
value of the assets or business of the Parent (taken as a whole).

                           (c)  Deliveries.  Parent shall have  delivered to the
Company:



                                       48

<PAGE>



                                    (i)     A certificate executed by Parent and
Sub  certifying  to the  accuracy  on the  Closing  Date of  Parent's  and Sub's
representations and warranties set forth in Article 5;

                                    (ii) A  certificate  by the Secretary or any
Assistant  Secretary  of Parent and Sub as to the due  adoption  by the Board of
Directors of Parent and the Board of Directors  and  shareholders  of Sub of the
required  corporate   resolutions   authorizing  the  execution,   delivery  and
performance  of this  Agreement  by Parent and Sub and the  consummation  of the
transactions contemplated thereby;

                                    (iii) Such other  documents and items as are
contemplated by this Agreement or as the Company may reasonably request;

                                    (iv)     A one year employment agreement in
the form of Exhibit E between  Company and Louis B. Tehan shall be executed  and
delivered.; and

                                    (v)    The opinion of counsel for Parent and
Sub in the form of Exhibit E.

                           (d)    Antitrust Filing.  The waiting period required
in connection  with the  Antitrust  Filing,  if any,  shall have expired or been
terminated.

                           (e)  Stock Price of  Parent Common Stock. The Average
Closing Price shall not exceed $51.00.

                           (f)      Registration Rights Agreement.  Parent shall
have executed and delivered to Shareholders  the  Registration  Rights Agreement
substantially in the form attached hereto as Exhibit A.

                           (g)      No Material Adverse Change.  There shall not
have occurred after the date hereof any material adverse change in the financial
condition,  business  or  results  of  operations  of  Parent  (taken as a whole
together with its subsidiaries);  provided, however, any material adverse change
that relates  primarily to (i) general economic  conditions  (including those in
the  United  States,  any region of the  United  States,  or any nation in which
Parent  conducts a material  transactions);  (ii) general  political  conditions
(including those in the United States,  any region of the United States,  or any
nation in which Parent  conducts a material  transactions);  (iii) general stock
market  conditions  (including  those that adversely effect one or more publicly
traded value  retailers  in addition to Parent);  (iv) the  announcement  of the
transactions contemplated hereby; or (v) any combination of the foregoing, shall
not be considered a material adverse change.

                  9.2 Waiver.  The Company and Shareholders shall have the right
to waive the foregoing conditions,  or any of them, wholly or in part; provided,
however, that no such waiver shall be deemed to have occurred unless the same is
set out in writing and executed by the Company and


                                       49

<PAGE>



Shareholders.  Any waiver made by the Company and  Shareholders  hereunder shall
also constitute a waiver with respect to any rights or remedies that the Company
or  Shareholders  may otherwise have against Parent in respect of or relating to
the specific conditions waived.

                                   ARTICLE 10
                                   TERMINATION

                  10.1 Termination. This Agreement may be terminated at any time
at or prior to the Closing (the "Termination Date"):

                           (a)    in writing by mutual consent of Parent and the
Company;

                           (b)      by written notice from the Company to Parent
if (i) Parent or Sub shall breach or fail to perform in any material respect any
of its agreements contained herein required to be performed by it on or prior to
the Closing Date or (ii) any of the representations and warranties of Parent and
Sub contained herein shall be inaccurate in any material respect,  which breach,
failure or  inaccuracy  is not cured  within ten (10) days after the Company has
notified  Parent of its intent to  terminate  this  Agreement  pursuant  to this
subparagraph (b); provided that if any such breach, failure or inaccuracy is not
reasonably  capable of cure within  such  10-day  period and Parent is using its
good faith  efforts to effect such cure at the earliest  practicable  time,  the
Company  shall not be  permitted to terminate  this  Agreement  pursuant to this
subparagraph  (b) unless such breach,  failure or inaccuracy is not cured within
thirty  (30) days  after  the  Company  has  notified  Parent  of its  intent to
terminate this Agreement pursuant to this subparagraph (b);

                           (c)     by written notice from Parent to the Company,
if (i) the Company  shall breach or fail to perform in any material  respect any
of its agreements contained herein required to be performed by it on or prior to
the Closing  Date;  or (ii) any of the  representations  and  warranties  of the
Company  contained  herein shall be  inaccurate in any material  respect,  which
breach, failure or inaccuracy is not cured within ten (10) days after Parent has
notified the Company of its intent to terminate this Agreement  pursuant to this
subparagraph (c); provided that if any such breach, failure or inaccuracy is not
reasonably  capable of cure within  such 10-day  period and Company is using its
good faith  efforts to effect such cure at the earliest  practicable  time,  the
Company  shall not be  permitted to terminate  this  Agreement  pursuant to this
subparagraph  (c) unless such breach,  failure or inaccuracy is not cured within
thirty  (30) days  after  Parent  has  notified  the  Company  of its  intent to
terminate this Agreement pursuant to this subparagraph (c);

                           (d)      by written notice by Parent to the Company,
if the Closing has not  occurred by August 31,  1999,  for any reason other than
delay or nonperformance by Parent or Sub.

