-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NGjHmX/VN7y1PiSxImA1tzol7+3xYv56ETVMqcZukd/O9ptB7O/f72ZPJuuNDP5/ cFyCOewbcUAleP0txNjWHA== 0000950152-00-003211.txt : 20000428 0000950152-00-003211.hdr.sgml : 20000428 ACCESSION NUMBER: 0000950152-00-003211 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20000129 FILED AS OF DATE: 20000427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELDER BEERMAN STORES CORP CENTRAL INDEX KEY: 0000032020 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 310271980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02788 FILM NUMBER: 610799 BUSINESS ADDRESS: STREET 1: 3155 ELBEE RD CITY: DAYTON STATE: OH ZIP: 45439 BUSINESS PHONE: 9372962700 MAIL ADDRESS: STREET 1: 3155 EL BEE ROAD CITY: DAYTON STATE: OH ZIP: 45439 10-K 1 THE ELDER-BEERMAN STORES CORP. 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 29, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-02788 THE ELDER-BEERMAN STORES CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 31-0271980 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3155 EL-BEE ROAD, DAYTON, OHIO 45439 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 296-2700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE (TITLE OF CLASS) SHARE PURCHASE RIGHTS (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of April 14, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing sale price of such stock on such date) was approximately $77,273,128.* The number of shares of Common Stock outstanding on April 14, 2000, was 14,959,739. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [X] NO [ ] - --------------- * Calculated by excluding all shares that may be deemed to be beneficially owned by executive officers and directors of the registrant, without conceding that all such persons are "affiliates" of the registrant for purposes of the federal securities laws. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE PART I Item 1. Business.................................................... 1 Merchandising............................................... 2 Pricing..................................................... 2 Purchasing and Distribution................................. 3 Information Systems......................................... 3 Marketing................................................... 3 Credit Card Program......................................... 3 Customer Service............................................ 4 Expansion................................................... 4 New Concept Stores.......................................... 4 Bee-Gee Shoe Corp........................................... 4 Seasonality................................................. 4 Competition................................................. 5 Associates.................................................. 5 Item 2. Properties.................................................. 5 Item 3. Legal Proceedings........................................... 7 Item 4. Submission of Matters to a Vote of Security Holders......... 7 PART II Item 5. Market for Common Equity and Related Shareholder Matters.... 7 Item 6. Selected Historical Financial Data.......................... 8 Item 7. Management's Discussions and Analysis of Financial Condition 9 and Results of Operations................................. Item 7a. Quantitative and Qualitative Disclosures About Market 13 Risk...................................................... Item 8. Financial Statements and Supplementary Data................. 13 Table of Contents........................................... 13 Independent Auditors' Report................................ 14 Consolidated Statement of Operations........................ 15 Consolidated Balance Sheets................................. 16 Consolidated Statements of Shareholders' Equity............. 17 Consolidated Statements of Cash Flows....................... 18 Notes to Consolidated Financial Statements.................. 19 Item 9. Changes in and Disagreements with Accountants on Accounting 35 and Financial Disclosure.................................. PART III Item 10. Directors and Executive Officers Directors and Executive Officers............................ 35 Item 11. Executive Compensation...................................... 38 Summary Compensation Table.................................. 38 Stock Option/SAR Grants..................................... 39 Stock Option Exercises and Fiscal Year-End Values........... 39
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PAGE Employment and Severance Agreements With Certain Officers... 40 Compensation Committee Report on Executive Compensation..... 41 Overview and Philosophy..................................... 41 Components of Compensation.................................. 41 Base Salary................................................. 41 Annual Bonus................................................ 42 Long-Term Incentive Awards.................................. 42 Executive Plan.............................................. 42 Compensation of Chief Executive Officer..................... 43 1999 Base Salary and Annual Bonus........................... 43 Executive Plan.............................................. 43 Tax Deductibility of Executive Compensation................. 43 Compensation of Elder-Beerman's Directors................... 44 Compensation Committee Interlocks and Insider 44 Participation............................................. Stock Price Performance..................................... 44 Item 12. Security Ownership of Certain Beneficial Owners and 45 Management................................................ Item 13. Certain Relationships and Related Transactions.............. 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 46 8-K....................................................... SIGNATURES............................................................ 52 EXHIBIT INDEX......................................................... 54
ii 4 PART I This Annual Report on Form 10-K contains certain forward-looking statements that are based on management's current beliefs, estimates and assumptions concerning the operations, future results and prospects of Elder-Beerman and the retail industry in general. All statements that address operating performance, events or developments that management anticipates will occur in the future, including statements related to future sales, profits, expenses, income and earnings per share, future finance and capital market activity, or statements expressing general views about future results, are forward-looking statements. In addition, words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from those in the forward- looking statements. Accordingly, there is no assurance that forward-looking statements will prove to be accurate. Many factors could affect Elder-Beerman's future operations and results, such as the following: increasing price and product competition; fluctuations in consumer demand and confidence; the availability and mix of inventory; fluctuations in costs and expenses; the effectiveness of advertising, marketing and promotional programs and other initiatives designed to increase revenue, such as the Company's new "point of service" system; the timing and effectiveness of new store openings; the growing impact of electronic commerce; weather conditions that affect consumer traffic in stores; the continued availability and terms of financing; the outcome of pending and future litigation; the ability of third parties to meet their liabilities and obligations; and general economic conditions, such as the rate of employment, inflation and interest rates and the condition of the capital markets. Forward-looking statements are subject to the safe harbors created under the federal securities laws. Elder-Beerman undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 1. BUSINESS The Elder-Beerman Stores Corp. ("Elder-Beerman" or the "Company"; except where the context otherwise requires, references to the "Company" refer to Elder-Beerman and its subsidiaries, as described below) has been operating department stores since 1847. Elder-Beerman operates department stores that sell a wide range of moderate to better branded merchandise, including women's, men's and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, the Company operates its private label credit card program through its wholly-owned subsidiary, The El-Bee Chargit Corp. ("Chargit"). As of fiscal year end 1999, Elder-Beerman operated 62 department stores and two furniture stores, principally in smaller Midwestern markets in Ohio, West Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. See "Properties." The Company's operations are diversified by size of store, merchandising character, and character of the community served. The Company seeks to satisfy the merchandising needs of its geographic markets, serving customers of all ages with varied tastes and incomes. The Company's historical competitive advantage is its niche in medium and small size cities, and in many cases, Elder-Beerman is the dominant supplier of moderate to better brands of soft goods (e.g., Liz Claiborne, Estee Lauder, Tommy Hilfiger, Polo, Guess) in such markets. In many of these cities, there is only one shopping mall or major shopping center, and the Company is a main department store anchor along with J.C. Penney, Sears, or a discount retailer such as Target or Kohl's. These other anchors generally supply moderate private label goods, which typically complement the Company's more upscale and largely branded merchandise. The Company's strong metropolitan department store rivals have tended to bypass smaller midwestern cities, leaving Elder-Beerman as the dominant department store in these smaller markets. The Company's business strategy is to improve profitability by focusing on a more productive core department store business, primarily in Dayton, Ohio and smaller communities in the Midwest. The Company seeks to be the dominant destination retailer in its markets for fashion apparel, accessories, cosmetics, shoes, and home accessories for the entire family, while continuing its tradition of providing strong customer service. In 5 addition, the Company aggressively uses technology and business process changes to reduce operating costs and improve operating performance through productivity gains. The Company's long-term business plan is designed to accomplish its strategy by (a) focusing on its traditional strengths as the major retailer in its markets; (b) emphasizing major vendor partnerships to improve sales and margins while improving supply chain integration and efficiencies; (c) competing with traditional department store competitors through emphasis on customer service, timely and broad product assortments, and competitive pricing and promotions in appropriate markets and product areas; (d) competing with moderate department stores and discounters through merchandise breadth and advantages in branded and gift areas; (e) focusing price/product competition in key basic merchandising areas; and (f) leveraging technology to create a selling culture with "customer-focused" stores, to develop and execute customer and market specific marketing programs, and to distribute, price, and promote goods by market. Merchandising The Company carries a broad assortment of goods to provide fashion, selection and variety found in leading department stores that feature better merchandise brands. Although all stores stock identical core assortments, specific types of goods are distributed to stores based on the particular characteristic of the local market. The Company emphasizes "signature" areas critical to its image in its niche market, as a primary destination for fashion apparel, cosmetics and gifts. In addition, through continued efforts to develop a partnership with its most significant vendors, the Company is using technology and focused merchandising and distribution to reduce material handling costs and increase speed in moving stock from the vendor to the selling floor. Certain departments in Elder-Beerman's department stores are leased to independent third parties. These leased departments, which include the fine jewelry, beauty salon, millinery and maternity departments, provide high quality service and merchandise where specialization and expertise are critical and the Company's direct participation in the business is not economically justifiable. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines. For the 52 weeks ending January 29, 2000 ("Fiscal 1999"), the 52 weeks ending January 30, 1999 ("Fiscal 1998") and the 52 weeks ending January 31, 1998 ("Fiscal 1997"), the Company's percentages of net sales by major merchandise category were as follows: THE ELDER-BEERMAN STORES CORP. RETAIL SALES BY DEPARTMENT
1999 1998 1997 MERCHANDISE CATEGORY % % % - -------------------- ----- ----- ----- Women's Ready to Wear....................................... 33.0% 33.1% 34.0% Accessories, Shoes & Cosmetics.............................. 23.2% 22.6% 21.7% Men's & Children's.......................................... 23.3% 24.0% 24.3% Home Store.................................................. 20.5% 20.3% 20.0% ----- ----- ----- TOTAL RETAIL................................................ 100.0% 100.0% 100.0% ===== ===== =====
Pricing All pricing decisions are made at the Company's corporate headquarters. The Company's pricing strategy is designed to provide superior quality and value appeal by offering competitive prices on fashion from better national brands. The Company has effectively been able to generate sales from promotions with special pricing of limited duration. The Company's management information systems provide timely sales and gross margin reports that identify sales and gross margins by item and by store and provide management with the information and flexibility to adjust prices and inventory levels as necessary. 2 6 Purchasing and Distribution During Fiscal 1999, the Company purchased merchandise from over 1,000 domestic and foreign manufacturers and suppliers. During that period, the top 25 vendors by dollar volume accounted for approximately 38% of net purchases. In Fiscal 1999, the Company also purchased approximately 6% of its merchandise, primarily private label merchandise, through Frederick Atkins, Inc. ("Atkins"), a national association of major retailers that provided its members with group purchase opportunities. Management believes it has good relationships with its suppliers. No other vendor accounted for more than 5% of the Company's purchases. The Company believes that alternative sources of supply are available for each category of merchandise it purchases, including private label products which have been historically purchased through Atkins. Merchandise is generally shipped from vendors, through three consolidation points, to the Company's distribution center in Dayton, Ohio. Deliveries are made from the distribution center to each store two to seven times per week depending on the store size and the time of year. A majority of the merchandise is shipped ready for immediate placement on the selling floor. Information Systems The Company places great emphasis on its management information systems. Currently, the Company's merchandising activities are controlled by a series of on-line systems, including a point-of-sale and sales reporting system, a purchase order management system, a receiving system and a merchandise planning system. These integrated systems track merchandise from the order stage through the selling stage and provide valuable sales performance information for management. The Company is currently developing a new point of sale system ("POS System") to enhance its customer service by speeding up the transaction at point of service and by taking advantage of technology to add more functions at point of service. Marketing The Company's marketing and advertising functions are centralized at its corporate headquarters, and are focused on communicating a timely and broad offering of moderate to better branded merchandise, a strong quality/value relationship and outstanding customer service. The Company employs comprehensive, multimedia advertising programs including print and broadcast as well as creative in-store displays, signage and special promotions. The Company distributes sale catalogs utilizing insertion in Sunday and weekday newspapers as well as direct mail to preferred charge customers. Catalogs are supplemented by additional newspaper advertising to support sale events as scheduled. The Company also uses television and radio in markets where it is productive and cost efficient. Credit Card Program The Company operates a private label credit card program through its wholly-owned subsidiary, Chargit. During Fiscal 1999, the Company issued 254,000 Elder-Beerman credit cards for newly opened accounts which included 26,000 accounts from its two new stores opened in the fall of 1999 and had approximately 862,000 Elder-Beerman active credit card accounts during Fiscal 1999. During 1999 Chargit introduced the Preferred Program to the top 10% of Elder-Beerman charge customers. This program rewards the most loyal Elder- Beerman customers with special shopping events and various soft benefits throughout the year. During Fiscal 1999, approximately 42% of Elder-Beerman's total sales were private label credit card sales. Cash sales and third party credit cards accounted for 33% and 25% of sales, respectively. Frequent use of the Elder-Beerman credit card by customers is an important element in the Company's marketing and growth strategies. The Company also seeks to increase the use of its private label credit card through incremental sales or shifting sales from other credit cards and other retailers, and by attracting new cardholders. All phases of the credit card operation are handled by Chargit except the processing of customer mail payments, which is performed pursuant to a retail lockbox agreement with a bank. Decisions whether to issue a credit card to an applicant are made on the basis of a credit scoring system. 3 7 Customer Service Elder-Beerman has a strong tradition of providing quality customer service. The Company is presently enhancing its customer service image and creating a customer-oriented store environment by (a) centralizing customer service register stations; (b) eliminating nonselling activities from stores; (c) using training and recruiting practices to instill a culture of customer helpfulness, friendliness and responsiveness; and (d) developing a new POS System to expedite the sales completion process and provide additional functions at point of service. Expansion The Company is currently implementing a controlled expansion of new concept stores in markets having characteristics consistent with the Company's current markets. The Company believes that sufficient new locations are available in markets within or contiguous to the Company's current area of operations to support such an expansion. In addition, the Company believes that opportunities exist to expand existing stores where current space constraints prevent adequate presentation of certain core merchandise departments. During Fiscal 1999, the Company expanded its Winfield and Sandusky stores by increasing the size of the selling area in Winfield, West Virginia by 27,000 square feet and in Sandusky, Ohio by 41,000 square feet. New Concept Stores Elder-Beerman redesigned its core store format in late 1998 and early 1999 and opened two of these new concept stores in the fall of 1999. Because Elder-Beerman's top nine stores in sales productivity are stores between 48,000 to 58,000 square feet, the new stores are both approximately 55,000 square feet. These stores will serve as the prototype for future new stores. The Company has announced the opening of two concept stores for Fall 2000 in Howell, Michigan and West Bend, Wisconsin. Important features of the new stores include: - Customer Service Centers located in main aisles to eliminate the traditional, multiple single-terminal wrap stands in each selling area, thereby increasing selling floor space. These Customer Service Centers are always staffed and are highly visible to the customer. The goal of these service centers is to speed the ringing of sales and improve customer service. - An open sell/self select format for cosmetics, fashion jewelry and shoes, which is designed for customer convenience and to increase the efficiency of the selling staff. - The "Zone," a combined juniors' and young men's store within a store, which is designed to provide a more appealing shopping experience for the 13-25 year old "Generation Y" shopper. - Attractive, high capacity fixturing and wallscaping to increase the inventory density by 10% to 20%, which helps drive sales productivity. - Flexible utilization of space using a neutral color palette and nonpermanent walls to eliminate barriers between families of business and permit reconfiguration of the store without disruption of business. Bee-Gee Shoe Corp. On January 25, 2000, the Company completed the sale of its 50-unit Bee-Gee Shoe Corp. ("Bee-Gee") speciality shoe store chain, to a business group formed by Albertine Industries, Ark Capital and Bee-Gee management. Seasonality The department store business is seasonal, with a high proportion of sales and operating income generated in November and December. Working capital requirements fluctuate during the year, increasing somewhat in mid-summer in anticipation of the fall merchandising season and increasing substantially prior to the Christmas holiday season when the Company must carry significantly higher inventory levels. Consumer spending in the peak retail season may be affected by many factors outside the Company's control, including competition, 4 8 consumer demand and confidence, weather that affects consumer traffic and general economic conditions. A failure to generate substantial holiday season sales could have a material adverse effect on the Company. Competition The retail industry in general and the department store business in particular is intensely competitive. Generally, the Elder-Beerman department stores compete not only with other department stores in the same geographic markets, but also with numerous other types of retail outlets, including specialty stores, general merchandise stores, off-price and discount stores and manufacturer outlets. Some of the retailers with which the Company competes have substantially greater financial resources than the Company and may have other competitive advantages over the Company. The Elder-Beerman department stores compete on the basis of quality, depth and breadth of merchandise, prices for comparable quality merchandise, customer service and store environment. Associates On January 29, 2000, the Company had approximately 8,290 regular and part-time associates. Because of the seasonal nature of the retail business, the number of associates rises to a peak in the holiday season. None of the Company's associates are represented by a labor union. The Company's management considers its relationships with its associates to be satisfactory. ITEM 2. PROPERTIES Elder-Beerman currently operates 62 department stores and two furniture stores, principally in smaller midwestern markets in Ohio, West Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. Substantially all of the Company's stores are leased properties. The Company owns, subject to a mortgage, a 302,570 square foot office/warehouse facility located in Dayton, Ohio, which serves as its principal executive offices. The Company also leases an approximately 300,000 square foot distribution center in Fairborn, Ohio. On March 2, 2000 the Company announced the closing of its downtown Wheeling and Charleston stores in West Virginia. The following table sets forth certain information with respect to Elder-Beerman's department store locations operating as of January 29, 2000, the end of Elder-Beerman's most recently completed fiscal year: THE ELDER-BEERMAN STORES CORP. STORE SUMMARY BY REGION
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- --------------------------------- ------- ------ --------- OHIO Athens University Mall 42,829 09/88 Lease Bowling Green Woodland Mall 40,700 04/87 Lease Chillicothe Chillicothe Mall 55,940 05/81 Lease Home Store 17,609 11/90 Lease Cincinnati Forest Fair Mall 149,462 04/89 Lease Dayton Centerville Place 191,400 08/66 Lease Dayton Fairfield Commons 151,740 10/93 Lease Dayton Southtowne Furniture 121,000 01/76 Lease Dayton Northwest Plaza 217,060 02/66 Lease Dayton Courthouse Plaza 125,390 11/75 Lease
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TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- --------------------------------- ------- ------ --------- Dayton Dayton Mall 212,000 07/98 Lease Dayton Salem Furniture 124,987 11/72 Own Dayton Kettering Town Center 82,078 10/98 Lease Dayton Northpark Center 101,840 10/94 Lease Defiance Northtowne Mall 51,333 04/86 Lease Fairborn Distribution Center 300,000 12/90 Lease Findlay Findlay Village Mall 74,825 07/90 Lease Franklin Middletown (Towne Mall) 118,000 1977 Own Hamilton Hamilton 167,925 04/74 Lease Heath Indian Mound Mall 73,695 09/86 Lease Lancaster River Valley Mall 52,725 09/87 Lease Lima Lima Mall 103,350 11/65 Lease Marion Southland Mall 74,621 11/84 Lease Moraine Corporate Offices 302,570 06/70 Own New Philadelphia New Towne Mall 52,648 10/88 Lease Piqua Miami Valley Center 59,092 09/88 Lease Sandusky Sandusky Mall 80,398 03/83 Lease Springfield Upper Valley Mall 71,868 10/92 Lease St. Clairsville Ohio Valley Mall 66,545 07/98 Lease Toledo Woodville 100,000 08/85 Lease Toledo Westgate 154,000 08/85 Lease Wooster Wayne Towne Plaza 53,689 6/94 Lease Zanesville Colony Square 70,346 09/85 Own WEST VIRGINIA Beckley Raleigh Mall 50,210 07/98 Lease Bridgeport Meadowbrook Mall 70,789 07/98 Lease Home Store 74,723 07/98 Lease Charleston Charleston Town Center 31,687 07/98 Lease Huntington Huntington Mall 75,640 07/98 Lease Kanawha City Kanawha Mall 41,270 07/98 Lease Morgantown Morgantown Mall 70,790 09/90 Lease Morgantown Mountaineer Mall 70,470 07/98 Lease Vienna Grand Central Mall 106,000 07/98 Lease Wheeling Wheeling 183,000 07/98 Own Winfield Liberty Square Center 67,728 07/98 Lease INDIANA Anderson Mounds Mall 66,703 07/81 Lease Columbus Columbus Mall 73,446 02/90 Lease Elkhart Concord Mall 104,000 11/85 Lease Evansville Washington Square Mall 134,536 10/93 Lease
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TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- --------------------------------- ------- ------ --------- Kokomo Kokomo Mall 75,704 10/87 Lease Marion North Park Mall 55,526 11/78 Lease Muncie Muncie Mall 80,000 10/97 Lease Richmond Downtown 100,000 08/74 Lease Terre Haute Honey Creek Mall 70,380 08/73 Lease Warsaw Market Place Center 56,120 10/99 Lease MICHIGAN Adrian Adrian Mall 54,197 08/87 Lease Benton Harbor The Orchards Mall 70,428 10/92 Lease Jackson Westwood Mall 70,425 09/93 Lease Midland Midland Mall 64,141 10/91 Lease Monroe Frenchtown Square 98,887 04/88 Lease Muskegon Lakeshore Marketplace 87,185 10/95 Lease ILLINOIS Danville Village Mall 77,300 07/86 Lease Mattoon Cross Country Mall 54,375 03/78 Lease WISCONSIN Beloit Beloit Mall 62,732 10/93 Lease Green Bay Bay Park Square Mall 75,000 09/95 Lease KENTUCKY Ashland Cedar Knolls Galleria 70,000 07/98 Lease Paducah Kentucky Oaks Mall 60,092 08/82 Lease Frankfort Frankfort 53,954 11/99 Lease PENNSYLVANIA Erie Millcreek Mall 119,800 9/98 Lease
ITEM 3. LEGAL PROCEEDINGS The Company is involved in several legal proceedings arising from its normal business activities and reserves have been established where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock, without par value, (the "Common Stock") is listed on the Nasdaq Stock Market ("NASDAQ") and is designated a NASDAQ/National Market System Security trading under the symbol EBSC. 7 11 The number of shareholders of record as of April 14, 2000 was 2,400. No dividends have been paid on the Common Stock. The Company intends to reinvest earnings in the Company's business to support its operations and expansion. The Company has no present intention to pay cash dividends in the foreseeable future, and will determine whether to declare dividends in the future in light of the Company's earnings, financial condition and capital requirements. In addition, the Company has certain credit agreements that limit the payment of dividends. Pursuant to the Third Amended Joint Plan of Reorganization, as amended (the "Plan of Reorganization") of the Company, confirmed by an order entered by the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court") on December 16, 1997, the Company issued Common Stock and a Series A Warrant and a Series B Warrant, each convertible into Common Stock, in satisfaction of certain allowed claims against, or interests in, the Company in the voluntary petitions for relief filed by the Company and its subsidiaries with the Bankruptcy Court. Based upon the exemptions provided by section 1145 under chapter 11 of the United States Bankruptcy Code, as amended, the Company believes that none of these securities are required to be registered under the Securities Act of 1933 (the "Securities Act") in connection with their issuance and distribution pursuant to the Plan of Reorganization. The Company has no recent sales of unregistered securities other than such issuances pursuant to the Plan of Reorganization. The Company's high and low stock prices by quarter for Fiscal 1999 are set forth below:
HIGH LOW ------- ------ First Quarter 1/31/99 to 5/1/99......................................... $10.125 $7.000 Second Quarter 5/2/99 to 7/31/99......................................... $ 9.000 $6.000 Third Quarter 8/1/99 to 10/30/99........................................ $ 8.500 $4.125 Fourth Quarter 10/31/99 to 1/29/00....................................... $ 7.125 $4.875
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA The following table sets forth various selected financial information for the Company as of and for the fiscal years ended January 29, 2000, January 30, 1999, January 31, 1998, February 1, 1997 and February 3, 1996. Such selected consolidated financial information should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto, set forth in Item 8 of this Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in Item 7 of this Form 10-K.
FISCAL YEAR ENDED ----------------------------------------------------------------------------- JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 FEB 1, 1997 FEB 3, 1996(A) ------------ ------------ ------------ ----------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues.................. $666,782 $610,371 $559,979 $546,431 $542,151 Earnings (Loss) Before Discontinued Operations and Extraordinary Items(b)........ 18,015 25,864 (7,530) (12,818) (40,252) Net Earnings (Loss)............. $ 15,228 $ 25,461 $(28,952) $(12,429) $(63,286) Diluted Earnings (Loss) Per Common Share: Continuing Operations......... $ 1.17 $ 1.79 $ (6.04) $(103.34) $(324.52) Discontinued Operations....... (0.18) (0.03) 5.38 3.14 (185.70) Extraordinary Items........... (22.58) -------- -------- -------- -------- -------- Net Earnings (Loss).... $ 0.99 $ 1.76 $ (23.24) $(100.20) $(510.22) ======== ======== ======== ======== ========
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FISCAL YEAR ENDED ----------------------------------------------------------------------------- JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 FEB 1, 1997 FEB 3, 1996(A) ------------ ------------ ------------ ----------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Cash Dividends Paid: Common........................ $ -- $ -- $ -- $ -- $ -- Preferred..................... $ -- $ -- $ -- $ -- $ -- BALANCE SHEET DATA Total Assets.................... $454,895 $452,360 $369,068 $367,501 $367,069 Short-Term Debt................. 131,086 951 1,105 57,931 50,100 Liabilities Subject to Compromise.................... -- -- -- 223,641 222,253 Long-Term Obligations........... 6,130 121,507 142,024 5,669 3,100 OTHER DATA Sales Increase (Decrease) From Prior Period.................. 9.6% 9.7% 2.8% (0.8%) (6.9%) Comparative Sales Increase (Decrease) From Prior Period........................ 2.0% 4.1% 3.7% (1.2%) (8.4%)
- --------------- Notes to Selected Historical Financial Data: (a) Fiscal Year ended February 3, 1996 included 53 weeks as compared to 52 weeks for each of the other fiscal years shown. (b) The financial information for Bee-Gee and Margo's LaMode, Inc. ("Margo's") is included as discontinued operations for all periods. SELECTED QUARTERLY FINANCIAL DATA
FISCAL 1999 ------------------------------------------------------------------ FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues(a)................... $146,952 $136,013 $155,914 $227,903 Net Earnings (Loss)................. $ (188) $ (1,266) $ (738) $ 17,420 Diluted Earnings (Loss) Per Common Share:............................ $ (0.01) $ (0.08) $ (0.05) $ 1.18
FISCAL 1998 ------------------------------------------------------------------ FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues(a)................... $122,879 $119,895 $151,184 $216,413 Net Earnings (Loss)................. $ (436) $ 239 $ 1,825 $ 23,833 Diluted Earnings (Loss) Per Common Share:............................ $ (0.03) $ 0.02 $ 0.11 $ 1.51
- --------------- (a) The financial information for Bee-Gee is included in discontinued operations for all periods. ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company for Fiscal 1999, Fiscal 1998 and Fiscal 1997. The Company's fiscal year ends on the Saturday closest to January 31. The discussion and analysis that follows is based upon and should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto included in Item 8. 9 13 RESULTS OF OPERATIONS Fiscal 1999 Compared to Fiscal 1998 Net sales for Fiscal 1999 increased by 9.6% to $637.8 million from $582.1 million for Fiscal 1998. The increase includes a 2.0% comparable store sales increase. Fiscal 1999 includes $31.8 million in sales during the first 26 weeks of 1999 from the stores acquired from Stone & Thomas that were not owned during the first 26 weeks of 1998. Women's better sportswear, intimate apparel, cosmetics, and domestics led the sales increase. Financing revenue from the Company's private label credit card for Fiscal 1999 increased by 2.2% to $26.1 million from $25.6 million for Fiscal 1998. The increase in finance charges is due to an increase in late fees charged of $0.5 million. Cost of merchandise sold, occupancy, and buying expenses increased to 72.1% of net sales for Fiscal 1999 from 70.5% of net sales for Fiscal 1998. This increase is primarily due to real estate expenses related to the new Dayton Mall, Erie, and West Virginia stores, for which sales have not yet matured to Company average productivity levels. In Fiscal 1998, the LIFO inventory valuation adjustment reduced cost of goods sold by $5.8 million (1% of net sales) compared to no adjustment in Fiscal 1999. Selling, general, and administrative expenses decreased to 27.4% of net sales for Fiscal 1999 from 28.4% for Fiscal 1998. This was due to the leveraging of corporate expenses with increased sales, partially offset by increased store payrolls as a percentage of sales. In addition, the Company implemented tracking systems and undertook studies of merchandise credits and gift certificates in Fiscal 1999, which resulted in a reduction of the liability for future redemptions. The Company also incurred nonrecurring acquisition and integration expenses in Fiscal 1998 related to interim financing for the acquisition of Stone & Thomas as well as other integration expenses. Provision for doubtful accounts decreased to 0.6% of net sales for Fiscal 1999 from 0.9% for Fiscal 1998. This improvement is due to fewer delinquent customer accounts and a reduction in personal bankruptcies, which resulted in fewer bad debt write-offs affecting the Company. Interest expense increased to $11.8 million for Fiscal 1999 from $11.5 million for Fiscal 1998. The increase is primarily due to higher average borrowing because of the Company's commencement of a stock repurchase program. Reorganization and other expense of $3.8 million was recorded in Fiscal 1999 compared to income of $4.7 million for Fiscal 1998. The other expense in 1999 was due to a charge of $4.6 million to reflect a write down of amounts related to an investment made several years ago in a cooperative buying group, partially offset by interest income. The income in 1998 was gains realized from the sale of the Company's 20% limited partnership interest in a partnership, which owned the Company's 300,000 square foot distribution center, and the sale of the Southtown department store building and a favorable settlement of bankruptcy related claims that were accrued at the end of 1997. The Company's effective income tax rate was 41.5% in Fiscal 1999 and 40.5% in Fiscal 1998 before adjustments to the Company's deferred tax asset valuation allowance. The Company reviewed the status of its deferred tax asset valuation allowance at the end of the fiscal year and determined that the valuation allowance should be reduced to reflect the likely utilization of net operating loss carryforwards to offset taxable income generated in future years. This resulted in a net income tax benefit being recorded in Fiscal 1999 and Fiscal 1998. See Note G to the Consolidated Financial Statements set forth in Item 8. During the third quarter of 1999 the Company adopted a plan to dispose of Bee-Gee and consummated the sale in the fourth quarter. In Fiscal 1999 the Company recorded a loss on disposal of $2.3 million, net of tax. The Company also recorded a loss from operations in Fiscal 1999 of $0.4 million, net of tax. In Fiscal 1998 a loss from operations was recorded of $0.4 million, net of tax. See Note L to the Consolidated Financial Statements set forth in Item 8. 10 14 Fiscal 1998 Compared to Fiscal 1997 Net sales for Fiscal 1998 increased by 9.7% to $582.1 million from $530.7 million for Fiscal 1997. The increase was due to a 4.1% comparative sales increase. The comparable sales results included the relocated Dayton Mall flagship store. In addition, the department stores acquired from Stone & Thomas generated $44.3 million in sales during the second half of 1998. Women's and men's better sportswear, furniture, intimate apparel, cosmetics, and shoes led the sales increase for the department stores. Financing revenue from the Company's private label credit card for Fiscal 1998 decreased by 3.8% to $25.6 million from $26.6 million for Fiscal 1997. The decline in finance charges was due to a reduction in outstanding customer accounts receivable, not including the Stone & Thomas customer accounts receivable portfolio purchased November 23, 1998, and had been partially offset by an increase in late fees charged. Cost of merchandise sold, occupancy, and buying expenses decreased to 70.5% of net sales for Fiscal 1998 from 72.3% of net sales for Fiscal 1997. This decrease was primarily due to a charge in 1997 of $5.6 million to record excess markdowns related to two department store closings versus $0.7 million in 1998 related to moving two department stores. In Fiscal 1998, the LIFO inventory valuation adjustment reduced cost of goods sold by $5.8 million compared to a decrease of $1.6 million in Fiscal 1997. In addition there was improved gross margin performance, which was partially offset by an increase in the buying staff as a result of being more fully staffed, and an increase in depreciation due to capital expenditures in 1998. Selling, general, and administrative expenses increased to 28.4% of net sales for Fiscal 1998 from 28.1% for Fiscal 1997. This was due to incurring $4.2 million in integration expenses as a result of the Stone and Thomas acquisition, partially offset by a reduction in the Company's store selling and customer service expenditures and modification to the Company's fringe benefit plans. Provision for doubtful accounts decreased to 0.9% of net sales for Fiscal 1998 from 1.6% for Fiscal 1997. This improvement was due to fewer write-offs of delinquent customer accounts and fewer personal bankruptcies affecting the Company. Interest expense increased to $11.5 million for Fiscal 1998 from $7.1 million for Fiscal 1997. The increase was due to the additional financing required to support the payment of bankruptcy obligations in connection with the consummation of the Company's chapter 11 Plan of Reorganization and the acquisition of Stone & Thomas, offset by a reduction resulting from the Company's issuance of 3,220,000 shares of additional common stock. Other income was $4.7 million for Fiscal 1998 compared to reorganization and other expense of $26.2 million for Fiscal 1997. The income in 1998 was primarily related to gains realized from the sale of the company's 20% limited partnership interest in a partnership that owned the Company's 300,000 square foot distribution center, and the sale of the Southtown department store building. The expense in Fiscal 1997 was due to $27.5 million of reorganization expenses that were incurred in the last year of the Company's bankruptcy, partially offset by interest income recorded due to a federal income tax refund. In Fiscal 1998 a federal, state, and city income tax expense was based on the Company's taxable income reduced by the applicable net operating loss carryforward generated in previous years. The Company also reviewed the status of its deferred tax asset valuation allowance at the end of the fiscal year and determined that the valuation allowance should be reduced to reflect the likely utilization of net operating loss carryforwards to offset taxable income generated in future years. This resulted in a net income tax benefit being recorded in Fiscal 1998. In Fiscal 1997, the Company recorded an income tax benefit based on a taxable loss and an adjustment to the deferred tax asset valuation allowance. See Note G to the Consolidated Financial Statements set forth in Item 8. During the third quarter of Fiscal 1999 the Company adopted a plan to dispose of Bee-Gee. The discontinued operations loss, net of tax, recorded in Fiscal 1998 is Bee-Gee's loss from operations. In Fiscal 1997 a discontinued operations gain, net of tax, of $7.4 million was recorded for the extinguishment of debt for Margo's. In December 1995, the Bankruptcy Court approved the disposal of Margo's. The gain recorded represents the difference between the amount of cash Margo's creditors received as part of the Plan of Reorganization and the liabilities subject to settlement recorded by Margo's. This gain was partially offset by 11 15 Bee-Gee's loss from operations in Fiscal 1997 of $0.7 million, net of tax. See Note L to the Consolidated Financial Statements set forth in Item 8. In Fiscal 1997 an extraordinary loss of $28.1 million was recorded in connection with the extinguishment of the Company's prepetition liabilities. The loss was based on the excess of the fair value of the stock and cash distributed to the general unsecured creditors over the carrying amount of the liabilities extinguished. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of funds are cash flow from operations and borrowings under the Revolving Credit Facility and Receivable Securitization Facility (collectively, the "Credit Facilities"). The Company's primary ongoing cash requirements are to fund debt service, make capital expenditures, and finance working capital. Net cash provided by operating activities was $6.6 million for Fiscal 1999, compared to $14.8 million in Fiscal 1998. Net income for Fiscal 1999 was $15.2 million, including a one time noncash charge of $4.6 million in Fiscal 1999 to reflect a write down of amounts invested several years ago in a cooperative buying group, compared to $25.5 million for Fiscal 1998. Trade payables decreased $18.5 million in Fiscal 1999 compared to a decrease of $4.6 million in Fiscal 1998, due to reduced receipts in January, as well as automating invoice payment processing. Inventory increased slightly in Fiscal 1999 ($1.6 million) compared to an increase of $12.7 million in Fiscal 1998 due to the addition of the Stone & Thomas stores. Net cash used in investing activities was $13.5 million for Fiscal 1999, compared to $39.7 million for Fiscal 1998. Capital expenditures for store maintenance, remodeling, and data processing totaled $17.0 million for Fiscal 1999 compared to $16.2 million for Fiscal 1998. The cash proceeds from the sale of Bee-Gee in Fiscal 1999 were $3.0 million. The Stone & Thomas acquisition on July 27, 1998 required an investment of $19.4 million, net of cash acquired. On November 23, 1998 the Company acquired the Stone & Thomas customer accounts receivable portfolio from Alliance Data Systems for $13.0 million. During Fiscal 1998 the Company sold seven of the stores acquired from Stone & Thomas for $5.8 million. The Company also purchased for $2.8 million the department store building that housed the Southtown shopping center store. This department store was relocated to the Dayton Mall, and the Southtown location was sold for $6.0 million. For Fiscal 1999, net cash provided by financing activities was $7.0 million compared to $26.5 million for Fiscal 1998. The decrease is due to the elimination of funding required in Fiscal 1998 for the Stone & Thomas purchase, partially offset by additional borrowing of $7.4 million to fund the purchase by the Company of 1,133,200 shares of outstanding common stock, under its stock repurchase program. In August 1999, the Company announced a stock repurchase program to acquire up to $24 million in common shares over a two-year period. On April 20, 2000, the Company entered into financing commitments to replace its existing Revolving Credit Facilities, which are set to expire in December 2000 with agreements similar in scope and with a 36 month term. The intent of the early refinancing is to provide the Company with greater operating flexibility with respect to working capital management and capital expenditures. The new Credit Facilities will be effective during the Company's second quarter of Fiscal 2000. The new Revolving Credit Facility provides for borrowings and letters of credit in an aggregate amount up to $150,000,000, subject to a borrowing base formula based on seasonal merchandise inventories. There is a $40,000,000 sublimit for letters of credit. The Company's replacement Receivable Securitization Facility provides for borrowings up to $150,000,000 based on qualified, pledged accounts receivable balances. The terms and borrowing rates are substantially similar to the predecessor Receivable Securitization Facility with the exception of maximum borrowings, which have been reduced to $150,000,000 from $175,000,000, to reduce fees the Company historically has paid for unused borrowing capacity. The Company believes that it will generate sufficient cash flow from operations, as supplemented by its available borrowings under the existing Credit Facilities and new Credit Facilities, to meet anticipated working 12 16 capital and capital expenditure requirements, as well as debt service requirements under the existing Credit Facilities and new Credit Facilities. The Company may from time to time consider acquisitions of department store assets and companies. Acquisition transactions, if any, are expected to be financed through a combination of cash on hand from operations, available borrowings under the Credit Facilities, and the possible issuance from time to time of long-term debt or other securities. Depending upon the conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital market transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes. The Company retained the investment banking firm of Wasserstein, Perella & Co. to advise the Company on strategic alternatives available to maximize shareholder value. The alternatives could include sale of the Company, recapitalization or merger. YEAR 2000 DISCLOSURE The Company did not experience any malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 problems may occur with billing, payroll, or financial closings at month, quarter or year-end. The Company believes that any such problems are likely to be minor and correctable. In addition, the Company could still be negatively affected if its customers or suppliers are adversely affected by the Year 2000 or similar issues. The Company currently is not aware of any Year 2000 or similar problems that have arisen for its customers and suppliers. The Company expended $525,000 on Year 2000 readiness efforts from 1997 through 1999. These efforts included replacing some outdated, noncompliant hardware and noncompliant software as well as identifying and remediating Year 2000 problems. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its variable rate borrowing. The Company has entered into a variable to fixed rate interest-rate swap agreement to effectively reduce its exposure to interest rate fluctuations. A hypothetical 100 basis point change in interest rates would not materially affect the Company's financial position, liquidity or results of operations. The Company does not maintain a trading account for any class of financial instrument and is not directly subject to any foreign currency exchange or commodity price risk. As a result, the Company believes that its market risk exposure is not material to the Company's financial position, liquidity or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Independent Auditors' Report................................ 14 Consolidated Financial Statements as of January 29, 2000 and January 30, 1999 and for each of the three fiscal years in the period ended January 29, 2000: Statements of Operations.................................. 15 Balance Sheets............................................ 16 Statements of Shareholders' Equity........................ 17 Statements of Cash Flows.................................. 18 Notes to Consolidated Financial Statements................ 19-34
13 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of The Elder-Beerman Stores Corp.: We have audited the accompanying consolidated balance sheets of The Elder-Beerman Stores Corp. and subsidiaries (the "Company") as of January 29, 2000 and January 30, 1999 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 29, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 29, 2000 and January 30, 1999 and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 29, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note A to the financial statements, the accompanying fiscal year 1998 and 1997 financial statements have been restated to reflect an accrual for sales returns. DELOITTE & TOUCHE LLP April 20, 2000 Dayton, Ohio 14 18 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED ----------------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 2000 1999 1998 ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Net sales.............................................. $637,797 $582,091 $530,687 Financing.............................................. 26,124 25,573 26,574 Leased departments..................................... 2,861 2,707 2,718 -------- -------- -------- Total revenues................................. 666,782 610,371 559,979 -------- -------- -------- Costs and expenses: Cost of merchandise sold, occupancy and buying expenses............................................ 459,728 410,631 383,571 Selling, general and administrative expenses........... 174,977 165,125 149,037 Provision for doubtful accounts........................ 3,906 5,046 8,636 Interest expense....................................... 11,771 11,536 7,084 Reorganization and other expense (income).............. 3,784 (4,707) 26,208 -------- -------- -------- Total costs and expenses....................... 654,166 587,631 574,536 -------- -------- -------- Earnings (loss) before income tax benefit, discontinued operations and extraordinary item......................................... 12,616 22,740 (14,557) Income tax benefit....................................... (5,399) (3,124) (7,027) -------- -------- -------- Earnings (loss) from continuing operations............. 18,015 25,864 (7,530) Discontinued operations.................................. (2,787) (403) 6,709 -------- -------- -------- Earnings (loss) before extraordinary item.............. 15,228 25,461 (821) Extraordinary item....................................... (28,131) -------- -------- -------- Net earnings (loss).................................... $ 15,228 $ 25,461 $(28,952) ======== ======== ======== Earnings (loss) per common share -- basic: Continuing operations.................................. $ 1.17 $ 1.84 $ (6.04) Discontinued operations................................ (0.18) (0.03) 5.38 Extraordinary item..................................... (22.58) -------- -------- -------- Net earnings (loss)............................ $ 0.99 $ 1.81 $ (23.24) ======== ======== ======== Earnings (loss) per common share -- diluted: Continuing operations.................................. $ 1.17 $ 1.79 $ (6.04) Discontinued operations................................ (0.18) (0.03) 5.38 Extraordinary item..................................... (22.58) -------- -------- -------- Net earnings (loss)............................ $ 0.99 $ 1.76 $ (23.24) ======== ======== ========
See notes to the consolidated financial statements. 15 19 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
YEARS ENDED ------------------------------------ JANUARY 29, 2000 JANUARY 30, 1999 ---------------- ---------------- (DOLLARS IN THOUSANDS) ASSETS Current Assets Cash and equivalents...................................... $ 8,276 $ 8,146 Customer accounts receivable (less allowance for doubtful accounts: fiscal 1999 -- $2,048, fiscal 1998 -- $4,377)........................................ 140,356 141,205 Merchandise inventories................................... 165,451 163,879 Other current assets...................................... 20,250 16,696 Discontinued operations, net current assets............... 7,106 -------- -------- Total current assets........................................ 334,333 337,032 -------- -------- Property: Land and improvements..................................... 1,278 1,300 Buildings and leasehold improvements...................... 63,538 59,192 Furniture, fixtures, and equipment........................ 105,022 96,736 Construction in progress.................................. 2,069 1,554 -------- -------- Total cost.................................................. 171,907 158,782 Less accumulated depreciation and amortization.............. (96,975) (87,290) -------- -------- Property, net............................................... 74,932 71,492 -------- -------- Discontinued operations, net non-current assets............. 2,196 Other assets................................................ 45,630 41,640 -------- -------- $454,895 $452,360 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long term debt......................... $131,086 $ 951 Accounts payable.......................................... 36,556 53,798 Accrued liabilities: Compensation and related items......................... 3,822 4,314 Income and other taxes................................. 9,546 9,079 Rent................................................... 3,176 2,602 Other.................................................. 9,348 15,100 -------- -------- Total current liabilities......................... 193,534 85,844 -------- -------- Long-term obligations -- less current portion............... 6,130 121,507 Deferred items.............................................. 9,054 7,797 Commitments and contingencies (Note O) Shareholders' equity: Common stock, no par, 14,923,846 shares at January 29, 2000 and 15,898,864 shares at January 30, 1999 issued and outstanding............................................... 260,171 266,683 Unearned compensation -- restricted stock, net.............. (1,779) (2,028) Deficit..................................................... (12,215) (27,443) -------- -------- Total shareholders' equity........................ 246,177 237,212 -------- -------- $454,895 $452,360 ======== ========
See notes to the consolidated financial statements. 16 20 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNEARNED PREFERRED ADDITIONAL COMPENSATION- TOTAL STOCK COMMON PAID-IN RESTRICTED SHAREHOLDERS' SERIES B STOCK CAPITAL STOCK DEFICIT EQUITY --------- -------- ---------- ------------- -------- ------------- (DOLLARS IN THOUSANDS) Shareholders' equity at February 1, 1997, as previously reported (124,036 common shares outstanding)...................... $ 7 $ 6,511 $ 23,283 $ $(23,663) $ 6,138 Adjustment for sales return reserve........ (289) (289) --- -------- -------- ------- -------- -------- Shareholders' equity at February 1, 1997, as adjusted.............................. 7 6,511 23,283 (23,952) 5,849 Net Loss................................... (28,952) (28,952) Common stock issuance at bankruptcy emergence (12,372,960 common shares)..... (7) 191,580 (23,283) 168,290 Restricted shares issued (86,793 common shares).................................. 1,260 (1,260) Amortization of unearned compensation...... 35 35 --- -------- -------- ------- -------- -------- Shareholders' equity at January 31, 1998 (12,583,789 common shares outstanding)... 199,351 (1,225) (52,904) 145,222 Net earnings............................... 25,461 25,461 Common stock issued (3,228,943 shares)..... 65,563 65,563 Restricted shares issued, net of forfeitures (86,132 common shares)....... 1,769 (1,769) Amortization of unearned compensation...... 966 966 --- -------- -------- ------- -------- -------- Shareholders' equity at January 30, 1999 (15,898,864 common shares outstanding)... 266,683 (2,028) (27,443) 237,212 Net earnings............................... 15,228 15,228 Common stock issued (8,309 shares)......... 107 107 Restricted shares issued, net of forfeitures (149,873 common shares)...... 831 (831) Shares purchased (1,133,200 shares)........ (7,450) (7,450) Amortization of unearned compensation...... 1,080 1,080 --- -------- -------- ------- -------- -------- Shareholders' equity at January 29, 2000 (14,923,846 common shares outstanding)... $ $260,171 $ $(1,779) $(12,215) $246,177 === ======== ======== ======= ======== ========
See notes to the consolidated financial statements. 17 21 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED --------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 2000 1999 1998 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net earnings (loss)....................................... $ 15,228 $ 25,461 $(28,952) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for doubtful accounts........................ 3,906 5,046 8,636 Deferred income taxes.................................. (7,748) (4,672) (7,877) Provision for depreciation and amortization............ 15,229 13,418 11,443 Loss (gain) on disposal of assets...................... 28 (2,521) 636 Loss on equipment settlements.......................... 74 Stock-based compensation expense....................... 1,640 1,564 85 Payment to general unsecured creditors................. (82,215) Loss (gain) on discontinued operations................. 2,787 403 (6,709) Impairment of investment............................... 4,639 Extraordinary item..................................... 28,131 Changes in noncash assets and liabilities (net of amounts acquired) Customer accounts receivable......................... (3,057) 1,742 2,473 Merchandise inventories.............................. (1,572) (12,658) (10,195) Other current assets................................. (837) 1,995 12,682 Other long-term assets............................... (164) (1,229) 1,549 Net assets of discontinued operations................ 1,740 (1,255) 450 Accounts payable..................................... (18,549) (4,620) 15,461 Accrued liabilities.................................. (6,685) (7,842) 561 -------- -------- -------- Net cash provided by (used in) operating activities...................................... 6,585 14,832 (53,767) -------- -------- -------- Cash flows from investing activities: Capital expenditures...................................... (17,041) (16,215) (20,647) Proceeds from sale of property............................ 587 11,782 Proceeds from sale of discontinued operations............. 3,000 Acquisition of customer accounts receivable............... (13,046) Real estate acquired...................................... (2,814) Payment for acquired business, net of cash purchased...... (19,405) -------- -------- -------- Net cash used in investing activities............. (13,454) (39,698) (20,647) -------- -------- -------- Cash flows from financing activities: Net borrowings (payments) under asset securitization agreement.............................................. 12,430 (8,606) 123,015 Net borrowings (payments) on bankers' acceptance and revolving lines of credit.............................. 3,279 (10,960) 10,960 Payments on long-term obligations......................... (951) (1,105) (748) Debt acquisition payments................................. (309) (613) (1,634) Common shares purchased................................... (7,450) Proceeds from common stock issuance, net of expense....... 65,381 Payments on debt assumed at acquisition................... (17,582) Net payments under DIP Facility........................... (57,773) -------- -------- -------- Net cash provided by financing activities......... 6,999 26,515 73,820 -------- -------- -------- Increase (decrease) in cash and equivalents................. 130 1,649 (594) Cash and equivalents -- beginning of year................... 8,146 6,497 7,091 -------- -------- -------- Cash and equivalents -- end of year......................... $ 8,276 $ 8,146 $ 6,497 ======== ======== ======== Supplemental cash flow information: Interest paid............................................. $ 11,189 $ 11,299 $ 6,945 Income taxes paid......................................... 778 569 497 Supplemental non-cash investing and financing activities: Capital leases............................................ 235 Issuance of common shares to satisfy deferred compensation........................................... 25 Receivables acquired in the sale of The Bee-Gee Shoe Corp. ................................................. 3,600
See notes to the consolidated financial statements. 18 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of The Elder-Beerman Stores Corp. and subsidiaries, including The El-Bee Chargit Corp., a finance subsidiary (collectively the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR -- The Company's fiscal year ends on the Saturday nearest January 31. Fiscal years 1999, 1998 and 1997 consist of 52 weeks ended January 29, 2000, January 30, 1999 and January 31, 1998, respectively. ESTIMATES -- The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RELATED PARTIES -- The Company leased real estate under operating leases from certain affiliated entities, which were owned by certain directors and officers, and made payments to these related parties totaling $3.2 million in fiscal 1997. As a result of the issuance of new common shares of the Company as of December 30, 1997 (the "Effective Date"), these entities' are no longer affiliates and their directors and officers are no longer related parties. CASH AND EQUIVALENTS -- The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. CUSTOMER ACCOUNTS RECEIVABLE -- Customer accounts receivable are classified as current assets because the average collection period is generally less than one year. MERCHANDISE INVENTORIES are valued by the retail method applied on a last-in, first-out (LIFO) basis and is stated at the lower of cost or market. Current cost, which approximates replacement cost under the first-in, first-out (FIFO) method, is equal to the LIFO value of inventories at January 29, 2000 and January 30, 1999. PROPERTY is stated at cost less accumulated depreciation determined by the straight-line method over the expected useful lives of the assets. Assets held under capital leases and related obligations are recorded initially at the lower of fair market value or the present value of the minimum lease payments. The straight-line method is used to amortize such capitalized costs over the lesser of the expected useful life of the asset or the life of the lease. The estimated useful lives by class of asset are: Buildings................................................... 25 to 50 years Leasehold improvements...................................... 10 to 20 years Furniture, fixtures and equipment........................... 3 to 10 years
OTHER ASSETS -- Included in other assets is goodwill, which is amortized using the straight-line method over estimated useful lives of 10-25 years. The Company periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identified and is less than its carrying value. REVENUE RECOGNITION -- Revenues are recognized on merchandise inventory sold upon receipt by the customer. Finance revenue is generated by outstanding customer accounts receivable and recognized as interest is accrued on these outstanding balances. Leased departments revenue is recognized as the Company earns commission from the sale of merchandise within licensed departments. Historically, the Company has not recorded sales returns on the accrual basis of accounting because the difference between the cash and accrual basis of accounting was not material. In fiscal 1999, the Company is accruing sales returns in accordance with generally accepted accounting principles. Accordingly, the Company has recorded the cumulative effect of this adjustment on prior periods as an increase in current liabilities and a 19 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) corresponding decrease in retained earnings of $289,000 as of February 1, 1997. Because the effects of this change were insignificant to the 1997 and 1998 fiscal years, the Company has recorded such amounts in the current year. The impact of recording this change in fiscal 1999 is not significant. PRE-OPENING COSTS associated with opening new stores are expensed as incurred. ADVERTISING EXPENSE -- The cost of advertising is expensed as incurred. STOCK OPTIONS -- The Company measures compensation cost for stock options issued to employees using the intrinsic value based method of accounting in accordance with Accounting Principles Board Opinion No. 25. FINANCIAL INSTRUMENTS -- The Company utilizes interest rate swap agreements to manage its interest rate risks when receivables are sold under asset securitization programs or other borrowings. The Company does not hold or issue derivative financial instruments for trading purposes. The Company does not have derivative financial instruments that are held or issued and accounted for as hedges of anticipated transactions. Amounts currently due to or from interest swap counterparties are recorded in interest expense in the period in which they accrue. Gains or losses on terminated interest rate swap agreements are included in long-term liabilities or assets and amortized to interest expense over the shorter of the original term of the agreements or the life of the financial instruments to which they are matched. Gains or losses on the mark-to-market for interest rate swap agreements that do not qualify for hedge accounting are recorded as income or expense each period. In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criteria for hedge accounting. The impact of adopting this standard is not anticipated to be material to the consolidated financial statements. This statement is effective for fiscal years beginning after June 15, 2000. COMPREHENSIVE INCOME is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income equals net income for each of the years reported. RECLASSIFICATIONS -- Certain amounts in the fiscal 1998 and 1997 financial statements have been reclassed to conform with the fiscal 1999 presentation. B. CHAPTER 11 CASE On the Effective Date, the Company substantially consummated its Third Amended Joint Plan of Reorganization dated November 17, 1997, as amended, (the "Joint Plan"), which was confirmed by an order of the Bankruptcy Court entered on December 16, 1997. The Joint Plan established a reorganized Company, including a new Board of Directors, new benefit and compensation programs and agreements, a reorganization bonus paid to certain executives, authorization and issuance of shares of new common stock and the issuance of warrants. In addition, the Joint Plan provided for the settlement of prepetition liabilities subject to compromise, in the Company's Chapter 11 case in exchange for cash, shares of new common stock or reinstatement as liabilities of the reorganized Company. 20 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The cash disbursements upon the effectiveness of the Joint Plan were as follows: Holders of general unsecured claims......................... $ 79,698 Holders of unsecured claims against the Company's discontinued Margo's operations........................... 2,517 ----------- Total payments made to general unsecured creditors.......... $ 82,215 ===========
The new common shares issued upon the effectiveness of the Joint Plan were as follows: Holders of general unsecured claims......................... 12,279,611 Holders of old common stock interests....................... 124,036 Reorganization bonus to certain executives.................. 93,349 ----------- 12,496,996 ===========
In addition to receiving new common shares, the holders of common stock prior to the Company's emergence from bankruptcy received 249,809 Series A Stock Warrants and 374,713 Series B Stock Warrants at the Effective Date. The holders of preferred stock prior to the Company's emergence from bankruptcy were awarded allowed claims as general unsecured claimants and, accordingly, are included in the general unsecured distributions described above. The value of cash and common stock required to be distributed under the Joint Plan to the Company's general unsecured creditors exceeded the value of the liabilities settled. Therefore, the Company recorded an extraordinary loss related to the discharge of these prepetition liabilities. The extraordinary loss recorded by the Company was determined as follows: Cash distribution to general unsecured creditors pursuant to the Joint Plan............................................ $ 79,698 Fair value of new common stock issued to general unsecured creditors................................................. 178,300 --------- 257,998 Less general unsecured claims............................... (229,867) --------- Extraordinary loss.......................................... $ 28,131 =========
C. ACQUISITION In 1998, the Company acquired Stone & Thomas for a purchase price of approximately $20.2 million in cash. Stone & Thomas operated 20 department stores located in West Virginia, Ohio, Kentucky, and Virginia. This transaction has been accounted for as a purchase. The excess of acquisition costs over fair value of the net assets acquired of $16.8 million is recorded as goodwill. As part of the Company's acquisition of Stone & Thomas, a plan to exit certain activities resulted in the sale of seven of the store locations, the closing of two and the recording of related liabilities for store closings, employee severance, lease buyouts and other expenses. The Company recorded an accrual to exit certain activities of Stone & Thomas in accordance with this plan in the amount of $6.8 million, which was paid in fiscal 1999 and 1998. PRO FORMA SUMMARY OF OPERATIONS DATA (UNAUDITED) - The unaudited pro forma summary of operation data for each of the 52 week periods ended January 30, 1999 and January 31, 1998 have been prepared by combining the consolidated statement of operations of The Elder-Beerman Stores Corp. with the consolidated statement of operations of Stone & Thomas for the same periods. To comply with the disclosures required by accounting principles generally accepted in the United States of America related to acquisitions, the following unaudited pro forma financial information is presented as though the acquisition occurred at the beginning of fiscal 1997. The expected synergy of this acquisition after integration with the existing business, including the disposition of stores, is not permitted to be reflected in the pro forma results. Therefore, the pro forma results are not indicative of results of operations in the future or in the periods presented below. Included in the pro forma 21 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) results are adjustments to depreciation and amortization based on the purchase price allocation and the effect of the issuance of additional common shares. The net proceeds of the additional common shares were used, in part, to purchase Stone & Thomas. The following pro forma results reflect the operations of all 20 Stone & Thomas stores up to the date of acquisition. PRO FORMA RESULTS OF OPERATIONS
YEAR ENDED ----------------------------------- JANUARY 30, 1999 JANUARY 31, 1998 ---------------- ---------------- (UNAUDITED) (ALL DOLLAR AMOUNTS IN THOUSANDS) Net sales................................................... $625,163 $651,170 Earnings (loss) before extraordinary item................... 17,402 (10,224) Net earnings (loss)......................................... 17,402 (38,355) Net earnings (loss) per common share -- basic............... 1.11 (8.59) Net earnings (loss) per common share -- diluted............. 1.08 (8.59)
Subsequent to the acquisition, the Company closed two stores and sold seven store locations. Pro forma net sales for the Company, including only the eleven continuing Stone & Thomas stores are $614.5 million and $623.6 million for the years ended January 30, 1999 and January 31, 1998, respectively. D. CUSTOMER ACCOUNTS RECEIVABLE Customer accounts receivable, which represent finance subsidiary receivables, are classified as shown in the following table. Interest is charged at an annual rate of 18% to 21%, depending on state law.