                           (e)      by written notice by Company to the Parent,
if the Closing has not  occurred by August 31,  1999,  for any reason other than
delay or nonperformance by Company or any Shareholder.



                                       50

<PAGE>



                  10.2 Effect of Termination.  Each party's right of termination
under  Section  10.1 is in addition  to any other  rights it may have under this
Agreement or otherwise,  and the exercise of a right of termination  will not be
an election of remedies.  In the event of termination of this Agreement pursuant
to this Article 10, all further  obligations  of the parties will  terminate for
acts or omissions  occurring after the Termination  Date, except for obligations
under  Article 7 for any  breach  occurring  on or before the  Termination  Date
described in the next  sentence,  Article 11,  Article 12 and this Section 10.2,
all of which shall survive the Termination Date.  Notwithstanding the foregoing,
nothing  contained  herein shall  relieve any party from  liability for (i) such
party's breach of this Agreement occurring on or before the Termination Date, or
(ii) such party's  failure to comply with an  obligation  hereunder on or before
the Termination Date which results in a failure of one or more conditions to the
terminating party's obligations hereunder.

                                   ARTICLE 11
                                CERTAIN EXPENSES

                  Except  as  set  forth  in  this  Article  11 or as  otherwise
provided  herein,  all  fees and  expenses  incurred  in  connection  with  this
Agreement and the  transactions  contemplated  hereby shall be paid by the party
incurring such expenses, whether or not the Merger is consummated.

                  11.1  Deal   Expenses.   "Deal   Expenses"   shall   mean  all
out-of-pocket  expenses  of the Company  payable to  accountants,  lawyers,  and
consultants  relating  to  the  negotiation,  execution,  and  closing  of  this
Agreement;  provided,  that  Shareholder's  agree that expenses which constitute
legal fees shall not exceed  $100,000.00  and the aggregate of all Deal Expenses
including  legal fees but excluding  the  Antitrust  Filing Fee shall not exceed
$150,000.  The term "Deal Expense" shall exclude  expenses  payable to Company's
CPA for work to be conducted on Company's behalf after the Closing Date.

                  11.2  Deal  Expenses  Paid in Event of  Closing.  In the event
Closing occurs, Parent shall cause the Company to pay all Deal Expenses incurred
through the Closing;  and Shareholders  shall pay for all Deal Expenses incurred
after the Closing.

                  11.3 Deal Expenses Paid in Event of Termination.  In the event
the transaction  contemplated hereby is terminated,  Parent shall be responsible
for only  those  Deal  Expenses  which  constitute  the  Antitrust  Filing  fee;
provided,  however,  in the event the  transaction  is  terminated  pursuant  to
Section 10.1(c),  Company shall pay or reimburse Parent for the Antitrust Filing
Fee.

                  11.4 Severance, Bonus Payments; Accrued Vacation. In the event
Closing  occurs,  Parent  shall cause  Company (i) to pay an  aggregate of up to
$142,200 in severance and bonus  payments to Company  non-Shareholder  employees
reasonably  designated by  Shareholders  (subject to Parent's right to veto such
payments if, in the opinion of KPMG, any such payments  jeopardize  treatment of
the  Merger  as  a  pooling  of  interests)  and  (ii)  to  compensate   Company
non-Shareholder  employees  who are  terminated  following  Closing  for  unused
vacation days which would have accrued to such employees as of a date that is 60
days after the Closing Date.


                                       51

<PAGE>



                                   ARTICLE 12
                                  MISCELLANEOUS

                  12.1     Benefits and Burdens: Assignment.

                           (a)      Upon  the  execution  of this  Agreement by
Shareholders,  Parent,  Sub,  and the  Company,  this  Agreement  shall become a
binding and enforceable agreement with respect to Shareholders,  Parent, Sub and
the Company.

                           (b)      This Agreement shall inure to the benefit of
and shall be binding upon the Shareholders, Company, Sub and Parent, and each of
their  respective  personal  representatives,  successors,  heirs and  permitted
assigns.  No party to this  Agreement  may  assign  its  rights  or  obligations
hereunder without the prior written consent of each of the other parties hereto;
provided  however,   that  this  Agreement  may  be  assigned  by  Parent  to  a
corporation, all of whose issued and outstanding capital stock is owned directly
or indirectly by Parent, but in such event Parent shall not be released from its
obligations hereunder.

                           (c)     Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated  hereby  shall  create  any  rights  in,  or be deemed to have been
executed for the benefit of, any person or entity that is not a party hereto,  a
successor  or permitted  assign of such a party or a person or entity  expressly
entitled to indemnification hereunder

                  12.2 Amendment.  This Agreement may be amended by the Company,
Sub and  Parent  and  Shareholders,  by or  pursuant  to  action  taken by their
respective  Boards of  Directors  and the  Shareholders  at any  time;  provided
however that no amendment shall be made which by law requires  further  approval
by Shareholders without such further approval. This Agreement may not be amended
except by an  instrument  in  writing  signed  on behalf of each of the  parties
hereto.

                  12.3  Notices.  All  notices,  communications  and  deliveries
hereunder  shall be made in writing  signed by or on behalf of the party  making
the same, shall specify the Section  hereunder  pursuant to which it is given or
being made,  and shall be delivered  personally or by telecopy  transmission  or
sent by  registered  or certified  mail  (return  receipt  requested)  or by any
national  overnight  courier  service  (with  postage and other fees prepaid) as
follows:

If to Parent or, after the Closing,     With a required copy to:
the Company:
                                        Hofheimer Nusbaum, P.C.
Dollar Tree Stores, Inc.                999 Waterside Drive, Suite 1700
500 Volvo Parkway                       P. O. Box 3460
Chesapeake, Virginia 23320              Norfolk, Virginia  23514
Attention:  Mr. H. Ray Compton          Attention:  William A. Old, Jr., Esquire
                                        Telecopier:  (757) 629-0660



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<PAGE>



If, prior to Closing, to the Company:        With a required copy to:

Tehan's Merchandising, Inc. t/a Only $One    Steates Remmell Steates & Dziekan
4619 Commercial Drive                        4 Oxford Crossing, Suite 164
New Hartford, New York   13413               New Hartford, NY  13413
Attention: Mr. Richard J. Tehan              Attention: Robert E.  Remmell, Esq.
Telecopier:  (315)724-2931                   Telecopier: (315)724-2931

If to  the  Shareholders,  at the  addresses  shown  on  Section  4.4(a)  of the
Disclosure Schedule with a required copy to:

Steates Remmell Steates & Dziekan
4 Oxford Crossing, Suite 164
New Hartford, NY  13413
Attention: Robert E.  Remmell, Esq.
Telecopier: (315) 724-2931

or to such  other  address  or to such other  person or  persons  designated  in
writing  by such  party  or  counsel,  as the  case  may be.  Any  such  notice,
communication  or  delivery  shall  be  deemed  given or made (a) on the date of
delivery if  delivered in person;  (b) on the date after  delivery to a national
overnight  courier  service;  (c) upon  transmission  by facsimile if receipt is
confirmed  by  telephone;  or (d) on the fifth  (5th)  business  day after it is
mailed by registered or certified mail.

                  12.4 Entire Agreement. Those certain letters dated May 6, 1999
by and between Parent and Company relating to confidentiality and the terms of a
possible  transaction are hereby  terminated and shall be deemed void ab initio;
provided  however  upon  termination  of this  Agreement  pursuant to Article 10
hereof,  the letter relating to  confidentiality  shall be deemed revived and in
full  force and  effect  as of such  termination;  however,  no action by Parent
permitted under this Agreement  prior to termination of this Agreement  pursuant
to Article 10 hereof shall be deemed to be a violation  of such revived  letter.
This Agreement  embodies the entire  agreement and  understanding of the parties
hereto  in  respect  of  the  subject  matter  contained  herein.  There  are no
restrictions,  promises, representations,  warranties, covenants or undertakings
other than those  expressly  set forth or  referred  to herein.  This  Agreement
supersedes all prior  agreements  and  understandings  between the parties.  The
parties make no representations or warranties to each other, except as contained
in this Agreement, and any and all prior representations, warranties, assurances
and promises made by any party or its  representatives,  whether  verbally or in
writing,  are deemed to have been merged into this Agreement,  it being intended
that no such prior  representations,  warranties,  assurances and promises shall
survive the execution and delivery of this Agreement.