YEAR ENDED ----------------------------------- JANUARY 29, 2000 JANUARY 30, 1999 ---------------- ---------------- (ALL DOLLAR AMOUNTS IN THOUSANDS) TYPE OF ACCOUNT Optional and other.......................................... $134,727 $137,592 Deferred payment............................................ 8,114 8,463 -------- -------- Total............................................. 142,841 146,055 Less: Allowance for doubtful accounts........................... (2,048) (4,377) Unearned interest on deferred contracts................... (437) (473) -------- -------- Customer accounts receivable, net........................... $140,356 $141,205 ======== ========
Deferred payment accounts include the remaining unearned interest charge to be received. Unearned interest is amortized to finance income using the effective interest method.
YEAR ENDED -------------------------------------------------------- JANUARY 29, 2000 JANUARY 30, 1999 JANUARY 31, 1998 ---------------- ---------------- ---------------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Allowance for doubtful accounts: Balance, beginning of year.................. $ 4,377 $ 4,177 $ 3,800 Provision................................... 3,906 5,046 8,636 Other....................................... 1,463 Charge offs, net of recoveries.............. (6,235) (6,309) (8,259) ------- ------- ------- Balance, end of year.......................... $ 2,048 $ 4,377 $ 4,177 ======= ======= =======
22 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In the fourth quarter of fiscal 1998, the Company acquired Stone & Thomas' customer accounts receivable portfolio, which was previously owned and serviced by a third-party servicer. The portfolio totaled approximately $11.3 million, net of an initial allowance for doubtful accounts of approximately $1.5 million and expenses of approximately $300,000 included in the purchase price allocation. Customer accounts receivable result from the Company's proprietary credit card sales to customers residing principally in the midwestern states. As such, the Company believes it is not dependent on a given industry or business for its customer base and therefore has no significant concentration of credit risk. The El-Bee Chargit Corp. ("Chargit" or financing subsidiary) purchases substantially all Elder-Beerman and subsidiaries' proprietary credit card receivables; such receivables are purchased at a 3% discount (prior to January 1998, 2% discount). Customer accounts receivable held by the finance subsidiary are included above; purchase discounts are eliminated in consolidation. E. DEBT The Company, through its financing subsidiary, has a three-year Revolving Credit Facility ("Credit Facility") and a three-year variable rate securitization loan agreement ("Securitization Facility") with a commercial bank that expires December 30, 2000. The Credit Facility provides for borrowings and letters of credit in an aggregate amount up to $150 million subject to a borrowing base formula based primarily on merchandise inventories and certain lower limitations for a defined period of the year. There is a $40 million sublimit for letters of credit. The Company has the option to finance borrowings at either Prime, plus 75 basis points or LIBOR, plus 175 basis points. As of January 29, 2000, the Company has $12.5 million in outstanding letters of credit and approximately $70 million available for additional borrowings under the Credit Facility. As of January 29, 2000, the Securitization Facility is a revolving arrangement whereby the Company can borrow up to $175 million. The Company's customer accounts receivable are pledged as collateral under the Securitization Facility. The borrowings under this facility are subject to a borrowing-based formula based primarily on outstanding customer accounts receivable. Borrowings bear interest at approximately one month LIBOR, plus 5 basis points. Certain financial covenants related to debt, capital expenditures, interest and fixed charge expenditures are included in the Credit and Securitization facility agreements. Additionally, there are certain other restrictive covenants including limitations on the incurrence of additional liens, indebtedness, payment of dividends, distributions or other payments on and repurchases of outstanding capital stock, investments, mergers, stock transfers and sales of assets. Certain ratios related to the performance of the accounts receivable portfolio are also included. Outstanding borrowings of $130.1 million on the Credit and Securitization Facilities due December 2000 are classified as current liabilities. Management signed commitment letters with Citibank, N.A. to refinance the borrowings on a long-term basis with agreements similar in scope to the existing Credit and Securitization Facilities, except for the maximum borrowings under the new securitization facility, which will be reduced to $150 million. The closing on the new securitization and credit agreements is scheduled for May 2000. 23 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Debt consists of the following:
JANUARY 29, 2000 JANUARY 30, 1999 ---------------- ---------------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Mortgage note payable (9.75%)............................... $ 2,536 $ 2,606 Industrial development revenue bonds, variable rates based on published index of tax-exempt bonds (4.81%)............ 3,480 3,880 Capital lease obligations................................... 1,081 1,562 Credit facility (9.25%)..................................... 3,279 Securitization facility (5.98%)............................. 126,840 114,410 --------- -------- Total............................................. 137,216 122,458 Current portion of long-term obligations.................... (131,086) (951) --------- -------- Long-term obligations....................................... $ 6,130 $121,507 ========= ========
Maturities of borrowings are $131,086,000 in 2000, $870,000 in 2001, $362,000 in 2002, $281,000 in 2003, $253,000 in 2004, and $4,364,000 thereafter. Collateral for the industrial development revenue bonds and the mortgage note payable is land, buildings, furniture, fixtures and equipment with a net book value of $4.1 million at January 29, 2000. The Company utilizes interest rate swap agreements to effectively establish long-term fixed rates on borrowings under the Securitization Facility, thus reducing the impact of interest rate changes on future income. These swap agreements involve the receipt of variable rate amounts in exchange for fixed rate interest payments over the life of the agreement. The differential between the fixed and variable rates to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense. The Company had outstanding swap agreements with notional amounts totaling $115 million for the fiscal years ended 1999 and 1998, expiring September 28, 2001. This agreement has been matched to the Securitization Facility to reduce the impact of interest rate changes on cash flows. The Company is exposed to credit related losses in the event of non-performance by the counterparties to the swap agreements. All counterparties are rated A or higher by Moody's and Standard and Poor's and the Company does not anticipate non-performance by any of its counterparties. F. LEASES The Company leases retail store properties and certain equipment. Generally, leases are net leases that require the payment of executory expenses such as real estate taxes, insurance, maintenance and other operating costs, in addition to minimum rentals. Leases for retail stores generally contain renewal or purchase options, or both, and generally provide for contingent rentals based on a percentage of sales. 24 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Minimum annual rentals, for leases having initial or remaining noncancellable lease terms in excess of one year at January 29, 2000, are as follows:
OPERATING CAPITAL FISCAL YEAR LEASES LEASES - ----------- --------- -------------- (ALL DOLLAR AMOUNTS IN THOUSANDS) 2000...................................................... $ 24,778 $ 525 2001...................................................... 22,915 347 2002...................................................... 20,871 174 2003...................................................... 20,051 81 2004...................................................... 19,605 40 Thereafter................................................ 169,837 -------- ------ Minimum lease payments...................................... $278,057 1,167 ======== Less imputed interest....................................... (86) ------ Present value of net minimum lease payments................. $1,081 ======
YEAR ENDED ----------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 2000 1999 1998 ----------- ----------- ----------- RENT EXPENSE Operating Leases: Minimum................................................ $24,895 $19,848 $15,152 Contingent............................................. 1,907 1,818 1,943 ------- ------- ------- Total rent expense....................................... $26,802 $21,666 $17,095 ======= ======= =======
JANUARY 29, JANUARY 30, 2000 1999 ----------- ----------- ASSETS HELD UNDER CAPITAL LEASES Buildings................................................. $ 5,538 $ 7,338 Equipment................................................. 235 235 Accumulated depreciation and amortization................. (5,130) (6,646) ------- ------- $ 643 $ 927 ======= =======
Assets acquired under capital leases are included in the consolidated balance sheets as property, while the related obligations are included in long-term obligations. 25 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. INCOME TAXES Income tax expense (benefit) consists of the following:
YEAR ENDED ----------------------------------------- JANUARY 29, JANUARY 30, JANUARY 31, 2000 1999 1998 ----------- ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Current: Federal.............................................. $ 272 $ 813 $ State and local...................................... 471 503 465 -------- -------- ------- 743 1,316 465 -------- -------- ------- Deferred: Net operating losses and tax credit carryforwards.... (1,178) 8,955 (5,529) Interest............................................. (266) (6,119) Deferred income...................................... (268) 1,804 Discontinued operations.............................. 2,362 Valuation allowance.................................. (10,635) (12,337) (3,759) Other................................................ 4,333 (1,024) 3,364 -------- -------- ------- (7,748) (4,672) (7,877) -------- -------- ------- Income tax expense (benefit)......................... $ (7,005) $ (3,356) $(7.412) ======== ======== ======= Income statement classification: Continuing operations................................ $ (5,399) $ (3,124) $(7,027) Discontinued operations.............................. (1,606) (232) (385) -------- -------- ------- Total........................................ $ (7,005) $ (3,356) $(7,412) ======== ======== =======
The following table summarizes the major differences between the actual income tax provision attributable to continuing operations and taxes computed at the federal statutory rates:
JANUARY 29, JANUARY 30, JANUARY 31, 2000 1999 1998 ----------- ----------- ----------- Federal taxes computed at the statutory rate............. $ 4,416 $ 7,959 $(5,095) State and local taxes.................................... 539 523 495 Valuation allowance...................................... (10,635) (12,337) (7,579) Permanent items.......................................... 281 731 5,152 -------- -------- ------- Income tax benefit from continuing operations............ $ (5,399) $ (3,124) $(7,027) ======== ======== =======
26 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes consist of the following:
JANUARY 29, JANUARY 30, 2000 1999 ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Deferred tax assets: Net operating losses and tax credit carryforwards......... $22,850 $ 21,672 Deferred income........................................... 1,136 868 Deferred compensation..................................... 1,666 Bad debts................................................. 758 1,546 Other..................................................... 7,258 6,132 ------- -------- 33,668 30,218 Valuation allowance......................................... (3,829) (14,464) ------- -------- Total deferred tax assets......................... 29,839 15,754 ------- -------- Deferred tax liabilities.................................... (7,768) (1,431) ------- -------- Net deferred tax asset............................ $22,071 $ 14,323 ======= ======== Included in the balance sheets: Other current assets...................................... $ 8,090 $ 5,151 Other assets.............................................. 13,981 9,172 ------- -------- Net deferred tax assets........................... $22,071 $ 14,323 ======= ========
Permanent items consist primarily of non-deductible goodwill and bankruptcy related expenses that are not deductible for tax purposes. The net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets will result in future benefits only if the Company has taxable income in future periods. In accordance with SFAS No. 109, Accounting for Income Taxes, a valuation allowance has been recorded for the tax effect of a portion of the future tax deductions and tax credit carryforwards. In the fourth quarter of fiscal 1999, 1998 and 1997, the Company reduced the valuation allowance to reflect the likely future utilization of its deferred tax assets. The federal net operating loss carryforward is approximately $57.5 million and is available to reduce federal taxable income through 2012. The tax credit carryforward is approximately $3.0 million, of which $632,000 will expire in 2009 and 2010, and the balance is an indefinite carryforward. H. EMPLOYEE BENEFIT PLANS A defined-contribution employee benefit plan (the "Benefit Plan") covers substantially all employees. The Company may contribute to the Benefit Plan based on a percentage of compensation and on a percentage of earnings before income taxes. Expense of $1.9 million and $1.3 million was recorded in fiscal 1999 and 1998, respectively, for the Company's matching contribution to the Benefit Plan. No contribution expense was recorded in fiscal year 1997. Eligible employees can make contributions to the Benefit Plan through payroll withholdings of one to fifteen percent of their annual compensation. The Benefit Plan includes an employee stock ownership component. The Company has a Stock Purchase Plan, which provides for its employees to purchase Elder-Beerman common stock at a 15% discount. Employees can make contributions to the Stock Purchase Plan through payroll withholdings of one percent to ten percent of their annual compensation, up to a maximum of $25,000 per year. A total of 625,000 shares of common stock are registered and unissued under the Stock Purchase Plan. With the acquisition of Stone & Thomas, the Company assumed a defined-benefit pension plan, which covered all full-time employees of Stone & Thomas upon completion of one year of service and the attainment of 27 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) age 21. The benefits were based upon years of service and the earnings. Accrued benefits were frozen as of September 30, 1998, as part of the Company's plan of acquisition. The Company's funding policy is to contribute an amount annually that satisfies the minimum funding requirements of ERISA and that is tax deductible under the Internal Revenue Code. Summary information for the Company's defined-benefit plan is as follows:
JANUARY 29, JANUARY 30, 2000 1999 ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Change in the projected benefit obligation: Projected benefit obligation at beginning of year/date of acquisition............................................ $(6,092) $(5,772) Service cost.............................................. (12) Interest cost............................................. (385) (199) Actuarial gain (loss)..................................... 608 (614) Benefits paid............................................. 750 505 ------- ------- Projected benefit obligation at end of year................. (5,119) (6,092) ------- ------- Change in the plan assets: Fair value of plan assets at beginning of year/date of acquisition............................................ 6,123 5,934 Actual return (loss) on plan assets....................... (247) 341 Employer contributions.................................... 353 Benefits paid............................................. (750) (505) ------- ------- Fair value of plan assets at end of year.................... 5,126 6,123 ------- ------- Plan assets in excess of projected benefit obligation....... 7 31 Reconciliation of financial status of plan to amounts recorded in balance sheet -- unrecorded effect of net loss arising from differences between actuarial assumptions used to determine periodic pension expense and actual expense................................................... 666 521 ------- ------- Net pension asset included in other assets in the Company's balance sheet............................................. $ 673 $ 552 ======= ======= Benefit obligation discount rate............................ 7.5% 6.5% ======= =======
1999 1998 The components of net pension income are as follows ----- ----- Service cost................................................ $ 12 Interest cost on projected benefit obligation............... $ 385 199 Expected return on plan assets.............................. (507) (249) ----- ----- Net pension income.......................................... $(122) $ (38) ===== =====
Plan assets are held in a trust and are invested primarily in equities and fixed income obligations. The expected long-term rate of return on plan assets used in determining net pension income was 8.5%. I. EARNINGS (LOSS) PER COMMON SHARE Net earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the year. Stock options, restricted shares, deferred shares and warrants outstanding represent potential common shares and are included in computing diluted earnings per share when the effect is dilutive. There was no dilutive effect of potential common shares in fiscal 1997. A 28 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reconciliation of the weighted average shares used in the basic and diluted earnings per share calculation is as follows:
1999 1998 1997 ---------- ---------- --------- Weighted average common shares outstanding -- basic.......................... 15,371,183 14,078,441 1,245,760 Dilutive potential common shares: Warrants...................................... 150,049 Stock options................................. 2,953 185,161 Restricted shares............................. 4,552 33,917 Deferred shares............................... 63,970 25,388 ---------- ---------- --------- Adjusted weighted average shares -- diluted..... 15,442,658 14,472,956 1,245,760 ========== ========== =========
J. SHAREHOLDERS' EQUITY The Company has authorized 25 million no par common shares. In August 1999, the Company's Board of Directors authorized the repurchase of up to $24 million in common shares over a two-year period. During fiscal 1999, a total of 1.1 million common shares were repurchased for $7.4 million. Also during fiscal 1999, a total of 8,309 common shares and 149,873 restricted shares were issued. There were 1,117,963 shares held in treasury at January 29, 2000. The Board of Directors has the authority to issue five million shares of preferred stock. At January 29, 2000, these shares are unissued. Warrants of 624,522 are attached to shares of 624,522. Under a Rights Agreement, each outstanding common share presently has one right attached that trades with the common share. Generally, the rights become exercisable and trade separately after a third party acquires 20% or more of the common shares or commences a tender offer for a specified percentage of the common shares. Upon the occurrence of certain additional triggering events specified in the Rights Agreement, each right would entitle its holder (other than, in certain instances, the holder of 20% or more of the common shares) to purchase common shares of the Company at an exercise price of 50% of the then-current common share market value. The rights expire on December 30, 2007, unless the Board of Directors takes action prior to that date to extend the rights, and are presently redeemable at $.01 per right. K. STOCK-BASED COMPENSATION The Equity and Performance Incentive Plan (the "Incentive Plan") authorizes the Company's Board of Directors to grant restricted shares, stock options, appreciation rights, deferred shares, performance shares and performance units. Awards relating to 2,250,000 shares are authorized for issuance under this plan and awards related to 2,058,164 shares have been issued as of January 29, 2000. Officers and key employees have been granted stock options under the Incentive Plan. The options granted have a maximum term of ten years and vest over a period ranging from three to five years. In fiscal 1999 and 1998, the Company has granted certain discounted stock options to outside directors with an exercise price less than the market price of the stock on the grant date. On February 25, 1999, the Company granted 460,000 premium based options and 115,000 performance based restricted shares to certain executives. These premium based options have a vesting period of three years. The performance based restricted shares will vest three years from the date of grant only if the Company meets specified cumulative performance targets. The Company has not recorded any expense for these because of the uncertainty of attaining performance targets. 29 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Company's stock option activity:
1999 1998 1997 --------------------- ------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- --------- ------- --------- ------- --------- Outstanding at beginning of year... 938,096 $12.53 773,000 $10.89 Granted: Discounted....................... 30,554 5.39 29,096 12.07 773,000 $10.89 Undiscounted..................... 343,000 8.18 165,000 20.51 Premium.......................... 460,000 9.71 Canceled........................... (105,500) 11.10 (29,000) 13.86 --------- ------- ------- Outstanding at end of year......... 1,666,150 $10.81 938,096 $12.53 773,000 $10.89 --------- ------- ------- Exercisable at year end............ 346,965 $11.84 161,133 $10.89 --------- ------- ------- Weighted-average fair value of stock options granted during the year using the Black-Scholes options -- pricing model: Discounted....................... $ 5.24 $10.47 $ 8.63 Undiscounted..................... $ 5.55 $11.96 Premium.......................... $ 4.94
1999 1998 1997 ------- ------- ------- Weighted-average assumptions used for grants: Expected dividend yield................................... 0% 0% 0% Expected volatility....................................... 63% 50% 35% Risk-free interest rate................................... 6.3% 5.3% 6.5% Expected life............................................. 7 years 7 years 7 years
The following table shows various information about stock options outstanding at January 29, 2000:
OPTIONS OUTSTANDING --------------------------------------- OPTIONS EXERCISABLE WEIGHTED- ---------------------------- AVERAGE WEIGHTED- NUMBER WEIGHTED - REMAINING AVERAGE EXERCISABLE AVERAGE CONTRACTUAL EXERCISE AT JANUARY 29, EXERCISE RANGE OF EXERCISE PRICES SHARES LIFE (IN YEARS) PRICE 2000 PRICE - ------------------------ --------- --------------- --------- --------------- ---------- 4.313 - 8.750 313,554 8.0 $ 7.24 9.094 - 12.375 1,200,965 7.6 10.51 311,334 $10.87 14.125 - 18.000 16,076 8.6 15.39 6,076 16.19 21.000 - 24.375 135,555 8.1 21.19 29,555 21.17 --------- ------- 1,666,150 7.7 $10.81 346,965 $11.84 ========= =======
The Incentive Plan provides for the issuance of restricted common shares to certain employees and nonemployee directors of the Company. These shares have a vesting period of three years. As of January 29, 2000, 322,798 restricted common shares are issued and outstanding under the Incentive Plan. There were 149,873 and 86,132 shares awarded under the Incentive Plan in fiscal 1999 and 1998, respectively. The fair value of the restricted shares awarded was $1.2 million and $1.8 million in fiscal 1999 and 1998, respectively, which is recorded as compensation expense over the three-year vesting period. 30 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Incentive Plan also provides for certain employees to elect to defer a portion of their compensation through the purchase of deferred shares. Each deferred share represents an employee's right to a share of the Company's common stock. As of January 29, 2000, 59,952 deferred shares are outstanding. Total compensation costs charged to earnings from continuing operations before income taxes for all stock-based compensation awards was approximately $1.6 million both in fiscal 1999 and 1998. Had compensation costs been determined based on the fair value method of SFAS No. 123 for all plans, the Company's net earnings (loss) and diluted earnings (loss) per common share would have been reduced to the following pro forma amounts:
1999 1998 1997 -------- -------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Net earnings (loss): As reported............................................... $15,228 $25,461 $(28,952) Pro forma................................................. 13,103 24,211 (29,018) Net earnings (loss) per common share -- diluted: As reported............................................... 0.99 1.76 (23.24) Pro forma................................................. 0.85 1.67 (23.29)
L. DISCONTINUED OPERATIONS During fiscal 1999, the Company sold its wholly-owned subsidiary, The Bee Gee Shoe Corp. for $3 million cash, $1.5 million cash payable from subsequent earnings of the purchaser (the "Earnout"), and a $4.8 million note receivable. The Company obtained an independent appraisal of the fair value of the Earnout and note receivable in order to determine the amount received from sale. Payments on the note will commence March 31, 2002. In the interim, interest accrues at a rate of 8.5% per annum. Payments from subsequent earnings of the purchaser will commence no later than March 31, 2003. The sale was completed January 25, 2000. Revenues of the shoe division were $26.7 million, $31.2 million and $31.4 million in 1999, 1998 and 1997, respectively. The settlement of liabilities subject to compromise and other liabilities upon the Company's emergence from bankruptcy during fiscal 1997 resulted in a net gain of $7.4 million from its previously discontinued Margo's La Mode, Inc. ("Margo's") operations. The Company was able to utilize operating loss carryforwards that were fully reserved in prior years to offset the income tax expense related to this gain on discontinued operations. Therefore, there is no income tax expense recorded in connection with this gain. Margo's did not have any sales subsequent to fiscal 1995. The following are the components of discontinued operations:
1999 1998 1997 ---------- -------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Loss from operations of shoe division (net of income tax benefit of $257, $232, and $385 in fiscal years 1999, 1998 and 1997, respectively)................................... $ (447) $(403) $ (669) Loss on sale of shoe division, including loss on operations during phase-out period of $564 (net of income tax benefit of $1,349)................................................ (2,340) Gain on settlement of Margo's liabilities................... 7,378 ------- ----- ------ $(2,787) $(403) $6,709 ======= ===== ======
31 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) M. REORGANIZATION ITEMS Reorganization and other expense (income) is comprised of the following:
1999 1998 1997 -------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Asset Impairment........................................ $4,639 $ $ Gain on the sale of assets.............................. (3,285) Reorganization expense.................................. 27,542 Other................................................... (855) (1,422) (1,334) ------ ------- ------- $3,784 $(4,707) $26,208 ====== ======= =======
In the fourth quarter of 1999, adverse changes occurred in the operations of a cooperative buying group in which the Company held an investment. The Company determined the fair value of its investment based on an analysis of the expected future cash flows. The asset impairment recorded reflects the write-down of the carrying amount of the investment in the cooperative buying group to its fair value. Gains from the sale of assets are from the Company's sale of a 20% interest in a distribution center and the sale of the Southtown department store building during fiscal 1998. Reorganization expenses are associated with the settlement of bankruptcy related items. Amounts recorded as reorganization expense for fiscal 1997 are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) Professional fees........................................... $15,505 Restructuring............................................... 6,852 Adjustment to liabilities subject to compromise............. 2,326 Reorganization bonus........................................ 2,100 Financing costs............................................. 685 Equipment lease settlements................................. 74 ------- Total............................................. $27,542 =======
Restructuring costs included in reorganization are a result of the Company's decision to close two department stores and discontinue certain departments. Property impairment, severance and certain store closing costs are included in restructuring costs. Restructuring expenses of $3,363,000 and $3,489,000 were charged to the restructuring reserve in fiscal 1998 and 1997, respectively. N. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND EQUIVALENTS -- The carrying amount approximates fair value because of the short maturity of those instruments. CUSTOMER ACCOUNTS RECEIVABLE -- The net carrying amount approximates fair value because of the relatively short average maturity of the instruments and no significant change in interest rates. LONG-TERM DEBT -- The carrying amount approximates fair value as a result of the variable-rate-based borrowings. INTEREST RATE SWAP AGREEMENTS -- The fair value of interest rate swaps is based on the quoted market prices that the Company would pay to terminate the swap agreements at the reporting date. The estimated fair value of the $115 million notional amount interest rate swap agreement is $1.1 million gain and $2.6 million loss at January 29, 2000 and January 30, 1999, respectively. There is no carrying amount in the consolidated balance sheets. 32 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. COMMITMENTS AND CONTINGENCIES LITIGATION -- The Company is a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. In addition, as a result of the bankruptcy case, the Company remains subject to the jurisdiction of the Bankruptcy Court for matters relating to the consummation of the Joint Plan. Management believes the outcome of any of the litigation matters that will not have a material effect on the Company's results of operations, cash flows or financial position have been appropriately accrued. INSURANCE -- The Company is self-insured for employee medical and workers' compensation subject to limitations for which insurance has been purchased. Management believes that those claims reported and not paid and claims incurred, but not yet reported, are appropriately accrued. LEASE GUARANTEES -- The Company has a guarantee lease obligation of thirty stores of Shoebilee, Inc. The leases have remaining noncancellable terms expiring no later than 2008. The minimum annual rentals related to these leases are $1,089,438 in 2000; $841,119 in 2001; $547,883 in 2002; $371,775 in 2003; $358,933 in 2004; and $1,028,090 thereafter. P. SEGMENT REPORTING Management assesses performance and makes operating decisions based on two reportable segments, Department Store and Finance Operations. The retail segment (Department Store) is identified by the merchandise sold and customer base served. The Department Store segment sells a wide range of moderate to better brand merchandise, including women's ready to wear, accessories, cosmetics, men's, children's and home stores. The Company's retail stores are principally engaged in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Pennsylvania, Wisconsin, Kentucky, and West Virginia. Net sales by major merchandising category in the Department Store segment are as follows: MERCHANDISE CATEGORY
1999 1998 1997 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Women's Ready to Wear.............................. $209,821 $191,953 $179,990 Accessories, Shoes and Cosmetics................... 149,337 133,551 116,395 Men's and Childrens................................ 148,175 138,478 128,712 Home Store......................................... 130,464 118,109 105,590 -------- -------- -------- Total Department Store............................. $637,797 $582,091 $530,687 ======== ======== ========
The Finance Operations segment is a private label credit card program operated by the Company through its wholly owned subsidiary, Chargit. Finance Operations segment revenues consist primarily of finance charges earned through issuance of Elder-Beerman proprietary credit cards. All phases of the credit card operation are handled by Chargit except the processing of customer mail payments. The following table sets forth information for each of the Company's segments:
1999 1998 1997 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) DEPARTMENT STORE Revenues........................................... $640,658 $584,798 $533,405 Depreciation and amortization...................... 14,724 13,045 11,127 Operating profit(1)................................ 2,557 15,826 12,883 Capital expenditures............................... 16,615 15,933 20,343 Total assets....................................... 319,879 327,252 235,934
33 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) FINANCE OPERATIONS Revenues(2)........................................ $ 34,802 $ 32,783 $ 32,081 Depreciation and amortization...................... 505 373 316 Operating profit(1)................................ 24,064 21,461 16,292 Capital expenditures............................... 426 282 304 Total assets....................................... 135,016 125,108 133,133
- --------------- (1) Total segment operating profit is reconciled to earnings (loss) before income tax benefit, discontinued operations and extraordinary item as follows:
1999 1998 1997 -------- -------- -------- Segment operating profit............................ $ 26,621 $ 37,287 $ 29,175 Store closing costs................................. (1,302) (7,759) Acquisition and integration......................... (4,154) Interest expense.................................... (11,771) (11,536) (7,084) Reorganization and other............................ (2,234) 2,445 (28,889) -------- -------- -------- $ 12,616 $ 22,740 $(14,557) ======== ======== ========
(2) Finance Operations segment revenues is reconciled to reported financing revenues as follows:
1999 1998 1997 ------- ------- ------- Segment revenues...................................... $34,802 $32,783 $32,081 Intersegment operating charge eliminated.............. (8,678) (7,210) (5,507) ------- ------- ------- $26,124 $25,573 $26,574 ======= ======= =======
Q. SUBSEQUENT EVENTS On March 2, 2000, the Company announced its plan to close its downtown Wheeling and downtown Charleston stores in West Virginia. The Company will incur a pre-tax charge in the first quarter of 2000 of approximately $4 million for store closing costs. * * * * * * 34 38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Directors and Executive Officers The following table sets forth information regarding those persons currently serving as the executive officers and directors of the Company. Certain biographical information regarding each of the Company's current directors and executive officers is described below the table.
NAME AGE POSITION ---- --- -------- Frederick J. Mershad........ 57 Chairman of the Board and Chief Executive Officer John A. Muskovich........... 53 President, Chief Operating Officer and Director Scott J. Davido............. 38 Executive Vice President, Chief Financial Officer, Treasurer and Secretary Charles P. Shaffer.......... 53 Executive Vice President, Merchandising and Marketing James M. Zamberlan.......... 53 Executive Vice President, Stores Steven D. Lipton............ 48 Senior Vice President, Controller Dennis Bookshester.......... 61 Director Stewart M. Kasen............ 60 Director Charles Macaluso............ 56 Director Steven C. Mason............. 64 Director Thomas J. Noonan, Jr........ 60 Director Bernard Olsoff.............. 71 Director Laura H. Pomerantz.......... 52 Director Jack A. Staph............... 54 Director John J. Wiesner............. 61 Director
Frederick J. Mershad has served as Chairman of the Board of Elder-Beerman since December 1997, as Chief Executive Officer and a Director of Elder-Beerman since January 1997 and as President and a Director of Elder-Beerman from January 1997 to December 1997. Prior to this time, Mr. Mershad served as President and Chief Executive Officer of the Proffitt's division of Saks, Inc. ("Proffitt's") from February 1995 to December 1996; Executive Vice President, Merchandising Stores for Proffitt's from May 1994 to January 1995; Senior Vice President, General Merchandise Manager, Home Store for the Rich's Department Stores division of Federated Department Stores, Inc. ("Federated") from August 1993 to May 1994; and Executive Vice President, Merchandising and Marketing of the McRae's Department Stores division of Proffitt's from June 1990 to August 1993. John A. Muskovich has served as President, Chief Operating Officer, and a Director of Elder-Beerman since December 1997 and served as Executive Vice President of Administration of Elder-Beerman from February 1996 to December 1997. In addition, Mr. Muskovich served as Chief Financial Officer from December 1997 through March 1999. Prior to this time, Mr. Muskovich served as Director of Business Process for Kmart Corp. from September 1995 to February 1996; President of the Federated Claims Services Group with Federated from February 1992 to August 1995; Vice President of Benefits of Federated from 1994 to 1995; and Vice President, Corporate Controller of Federated from 1988 to 1992. Scott J. Davido was appointed to the position of Executive Vice President, Chief Financial Officer, Treasurer and Secretary in March 1999 and served as Senior Vice President, General Counsel and Secretary of Elder-Beerman from January 1998 through March 1999. Prior to this time, Mr. Davido was a partner with Jones, Day, Reavis & Pogue, a law firm, since December 1996, and was employed as an associate with the firm since September 1987. 35 39 Charles P. Shaffer was appointed Executive Vice President, Merchandising and Marketing in August 1999 and served as a Senior Vice President-General Merchandise Manager of the Company from January 1985 through July 1999. Prior to this time, from 1981 through January 1985 Mr. Shaffer was a Divisional Vice President at Sibleys, a division of Associated Dry Goods, Inc. James M. Zamberlan has served as Executive Vice President, Stores of Elder-Beerman since July 1997. Prior to this time, Mr. Zamberlan served as Executive Vice President of Stores for Bradlee s, Inc. from September 1995 to January 1997 and also served as Senior Vice President of Stores for the Lazarus Division of Federated from November 1989 to August 1995. Steven D. Lipton has served as Senior Vice President, Controller of Elder-Beerman since March 1996. Prior to this time, Mr. Lipton served as Operating Vice President of Payroll for Federated Financial & Credit Services from September 1994 to January 1996 and served as Vice President and Controller of the Lazarus Division of Federated from February 1990 to August 1994. Dennis Bookshester has served as a Director of Elder-Beerman since December 1999. Mr. Bookshester serves as the acting Chief Executive Officer of Fruit of the Loom, a garment manufacturer that filed for protection under Chapter 11 of the United States Bankruptcy Code in December 1999. Mr. Bookshester also currently serves as a Director of Fruit of the Loom and Playboy Enterprises and as Chairman of Cutanix Corp. Stewart M. Kasen has served as a Director of Elder-Beerman since 1997. Mr. Kasen is currently a private investor. Mr. Kasen previously served as the President and Chief Executive Officer of Factory Card Outlet Corp. ("Factory Cards") from May 1998 through October 1999 and as Chairman from April 1997 through 1999. Factory Cards filed for protection under chapter 11 of the United States Bankruptcy Code in March 1999 and is developing a reorganization plan. Mr. Kasen served as Chairman of the Board, President, and Chief Executive Officer of Best Products Co., Inc. ("Best Products"), a Richmond, Virginia, retail catalogue showroom company, from June 1994 through April 1996, President and Chief Executive Officer from June 1991 to June 1994, and President and Chief Operating Officer from 1989 to June 1991. Best Products filed for protection under chapter 11 of the United States Bankruptcy Code in January 1991. Best Products' plan of reorganization was confirmed in June 1994, and it filed a petition for bankruptcy under chapter 11 again on September 24, 1996. Mr. Kasen also currently serves as a Director of Markel Corp. Charles Macaluso has served as a Director of Elder-Beerman since December 1999. Mr. Macaluso is a Principal in East Ridge Consulting, Inc., a management advisory and investment firm he founded in 1999. Prior to this, Mr. Macaluso served as a Principal from 1996 through 1999 in Miller Associates, Inc., a management consulting firm. Prior to this, Mr. Macaluso was a partner with the Airlie Group, L.P. and an analyst for Investment Limited Partners, L.P., both private investment partnerships, from 1986 through 1996. Steven C. Mason has served as a Director of Elder-Beerman since 1997. Mr. Mason retired from Mead Corp., a forest products company, in November 1997. Prior to retirement, Mr. Mason served as Chairman of the Board and Chief Executive Officer of Mead Corp. from April 1992 to November 1997. Mr. Mason also currently serves as a Director of PPG Industries, Inc. and Convergys. Thomas J. Noonan has served as a Director of Elder-Beerman since 1997. Mr. Noonan serves as Executive Vice President of WSR, Inc. ("WSR"), an automotive aftermarket retailer, and has served in this capacity since January 2000. Mr. Noonan served as WSR's Chief Restructuring Officer from August 1998 through December 1999. He also serves as the Chief Executive Officer of the Coppergate Group ("Coppergate"), a financial investment and management company, and has served in this capacity since May 1996. Prior to that, he served as a Managing Director of Coppergate from April 1993 through May 1996. Mr. Noonan served as Executive Vice President and Chief Financial Officer of Herman's Sporting Goods, Inc., a sporting goods retailer that filed for protection under chapter 11 of the United States Bankruptcy Code and is currently being liquidated from August 1994 through 1999. Mr. Noonan also currently serves as a Director of Intrenet Inc. Bernard J. Olsoff has served as a Director of Elder-Beerman since 1997. Mr. Olsoff retired from Frederick Atkins, a retail marketing and consulting company, in 1997. Prior to this time, Mr. Olsoff served as President, Chief Executive Officer and Chief Operating Officer of Frederick Atkins, from 1994 to April 1997, and President 36 40 and Chief Operating Officer from 1983 to 1994. Mr. Olsoff also currently serves as a Director of The Leslie Fay Companies, Inc., an apparel design and manufacturing company ("Leslie Fay"). Laura H. Pomerantz has served as a Director of Elder-Beerman since 1998. Mrs. Pomerantz currently serves as President of LHP Consulting & Management, a real estate consulting firm, and has served in this capacity since 1995. Through LHP Consulting & Management, Mrs. Pomerantz is also associated with Newmark Real Estate Co., Inc., a commercial real estate company, as Senior Managing Director and has served in this capacity since August 1996. Prior thereto, Mrs. Pomerantz served as Senior Managing Director of S.L. Green Real Estate Company, a commercial real estate company, from August 1995 to July 1996, and was affiliated with Koeppel Tenor Real Estate Services, Inc., a commercial real estate company, from March 1995 through July 1995. Prior to this time, Mrs. Pomerantz served as Executive Vice President and a Director of Leslie Fay, from January 1993 to November 1994, and as Senior Vice President and Vice President of Leslie Fay from 1986 through 1992. Jack A. Staph has served as a Director of Elder-Beerman since 1997. Mr. Staph is currently a consultant, lawyer and private investor. Mr. Staph has also served in an unrestricted advisory capacity to CVS Corp. since June 1997. Prior to this time, Mr. Staph served as Senior Vice President, Secretary, and General Counsel of Revco D.S., Inc., a retail pharmacy company, from October 1972 to August 1997. John J. Wiesner has served as a Director of Elder-Beerman since 1997. Mr. Wiesner has served as interim Chief Executive Officer of Stage Stores, Inc., a regional apparel retailer, since February 2000. Mr. Wiesner retired from C.R. Anthony, a regional apparel retailer, in June 1997. Prior to retirement, Mr. Wiesner served as Chairman of the Board of Directors, President and Chief Executive Officer of C.R. Anthony, from April 1987 to June 1997. Mr. Wiesner also currently serves as a Director of Stage Stores, Inc., Lamonts Apparel, Inc. and The Loewen Group, Inc. and as a member of the Advisory Committee of the Board of Directors of Fiesta Stores, Inc. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who own more than 10 percent of a registered class of our equity securities to file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. The Securities and Exchange Commission requires this group to furnish us with copies of all such filings. The Company periodically reminds this group of its reporting obligation and assists in making the required disclosure once the Company is notified that a reportable event has occurred. The Company is required to disclose any failure by any of the above mentioned persons to make timely Section 16 reports. Based upon its review of such forms received by Elder-Beerman and written representations from the directors and executive officers that no other reports were required, Elder-Beerman is unaware of any instances of noncompliance, or late compliance, with such filings during fiscal year 1999 by its directors, executive officers or 10 percent shareholders. 37 41 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The table below shows the before-tax compensation for the years shown for Elder-Beerman's Chief Executive Officer and the four next highest paid executive officers (the "Named Executive Officers") at the end of fiscal year 1999. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------- ---------------------------------------------- AWARDS PAYOUTS ----------------------- -------------------- SECURITIES ALL OTHER RESTRICTED UNDERLYING OTHER ANNUAL STOCK OPTIONS/ LTIP COMPEN- SALARY BONUS COMPEN- AWARD(S) SARS PAYOUTS SATION NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION($)(2) ($) (#) ($) ($)(4)(5) - --------------------------- ---- ------- ------ ------------ ---------- ---------- -------- --------- Frederick J. Mershad -- Chairman and Chief 1999 600,000 581,250 300,000 7,665 Executive Officer 1998 559,263 120,000 29,403 1,050,000 75,000 9,970 1997 503,344 500,000 51,251 683,703 194,000 John A. Muskovich -- President, Chief 1999 425,000 310,000 160,000 6,000 Operating Officer 1998 412,207 85,000 473,127 30,000 9,950 1997 267,335 598,750 505,325 126,000 Scott J. Davido -- Executive Vice President -- 1999 217,596 36,000 60,550 45,625 25,000 382 Chief Financial Officer, 1998 174,076 21,280 26,626 26,599 4,585 Treasurer and Secretary 1997 15,935 27,500(1) 3,124 21,000 Charles P. Shaffer Executive Vice President -- 1999 243,654 44,303(3) 95,190 40,000 7,159 Merchandising and Marketing 1998 220,769 60,000 37,495 5,483 1997 190,385 60,000 37,505 25,000 1,349 James M. Zamberlan -- Executive Vice President -- 1999 309,808 53,156 20,000 2,712 Stores 1998 278,803 79,650 234,892 15,000 8,050 1997 139,944 41,313 20,386 61,000
- --------------- (1) Includes a $25,000 signing bonus paid in fiscal year 1997. (2) Moving expense reimbursement. (3) Includes 4,430 deferred shares and 1,108 restricted shares awarded to Mr. Shaffer as the deferred portion of his 1999 bonus pursuant to the Equity and Performance Incentive Plan. (4) Includes life insurance premium payments paid by the Company in 1999 in the following amounts: Mr. Mershad $4,425, Mr. Muskovich $2,760, Mr. Zamberlan $2,712, Mr. Davido $382 and Mr. Shaffer $2,299. (5) Includes matching contributions paid by the Company in 1999 under the Company's Retirement Savings Plan in the following amounts: Mr. Mershad $3,240, Mr. Muskovich $3,240 and Mr. Shaffer $4,860. 38 42 STOCK OPTION/SAR GRANTS The following table sets forth information concerning stock option grants made to the Named Executive Officers during fiscal year 1999 pursuant to The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan (the "Plan"). OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE ---------------------------------------------------------- AT ASSUMED ANNUAL PERCENT OF RATE NUMBER OF TOTAL OF STOCK PRICE SECURITIES OPTIONS/SARS APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM OPTIONS/SARS EMPLOYEES IN OF BASE EXPIRATION --------------------- NAME GRANTED(#)(1)(2) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($) - ---- ---------------- ------------ ----------- ---------- --------- --------- Frederick J. Mershad.......... 90,000(1) 11.41 8.00 2/25/06 261,453 639,230 100,000(1) 12.67 9.60 2/25/06 130,503 550,256 110,000(1) 13.94 11.20 2/25/06 (32,447) 429,281 John A. Muskovich............. 48,000(1) 6.08 8.00 2/25/06 139,441 340,923 53,500(1) 6.78 9.60 2/25/06 69,819 294,387 58,500(1) 7.41 11.20 2/25/06 (17,256) 228,300 Scott J. Davido............... 15,000(2) 1.90 9.125 3/15/09 86,080 218,143 10,000(2) 1.27 9.125 4/22/09 57,387 145,429 Charles P. Shaffer............ 15,000(2) 1.90 9.125 4/22/09 86,080 218,143 25,000(2) 3.17 6.750 8/19/09 106,126 268,944 James M. Zamberlan............ 20,000(1) 2.53 9.125 4/22/09 114,773 290,858
- --------------- (1) Options vest three years from date of grant. (2) Options vest one-fifth annually, beginning one year from date of grant. STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table sets forth information about stock options exercised during fiscal year 1999 by the Named Executive Officers and the fiscal year-end value of unexercised options held by the Named Executive Officers. All of such options were granted under the Plan. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY SHARES OPTIONS/SARS HELD AT OPTIONS/SARS HELD AT ACQUIRED VALUE JANUARY 29, 2000 (#) JANUARY 29, 2000($)(1) ON REALIZED ---------------------------- ---------------------------- NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ------------ -------- ----------- ------------- ----------- ------------- Frederick J. Mershad............ 0 $0.00 92,600 476,400 $0.00 $0.00 John A. Muskovich.... 0 $0.00 56,400 259,600 $0.00 $0.00 Scott J. Davido...... 0 $0.00 8,400 37,600 $0.00 $0.00 Charles P. Shaffer... 0 $0.00 10,000 55,000 $0.00 $0.00 James M. Zamberlan... 0 $0.00 27,400 68,600 $0.00 $0.00
- --------------- (1) Based on the closing price on NASDAQ of the Company's Common Stock on January 28, 2000 (the last trading day in fiscal year 1999) of $5.00. 39 43 EMPLOYMENT AND SEVERANCE AGREEMENTS WITH CERTAIN OFFICERS The Company has entered into employment agreements with Frederick J. Mershad, Chairman and Chief Executive Officer and John A. Muskovich, President and Chief Operating Officer, and several of its other executive officers as described below (the "Employment Agreements"). These Employment Agreements set forth (a) the executive's compensation and benefits, subject to increases at the discretion of the Board of Directors, (b) the Company's right to terminate the executive for cause or otherwise; (c) the amounts to be paid by the Company in the event of the executive's termination, death or disability while rendering services; (d) the executive's duty of strict confidence and to refrain from conflicts of interest; (e) the executive's obligations not to compete for the term of the agreement plus one year unless the executive terminated his employment for good reason or the employer terminates the executive other than for cause; and (f) the executive's right to receive severance payments. In general, these Employment Agreements provide that if Mr. Mershad or Mr. Muskovich is terminated for any reason, other than for cause or following a "change in control," (as defined in the Employment Agreements), he will receive payments equal to the remaining base salary that would have been distributed to him by the Company under the remaining term of his Employment Agreement and the incentive compensation earned by the executive for the most recent fiscal year. If such executive (a) is terminated within two years of a change in control without cause, (b) voluntarily terminates within two years of a change in control, or (c) is terminated in connection with but prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control, he will receive a severance payment equal to the greater of 2.99 times the Internal Revenue Code "base amount" as described in Section 280G of the Internal Revenue Code or two times his most recent base salary and bonus and the executive will continue to be eligible for health benefits, perquisites and fringe benefits generally made available to senior executives following his termination, unless the executive obtains new employment providing substantially similar benefits. A tax gross-up on excise taxes also will be paid if the severance pay exceeds the limits imposed by the Internal Revenue Code. The Company has also entered into Employment Agreements that include severance pay provisions with each of Messrs. Zamberlan, Davido and Shaffer. These Employment Agreements set forth (a) the executive's compensation and benefits, subject to review at the discretion of the Board of Directors, (b) the Company's right to terminate the executive for cause or otherwise; (c) the amounts to be paid by the Company in the event of the executive's termination, death or disability while rendering services; (d) the executive's duty of strict confidence and to refrain from conflicts of interest; (e) the executive's obligations not to compete for the term of the agreement plus one year unless the executive terminated his employment for good reason or the employer terminates the executive other than for cause; and (f) the executive's right to receive severance payments if he (i) is terminated within two years of a change in control without cause, (ii) voluntarily terminates for defined good reasons within two years of a change of control, (iii) terminates his employment for any reason, or without reason, during the thirty-day period immediately following the first anniversary of a change in control, or (iv) is terminated in connection with but prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control. Specifically, under the Employment Agreements, the amount of any severance payment by the Company will be the greater of 2.99 times the Internal Revenue Code "base amount" as described in Section 280G of the Internal Revenue Code or two times his most recent base salary and bonus. Severance payments made under the Employment Agreements will reduce any amounts that would be payable under any other severance plan or program, including the Company's severance pay plan. A tax gross-up on excise taxes also will be paid if the severance pay exceeds the limit imposed by the Internal Revenue Code. In addition, the executive will continue to be eligible for health benefits, perquisites, and fringe benefits generally made available to senior executives for two years following his termination, unless the executive waives such coverage, fails to pay any amount required to maintain such coverage, or obtains new employment providing substantially similar benefits. The Company has also entered into Indemnification Agreements with each current member of the Board of Directors as well as each of the Company's executive officers. These agreements provide that, to the extent permitted by Ohio law, the Company will indemnify the director or officer against all expenses, costs, liabilities and losses (including attorneys' fees, judgments, fines or settlements) incurred or suffered by the director or officer in connection with any suit in which the director or officer is a party or is otherwise involved as a result of 40 44 the individual's service as a member of the Board of Directors or as an officer so long as the individual's conduct that gave rise to such liability meets certain prescribed standards. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION OVERVIEW AND PHILOSOPHY The Compensation Committee of the Board of Directors (the "Committee") has responsibility for setting and administering the policies that govern executive compensation. The Committee has authority, among other things, to review, analyze and recommend compensation programs to the Board and to administer and grant awards under the Company's Equity and Performance Incentive Plan (the "Plan"). The Committee is composed entirely of outside directors. Reports of the Committee's actions and decisions are recommended to the full Board. The purpose of this report is to summarize the philosophical principles, specific program objectives and other factors considered by the Committee in reaching its determination regarding the executive compensation of the Chief Executive Officer and the Company's executive officers. The Committee's goal is to ensure the establishment and administration of executive compensation policies and practices that will enable Elder-Beerman to attract, retain and motivate the management talent necessary to achieve the Company's goals and objectives. The Committee's philosophy is that executive compensation should include the following: - A competitive mix of short-term (base salary and annual incentive bonus) and long-term (stock options and restricted and deferred shares) compensation that helps the Company attract and retain executive talent. - Cash compensation that generally reflects competitive industry levels, with annual incentive bonus opportunities that may produce total compensation at or above competitive levels if performance against predetermined objectives exceeds expectations. - Opportunities for ownership of Elder-Beerman's Common Stock that align the interests of Company executives with the long-term interests of shareholders. The Company's executive compensation is comprised primarily of (i) salaries, (ii) annual cash incentive bonuses and (iii) long-term incentive compensation in the form of stock options, deferred shares and restricted shares granted under the Plan. Each year the Committee reviews market data and assesses the Company's competitive position for each of these three components. To assist in benchmarking the competitiveness of its compensation programs, the Committee retains a third-party consultant to compile an executive compensation survey for comparably sized retail companies. Because the Committee believes that compensation in the retail industry is more directly tied to the size of enterprise than the type of retail business, these surveys also include comparably sized retailers outside of the department store business. Each of the components of executive compensation is discussed below. COMPONENTS OF COMPENSATION Base Salary Base salaries for Company executives were initially established in each of the executive's employment agreements, which were approved pursuant to the Plan of Reorganization. The Committee reviews base salaries annually and makes adjustments on the basis of the performance of both the individual executive and the Company, the executive's level of responsibility in the Company, the executive's importance to the Company and the general level of executive compensation in the retail industry. The base salaries and increases in the base salaries of the Company's executive officers (other than the Chief Executive Officer) are reviewed and approved by the Committee after considering recommendations made by the Chief Executive Officer in light of the criteria discussed above. 41 45 Annual Bonus - General Parameters Annual bonus awards are designed to promote the achievement of the Company's business objectives. In setting the bonus award targets each year that the Company must meet before it can make any bonus payments, the Committee considers the Company's prior year's performance and objectives, as well as its expectations for the upcoming year. Additionally, individual performance goals are established for each participant. Bonus program participants receive no payments unless minimum thresholds are achieved. Bonus targets are fixed as a percentage of annual base salary based on comparable incentives paid by other retail companies. Target bonus percentages for the executive officers ranged from 35% to 50%. The target percentage increases with the level of responsibility of the executive. Bonus payments may range from 0% to 150% of the target annual bonus, with payments increasing as performance improves. - Deferred Shares and Restricted Shares An executive may elect to defer up to 50% of his annual bonus in the form of deferred shares. Deferred shares are subject to a deferral period of at least three years, which is accelerated in the event of death, permanent disability, termination of employment or change in control of Elder-Beerman. Holders of deferred shares do not have voting rights for their deferred shares, but the terms of the deferred shares may provide for dividend equivalents. The Company matches 25% of the deferred shares in restricted shares. Restricted shares vest in three years from the date of grant, which is accelerated in the event of death, permanent disability or a change in control of Elder-Beerman. Prior to vesting, restricted shares are forfeitable upon termination of employment. The restricted shares provide for dividend equivalents and voting rights. The deferred shares and restricted shares are granted to executives in accordance with the Plan. - 1999 Bonus Objectives Annual bonuses for 1999 were based on meeting weighted objectives for the following measurements: - Corporate operating profit; - Financial goals in the applicable executive's area of responsibility; and - Individual performance goals for the applicable executive For 1999, the Company did not achieve the target award level established for operating profit and therefore, the Company did not pay any amounts for this component of bonuses. Many executives were able to achieve some or all of their respective area of responsibility and individual performance goals, which resulted in each executive earning in total between 30% and 55% of the executive's respective target bonus amounts. Long-Term Incentive Awards - Stock Options, Deferred Shares and Restricted Shares The Committee administers the Plan, which provides for long-term incentives to executive officers in the form of stock options, deferred shares and restricted shares. The awards of stock options, deferred shares and restricted shares provide compensation to executives only if shareholder value increases. To determine the number of stock options, deferred shares and restricted shares awarded, the Committee reviews a survey prepared by a third-party consultant of awards made to individuals in comparable positions at other retail companies and the executive's past performance, as well as the number of long-term incentive awards previously granted to the executive. The deferred shares and restricted shares are subject to the terms and conditions described above. Executive Plan At the beginning of Fiscal 1999, the Committee adopted a long-term incentive award plan (the "Executive Plan") for Mr. Mershad, its Chief Executive Officer, and Mr. Muskovich, its President and Chief Operating 42 46 Officer. This Executive Plan consists of performance-based restricted shares and premium priced stock options. This Executive Plan was developed to achieve two key objectives: - Create strong incentives that will drive shareholder value; and - Create a retention mechanism for the top two officers of the Company. To establish benchmarks for a competitive long-term incentive plan for Messrs. Mershad and Muskovich, the Committee engaged a third party consultant to conduct an analysis of executive compensation at 12 peer retail companies. The Committee reviewed the current compensation packages of Messrs. Mershad and Muskovich and evaluated the Company's performance and future performance objectives. Bearing in mind these factors and the two key objectives for the Executive Plan, the Committee formulated the amounts of restricted shares and stock options to be granted under the Executive Plan to Messrs. Mershad and Muskovich and the earnings per share and stock price targets that must be met for Messrs. Mershad and Muskovich to earn their respective awards. Pursuant to the terms of the Executive Plan, any restricted shares granted to Messrs. Mershad and Muskovich will vest at the end of three years only if the Company meets target earnings per share levels. The premium price stock options will vest over a period of three years and the vesting is not contingent on performance goals. COMPENSATION OF CHIEF EXECUTIVE OFFICER The base salary and increases in the base salary of the Chief Executive Officer are reviewed annually and approved by the Committee and the nonemployee members of the Board of Directors after review of the Chief Executive Officer's performance against predetermined performance criteria set by the nonemployee Directors. 