                  12.5  Headings.  The section  headings in this  Agreement  are
intended solely for convenience and shall be given no effect in the construction
and interpretation hereof.



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<PAGE>



                  12.6  Construction.   The  parties  hereto  have  participated
jointly in the  negotiation  and  drafting  of this  Agreement.  In the event an
ambiguity or question of intent or interpretation  arises,  this Agreement shall
be construed as if drafted  jointly by the parties and no  presumption or burden
of proof  shall  arise  favoring  or  disfavoring  any  party by  virtue  of the
authorship  of any of the  provisions  of this  Agreement.  Any reference to any
federal,  state,  local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.  The word "including"  shall mean including without  limitation.  The
parties intend that each representation, warranty, and covenant contained herein
shall  have  independent  significance.  The  table  of  contents  and  headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or  interpretation  of this  Agreement.  If any party has
breached  any  representation,  warranty,  or covenant  contained  herein in any
respect,  the fact  that  there  exists  another  representation,  warranty,  or
covenant relating to the same subject matter  (regardless of the relative levels
of  specificity)  which the party has not  breached  shall not  detract  from or
mitigate  the fact that the  party is in  breach  of the  first  representation,
warranty, or covenant.

                  12.7 Incorporation of Exhibits and Schedules. The exhibits and
schedules  identified in this Agreement,  including the Disclosure Schedule (and
any certificates or documents  delivered at Closing pursuant to Sections 8.1 and
9.1),  are  incorporated  herein by reference  and made a part hereof.  The term
"Agreement"  shall  include  all such  exhibits,  schedules,  certificates,  and
writings.  The inclusion of any item in the Disclosure  Schedule is not evidence
of the  materiality  or  immateriality  of such  item for the  purposes  of this
Agreement.

                  12.8  Counterparts.  This  Agreement may be executed in two or
more  counterparts,  each of which shall be deemed an original  and all of which
together shall constitute one and the same  instrument,  and, when signed by all
of the parties hereto, shall become legally binding on such parties effective as
of the date set forth at the beginning of this Agreement.

                  12.9 Governing  Law. This  Agreement  shall be governed by and
interpreted  under  the  laws of the  Commonwealth  of  Virginia  applicable  to
contracts made and to be performed entirely within such Commonwealth and without
giving effect to the choice of law principles of such Commonwealth.

                  12.10  Enforcement;  Jurisdiction;  Waiver of Jury Trial.  The
parties hereto agree that  irreparable  damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance  with their
specific terms or were  otherwise  breached.  It is accordingly  agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce  specifically  the terms and provisions  hereof in
any court of the United  States or any state  having  jurisdiction,  such remedy
being in addition  to any other  remedy to which any party is entitled at law or
in equity. Each party hereby irrevocably  submits to the exclusive  jurisdiction
of the United States District Court for the Eastern  District of Virginia or any
court of the  Commonwealth  of  Virginia  located  in the City of Norfolk in any
action,  suit or proceeding arising in connection with this Agreement and agrees
that any such  action,  suit or  proceeding  shall be brought only in such court
(and irrevocably waives any objection based on forum non conveniens


                                       54

<PAGE>



or any other  objection to venue  therein).  Parent and the Company hereby waive
any  right  to a trial by jury in  connection  with  any  such  action,  suit or
proceeding.

                  12.11 Severability.  The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or  enforceability  of
any other provision of this Agreement.

                  12.12 Time. Time is of the essence under this Agreement.

                  12.13 Knowledge.  The phrase "to the knowledge of the Company"
or its equivalent as used herein shall mean to the knowledge of the Company, its
directors and officers, or any of the Shareholders after appropriate inquiry.

                  12.14 Statutes.  Any reference herein to any federal, state or
local statute shall include all  amendments to such statute  through the date of
this Agreement or the Effective Time, as applicable.

                  12.15 Specific  Performance  and Other  Remedies.  The parties
hereto  each  acknowledge  that  the  rights  of each  party to  consummate  the
transactions  contemplated  hereby  are  special,  unique  and of  extraordinary
character, and that, in the event that any party violates or fails or refuses to
perform any covenant or agreement made by it herein, the non-breaching party may
be without an adequate remedy at law. The parties each agree, therefore, that in
the event that either party violates or fails or refuses to perform any covenant
or agreement made by such party herein, the non-breaching  party or parties may,
subject to the terms of this  Agreement  and in addition to any  remedies at law
for damages or other  relief,  institute and prosecute an action in any court of
competent  jurisdiction  to enforce  specific  performance  of such  covenant or
agreement  or seek any other  equitable  relief.  Except as  otherwise  provided
herein,  any and all remedies  herein  expressly  conferred upon a party will be
deemed  cumulative with and not exclusive of any other remedy conferred  hereby,
or by law or equity  upon such  party,  and the  exercise  by a party of any one
remedy will not preclude the exercise of any other remedy.

            [The remainder of this page is left intentionally blank.]



                                       55

<PAGE>



                  IN WITNESS WHEREOF,  the parties have executed or caused to be
executed this Agreement effective as of the day and year first above written.

COMPANY:                TEHAN'S MERCHANDISING, INC.               [SEAL]


                        By:      /s/ Richard J. Tehan
                                 __________________________________
                                 Richard J. Tehan
                                 President

PARENT:                 DOLLAR TREE STORES, INC.                  [SEAL]


                        By:      /s/ Macon F. Brock, Jr.
                                 __________________________________
                                 Macon F. Brock, Jr.
                                 President and Chief Executive Officer

SUB:                    DOLLAR TREE NEW YORK, INC.                [SEAL]


                        By:      /s/ Frederick C. Coble
                                 _________________________________
                                 Frederick C. Coble
                                 Senior Vice President - Chief Financial Officer

SHAREHOLDERS:
                        /s/ Richard J. Tehan
                        __________________________________        [SEAL]
                        RICHARD J. TEHAN

                        /s/ Robert J. Tehan
                        __________________________________        [SEAL]
                        ROBERT J. TEHAN

                        /s/ Steven A. Tehan
                        __________________________________        [SEAL]
                        STEVEN A. TEHAN

                        /s/ Basil L. Tehan
                        __________________________________        [SEAL]
                        BASIL L. TEHAN

                        /s/ Frederick J. Tehan
                        __________________________________        [SEAL]
                        FREDERICK J. TEHAN


                                       56

<PAGE>



State of  (Commonwealth  of)  New York,  City/County of  Oneida, to-wit:

         The foregoing  instrument  was acknowledged  before me this 15th day of
June, 1999, by Richard J. Tehan,  President of Tehan's  Merchandising,  Inc., on
behalf of the corporation.

                                    /s/ Carl S. Dziekan
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: May 5, 2000


State of  (Commonwealth  of)  Virginia,  City/County of  Chesapeake, to-wit:

         The foregoing  instrument  was acknowledged  before me this 15th day of
June, 1999, by Macon F. Brock,  President and chief Executive  Officer of Dollar
Tree Stores, Inc., on behalf of the corporation.

                                    /s/ Brenda S. Cox
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: August 31, 1999


State of  (Commonwealth  of)  Virginia,  City/County of  Chesapeake, to-wit:

         The foregoing  instrument  was acknowledged  before me this 15th day of
June,  1999, by Frederick C. Coble,  Senior  Vice-President  and Chief Financial
Officer of Dollar Tree New York, Inc., on behalf of the corporation.

                                    /s/ Brenda S. Cox
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: August 31, 1999




                                       57

<PAGE>



State  of  (Commonwealth  of)  New York,  City/County  of  Oneida, to-wit:

         The foregoing instrument was acknowledged before me this 15th day of
June, 1999 by Richard J. Tehan.
                                    /s/ Carl S. Dziekan
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: May 5, 2000


State  of  (Commonwealth  of)  New York,  City/County  of  Oneida, to-wit:

         The  foregoing  instrument  was  acknowledged  before  me this 15th day
of June, 1999, by Robert J. Tehan.
                                    /s/ Carl S. Dziekan
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: May 5, 2000


State  of  (Commonwealth  of)  New York,  City/County  of  Oneida, to-wit:

         The  foregoing  instrument  was  acknowledged  before  me this 15th day
of June, 1999, by Steven A. Tehan.
                                    /s/ Carl S. Dziekan
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: May 5, 2000


State  of  (Commonwealth  of)  New York,  City/County  of  Oneida, to-wit:

         The  foregoing  instrument  was  acknowledged  before  me this 15th day
of June, 1999, by Basil L. Tehan.
                                    /s/ Carl S. Dziekan
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: May 5, 2000



                                       58

<PAGE>




State  of  (Commonwealth  of)  New York,  City/County  of  Oneida, to-wit:

         The  foregoing  instrument  was  acknowledged  before  me this 15th day
of June, 1999, by Frederick J. Tehan.
                                    /s/ Carl S. Dziekan
                                    ------------------------------------
                                    Notary Public
                                    My commission expires: May 5, 2000



                                       59