1999 Base Salary and Annual Bonus Mr. Mershad's annual base salary was $600,000, the same level as for 1998. Mr. Mershad is also eligible for an annual bonus of up to 50% of his base salary. Mr. Mershad's bonus is determined in the same manner described above for the executive officers. For fiscal year 1999, Mr. Mershad received no bonus. Executive Plan On February 25, 1999 pursuant to the Executive Plan, the Committee granted Mr. Mershad 75,000 restricted shares and options to purchase 300,000 shares of Elder-Beerman stock. The restricted shares granted to Mr. Mershad will vest at the end of three years only if the Company meets target earnings per share levels. The premium price stock options will vest at the end of three years and the vesting is not contingent on performance goals. At the date of the grant approximately one-third of the options had an exercise price equal to the then- current stock price. The remaining two-thirds of the options were set with exercise prices of 20% to 40% above current market price. TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION Under Section 162(m) of the Internal Revenue Code, the Company is precluded from deducting compensation in excess of $1 million per year paid to each of the Named Executive Officers. Qualified performance-based compensation is excluded from this deduction limitation if certain requirements are met. The Plan is designed to permit (but not require) the Committee to grant awards that will qualify as performance-based compensation that is excluded from the limitation in Section 162(m). The Committee believes that Section 162(m) should not cause the Company to be denied a deduction for Fiscal 1999 compensation paid to the Named Executive Officers. The Committee will work to structure components of its executive compensation package to achieve maximum deductibility under Section 162(m) while at the same time considering the goals of its executive compensation policies. The foregoing is the report of the Compensation Committee of the Board of Directors. Bernard Olsoff Jack A. Staph John J. Wiesner 43 47 COMPENSATION OF ELDER-BEERMAN'S DIRECTORS Directors who are employees of Elder-Beerman do not receive any separate fees or other remuneration for serving as a director or a member of any Committee of the Board. For fiscal year 1999, nonemployee directors were paid a retainer of $20,000 for their service on the Board of Directors. Nonemployee committee chairpersons were paid an additional $5,000 fee for their services on their respective committees. Nonemployee directors were also each paid a meeting fee of $1,500 for each board meeting attended, plus $500 for each committee meeting attended. Nonemployee directors may elect to take their annual retainer as cash or in the form of discounted stock options. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee was or ever has been an officer or employee of Elder-Beerman or engaged in transactions with Elder-Beerman (other than in his capacity as a director). None of Elder- Beerman's executive officers serves as a director or member of the compensation committee of another entity, one of whose executive officers serves as a member of the Compensation Committee or a director of Elder-Beerman. STOCK PRICE PERFORMANCE The following graph depicts the value of $100 invested in Elder-Beerman Common Stock (trading symbol "EBSC") beginning February 17, 1998 (the first trading day of the Common Stock) through January 29, 2000 (the last day of the Company's fiscal year). Comparisons are made to: 1. The Standard & Poor's SmallCap 600 Index, a market-value weighted index of 600 domestic companies with an average equity market value of approximately $500 million. 2. A Regional Department Store Peer Group, consisting of The Bon-Ton Stores, Inc., Stage Stores, Inc., Gottschalks Inc., and Jacobson Stores Inc. The return for this group was calculated assuming an equal dollar amount was invested in each retailer's stock based on closing prices as of February 17, 1998. [ELDER-BEERMAN LINE GRAPH]
REGIONAL DEPT STORE PEER S&P SMALLCAP 600 INDEX GROUP INDEX EBSC ---------------------- ------------------------ ---- Feb 98 100.00 100.00 100.00 May 98 107.00 116.00 165.00 Aug 98 93.00 91.00 140.00 Oct 98 84.00 57.00 71.00 Jan 99 93.00 59.00 54.00 May 99 91.00 53.00 51.00 Jul 99 97.00 58.00 37.00 Oct 99 93.00 53.00 41.00 Jan 00 103.00 40.00 30.00
44 48 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's Common Stock is the only outstanding class of voting securities. The following table sets forth information regarding ownership of the Company's Common Stock as of April 14, 2000 (except as otherwise noted) by: (a) each person who owns beneficially more than 5% of Common Stock of the Company to the extent known to management, (b) each executive officer and director of the Company, and (c) all directors and executive officers as a group. Except as noted, all information with respect to beneficial ownership has been furnished by each director or officer or is based on filings with the Securities and Exchange Commission.
AMOUNT AND NATURE OF BENEFICIAL PERCENT BENEFICIAL OWNER OWNERSHIP(1) OF CLASS - ---------------- ----------------- -------- Snyder Capital Management, Inc.............................. 3,083,650(2) 20.61 350 California Street, Suite 1460 San Francisco, CA 94104 PPM America, Inc............................................ 1,966,868(3) 13.15 225 West Wacker Drive, Suite 1200 Chicago, IL 60606 James D. Bennett............................................ 1,011,200(4) 6.76 Bennett Management Corporation 2 Stamford Plaza, Suite 1501 281 Tressler Boulevard Stamford, CT 06901 The D3 Family Fund.......................................... 900,000(5) 6.02 19605 N.E. Eighth Street Camas, WA 98607 Dennis S. Bookshester....................................... 3,577 * Stewart M. Kasen............................................ 12,070(6) * Charles Macaluso............................................ 5,794(6) * Steven C. Mason............................................. 23,717(6) * Frederick J. Mershad........................................ 300,928(6) 2.01 John A. Muskovich........................................... 184,028(6) 1.23 Thomas J. Noonan, Jr........................................ 10,909(6) * Bernard Olsoff.............................................. 16,393(6) * Laura H. Pomerantz.......................................... 21,489(6)(7) * Jack A. Staph............................................... 16,793(6) * John J. Wiesner............................................. 13,952(6) * Scott J. Davido............................................. 22,613(6) * Charles P. Shaffer.......................................... 29,100(6) * James M. Zamberlan.......................................... 48,238(6) * - ------------------------------------------------------------------------------------------- All directors and executive officers as a group (15 persons):................................................. 721,728 4.82%
- --------------- * less than 1% (1) Information with respect to beneficial ownership is based on information furnished to the Company by each shareholder included in this table. "Beneficial ownership" is a technical term broadly defined by the Securities and Exchange Commission to mean more than ownership in the usual sense. So, for example, you not only "beneficially" own the Elder-Beerman Common Stock that you hold directly, but also the Elder-Beerman Common Stock that you indirectly (through a relationship, a position as a director or trustee, or a contract or understanding), have (or share) the power to vote or sell or that you have the right to acquire within 60 days. (2) Snyder Capital Management, Inc. ("SCMI") is the general partner of Snyder Capital Management, L.P. ("SCMLP"), a registered investment advisor. SCMI and SCMLP reported the beneficial ownership (as of December 31, 1999) of such shares in a Form 13f dated February 14, 2000. 45 49 (3) PPM America, Inc. ("PPM"), a registered investment advisor, reported the beneficial ownership (as of March 21, 2000) of such shares in a Schedule 13D dated March 21, 2000. All such shares are held in portfolios of PPM America Special Investments Fund, L.P. ("SIF I") and PPM America Special Investments CBO II, L.P. ("CBO II"). PPM serves as investment advisor to both SIF I and CBO II. PPM, PPM America CBO II Management Company (general partner of CBO II) and PPM American Fund Management GP, Inc. (general partner of SIF I) disclaim beneficial ownership of all such shares. (4) Mr. Bennett reported the beneficial ownership (as of February 25, 2000) of such shares in a Schedule 13D filed on February 25, 2000. Mr. Bennett shares beneficial ownership of as well as voting and dispositive power with respect to such shares with Bennett Restructuring Fund, L.P. and Bennett Offshore Restructuring Fund, Inc. (5) The D3 Family Fund ("D3") reported the beneficial ownership (as of February 24, 2000) of such shares in a Schedule 13D filed February 25, 2000. D3 has sole voting and dispositive power over such shares. Such shares include shares held by Haredale Ltd. (20,000), James Henry Hildebrandt (6,500), Toxford Corporation (3,000) and The Nierenberg Family Trust (50,000). (6) These amounts include shares of Common Stock that the following persons had a right to acquire within 60 days after January 29, 2000.
STOCK OPTIONS EXERCISABLE NAME BY MARCH 29, 2000 - ---- ------------------------- Mr. Mershad............................................ 107,600 Mr. Muskovich.......................................... 62,400 Mr. Davido............................................. 11,400 Mr. Shaffer............................................ 10,000 Mr. Zamberlan.......................................... 30,400 Mr. Kasen.............................................. 4,667 Mr. Macaluso........................................... 2,217 Mr. Mason.............................................. 19,314 Mr. Noonan............................................. 6,506 Mr. Olsoff............................................. 11,990 Ms. Pomerantz.......................................... 11,086 Mr. Staph.............................................. 11,990 Mr. Wiesner............................................ 9,549
(7) Includes 1,000 shares of Common Stock with shared voting or investment power. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On February 8, 2000, the Compensation Committee of the Board of Directors of the Company recommended that the Board approve a loan to John A. Muskovich for the purpose of financing the purchase of his new home in Dayton, Ohio. Following approval by the Board of this recommendation, on February 8, 2000, the Company made an unsecured loan to Mr. Muskovich in the amount of $230,000. The Company's loan to Mr. Muskovich bears interest at the same rate charged to the Company under the Company's Credit Facilities. The principal and interest are due on the earlier of (i) three days after the closing of the purchase of Mr. Muskovich's old residence or (ii) August 8, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of the Company and its subsidiaries are included in Item 8: - Consolidated Balance Sheets -- As of January 29, 2000 and January 30, 1999 46 50 - Consolidated Statements of Operations -- For the Years Ended January 29, 2000, January 30, 1999, and January 31, 1998 - Consolidated Statements of Changes in Shareholders' Equity -- For the Years Ended January 29, 2000, January 30, 1999, and January 31, 1998 - Consolidated Statements of Cash Flows -- For the Years Ended January 29, 2000, January 30, 1999, and January 31, 1998 - Notes to Consolidated Financial Statements - Independent Auditors' Report (a)(2) The following consolidated financial statement schedule of the Company and its subsidiaries is submitted herewith: All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are included in the consolidated financial statements, are not required under the related instructions, or are inapplicable, and therefore have been omitted. (a)(3) Exhibits The following Exhibits are included in this Annual Report on Form 10-K: 2(a) Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries dated November 17, 1997 (previously filed as Exhibit 2 to the Company's Form 10 filed on November 26, 1997 (the "Form 10"), and incorporated herein by reference) 2(b) Agreement and Plan of Merger by and Among The Elder-Beerman Stores Corp., The Elder-Beerman Acquisition Corp. and Stone & Thomas dated June 18, 1998 (previously filed as Exhibit 2(b) to the Company's Registration Statement on Form S-1 (File No. 333-57447) (the "Form S-1") and incorporated herein by reference) 2(c) First Amendment to Agreement and Plan of Merger By and Among The Elder-Beerman Stores Corp., The Elder-Beerman Acquisition Corp. and Stone & Thomas dated July 27, 1998 (previously filed as Exhibit 2(c) to the Company's Form S-1 and incorporated herein by reference) 3(a) Amended Articles of Incorporation (previously filed as Exhibit 3(a) to the Company's Form 10-K filed on April 30, 1998 (the "1997 Form 10-K"), and incorporated herein by reference) 3(b) Amended Code of Regulations (previously filed as Exhibit 3(b) to the Form 10 and incorporated herein by reference) 4(a) Stock Certificate for Common Stock (previously filed as Exhibit 4(a) to the Company's Form 10/A-1 filed on January 23, 1998 (the "Form 10/A-1") and incorporated herein by reference) 4(b) Form of Registration Rights Agreement (previously filed as Exhibit 4(b) to the Form 10 and incorporated herein by reference) 4(c) Rights Agreement By and Between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 (the "Rights Agreement") (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed on November 17, 1998 (the "Form 8-A") and incorporated herein by reference) 4(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 249,809 shares of Common Stock at a strike price of $12.80 per share dated December 30, 1997 (previously filed as Exhibit 4(d) to the 1997 Form 10-K and incorporated herein by reference)
47 51 4(e) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 374,713 shares of Common Stock at a strike price of $14.80 per share dated December 30, 1997 (previously filed as Exhibit 4(e) to the 1997 Form 10-K and incorporated herein by reference) 4(f) Amendment No. 1 to the Rights Agreement, dated as of November 11, 1998 (previously filed as Exhibit 4.2 to the Form 8-A and incorporated herein by reference) 10(a)(i) Pooling and Servicing Agreement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(a)(i) to the Form 10/A-1 and incorporated herein by reference) 10(a)(ii) Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(a)(ii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(iii) Certificate Purchase Agreement Among The El-Bee Receivables Corporation, Corporate Receivables Corporation, The Liquidity Providers Named Herein, CitiCorp North America, Inc. and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(a)(iii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(iv) Loan Agreement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp., Bankers Trust Company, The Collateral Investors Parties Hereto and CitiCorp North America, Inc., dated as of December 30, 1997 (previously filed as Exhibit 10(a)(iv) to the Form 10/A-1 and incorporated herein by reference) 10(a)(v) Intercreditor Agreement By and Among The El-Bee Chargit Corp., The Elder-Beerman Stores Corp., Bankers Trust Company, CitiCorp USA, Inc., CitiCorp North America, Inc., Corporate Receivables Corporation and the Liquidity Providers Named Herein, dated as of December 30, 1997 (previously filed as Exhibit 10(a)(v) to the Form 10/A-1 and incorporated herein by reference) 10(a)(vi) Parent Undertaking Agreement Among The Elder-Beerman Stores Corp. and Bankers Trust Company, dated as of December 30, 1997 (previously filed as Exhibit 10(a)(vi) to the Form 10/A-1 and incorporated herein by reference) 10(a)(vii) Purchase Agreement (Chargit) Among The El-Bee Chargit Corp. and The El-Bee Receivables Corporation, dated as of December 30, 1997 (previously filed as Exhibit 10(a)(vii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(viii) Purchase Agreement (Elder-Beerman) Among The Elder-Beerman Stores Corp. and The El-Bee Chargit Corp., dated as of December 30, 1997 (previously filed as Exhibit 10(a)(viii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(ix) Subordinated Note Between The El-Bee Receivables Corporation and The El-Bee Chargit Corp, dated December 30, 1997 (previously filed as Exhibit 10(a)(ix) to the Form 10/A-1 and incorporated herein by reference) 10(b)(i) Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party Hereto, Citibank, N.A. and CitiCorp USA, Inc., dated as of December 30, 1997 (previously filed as Exhibit 10(b)(i) to the Form 10/A-1 and incorporated herein by reference) 10(b)(ii) Borrower Pledge Agreement Made by The Elder-Beerman Stores Corp. to Citibank, N.A., dated December 30, 1997 (previously filed as Exhibit 10(b)(ii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(iii) Chargit Pledge Agreement Made By The El-Bee Chargit Corp. to Citibank, N.A., dated December 30, 1997 (previously filed as Exhibit 10(b)(iii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(iv) Security Agreement Made By The Elder-Beerman stores Corp., The El-Bee Chargit Corp., The Bee-Gee Shoe Corp. in Favor of CitiCorp USA, Inc., dated December 30, 1997 (previously filed as Exhibit 10(b)(iv) to the Form 10/A-1 and incorporated herein by reference)
48 52 10(b)(v) Subsidiary Guaranty Made by The El-Bee Chargit Corp., dated December 30, 1997 (previously filed as Exhibit 10(b)(v) to the Form 10/A-1 and incorporated herein by reference) 10(b)(vi) Subsidiary Guaranty Made by The Bee-Gee Shoe Corp., dated December 30, 1997 (previously filed as Exhibit 10(b)(vi) to the Form 10/A-1 and incorporated herein by reference) 10(b)(vii) Form of Revolving Note (previously filed as Exhibit 10(b)(vii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(viii) Letter Agreement Re: Assignment of Account By and Between The Elder-Beerman Stores Corp., CitiCorp USA, Inc., and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(b)(viii) to the Form 10/A-1 and incorporated herein by reference) 10(c) Form of Employment Agreement for Senior Vice Presidents (previously filed as Exhibit 10(c) to the Form 10 and incorporated herein by reference)* 10(d) Form of Employment Agreement for Executive Vice Presidents (previously filed as Exhibit 10(d) to the Form 10 and incorporated herein by reference)* 10(f) Form of Director Indemnification Agreement (previously filed as Exhibit 10(f) to the Form 10 and incorporated herein by reference)* 10(g) Form of Officer Indemnification Agreement (previously filed as Exhibit 10(g) to the Form 10 and incorporated herein by reference)* 10(h) Form of Director and Officer Indemnification Agreement (previously filed as Exhibit 10(h) to the Form 10 and incorporated herein by reference)* 10(i) The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan, Effective December 30, 1997 (previously filed as Exhibit 10(i) to the 1997 Form 10-K and incorporated herein by reference)* 10(j) Form of Restricted Stock Agreement for Non-Employee Director (previously filed as Exhibit 10(j) to the Form 10 and incorporated herein by reference)* 10(k) Form of Restricted Stock Agreement (previously filed as Exhibit 10(k) to the Form 10 and incorporated herein by reference)* 10(l) Form of Deferred Shares Agreement (previously filed as Exhibit 10(l) to the Form 10 and incorporated herein by reference)* 10(m) Form of Nonqualified Stock Option Agreement for Non-Employee Director (previously filed as Exhibit 10(m) to the Form 10 and incorporated herein by reference)* 10(n) Form of Nonqualified Stock Option Agreement (previously filed as Exhibit 10(n) to the Form 10 and incorporated herein by reference)* 10(o) Employee Stock Purchase Plan (previously filed as Exhibit 10(o) to the Form 10 and incorporated herein by reference)* 10(p) Comprehensive Settlement Agreement By and Among The Debtors, The ESOP and the ESOP Committee and the Shareholders of The Elder-Beerman Stores Corp., dated as of December 30, 1997 (previously filed as Exhibit 10(p) to the 1997 Form 10-K and incorporated herein by reference) 10(q) Tax Indemnification Agreement By and Among The Elder-Beerman Stores Corp., the Direct and Indirect Subsidiaries of Elder-Beerman, Beerman-Peal Holdings, Inc., The Beerman-Peal Corporation, Beerman Investments, Inc., The Beerman Corporation and The Individuals, Partnerships and Trusts named Herein dated as of December 15, 1997 (previously filed as Exhibit 10(q) to the Form 10 and incorporated herein by reference) 10(r) Tax Sharing Agreement By and Among The Elder-Beerman Stores Corp., The Bee-Gee Shoe Corp. and The El-Bee Chargit Corp., dated as of December 30, 1997 (previously filed as Exhibit 10(r) to the Form 10 and incorporated herein by reference)
49 53 10(s) Employment Agreement Between The Elder-Beerman Stores Corp. and John A. Muskovich, dated December 30, 1997 (previously filed as Exhibit 10(s) to the 1997 Form 10--K and incorporated herein by reference)* 10(t) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Frederick J. Mershad, dated December 30, 1997 (previously filed as Exhibit 10(t) to the 1997 Form 10-K and incorporated herein by reference)* 10(u) Employment Agreement Between The Elder-Beerman Stores Corp. and James M. Zamberlan, dated December 30, 1997 (previously filed as Exhibit 10(u) to the Company's Form 10-K filed on April 22, 1999 (the "1998 Form 10-K"), and incorporated herein by reference)* 10(v) Employment Agreement Between The Elder-Beerman Stores Corp. and Scott J. Davido, dated December 30, 1997 (previously filed as Exhibit 10(v) to the 1998 Form 10-K and incorporated herein by reference)* 10(w) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Scott J. Davido, dated March 15, 1999 (previously filed as Exhibit 10(w) to the 1998 Form 10- K and incorporated herein by reference)* 10(x) Employment Agreement Between The Elder-Beerman Stores Corp. and Steven D. Lipton, dated December 30, 1997 (previously filed as Exhibit 10(x) to the 1998 Form 10-K and incorporated herein by reference)* 10(y) Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party Thereto, Citibank, N.A. and CitiCorp USA, Inc., dated as of July 27, 1998 (previously filed as Exhibit 10(b)(i) to the Company's Form S-1 and incorporated herein by reference) 10(z) Amended and Restated Security Agreement Made By The Elder-Beerman Stores Corp., The El-Bee Chargit Corp., The Bee-Gee Shoe Corp. in Favor of CitiCorp USA, Inc., dated July 27, 1998 (previously filed as Exhibit 10(b)(iv) to the Company's Form S-1 and incorporated herein by reference) 10(aa) Subsidiary Guaranty Made by Elder-Beerman West Virginia, Inc., dated July 27, 1998 (previously filed as Exhibit 10(b)(vii) to the Company's Form S-1 and incorporated herein by reference) 10(bb) Employment Agreement Between The Elder-Beerman Stores Corp. and Charles P. Shaffer, dated August 22, 1999* 10(cc) Amendment No. 1 to Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated August 18, 1999 10(dd) Amendment No. 2 and Consent to Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated November 23, 1999 10(ee) Amendment No. 1 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated November 25, 1998 10(ff) Amendment No. 2 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated November 24, 1999 10(gg) Amendment No. 3 and Consent to Amended and Restated Credit Agreement Among The Elder Beerman Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated December 29, 1999 10(hh) Amendment No. 1 to Amended and Restated Security Agreement Among The Elder-Beerman Stores Corp., The Grantors Party Thereto and Citicorp USA, Inc., dated December 30, 1999 10(ii) Amendment No. 1 to Certificate Purchase Agreement Among The El-Bee Receivables Corporation, Corporate Receivables Corporation, The Liquidity Providers Named Therein, Citicorp North America Inc. and Bankers Trust Company, dated November 25, 1998
50 54
10(jj) Subsidiary Guaranty Made by Elder-Beerman Holdings, Inc., Elder-Beerman Operations, LLC and Elder-Beerman Indiana, L.P., dated December 30, 1999 21 Subsidiaries of the Company 23 Independent Auditors' Consent 24 Powers of Attorney 27 Financial Data Schedule
(b) Reports on Form 8-K There were no reports on Form 8-K filed for the three-months ended January 29, 2000. (c) The response to this portion of Item 14 is included as Exhibits to this report. * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. (d) Financial Statement Schedules All financial statement schedules are included in the consolidated financial statements herein. 51 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of April, 2000. THE ELDER-BEERMAN STORES CORP. By: /s/ SCOTT J. DAVIDO ------------------------------------ Scott J. Davido Executive Vice President, Chief Financial Officer, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated and on April 13, 2000.
SIGNATURE TITLE --------- ----- * Chairman of the Board of Directors and Chief - -------------------------------------------------------- Executive Officer (Principal Executive Frederick J. Mershad Officer) * President, Chief Operating Officer, Director - -------------------------------------------------------- John A. Muskovich * Executive Vice President, Chief Financial - -------------------------------------------------------- Officer, Treasurer and Secretary Scott J. Davido (Principal Financial Officer) * Senior Vice President, Controller (Principal - -------------------------------------------------------- Accounting Officer) Steven D. Lipton * Director - -------------------------------------------------------- Dennis S. Bookshester * Director - -------------------------------------------------------- Stewart M. Kasen * Director - -------------------------------------------------------- Charles Macaluso * Director - -------------------------------------------------------- Steven C. Mason
52 56
SIGNATURE TITLE --------- ----- * Director - -------------------------------------------------------- Thomas J. Noonan, Jr. * Director - -------------------------------------------------------- Bernard Olsoff * Director - -------------------------------------------------------- Laura H. Pomerantz * Director - -------------------------------------------------------- Jack A. Staph * Director - -------------------------------------------------------- John J. Wiesner
- - The undersigned, pursuant to certain Powers of Attorney executed by each of the directors and officers noted above and previously filed or filed herewith contemporaneously with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated. Dated: April 27, 2000 By: /s/ SCOTT J. DAVIDO ------------------------------------ Scott J. Davido Attorney-in-Fact 53 57 EXHIBIT INDEX 2(a) Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries dated November 17, 1997 (previously filed as Exhibit 2 to the Company's Form 10 filed on November 26, 1997 (the "Form 10"), and incorporated herein by reference) 2(b) Agreement and Plan of Merger by and Among The Elder-Beerman Stores Corp., The Elder-Beerman Acquisition Corp. and Stone & Thomas dated June 18, 1998 (previously filed as Exhibit 2(b) to the Company's Registration Statement on Form S-1 (File No. 333-57447) (the "Form S-1") and incorporated herein by reference) 2(c) First Amendment to Agreement and Plan of Merger By and Among The Elder-Beerman Stores Corp., The Elder-Beerman Acquisition Corp. and Stone & Thomas dated July 27, 1998 (previously filed as Exhibit 2(c) to the Company's Form S-1 and incorporated herein by reference) 3(a) Amended Articles of Incorporation (previously filed as Exhibit 3(a) to the Company's Form 10-K filed on April 30, 1998 (the "1997 Form 10-K"), and incorporated herein by reference) 3(b) Amended Code of Regulations (previously filed as Exhibit 3(b) to the Form 10 and incorporated herein by reference) 4(a) Stock Certificate for Common Stock (previously filed as Exhibit 4(a) to the Company's Form 10/A-1 filed on January 23, 1998 (the "Form 10/A-1") and incorporated herein by reference) 4(b) Form of Registration Rights Agreement (previously filed as Exhibit 4(b) to the Form 10 and incorporated herein by reference) 4(c) Rights Agreement By and Between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed on November 17, 1998 (the "Rights Agreement") and incorporated herein by reference) 4(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 249,809 shares of Common Stock at a strike price of $12.80 per share dated December 30, 1997 (previously filed as Exhibit 4(d) to the 1997 Form 10-K and incorporated herein by reference) 4(e) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 374,713 shares of Common Stock at a strike price of $14.80 per share dated December 30, 1997 (previously filed as Exhibit 4(e) to the 1997 Form 10-K and incorporated herein by reference) 4(f) Amendment No. 1 to the Rights Agreement, dated as of November 11, 1998 (previously filed as Exhibit 4.2 to the Form 8-A and incorporated herein by reference) 10(a)(i) Pooling and Servicing Agreement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(a)(i) to the Form 10/A-1 and incorporated herein by reference) 10(a)(ii) Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(a)(ii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(iii) Certificate Purchase Agreement Among The El-Bee Receivables Corporation, Corporate Receivables Corporation, The Liquidity Providers Named Herein, CitiCorp North America, Inc. and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(a)(iii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(iv) Loan Agreement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp., Bankers Trust Company, The Collateral Investors Parties Hereto and CitiCorp North America, Inc., dated as of December 30, 1997 (previously filed as Exhibit 10(a)(iv) to the Form 10/A-1 and incorporated herein by reference)
54 58 10(a)(v) Intercreditor Agreement By and Among The El-Bee Chargit Corp., The Elder-Beerman Stores Corp., Bankers Trust Company, CitiCorp USA, Inc., CitiCorp North America, Inc., Corporate Receivables Corporation and the Liquidity Providers Named Herein, dated as of December 30, 1997 (previously filed as Exhibit 10(a)(v) to the Form 10/A-1 and incorporated herein by reference) 10(a)(vi) Parent Undertaking Agreement Among The Elder-Beerman Stores Corp. and Bankers Trust Company, dated as of December 30, 1997 (previously filed as Exhibit 10(a)(vi) to the Form 10/A-1 and incorporated herein by reference) 10(a)(vii) Purchase Agreement (Chargit) Among The El-Bee Chargit Corp. and The El-Bee Receivables Corporation, dated as of December 30, 1997 (previously filed as Exhibit 10(a)(vii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(viii) Purchase Agreement (Elder-Beerman) Among The Elder-Beerman Stores Corp. and The El-Bee Chargit Corp., dated as of December 30, 1997 (previously filed as Exhibit 10(a)(viii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(ix) Subordinated Note Between The El-Bee Receivables Corporation and The El-Bee Chargit Corp, dated December 30, 1997 (previously filed as Exhibit 10(a)(ix) to the Form 10/A-1 and incorporated herein by reference) 10(b)(i) Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party Hereto, Citibank, N.A. and CitiCorp USA, Inc., dated as of December 30, 1997 (previously filed as Exhibit 10(b)(i) to the Form 10/A-1 and incorporated herein by reference) 10(b)(ii) Borrower Pledge Agreement Made by The Elder-Beerman Stores Corp. to Citibank, N.A., dated December 30, 1997 (previously filed as Exhibit 10(b)(ii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(iii) Chargit Pledge Agreement Made By The El-Bee Chargit Corp. to Citibank, N.A., dated December 30, 1997 (previously filed as Exhibit 10(b)(iii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(iv) Security Agreement Made By The Elder-Beerman stores Corp., The El-Bee Chargit Corp., The Bee-Gee Shoe Corp. in Favor of CitiCorp USA, Inc., dated December 30, 1997 (previously filed as Exhibit 10(b)(iv) to the Form 10/A-1 and incorporated herein by reference) 10(b)(v) Subsidiary Guaranty Made by The El-Bee Chargit Corp., dated December 30, 1997 (previously filed as Exhibit 10(b)(v) to the Form 10/A-1 and incorporated herein by reference) 10(b)(vi) Subsidiary Guaranty Made by The Bee-Gee Shoe Corp., dated December 30, 1997 (previously filed as Exhibit 10(b)(vi) to the Form 10/A-1 and incorporated herein by reference) 10(b)(vii) Form of Revolving Note (previously filed as Exhibit 10(b)(vii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(viii) Letter Agreement Re: Assignment of Account By and Between The Elder-Beerman Stores Corp., CitiCorp USA, Inc., and Bankers Trust Company, dated December 30, 1997 (previously filed as Exhibit 10(b)(viii) to the Form 10/A-1 and incorporated herein by reference) 10(c) Form of Employment Agreement for Senior Vice Presidents (previously filed as Exhibit 10(c) to the Form 10 and incorporated herein by reference)* 10(d) Form of Employment Agreement for Executive Vice Presidents (previously filed as Exhibit 10(d) to the Form 10 and incorporated herein by reference)* 10(f) Form of Director Indemnification Agreement (previously filed as Exhibit 10(f) to the Form 10 and incorporated herein by reference)* 10(g) Form of Officer Indemnification Agreement (previously filed as Exhibit 10(g) to the Form 10 and incorporated herein by reference)* 10(h) Form of Director and Officer Indemnification Agreement (previously filed as Exhibit 10(h) to the Form 10 and incorporated herein by reference)*
55 59 10(i) The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan, Effective December 30, 1997 (previously filed as Exhibit 10(i) to the 1997 Form 10-K and incorporated herein by reference)* 10(j) Form of Restricted Stock Agreement for Non-Employee Director (previously filed as Exhibit 10(j) to the Form 10 and incorporated herein by reference)* 10(k) Form of Restricted Stock Agreement (previously filed as Exhibit 10(k) to the Form 10 and incorporated herein by reference)* 10(l) Form of Deferred Shares Agreement (previously filed as Exhibit 10(l) to the Form 10 and incorporated herein by reference)* 10(m) Form of Nonqualified Stock Option Agreement for Non-Employee Director (previously filed as Exhibit 10(m) to the Form 10 and incorporated herein by reference)* 10(n) Form of Nonqualified Stock Option Agreement (previously filed as Exhibit 10(n) to the Form 10 and incorporated herein by reference)* 10(o) Employee Stock Purchase Plan (previously filed as Exhibit 10(o) to the Form 10 and incorporated herein by reference)* 10(p) Comprehensive Settlement Agreement By and Among The Debtors, The ESOP and the ESOP Committee and the Shareholders of The Elder-Beerman Stores Corp., dated as of December 30, 1997 (previously filed as Exhibit 10(p) to the 1997 Form 10-K and incorporated herein by reference) 10(q) Tax Indemnification Agreement By and Among The Elder-Beerman Stores Corp., the Direct and Indirect Subsidiaries of Elder-Beerman, Beerman-Peal Holdings, Inc., The Beerman-Peal Corporation, Beerman Investments, Inc., The Beerman Corporation and The Individuals, Partnerships and Trusts named Herein dated as of December 15, 1997 (previously filed as Exhibit 10(q) to the Form 10 and incorporated herein by reference) 10(r) Tax Sharing Agreement By and Among The Elder-Beerman Stores Corp., The Bee-Gee Shoe Corp. and The El-Bee Chargit Corp., dated as of December 30, 1997 (previously filed as Exhibit 10(r) to the Form 10 and incorporated herein by reference) 10(s) Employment Agreement Between The Elder-Beerman Stores Corp. and John A. Muskovich, dated December 30, 1997 (previously filed as Exhibit 10(s) to the 1997 Form 10-K and incorporated herein by reference)* 10(t) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Frederick J. Mershad, dated December 30, 1997 (previously filed as Exhibit 10(t) to the 1997 Form 10-K and incorporated herein by reference)* 10(u) Employment Agreement Between The Elder-Beerman Stores Corp. and James M. Zamberlan, dated December 30, 1997 (previously filed as Exhibit 10(u) to the Company's Form 10-K filed on April 22, 1999 (the "1998 Form 10-K"), and incorporated herein by reference)* 10(v) Employment Agreement Between The Elder-Beerman Stores Corp. and Scott J. Davido, dated December 30, 1997 (previously filed as Exhibit 10(v) to the 1998 Form 10-K and incorporated herein by reference)* 10(w) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Scott J. Davido, dated March 15, 1999 (previously filed as Exhibit 10(w) to the 1998 Form 10-K and incorporated herein by reference)* 10(x) Employment Agreement Between The Elder-Beerman Stores Corp. and Steven D. Lipton, dated December 30, 1997 (previously filed as Exhibit 10(x) to the 1998 Form 10-K and incorporated herein by reference)* 10(y) Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party Thereto, Citibank, N.A. and CitiCorp USA, Inc., dated as of July 27, 1998 (previously filed as exhibit 10(b)(i) to the Company's Form S-1 and incorporated herein by reference)
56 60 10(z) Amended and Restated Security Agreement Made By The Elder-Beerman Stores Corp., The El-Bee Chargit Corp., The Bee-Gee Shoe Corp. in Favor of CitiCorp USA, Inc., dated July 27, 1998 (previously filed as exhibit 10(b)(iv) to the Company's Form S-1 and incorporated herein by reference) 10(aa) Subsidiary Guaranty Made by Elder-Beerman West Virginia, Inc., dated July 27, 1998 (previously filed as exhibit 10(b)(vii) to the Company's Form S-1 and incorporated herein by reference) 10(bb) Employment Agreement Between The Elder-Beerman Stores Corp. and Charles P. Shaffer, dated August 22, 1999* 10(cc) Amendment No. 1 to Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated August 18, 1999 10(dd) Amendment No. 2 and Consent to Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated November 23, 1999 10(ee) Amendment No. 1 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated November 25, 1998 10(ff) Amendment No. 2 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company, dated November 24, 1999 10(gg) Amendment No. 3 and Consent to Amended and Restated Credit Agreement Among The Elder Beerman Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated December 29, 1999 10(hh) Amendment No. 1 to Amended and Restated Security Agreement Among The Elder-Beerman Stores Corp., The Grantors Party Thereto and Citicorp USA, Inc., dated December 30, 1999 10(ii) Amendment No. 1 to Certificate Purchase Agreement Among The El-Bee Receivables Corporation, Corporate Receivables Corporation, The Liquidity Providers Named Therein, Citicorp North America Inc. and Bankers Trust Company, dated November 25, 1998 10(jj) Subsidiary Guaranty Made by Elder-Beerman Holdings, Inc., Elder-Beerman Operations, LLC and Elder-Beerman Indiana, L.P., dated December 30, 1999 21 Subsidiaries of the Company 23 Independent Auditors' Consent 24 Powers of Attorney 27 Financial Data Schedule
57 EX-10.BB 2 EXHIBIT 10.BB 1 Exhibit 10(bb) AMENDED AND RESTATED EMPLOYMENT AGREEMENT FOR CHARLES P. SHAFFER THIS AGREEMENT, dated as of the 22nd day of August, 1999, between The Elder-Beerman Stores Corp., an Ohio corporation ("Employer"), and Charles P. Shaffer ("Executive"). R E C I T A L S : 1. Employer and Executive have previously entered into an Employment Agreement dated December 30, 1997 (the "Effective Date"), pursuant to authority provided under the Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and Its Subsidiaries, dated November 17, 1997, as subsequently modified (the "Plan"), and the order confirming the Plan, entered December 16, 1997. 2. Employer and Executive want to enter into this Amended and Restated Employment Agreement to replace the original Employment Agreement in order to reflect Executive's new position with Employer, subject to the terms and conditions set forth below. NOW THEREFORE, in consideration of the foregoing and the mutual covenants herein and for good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed as follows: ARTICLE I --------- DEFINITIONS ----------- The following terms shall have the respective meanings set forth below, unless the context clearly otherwise requires: 1.1 "AFFILIATE" means, with respect to a particular Entity, an Entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control 2 with, such Entity, and an Entity shall be "unaffiliated" with another Entity if such Entities are not Affiliates with respect to one another. 1.2 "CAUSE" means (i) an intentional act of fraud, embezzlement, theft or any other material violation of law in connection with Executive's duties or in the course of his employment with Employer involving material harm to Employer; (ii) intentional wrongful damage to material assets of Employer; (iii) intentional wrongful engagement in any activity that would constitute a material breach of Sections 3.1 through 3.4 hereof; or (iv) physical or mental disability that causes Executive to fail to perform his duties under this Agreement for a continuous period of 12 months, as provided in Section 2.7(b). No act or omission by Executive shall be deemed "intentional" if it was due to negligence and shall be deemed "intentional" only if done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interests of Employer and its subsidiaries. Failure to meet performance standards or objectives of Employer shall not constitute "Cause" for purposes hereof. To terminate the employment of Executive for Cause, Employer must deliver to Executive a Notice of Termination given within 90 days after the Board of Directors both (i) has knowledge of conduct or an event allegedly constituting Cause and (ii) has reason to believe that such conduct or event could be grounds for Cause. For purposes of this Agreement a "Notice of Termination" shall mean a copy of a resolution duly adopted by the affirmative vote of not less than a simple majority of the membership of the Board of Directors at a meeting called for the purpose of determining that Executive has engaged in conduct that constitutes Cause (and at which Executive had a reasonable opportunity, together with his counsel, to be heard before the Board of Directors prior to such vote). 1.3 "CHANGE OF OWNERSHIP" means any one of the following events: (i) the sale to any purchaser unaffiliated with Employer of all or substantially all of the assets of Employer; (ii) the sale, 2 3 distribution, or accumulation of more than 50% of the outstanding voting stock of Employer to/by any acquiror or group of affiliated acquirors that are unaffiliated with Employer; (iii) individuals who, on the completion of Employer's reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. section 101-1330 (the "Bankruptcy Code"), constitute the Board of Directors (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to such completion whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of Employer in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; PROVIDED, HOWEVER, that no individual elected or nominated as a director of Employer initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; or (iv) the merger or consolidation of Employer with another Entity unaffiliated with Employer if, immediately after such merger or consolidation, less than a majority of the combined voting power of the then outstanding securities of such Entity are held, directly or indirectly, in the aggregate by the holders immediately prior to such transaction of the then outstanding securities of Employer entitled to vote generally in the election of directors. In no event shall "Change of Ownership" be construed to include any change of control of Employer or any subsidiary of Employer that occurs solely as a result of any exchange or distribution of equity securities of Employer or any such subsidiary upon consummation of a plan of reorganization for Employer or any such subsidiary in its chapter 11 case pending as of the date of this Agreement. 1.4 "CODE" means the Internal Revenue Code of 1986, as amended. 3 4 1.5 "COMPETING BUSINESS" means any of the following companies: (i) Mercantile Stores Co., Inc.; Proffitt's, Inc.; or Carson Pirie Scott & Co., including each of their respective Affiliates; (ii) Lazarus, Inc.; (iii) Lazarus PA, Inc.; or (iv) Rich's Department Stores, Inc. 1.6 "ENTITY" shall have the meaning provided in section 101(16) of the Bankruptcy Code. 1.7 "GOOD REASON" means (i) a reduction in the Executive's annual Base Salary of at least 10%; (ii) the relocation of Employer's principal executive offices to a location more than 75 miles from the current location of such offices; or (iii) any material failure by Employer to comply with any of the provisions of this Agreement, other than a failure not occurring in bad faith and which is remedied by Employer within 10 days after receipt of written notice thereof given by Executive, provided that repeated failures shall be evidence of the bad faith of Employer. ARTICLE II ---------- EMPLOYMENT ---------- 2.1 EFFECTIVENESS. The Agreement shall be effective as of the date first written above (the "Effective Date"). 2.2 TERM. Employer shall employ Executive, and Executive shall serve Employer pursuant to the terms of this Agreement, starting on the Effective Date. The initial term of this Agreement shall expire on August 22, 2001. (the "Termination Date"). The term of this Agreement shall be automatically extended on the Termination Date and on each anniversary of the Termination Date thereafter for a period of one year unless Employer or Executive shall have given written notice of termination to the other not less than 120 days prior to such anniversary of the Termination Date. Upon termination of this Agreement pursuant to any such notice, Executive's employment with 4 5 Employer shall terminate, and Employer's only obligation to Executive will be payment of the amounts described in Section 2.7(ii). 2.3 DUTIES. Executive will serve and perform the duties assigned to him from time to time by the Chief Executive Officer or Board of Directors of Employer. Initially, Executive will serve and perform the duties of Executive Vice President of Merchandising and Marketing. 2.4 COMPENSATION. In consideration of Executive's services hereunder, Employer shall pay Executive cash compensation consisting of an annual "Base Salary" and "Bonus." As of the Effective Date, Executive's Base Salary shall be $275,000.00 per year, and his 1999 fiscal year Bonus shall consist of an incentive bonus that includes a pro rata share, based on the percentage of days served as Executive Vice President of Merchandising and Marketing in 1999, of an incentive bonus of up to 45% of Executive's Base Salary, to be earned as determined by the Board of Directors. In each fiscal year thereafter, Executive shall participate in the Employer's Equity and Performance Incentive Plan and Executive's Bonus thereunder shall consist of an incentive bonus of up to 45% of his Base Salary, to be earned as determined by the Board of Directors pursuant to the provisions of such plan. For purposes of the preceding sentences, the "year" for which the Bonus is payable to Executive shall be the Employer's fiscal year beginning in February 1999 and each subsequent fiscal year of the Employer. Executive's Base Salary shall be subject to review at the discretion of the Board of Directors from time to time taking into account changes in Executive's responsibilities, increases in the cost of living, performance by Executive, increases in salary to other executives of Employer and other pertinent factors. 2.5 PAYMENT SCHEDULE. The Compensation specified in Section 2.4 hereof shall be payable as current salary and bonus in accordance with Employer's payroll and bonus procedures for other executives. Base Salary shall be paid in installments not less frequently than monthly and at 5 6 the same rate for any fraction of a month unexpired at the end of the term. Bonuses shall be paid annually in a lump sum not later than April 15 or, if such day is not a business day on which the Employer's executive offices are open, the first business day thereafter. 2.6 EXPENSES. Executive shall be allowed reasonable traveling expenses and other reasonable expenses in carrying out his duties under this Agreement and shall be furnished office space, assistance and accommodations suitable to the character of his position with Employer and adequate for the performance of his duties hereunder. 2.7 TERMINATION OF EMPLOYMENT. (a) TERMINATION FOLLOWING A CHANGE OF OWNERSHIP. If (i) before the second anniversary of a Change of Ownership Employer notifies Executive that Executive is being terminated, and such termination is without Cause; (ii) before the second anniversary of a Change of Ownership Executive terminates his employment for Good Reason; (iii) Executive terminates his employment with Employer for any reason, or without reason, during the 30-day period immediately following the first anniversary of a Change of Ownership; or (iv) Executive's employment with Employer is terminated in connection with but prior to a Change of Ownership and termination occurs following the commencement of any discussion with any third party that ultimately results in a Change of Ownership, Executive shall be entitled (except as otherwise provided in paragraphs (b), (c) and (d) of this Section 2.7 and subject to Section 5.1) to receive a lump sum payment as severance compensation equal to the greater of (I) 2.99 times his "base amount" as such term is defined in Section 280G of the Code, or (II) 2 times his most recent Base Salary and Bonus. Employer shall make such payment not later than 45 days after the date of termination. If any payment made to the Executive pursuant to this Section 2.7(a) or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock 6 7 option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment") is determined to be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Employer, within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or to any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "280G Gross-Up Payment"). The 280G Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any excise tax imposed upon the 280G Gross-Up Payment, the Executive retains a portion of the 280G Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) DISABILITY. Executive shall not be in breach of this Agreement if he shall fail to perform his duties hereof because of physical or mental disability. If Executive fails to render services to Employer because of Executive's physical or mental disability for a continuous period of 12 months, the Board of Directors or its delegate may terminate Executive's employment prior to the end of the then current term. If any dispute exists between the parties as to Executive's physical or mental disability at any time, such question shall be settled by the opinion of an impartial reputable physician agreed upon for that purpose by the parties or their representatives. Failing agreement upon an impartial physician for purposes of the preceding sentence, the question of Executive's physical or mental disability shall be resolved within 10 days of a written request therefor by either party to the other, by a physician designated by the then Executive Vice President 7 8 of the Ohio Academy of Family Physicians. The written opinion of the physician as to the matter in dispute shall be final and binding on the parties. (c) OTHER TERMINATIONS BY EMPLOYER. (i) CAUSE. Employer may terminate the employment of Executive for Cause at any time upon notice given pursuant to Section 5.6. Upon such termination, this Agreement and all of Employer's obligations under this Agreement shall terminate, except that Employer shall remain obligated to pay to Executive any unpaid Base Salary through the effective date of such termination and any vacation accrued but unused as of Executive's last day worked. (ii) NOT FOR CAUSE. Employer may terminate the employment of Executive at any time for any reason. However, if such termination of employment does not occur pursuant to Section 2.2 or under the circumstances described in paragraphs (a), (b) or (c)(i) of this Section 2.7, Employer shall remain obligated to Executive for (I) payment of Executive's unpaid Base Salary (as described in Section 2.4) through the remaining term of this Agreement pursuant to Section 2.2, (II) any Bonus (as described in Section 2.4) paid on or before Executive's last day worked and (III) payment for any vacation accrued but unused as of Executive's last day worked. (d) DEATH. If Executive dies while rendering services under this Agreement, there shall be payable to his estate an amount equal to his Base Salary for the lesser of one year or the remaining term of this Agreement. Such amount shall be paid to Executive's estate in a single lump sum. 2.8 MITIGATION; OFFSET. Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise. However, any amount payable pursuant to this Agreement following the termination of Executive's employment shall reduce any amount payable by Employer to or with respect to Executive pursuant 8 9 to any other severance pay or other similar plan, program or arrangement of Employer, including, without limitation, the Employer's Master Severance Plan for Key Employees. ARTICLE III ----------- CERTAIN OBLIGATIONS OF EXECUTIVE -------------------------------- 3.1 NO PARTICIPATION IN OTHER BUSINESSES. Executive shall not, without the consent of the Board of Directors, become actively associated with or engaged in any business other than that of Employer or a division or Affiliate of Employer, and he shall do nothing inconsistent with his duties to Employer. 3.2 TRADE SECRETS AND CONFIDENTIAL INFORMATION. (a) UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. Executive will keep in strict confidence, and will not, directly or indirectly, at any time during or after his employment with Employer, disclose, furnish, disseminate, make available or, except in the course of performing his duties of employment under this Agreement, use any trade secrets or confidential business and technical information of Employer or its customers, vendors or property owners or managers, without limitation as to when or how Executive may have acquired such information. Such confidential information will include, without limitation, Employer's unique selling methods and trade techniques; management, training, marketing and selling manuals; promotional materials; training courses and other training and instructional materials; any personnel information; material nonpublic financial information; any corporate organizational information; lease terms; vendor, owner, manager and product information; customer lists; other customer information; and other trade information. Executive specifically acknowledges that all such confidential information including, without limitation, customer lists, other customer information and other trade information, whether reduced to writing, maintained on any form of electronic media, or maintained in the mind or 9 10 memory of Executive and whether compiled by Employer and/or Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by Employer to maintain the secrecy of such information, that such information is the sole property of Employer and that any retention and use of such information by Executive during his employment with Employer (except in the course of performing his duties and obligations under this Agreement) or after the termination of his employment will constitute a misappropriation of Employer's trade secrets. (b) POST-TERMINATION. Executive agrees that, upon termination of Executive's employment with Employer, for any reason, Executive will return to Employer, in good condition, all property of Employer, including without limitation, the originals and all copies of all management, training, marketing and selling manuals; promotional materials; other training and instructional materials; financial information; vendor, owner, manager and product information; customer lists; other customer information; and all other selling, service and trade information and equipment. If such items are not returned, Employer will have the right to charge Executive for all reasonable damages, costs, attorneys' fees and other expenses incurred in searching for, taking, removing and/or recovering such property. 3.3 NONCOMPETITION. Executive and Employer recognize that Executive's duties under this Agreement will entail the receipt of trade secrets and confidential information, which include not only information concerning Employer's current operations, procedures, suppliers and other contacts, but also its short-range and long-range plans, and that such trade secrets and confidential information may have been developed by Employer and its Affiliates at substantial cost and constitute valuable and unique property of Employer. Accordingly, Executive acknowledges that 10 11 the foregoing makes it reasonably necessary for the protection of Employer's business interests that Executive not compete with Employer or any of its Affiliates during the term of this Agreement and for a reasonable and limited period thereafter. Therefore, during the term of this Agreement and for one year after termination of the Agreement, Executive shall not have any investment in a Competing Business other than a de minimus investment and shall not render personal services to any such Competing Business in any manner, including, without limitation, as owner, partner, director, trustee, officer, employee, consultant or advisor thereof; PROVIDED, HOWEVER, that this Section 3.3 shall not apply if Executive terminates his employment for Good Reason or Employer terminates Executive other than for Cause. For purposes of the preceding sentence, a de minimus investment is ownership of less than 1/2 of 1% of the outstanding stock or debt of any Competing Business. Notwithstanding Section 2.7 above, if Executive shall breach the covenants contained in this Section 3.3 or in Section 3.2, Employer shall have no further obligations to Executive pursuant to this Agreement and may recover from Executive all such damages as it may be entitled to at law or in equity. In addition, Executive acknowledges that any such breach is likely to result in immediate and irreparable harm to Employer for which money damages are likely to be inadequate. Accordingly, Executive consents to injunctive and other appropriate equitable relief that Employer may seek to protect Employer's rights under this Agreement. Such relief may include, without limitation, an injunction to prevent Executive from disclosing any trade secrets or confidential information concerning Employer to any Entity, to prevent any Entity from receiving from Executive or using any such trade secrets or confidential information and/or to prevent any Entity from retaining or seeking to retain any other employees of Employer. 11 12 3.4 CONFLICTS OF INTEREST. Executive shall not engage in any activity that would violate any Conflict of Interest or Business Ethics Statement of Employer that Executive may sign from time to time. ARTICLE IV ---------- OTHER BENEFITS -------------- 4.1 EMPLOYEE BENEFITS. (a) Executive and Executive's family, as applicable, shall be eligible for participation in and shall receive all benefits under the savings and retirement programs, welfare benefit plans, fringe benefit programs and perquisites that Employer provides to senior executives of Employer in effect from time to time. (b) Subject to Section 5.1, upon termination under Section 2.7(a) hereof: (i) The benefits described in Section 4.1(a) will continue until the Executive obtains new employment providing substantially similar benefits, but in any event no later than two years after the date of termination. During the period of continued coverage pursuant to this Subsection, the Executive will be required to pay the same cost of coverage, co-pays, deductibles and other similar payments paid by active senior executives of the Company having elected the same type of coverage. The Executive will cease to be eligible for continued health and life insurance benefits provided by the Employer if he (I) waives such coverage or (II) fails to pay any amount required for such coverage. (ii) The Executive will be reimbursed by the Employer for reasonable expenses incurred for outplacement counseling (I) that are pre-approved by the Employer's Senior Vice President-Human Resources, (II) that do not exceed 15% of the Executive's Base Salary and (III) that are incurred by the Executive within 6 months following such termination. 12 13 4.2 VACATION AND SICK LEAVE. Executive shall be entitled to vacation and sick leave each year, in accordance with Employer's policies in effect from time to time; PROVIDED, HOWEVER, that Executive shall be entitled to a minimum of four weeks vacation per year. ARTICLE V --------- MISCELLANEOUS ------------- 5.1 RELEASE. Payment of the amount described in Section 2.7(a) and the benefits described in Section 4.1(b) to the Executive is conditioned upon the Executive executing and delivering a release satisfactory to the Employer releasing the Employer from any and all claims, demands, damages, actions and/or causes of action whatsoever, which the Executive may have had on account of the termination of his employment, including, but not limited to claims of discrimination, including on the basis of sex, race, age, national origin, religion, or handicapped status (with all applicable periods during which the Executive may revoke the release or any provision thereof having expired), and any and all claims, demands and causes of action for retirement (other than under the retirement plans maintained by the Employer that are qualified under Section 401(a) of the Code or under any "welfare benefit plan" of the Employer (as the term "welfare benefit plan" is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended)), severance or other termination pay. Such release will not, however, apply to the ongoing obligations of the Employer arising under this Agreement, or rights of indemnification the Executive may have under the Employer's policies or by contract or by statute. 5.2 SUCCESSORS AND BINDING AGREEMENT. (a) Employer will require any successor to all or substantially all of the businesses or assets of Employer (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise), by agreement in form and substance reasonably satisfactory to Executive, expressly 13 14 to assume and agree to perform this Agreement in the same manner and to the same extent Employer would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of Employer and any successor to Employer, including without limitation, any persons acquiring directly or indirectly all or substantially all of the businesses or assets of Employer whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed "Employer" for the purposes of this Agreement). (b) This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereof except as expressly provided in Sections 5.2(a) and (b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereof will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive's will or by the laws of descent and distribution and, if Executive attempts any assignment or transfer contrary to this Section 5.2, Employer will have no liability to pay any amount Executive attempts to assign, transfer or delegate. 5.3 GOVERNING LAW; ARBITRATION. This Agreement has been executed on behalf of Employer by an officer of Employer located in the City of Moraine, Ohio. This Agreement and all questions arising in connection with it shall be governed by the internal substantive law of the State of Ohio, without giving effect to principles of conflict of laws. Subject to the following sentence, all disputes arising out of, or in connection with this Agreement, which are not promptly settled by 14 15 mutual agreement of the parties hereto, shall be finally settled by arbitration in accordance with the rules of the American Arbitration Association. Notwithstanding, Employer may, at its option, seek injunctive relief as contemplated in Section 3.3 above either in lieu of or in addition to the arbitration remedies provided for in this Section 5.3 Arbitration shall be conducted by one or more arbitrators appointed in accordance with such rules on the request of any party to the agreement giving rise to the dispute. Arbitration shall take place in Dayton, Ohio. Such arbitration shall be governed by this Agreement and shall be binding upon the parties hereto. The validity, construction, performance or termination of any agreement by and between the parties submitted to arbitration shall be determined on the basis of the contractual obligations of the parties. The arbitrator shall determine his jurisdiction over persons and subject matter if such jurisdiction is challenged by one of the parties. The award of the arbitrator shall: (a) be rendered in writing stating the grounds on which the arbitrators base same, and how the costs of arbitration are being borne; the expenses of Executive to successfully petition or defend his interests shall be borne by Employer; and (b) be carried out voluntarily and without delay, and failing this, be made enforceable through either party by entry of a judgment in a competent court of any jurisdiction, and (c) be final and not subject to appeal before any court, nor other jurisdiction. 5.4 SEVERABILITY. If any portion of this Agreement is held to be invalid or unenforceable, such holding shall not affect any other portion of this Agreement. 5.5 ENTIRE AGREEMENT. This Agreement comprises the entire agreement between the parties hereto and, as of the date hereof, supersedes any prior agreements between the parties. This Agreement may not be modified, renewed or extended except by a written instrument referring to this Agreement and executed by the parties hereto. 15 16 5.6 NOTICES. Any notice or consent required or permitted to be given under this Agreement shall be in writing and shall be effective: (a) when given by personal delivery, (b) one business day after being sent by overnight delivery service or (c) five business days after being sent by certified U.S. mail, return receipt requested, to the Secretary of Employer at its principal place of business in the City of Moraine or to Executive at his last known address as shown on the records of Employer. 5.7 WITHHOLDING TAXES. Employer may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 16 17 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. THE ELDER-BEERMAN STORES CORP. By:/s/Frederick J. Mershad --------------------------------------- Frederick J. Mershad Chairman and Chief Executive Officer /s/Charles P. Shaffer ------------------------------------------ Charles P. Shaffer 17 EX-10.CC 3 EXHIBIT 10.CC 1 Exhibit 10(cc) AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT NO. 1, dated as of August 18, 1999 (this "AMENDMENT"), to the AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 27, 1998 (the "CREDIT AGREEMENT"), among THE ELDER-BEERMAN STORES CORP. (the "BORROWER"), the financial institutions listed on the signature pages thereto as lenders (the "LENDERS"), CITIBANK, N.A. as issuing bank (the "ISSUER") and CITICORP USA, INC. as Swing Bank and as agent for the Lenders, the Issuer and the Swing Bank (in that capacity, the "AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower has requested that the Lenders amend the Credit Agreement as provided below; and WHEREAS, the Majority Lenders have agreed to such amendments on the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used but not otherwise defined in this Amendment shall have the meanings assigned thereto in the Credit Agreement. SECTION 2. AMENDMENT TO THE CREDIT AGREEMENT. As of the Effective Date, the Credit Agreement shall be amended as follows: (a) By deleting in its entirety Section 2.5(b) thereof and inserting in lieu thereof the following: "(b) For a period of not less than 45 consecutive days during the three month period commencing on January 1, 2000 and ending on March 31, 2000, the Borrower shall repay the Loans to the extent necessary so that the outstanding principal amount of the Loans does not exceed an aggregate of $10,000,000." 2 (b) By amending Section 5.1 thereof by deleting the Minimum Fixed Charge Coverage Ratio of "1.75:1" for each Fiscal Quarter ending February 1, 1999 and thereafter and inserting in lieu thereof a new Minimum Fixed Charge Coverage Ratio of "1.40:1." (c) By deleting in its entirety Section 5.2 thereof and inserting in lieu thereof the following: "5.2 TOTAL INDEBTEDNESS. The Borrower shall not permit the total outstanding Indebtedness of the Borrower and its Subsidiaries on a consolidated basis, including, without limitation, Average Total Debt, at the end of any Fiscal Quarter commencing with the Fiscal Quarter ending on July 31, 1999 to exceed 5.0 times EBITDA determined on the basis of the four Fiscal Quarters ending on the date of determination." (d) By deleting Section 7.3 thereof and inserting in lieu thereof the following: "RESTRICTED PAYMENTS. The Borrower shall not and shall not permit any of its Subsidiaries to (i) repurchase any of its Stock, declare or make any dividend, payment or other distribution of assets, properties, cash, rights, obligations or securities on account or in respect of any of its Stock other than dividends paid to the Borrower or any wholly-owned Subsidiary of the Borrower by any Subsidiary of the Borrower, including without limitation to the Borrower by Chargit, except that the Borrower may effect repurchases of its outstanding Stock in compliance with Rule lOb-18 under the Securities Exchange Act of 1934 during the two year period commencing August 16, 1999 for an aggregate consideration of up to $24,000,000 or (ii) purchase, redeem, prepay, defease or otherwise acquire for value or make any payment (other than required interest payments) on account or in respect of any principal amount of Indebtedness for borrowed money, now or hereafter outstanding, except (A) the Loans, (B) the Middletown Lease Payments, (C) in the case of a Subsidiary, payments may be made to the Borrower on account of any Indebtedness owing to the Borrower by such Subsidiary, (D) the Zanesville Bonds, and (E) the Moraine Mortgage." SECTION 3. CONSENT. Each Guarantor hereby consents to the terms and conditions of this Amendment and confirms that its Guaranty remains in full force and effect and continues to secure the Obligations pursuant to the terms thereof as amended hereby. Each Pledgor and Grantor (as such terms are defined in the Loan Documents) hereby consents to the terms of this Amendment and confirms that the security interests and liens granted pursuant to the Loan Documents to which it is a party continue to secure the Obligations pursuant to the terms thereof as amended hereby and that such security interests and liens and Loan Documents remain in full force and effect. SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lenders and the Agent that (i) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of the Borrower and other Loan Parties and will not violate the 2 3 certificates of incorporation, certificates of formation, by-laws or operating agreements of the Borrower and other Loan Parties; (ii) this Amendment is the legal, valid, binding and enforceable obligation of the Borrower, enforceable against it in accordance with its terms; (iii) the representations and warranties contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by the Credit Agreement as amended by this Amendment; and (iv) no Default or Event of Default under the Credit Agreement has occurred and is continuing. SECTION 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective (the "Effective Date") when, and only when, the Agent shall have received (i) a fee of $225,000 from the Borrower for the account of the Lenders and (ii) counterparts hereof which when taken together shall have been signed by the Borrower, the Guarantors and the Majority Lenders (whether on the same or different counterparts). SECTION 6. EFFECT ON THE LOAN DOCUMENTS. (a) On and after the date hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Except as specifically amended herein, the Credit Agreement and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power and remedy of any Lender under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, including, without limitation, a waiver of any rights of any Lender arising out of, or relating to, any Default or Event of Default that has occurred and is continuing. SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 3 4 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first above written. BORROWER THE ELDER-BEERMAN STORES CORP. By: /s/ Scott J. Davido ------------------------------ Name: Scott J. Davido Title: EVP, CFO GUARANTORS THE BEE-GEE SHOE CORP. By: /s/ Scott J. Davido ------------------------------ Name: Scott J. Davido Title: Senior Vice President and Secretary THE EL-BEE CHARGIT CORP. By: /s/ Scott J. Davido ------------------------------ Name: Scott J. Davido Title: Senior Vice President and Secretary ELDER-BEERMAN WEST VIRGINIA, INC. By: /s/ Scott J. Davido ------------------------------ Name: Scott J. Davido Title: Vice President AGENT CITICORP USA, INC. By: /s/ Claudia Slacik ------------------------------ Name: Claudia Slacik Title: Vice President 4 5 ISSUER CITIBANK, N.A. By: /s/ Claudia Slacik ------------------------------- Name: Claudia Slacik Title: Vice President LENDERS CITICO USA, INC. By: /s/ Claudia Slacik ------------------------------- Name: Claudia Slacik Title: Vice President BANK OF AMERICA, N.A. By: /s/ Walter T. Shellman ------------------------------- Name: Walter T. Shellman Title: Vice President BANK ONE, NA By: /s/ Michael R. Zaksheske ------------------------------- Name: Michael R. Zaksheske Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Atty John R. Morrison ------------------------------- Name: Christopher E. Sarisky Title: Assistant Vice President Name: John R. Morrison Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: N/A ------------------------------- Name: Title: 5 6 FLEET NATIONAL BANK By: /s/ Kevin J. Chamberlain ----------------------------------- Name: Kevin J. Chamberlain Title: V.P. NATIONAL CITY COMMERCIAL FINANCE, INC. By: /s/ Matthew D. Sheets ----------------------------------- Name: Matthew D. Sheets Title: Account Executive 6 EX-10.DD 4 EXHIBIT 10.DD 1 Exhibit 10(dd) AMENDMENT NO.2 AND CONSENT TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT NO.2 AND CONSENT, dated as of November 23, 1999 (this "AMENDMENT AND CONSENT"), to the AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 27, 1998, as heretofore amended (the "CREDIT AGREEMENT"), among THE ELDER-BEERMAN STORES CORP. (the "BORROWER"), the financial institutions listed on the signature pages thereto as lenders (the "LENDERS"), CITIBANK, N.A. as issuing bank (the "ISSUER"), and CITICORP USA, INC., as swing bank (in that capacity, the "SWING BANK") and as agent for the Lenders, the Issuer and the Swing Bank (in that capacity, the "AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower has requested that the Lenders amend the Credit Agreement and consent to a waiver of compliance with Sections 7.4 and 7.5 hereof as provided below; and WHEREAS, the Majority Lenders have agreed to such amendment and consent on the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used but not otherwise defined in this Amendment and Consent shall have the meanings assigned thereto in the Credit Agreement. SECTION 2. AMENDMENT TO THE CREDIT AGREEMENT. As of the Effective Date, the Credit Agreement shall be amended as follows: (a) By amending Section 1.1 thereof by inserting the following definitions in the proper alphabetical order: "BEE-GEE ASSET SALE" has the meaning specified in Section 7.4(c). "BEE-GEE STOCK SALE" has the meaning specified in Section 7.4(c). 2 (b) By amending Section 2.4(b) thereof by adding the following proviso at the end thereof: "; PROVIDED, HOWEVER, that no such reduction in the then current Commitment shall be required in connection with a Bee-Gee Asset Sale or a Bee-Gee Stock Sale". (c) By amending Section 4.1 thereof by deleting such Section 4.1 in its entirety and replacing it with the following: "4.1. EXISTENCE; COMPLIANCE WITH LAW. Each Loan Party and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) is duly qualified in each foreign jurisdiction in which it conducts business, except for failures to so qualify which in the aggregate have no Material Adverse Effect; (c) has all requisite corporate or limited liability company power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (d) is in compliance with its charter and by-laws or other comparable governing documents; (e) is in compliance with all other applicable Requirements of Law except for such non-compliances as in the aggregate have no Material Adverse Effect; and (f) has all necessary Licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Government Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for Licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate have no Material Adverse Effect." (d) By amending Section 4.2 thereof by deleting Section 4.2(a)(i) and (ii) in its entirety and replacing it with the following: "(i) are within such Loan Party's corporate or limited liability company powers; (ii) have been duly authorized by all necessary corporate or limited liability company action, including, without limitation, the consent of shareholders or members, as the case may be, where required;" 2 3 (e) By amending Section 6.5 thereof by deleting such Section 6.5 in its entirety and replacing it with the following: "6.5 PRESERVATION OF EXISTENCE, ETC. The Borrower shall preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate or limited liability company existence, rights (charter and statutory) and franchises, except as permitted under Section 7.4; PROVIDED, HOWEVER, that neither the Borrower nor any Subsidiary shall be prohibited from withdrawing it qualification to do business in any jurisdiction from which it no longer is conducting its business." (f) By amending Section 7.4 thereof by deleting the "and" at the end of clause (v) of Section 7.4(c) and inserting a comma in lieu thereof and by inserting the following at the end of the first sentence of Section 7.4(c): "and (vii) the sale of all or substantially all of the assets and/or liabilities of Bee-Gee (a "BEE-GEE ASSET SALE") or the sale of all of the stock and Stock Equivalents of Bee-Gee (a "BEE-GEE STOCK SALE")". SECTION 3. LENDER CONSENT. (a) The Majority Lenders consent to the Borrower's non-compliance with Sections 7.4 and 7.5 of the Credit Agreement to the extent necessary to enable the Borrower (i) to form (but not transfer any significant assets to unless the relevant conditions set forth in Section 3(b) below are satisfied) two limited liability companies (each a "NEW SUBSIDIARY") that will be either wholly owned by the Borrower or jointly owned by the Borrower and one of more Subsidiary Guarantors and (ii) subject to the satisfaction of the conditions set forth in Section 3(b) below, to transfer to one of the New Subsidiaries all of the Borrower's operations located in Indiana, including all operational items relative to the Borrower's stores located in Indiana (such as assets, employees and leases and other contractual agreements) and to the other New Subsidiary all of the Borrower's employees other than those employed in the Borrower's Michigan or Indiana locations. (b) The consent in Section 3(a)(ii) above shall be effective as to each New Subsidiary only upon the execution and delivery to the Agent of each of the instruments and other documents set forth below in form and substance satisfactory to the Agent: (i) an amendment to the Amended and Restated Security Agreement, duly executed by such New Subsidiary substantially in the form of the Amendment Agreement attached hereto as Exhibit A, whereby INTER ALIA such New Subsidiary agrees to be a party to, become bound by the provisions of and grant Liens in favor of the Agent for the benefit of the Secured Parties pursuant to the Amended and Restated Security Agreement; (ii) a guaranty substantially in the form of the Subsidiary Guaranty, duly executed by such New Subsidiary; 3 4 (iii) all UCC-l financing statements necessary to perfect the Liens granted by such New Subsidiarv in favor of the Agent for the benefit of the Secured Parties, each duly executed by such New Subsidiary and duly recorded in all the recording offices that the Agent deems necessary to perfect such Liens; (iv) a certificate of such New Subsidiary dated the date such New Subsidiary is organized and signed by a duly authorized Responsible Officer of such New Subsidiary, certifying as to (x) true copies of governing documents of such New Subsidiary in effect as of such date, (y) true copies of all limited liability company action taken by such New Subsidiary authorizing the instruments and other documents that it is required to execute pursuant to this Section 3(b), authorizing the incurrence of the obligations and the granting of the Liens in the Collateral owned by it securing payment and performance of the Obligations and stating that the same have been properly adopted and have not been modified or amended and (z) the names, true signatures and incumbency of the Responsible Officers of such New Subsidiary authorized to execute the other instruments and other documents required to be executed by such New Subsidiary pursuant to this Section 3(b); (v) a Certificate of Good standing for such New Subsidiary duly issued by the Secretary of State of each state in which such New Subsidiary does business; and (vi) written opinions of counsel to such New Subsidiary to the same effect as those delivered pursuant to 3.1 of the Credit Agreement. (c) The Majority Lenders hereby consent to the amendment to the Amended and Restated Security Agreement substantially in the form of the Amendment Agreement attached hereto as EXHIBIT A. SECTION 4. GUARANTOR CONSENT. Each Guarantor hereby consents to the terms and conditions of this Amendment and Consent and confirms that its Guaranty remains in full force and effect and continues to secure the Obligations pursuant to the terms thereof as amended hereby. Each Pledgor and Grantor (as such terms are defined in the Loan Documents) hereby consents to the terms of this Amendment and Consent and confirms that the security interests and liens granted pursuant to the Loan Documents to which it is a party continue to secure the Obligations pursuant to the terms thereof as amended hereby and that such security interests and liens and Loan Documents remain in full force and effect. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lenders and the Agent that (i) the execution, delivery and performance of this Amendment and Consent has been duly authorized by all requisite 4 5 corporate action on the part of the Borrower and other Loan Parties and will not violate the certificates of incorporation, certificates of formation, by-laws or operating agreements of the Borrower and other Loan Parties; (ii) this Amendment and Consent is the legal, valid, binding and enforceable obligation of the Borrower, enforceable against it in accordance with its terms; (iii) the representations and warranties contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by the Credit Agreement as amended by this Amendment and Consent; and (iv) no Default or Event of Default under the Credit Agreement has occurred and is continuing. SECTION 6. CONDITIONS TO EFFECTIVENESS. This Amendment and Consent shall become effective (the ""Effective Date"") when, and only when, the Agent shall have received counterparts hereof which when taken together shall have been signed by the Borrower, the Guarantors and the Majority Lenders (whether on the same or different counterparts). SECTION 7. EFFECT ON THE LOAN DOCUMENTS. (a) On and after the date hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Except as specifically amended herein, the Credit Agreement and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment and Consent shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender under any of the Loan Documents, nor shall it constitute a waiver of any provision of any of the Loan Documents, including, without limitation, a waiver of any rights of any Lender arising out of, or relating to, any Default or Event of Default that has occurred and is continuing. SECTION 8. COUNTERPARTS. This Amendment and Consent may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 9. GOVERNING LAW. THIS AMENDMENT AND CONSENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 5 6 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment and Consent as of the date first above written. BORROWER: THE ELDER-BEERMAN STORES CORP. By: /s/ Steven D. Lipton -------------------------------- Name: Steven D. Lipton Title: Senior Vice President-Controller GUARANTORS: THE BEE-GEE SHOE CORP. By: /s/ Steven D. Lipton -------------------------------- Name: Steven D. Lipton Title: Senior V.P.-Controller THE EL-BEE CHARGIT CORP. By: /s/ Steven D. Lipton -------------------------------- Name: Steven D. Lipton Title: Senior V.P.-Controller ELDER-BEERMAN WEST VIRGINIA, INC. By: /s/ Steven D. Lipton -------------------------------- Name: Steven D. Lipton Title: Vice President-Controller AGENT: CITICORP USA, INC. By: /s/ Claudia Slacik -------------------------------- Name: Claudia Slacik Title: Vice President 7 7 ISSUER: CITIBANK, N.A. By: /s/ Claudia Slacik -------------------------------- Name: Claudia Slacik Title: Vice President LENDERS: By: /s/ Claudia Slacik -------------------------------- Name: Claudia Slacik Title: Vice President BANK OF AMERICA, N.A. By: /s/ Jonasis Smith -------------------------------- Name: Jonasis Smith Title: Vice President BANK ONE, NA By: /s/ Michael R. Zaksheske -------------------------------- Name: Michael R. Zaksheske Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ John R. Morrison -------------------------------- Name: John R. Morrison Title: Vice President By: /s/ Anthony C. Caraballo -------------------------------- Name: Anthony C. Caraballo Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: N/A -------------------------------- Name: Title: 8 8 FLEET NATIONAL BANK By: /s/ Kevin J. Chamberlain -------------------------------- Name: Kevin J. Chamberlain Title: V.P. NATIONAL CITY COMMERCIAL FINANCE, INC. By: /s/ Greg A. Godec -------------------------------- Name: Greg A. Godec Title: Vice President 9 EX-10.EE 5 EXHIBIT 10.EE 1 Exhibit 10(ee) EXECUTION COPY -------------- AMENDMENT NO. 1 TO THE ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT AMENDMENT NO. 1 TO THE ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT, dated as of November 25, 1998 among THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Transferor (the "TRANSFEROR"), THE EL-BEE CHARGIT CORP., an Ohio corporation, as Servicer (the "SERVICER"), BANKERS TRUST COMPANY, a New York banking corporation, as Trustee (the "TRUSTEE"), the holder of the Exchangeable Transferor Certificate (as defined in the Pooling and Servicing Agreement referred to below) party hereto and each of the holders of the Investor Certificates (as defined in the Pooling and Servicing Agreement referred to below) party hereto. PRELIMINARY STATEMENTS: (1) The Transferor, the Servicer and the Trustee have entered into the ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT, dated as of December 30, 1997 (as amended, supplemented or otherwise modified through the date hereof, the "SUPPLEMENT") to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, the Servicer and the Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; all capitalized terms not otherwise defined herein are used herein as defined in the Pooling and Servicing Agreement). (2) The Transferor has requested that the Class A Invested Amount under the Supplement be increased. (3) The parties hereto have agreed to so increase the Class A Invested Amount on the terms and conditions as set forth herein. SECTION 1. AMENDMENTS TO THE SUPPLEMENT. The Supplement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) The definition of "CLASS A EXPECTED FINAL PAYMENT DATE" in Section 2.01(e) thereof is hereby deleted in its entirety and replaced by the following definition: "CLASS A EXPECTED FINAL PAYMENT DATE" means the September 20, 2001 Distribution Date. 2 2 (b) The definition of "CLASS A INITIAL SERIES INVESTED AMOUNT" in Section 2.01(e) thereof is hereby deleted in its entirety and replaced by the following definition: "CLASS A INITIAL SERIES INVESTED AMOUNT" means the aggregate initial principal amount of the Class A Certificates, which is $167,000,000. (c) The definition of "SUBORDINATED TRANSFEROR INITIAL INVESTED AMOUNT" in Section 2.01(e) thereof is hereby deleted in its entirety and replaced by the following definition: "SUBORDINATED TRANSFEROR INITIAL INVESTED AMOUNT" means, as of any date of determination thereof, the aggregate principal amount of the Subordinated Transferor Invested Amount, which will be equal to the higher of (a) $11,000,000 and (b) an amount equal to 14% of the Series Invested Amount as of such date of determination minus the Collateral Investor Initial Series Invested Amount. SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective as of the date first above written when, and only when, (A) the Program Agent shall have received counterparts of this Amendment executed by all the parties hereto; and (B) each of the conditions of effectiveness set forth in Section 2 of that certain Amendment No. 1 to the Series 1997-1 Certificate Purchase Agreement dated as of the date hereof shall have either been fulfilled or waived in accordance with the terms thereof. This Amendment is subject to the provisions of Section 7.05 of the Supplement. SECTION 3. REFERENCE TO AND EFFECT ON THE TRANSACTION DOCUMENTS. (a) On and after the effectiveness of this Amendment, each reference in the Supplement to "this Supplement", "hereunder", "hereof" or words of like import referring to the Supplement, and each reference in the Transaction Documents to "the Supplement", "thereunder", "thereof" or words of like import referring to the Supplement with respect to the Series 1997-1, shall mean and be a reference to such Supplement, as amended by this Amendment. (b) The Supplement, as specifically amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party hereto under the Transaction Documents, nor constitute a waiver of any provision of any of the Transaction Documents. SECTION 4. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall 3 3 constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 5. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE EL-BEE RECEIVABLES CORPORATION, as Transferor By /s/ Perry J. Schiller -------------------------------------- Name: Perry J. Schiller Title: THE EL-BEE CHARGIT CORP., as Servicer By /s/ Perry J. Schiller -------------------------------------- Name: Perry J. Schiller Title: BANKERS TRUST COMPANY, as Trustee By /s/ Louis Bodi -------------------------------------- Name: Louis Bodi Title: Vice President EX-10.FF 6 EXHIBIT 10.FF 1 Exhibit 10(ff) EXECUTION COPY -------------- AMENDMENT No.2 TO THE ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT AMENDMENT No.2 TO THE ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT, dated as of November 24, 1999 among THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Transferor (the "TRANSFEROR"), THE EL-BEE CHARGIT CORP., an Ohio corporation, as Servicer (the "SERVICER"), BANKERS TRUST COMPANY, a New York banking corporation, as Trustee (the "TRUSTEE"), the holder of the Exchangeable Transferor Certificate (as defined in the Pooling and Servicing Agreement referred to below) party hereto and each of the holders of the Investor Certificates (as defined in the Pooling and Servicing Agreement referred to below) party hereto. PRELIMINARY STATEMENTS: (1) The Transferor, the Servicer and the Trustee have entered into the ELDER-BEERMAN MASTER TRUST SERIES 1997-1 SUPPLEMENT, dated as of December 30, 1997, as amended by the Amendment No. 1 to the Elder-Beerman Master Trust Series 1997-1 Supplement, dated as of November 25, 1998 (as so amended and as further amended, supplemented or otherwise modified through the date hereof, the "SUPPLEMENT") to the Pooling and Servicing Agreement, dated as of December 30, 1997, among the Transferor, the Servicer and the Trustee (as amended, supplemented or otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"; all capitalized terms not otherwise defined herein are used herein as defined in the Pooling And Servicing Agreement). (2) The Program Agent with respect to the Supplement has requested that the Assignee Rate set forth in the Supplement be amended. (3) The parties hereto have agreed to so amend the Assignee Rate on the terms and conditions as set forth herein. SECTION 1. AMENDMENTS TO THE SUPPLEMENT. The Supplement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended by deleting the definition of "ASSIGNEE RATE" in Section 2.01(e) thereof and by replacing such definition by the following definition: "ASSIGNEE RATE" means, for any Interest Period, an interest rate per annum equal to the Adjusted Eurodollar Rate PLUS 2.00%; PROVIDED, HOWEVER, that, if (x) it shall become unlawful for Citibank, N.A. to obtain funds in the London interbank market in 2 2 order to purchase, fund or maintain its initial investment in the Class A Certificates or any Increase hereunder, or deposits in dollars (in the applicable amounts) are not being offered by Citibank, N.A. in the London interbank market, or (y) Citibank, N.A. is unable to establish the Adjusted Eurodollar Rate for any applicable period due to circumstances affecting the London interbank market generally, or (z) a Series 1997-1 Majority in Interest of the Class A Certificateholders or the Collateral Investor Certificateholders notifies the Transferor and the Program Agent of their determination that the Adjusted Eurodollar Rate will not adequately reflect the cost of funding or maintaining the Class A Invested Amount or Collateral Invested Amount, respectively (until a Series 1997-1 Majority in Interest of such Class A Certificateholders or Collateral Investor Certificateholders, as applicable, shall have notified the Transferor and the Program Agent that such Series 1997-l Majority in Interest has determined that the Adjusted Eurodollar Rate will adequately reflect such cost), then, in each case, the Assignee Rate shall be the Alternate Base Rate in effect from time to time PLUS 1/2 of 1%; PROVIDED FURTHER that following the occurrence and during the continuation of an Early Amortization Period, the "Assignee Rate" shall be the applicable interest rate per annum determined pursuant to the provisions set forth above PLUS 1/2 of 1% per annum. SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective as of the date first above written when, and only when the Program Agent shall have received counterparts of this Amendment executed by all the parties hereto. This Amendment is subject to the provisions of Section 7.05 of the Supplement. SECTION 3. REFERENCE TO AND EFFECT ON THE TRANSACTION DOCUMENTS. (a) On and after the effectiveness of this Amendment, each reference in the Supplement to "this Supplement", "hereunder", "hereof" or words of like import referring to the Supplement, and each reference in the Transaction Documents to "the Supplement", "thereunder", "thereof" or words of like import referring to the Supplement with respect to the Series 1997-1, shall mean and be a reference to such Supplement, as amended by this Amendment. (b) The Supplement, as specifically amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party hereto under the Transaction Documents, nor constitute a waiver of any provision of any of the Transaction Documents. SECTION 4. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature 3 3 page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 5. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. [Remainder of page intentionally left blank.] 4 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE EL-BEE RECEIVABLES CORPORATION, as Transferor By: /s/ Scott J. Davido ------------------------------------ Name: Title: Scott J. Davido President THE EL-BEE CHARGIT CORP., as Servicer By: /s/ Scott J. Davido ------------------------------------ Name: Scott J. Davido Title: Senior Vice President, Secretary and Treasurer BANKERS TRUST COMPANY, as Trustee By: /s/ Louis Bodi ------------------------------------ Name: Louis Bodi Title: Vice President 5 5 EXCHANGEABLE TRANSFEROR CERTIFICATE HOLDER THE EL-BEE RECEIVABLES CORPORATION By: /s/ Scott J. Davido ------------------------------------ Name: Scott J. Davido Title: President 6 6 CLASS A CERTIFICATE HOLDERS CORPORATE RECEIVABLES CORPORATION By: CITICORP NORTH AMERICA, INC., as Attorney-in-Fact By: /s/ Arthur Bovino ----------------------------------- Name: Arthur Bovino Title: Vice President 7 7 COLLATERAL INVESTOR CERTIFICATE HOLDERS BALANCED HIGH YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, as Attorney-in-Fact By /s/ John Sykes ------------------------------- Name: John Sykes Title: V.P. By /s/ Ralph Della Rocca ------------------------------- Name: RALPH DELLA ROCCA Title: ASSISTANT VICE PRESIDENT 8 8 SUBORDINATED TRANSFEROR CERTIFICATE HOLDERS THE EL-BEE RECEIVABLES CORPORATION, as Transferor By: /s/ Scott J. Davido ------------------------------------ Name: Scott J. Davido Title: President EX-10.GG 7 EXHIBIT 10.GG 1 Exhibit 10(gg) AMENDMENT NO. 3 AND CONSENT TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT NO. 3 AND CONSENT, dated as of December 29, 1999 (this "AMENDMENT AND CONSENT"), to the AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 27, 1998, as heretofore amended (the "CREDIT AGREEMENT"), among THE ELDER-BEERMAN STORES CORP. (the "BORROWER"), the financial institutions listed on the signature pages thereto as lenders (the "LENDERS"), CITIBANK, N.A. as issuing bank (the "ISSUER"), and CITICORP USA, INC., as swing bank (in that capacity, the "SWING BANK") and as agent for the Lenders, the Issuer and the Swing Bank (in that capacity, the "AGENT"). W I T N E S S E T H: ------------------- WHEREAS, pursuant to Amendment No. 2 and Consent, dated as of November 23, 1999, to the Credit Agreement (the "SECOND AMENDMENT"), the Borrower has requested and the Lenders agreed to amend the Credit Agreement and waive compliance with Sections 7.4 and 7.5 thereof in connection with a proposed reorganization of the Borrower and its Subsidiaries (the "PROPOSED REORGANIZATION"); and WHEREAS, the Borrower has advised the Agent that the Borrower may (i) utilize a limited partnership in lieu of a limited liability company in connection with the Proposed Reorganization (ii) create a wholly owned Subsidiary that will become a Subsidiary Guarantor and will own 1% of each of the New Subsidiaries (as defined below) after the consummation of the Proposed Reorganization; and WHEREAS, the Borrower has requested that the Second Amendment be modified to permit such use of a limited partnership and creation of such wholly owned Subsidiary; and WHEREAS, the Majority Lenders have agreed to such amendment and waiver on the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: 2 SECTION 1. DEFINITIONS. All capitalized terms used but not otherwise defined in this Amendment and Consent shall have the meanings assigned thereto in the Credit Agreement. SECTION 2. AMENDMENT TO THE CREDIT AGREEMENT. As of the Effective Date, the Credit Agreement shall be amended as follows: (a) By amending Section 4.1 of the Credit Agreement by deleting such Section 4.1 in its entirety and replacing it with the following: "4.1 EXISTENCE; COMPLIANCE WITH LAW. Each Loan Party and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) is duly qualified in each foreign jurisdiction in which it conducts business, except for failures to so qualify which in the aggregate have no Material Adverse Effect; (c) has all requisite corporate, partnership or limited liability company power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted; (d) is in compliance with its charter and by-laws or other comparable governing documents; (e) is in compliance with all other applicable Requirements of Law except for such non-compliances as in the aggregate have no Material Adverse Effect; and (f) has all necessary Licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Government Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for Licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate have no Material Adverse Effect." (b) By amending Section 4.2 thereof be deleting Section 4.2(a)(i) and (ii) in its entirety and replacing it with the following: "(i) are within such Loan Party's corporate, partnership or limited liability company powers, as the case may be; (ii) have been duly authorized by all necessary corporate, partnership or limited liability company action, as the case may be, including, without limitation, the consent of shareholders, partners or members, as the case may be, where required;" 2 3 (c) By amending Section 6.5 thereof by deleting such Section 6.5 in its entirety and replacing it with the following: "6.5 PRESERVATION OF EXISTENCE, ETC. The Borrower shall preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate, partnership or limited liability company existence, rights (charter and statutory) and franchises, as the case may be, except as permitted under Section 7.4; PROVIDED, HOWEVER, that neither the Borrower nor any Subsidiary shall be prohibited from withdrawing its qualification to do business in any jurisdiction from which it no longer is conducting its business." SECTION 3. LENDER CONSENT. (a) The Majority Lenders consent to the Borrower's non-compliance with Sections 7.4 and 7.5 of the Credit Agreement to the extent necessary to enable the Borrower (i) to form a wholly owned Subsidiary ("Newco") that will become a Subsidiary Guarantor and that will own 1% of each of the New Subsidiaries (as defined below) (ii) to form (but not transfer any significant assets to unless the relevant conditions set forth in Section 3(b) below are satisfied) a limited liability company and a limited partnership (each a "NEW SUBSIDIARY") that will be either wholly owned by the Borrower or jointly owned by the Borrower and one or more Subsidiary Guarantors and (iii) subject to the satisfaction of the conditions set forth in Section 3(b) below, to transfer to one of the New Subsidiaries all of the Borrower's operations located in Indiana, including all operational items relative to the Borrower's stores located in Indiana (such as assets, employees and leases and other contractual agreements) and to the other New Subsidiary all of the Borrower's employees other than those employed in the Borrower's Michigan or Indiana locations. (b) The consent in Section 3(a)(ii) above shall be effective as to each New Subsidiary only upon the execution and delivery to the Agent of each of the instruments and other documents set forth below in form and substance satisfactory to the Agent: (i) a guaranty substantially in the form of the Subsidiary Guaranty, duly executed by such New Subsidiary and Newco; (ii) a pledge amendment substantially in the form of Schedule II to the Borrower Pledge Agreement, duly executed by Borrower, pursuant to which all the outstanding capital stock of Newco is pledged to the Agent; (iii) an amendment to the Amended and Restated Security Agreement, duly executed by each Loan Party substantially in the form of the Amendment Agreement attached hereto as Exhibit A, whereby INTER ALIA such New Subsidiary and Newco are added as parties to, become bound by the provisions of and grant Liens in favor of the Agent for the 3 4 benefit of the Secured Parties pursuant to the Amended and Restated Security Agreement; (iv) all UCC-1 financing statements necessary to perfect the Liens granted by such New Subsidiary and Newco in favor of the Agent for the benefit of the Secured Parties, each duly executed by such New Subsidiary and Newco and duly recorded in all the recording offices that the Agent deems necessary to perfect such Liens; (v) a certificate of each of such New Subsidiary and Newco dated the date such New Subsidiary is organized and signed by a duly authorized Responsible Officer of such New Subsidiary or Newco, as the case may be, certifying as to (x) true copies of governing documents of such New Subsidiary or Newco, as the case may be, in effect as of such date, (y) true copies of all corporate, limited liability company or limited partnership action, as the case may be, taken by such New Subsidiary or Newco, as the case may be, authorizing the instruments and other documents that it is required to execute pursuant to this Section 3(b), authorizing the incurrence of the obligations and the granting of the Liens in the Collateral owned by it securing payment and performance of the Obligations and stating that the same have been properly adopted and have not been modified or amended and (z) the names, true signatures and incumbency of the Responsible Officers of such New Subsidiary or Newco, as the case may be, authorized to execute the other instruments and other documents required to be executed by such New Subsidiary or Newco, as the case may be, pursuant to this Section 3(b); (vi) a Certificate of Good standing for such New Subsidiary and Newco duly issued by the Secretary of State of each state in which such New Subsidiary or Newco, as the case may be, does business; and (vii) written opinions of counsel to such New Subsidiary and Newco to the same effect as those delivered pursuant to Section 3.1 of the Credit Agreement. (c) The Majority Lenders hereby consent to the amendment to the Amended and Restated Security Agreement substantially in the form of the Amendment Agreement attached hereto as Exhibit A. (d) The provisions of this Section 3 shall supersede the provisions of Section 3 of the Second Amendment. SECTION 4. GUARANTOR CONSENT. Each Guarantor hereby consents to the terms and conditions of this Amendment and Consent and confirms that its Guaranty remains in full force and effect and continues to secure the Obligations pursuant to the terms thereof as amended hereby. Each Pledgor and Grantor (as such terms are defined in the Loan Documents) hereby consents to the terms of this Amendment and Consent 4 5 and confirms that the security interests and liens granted pursuant to the Loan Documents to which it is a party continue to secure the Obligations pursuant to the terms thereof as amended thereby and that such security interests and liens and Loan Documents remain in full force and effect. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lenders and the Agent that (i) the execution, delivery and performance of this Amendment and Consent has been duly authorized by all requisite corporate, partnership or limited liability company action, as the case may be, on the part of the Borrower and other Loan Parties and will not violate any certificate of incorporation, certificate of formation, by-laws, operating agreement, partnership agreement or any other comparable organizational document of any of the Borrower and other Loan Parties; (ii) this Amendment and Consent is the legal, valid, binding and enforceable obligation of the Borrower, enforceable against it in accordance with its terms; (iii) the representations and warranties contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by the Credit Agreement as amended by this Amendment and Consent; and (iv) no Default or Event of Default under the Credit Agreement has occurred and is continuing. SECTION 6. CONDITIONS TO EFFECTIVENESS. This Amendment and Consent shall become effective (the "EFFECTIVE DATE") when, and only when, the Agent shall have received counterparts hereof which when taken together shall have been signed by the Borrower, the Guarantors and the Majority Lenders (whether on the same or different counterparts). 5 6 SECTION 7. EFFECT ON THE LOAN DOCUMENTS. (a) On and after the date hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Except as specifically amended herein, the Credit Agreement and all other Loan Documents shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment and Consent shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender under any of the Loan Documents, nor shall it constitute a waiver of any provision of any of the Loan Documents, including, without limitation, a waiver of any rights of any Lender arising out of, or relating to, any Default or Event of Default that has occurred and is continuing. SECTION 8. COUNTERPARTS. This Amendment and Consent may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 9. GOVERNING LAW. THIS AMENDMENT AND CONSENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 6 7 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first above written. Borrower: --------- THE ELDER-BEERMAN STORES CORP. By: /s/ Steven D. Lipton ------------------------------- Name: Steven D. Lipton Title: Vice President, Controller Grantors: --------- THE BEE-GEE SHOE CORP. By: /s/ Steven D. Lipton ------------------------------- Name: Steven D. Lipton Title: Sr. Vice President, Controller THE EL-BEE CHARGIT CORP. By: /s/ Steven D. Lipton ------------------------------- Name: Steven D. Lipton Title: Sr. Vice President, Controller ELDER-BEERMAN WEST VIRGINIA, INC. By: /s/ Steven D. Lipton ------------------------------- Name: Steven D. Lipton Title: Vice President, Controller Agent: ----- CITICORP USA, INC. By: /s/ Claudia Slacik ------------------------------- Name: Claudia Slacik Title: Vice President 7 8 Issuer: --------- CITIBANK, NA By: /s/ Claudia Slacik ------------------------------- Name: Claudia Slacik Title: Vice President Lenders: ------- CITICORP USA, INC. By: /s/ Claudia Slacik ------------------------------- Name: Claudia Slacik Title: Vice President BANK OF AMERICA, N.A. By: /s/ Louis Alexander ------------------------------- Name: Louis Alexander Title: Senior Vice President BANK ONE, NA By: /s/ Michael R. Zaksheske ------------------------------- Name: Michael R. Zaksheske Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ John W. Sweeney ------------------------------- Name: John W. Sweeney Title: Vice President By: /s/ John R. Morrison ------------------------------- Name: John R. Morrison Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: N/A ------------------------------- Name: Title: 8 9 FLEET NATIONAL BANK By: /s/ Douglas Scala ------------------------------- Name: Douglas Scala Title: Senior Vice President NATIONAL CITY COMMERCIAL FINANCE, INC. By: /s/ Elizabeth M. Lynch ------------------------------- Name: Elizabeth M. Lynch Title: Senior Vice President 9 10 BANKBOSTON, N.A. By: /s/ Edward M. Barthowski ------------------------------- Name: Edward M. Barthowski Title: Authorized Officer 10 EX-10.HH 8 EXHIBIT 10.HH 1 Exhibit 10(hh) AMENDMENT NO. 1 TO AMENDED AND RESTATED SECURITY AGREEMENT AMENDMENT NO. 1, dated as of December 30, 1999 (this "AMENDMENT"), to the AMENDED AND RESTATED SECURITY AGREEMENT, dated as of July 27, 1998, as heretofore amended (the "SECURITY AGREEMENT"), among THE ELDER-BEERMAN STORES CORP. (the "BORROWER"), the other Grantors listed on the signature pages hereto and CITICORP USA, INC., as agent for the Lenders, the Issuer and the Swing Loan Bank (in that capacity, the "AGENT") under that certain Amended and Restated Credit Agreement, dated as of July 27, 1998, among the Borrower, the financial institutions party thereto, Citibank, N.A., as issuer (the "ISSUER"), and the Agent. W I T N E S S E T H: -------------------- WHEREAS, the Borrower has requested that the Agent on behalf of the Lenders amend the Security Agreement as provided below; and WHEREAS, the Agent has agreed to, and the Majority Lenders have consented to, such amendments on the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used but not otherwise defined in this Amendment shall have the meanings assigned thereto in the Credit Agreement. SECTION 2. AMENDMENTS TO THE SECURITY AGREEMENT. As of the Effective Date, the Security Agreement shall be amended as follows: (a) By amending Section 2 thereof by adding the following language at the end of Section 2(a)(iii): "or that relate to any membership interests or partnership interests owned by the Borrower and/or any other Grantor in any limited liability company or limited partnership, respectively,". (b) By amending Section 5 thereof by adding the following new Section 5(p): "(p) Each Grantor hereby covenants that each limited liability company in which it holds any membership 2 interest will have an operating agreement that provides that, upon the occurrence and during the continuance of an Event of Default, the Agent on behalf of the Lenders shall be entitled to exercise all of the rights of such Grantor and that a transferee or assignee of such membership interest in any such limited liability company shall become a member of such limited liability company entitled to participate in the management of such limited liability company to the same extent as the transferor thereof and, upon the transfer of the entire interest of the transferor, such transferor ceases to be a member. Each Grantor covenants and agrees that it will not permit the amendment of any operating agreement governing a limited liability company in which it holds any membership interest in any way to adversely affect the perfection of the security interest in the membership interest held by such Grantor as provided for herein, including electing to treat the membership interest held by such Grantor as a security under Section 8-103 of the UCC or to otherwise adversely affect the Secured Parties." (c) By amending Section 5 thereof by adding the following new Section 5(q): "(q) Each Grantor hereby covenants that each limited partnership in which it holds any partnership interest will have a partnership agreement that provides that, upon the occurrence and during the continuance of an Event of Default, the Agent on behalf of the Lenders shall be entitled to exercise all of the rights of such Grantor and that a transferee or assignee of such partnership interest in any such limited partnership shall become a partner of such limited partnership entitled to participate in the management of such limited partnership to the same extent as the transferor thereof and, upon the transfer of the entire interest of the transferor, such transferor ceases to be a partner. Each Grantor covenants and agrees that it will not permit the amendment of any partnership agreement governing a limited partnership in which it holds any partnership interest in any way to adversely affect the perfection of the security interest in the partnership interest held by such Grantor as provided for herein, including electing to treat the partnership interest held by such Grantor as a security under Section 8-103 of the UCC or to otherwise adversely affect the Secured Parties." SECTION 3: ADDITION OF NEW GRANTORS. Elder-Beerman Holdings, Inc., an Ohio corporation ("Holdings"), Elder-Beerman Operations, LLC, an Ohio limited 2 3 liability company ("Operations"), and Elder-Beerman Indiana, L.P., an Indiana limited partnership ("EBI"), are hereby added as parties to the Security Agreement as Grantors. By its execution hereof Holdings, Operations and EBI each expressly assumes all obligations as a Grantor in the Security Agreement and grants the Liens on its property provided for therein. SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants to the Lenders and the Agent that (i) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate, partnership or limited liability company action on the part of such Grantor and will not violate the certificate of incorporation, certificate of formation, by-laws or operating agreement or other comparable organizational documents of such Grantor; (ii) this Amendment is the legal, valid, binding and enforceable obligation of such Grantor, enforceable against it in accordance with its terms; (iii) the representations and warranties contained in the Security Agreement are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by the Security Agreement as amended by this Amendment; and (iv) no Default or Event of Default under the Credit Agreement has occurred and is continuing. SECTION 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective (the "EFFECTIVE DATE") when, and only when, the Agent shall have received counterparts hereof which when taken together shall have been signed by each Grantor (whether on the same or different counterparts). SECTION 6. EFFECT ON THE LOAN DOCUMENTS. (a) On and after the date hereof, each reference in the Security Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other Loan Documents to the Security Agreement, shall mean and be a reference to the Security Agreement, as amended hereby. (b) Except as specifically amended herein, the Security Agreement and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender under any of the Loan Documents, nor shall it constitute a waiver of any provision of any of the Loan Documents, including, without limitation, a waiver of any rights of any Lender arising out of, or relating to, any Default or Event of Default that has occurred and is continuing. SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and 3 4 delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 4 5 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first above written. BORROWER: THE ELDER-BEERMAN STORES CORP. By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Senior Vice President, Controller GRANTORS: THE BEE-GEE SHOE CORP. By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Senior Vice President, Controller THE EL-BEE CHARGIT CORP. By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Senior Vice President, Controller ELDER-BEERMAN WEST VIRGINIA, INC. By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Vice President, Controller THE ELDER-BEERMAN HOLDINGS, INC. By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Vice President, Controller 5 6 ELDER-BEERMAN OPERATIONS, LLC By: The Elder-Beerman Stores Corp., as its Managing Member By: /s/ Steven D. Lipton ----------------------------------- Name: Steven D. Lipton Title: Vice President, Controller ELDER-BEERMAN INDIANA, L.P. By: The Elder-Beerman Stores Corp., as its General Partner By: /s/ Steven D. Lipton ----------------------------------- Name: Steven D. Lipton Title: Vice President, Controller AGENT: CITICORP USA, INC. By: /s/ Claudia Slacik ----------------------------------- Name: Claudia Slacik Title: Vice President EX-10.II 9 EXHIBIT 10.II 1 EXECUTION COPY 10(ii) AMENDMENT NO. 1 TO THE SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT AMENDMENT NO. 1 TO THE SERIES 1997-1 CERTIFICATE PURCHASE AGREEMENT, dated as of November 25, 1998 among THE EL-BEE RECEIVABLES CORPORATION, a Delaware corporation, as Seller (the "SELLER"), CORPORATE RECEIVABLES CORPORATION, a California corporation, as Purchaser (the "PURCHASER"), the financial institutions listed on the signature pages hereof, as Liquidity Providers (the "LIQUIDITY PROVIDERS"), CITICORP NORTH AMERICA, INC., a Delaware corporation, as Program Agent (the "PROGRAM AGENT"), and BANKERS TRUST COMPANY, a New York banking corporation, as Trustee (the "TRUSTEE"). PRELIMINARY STATEMENTS: (1) The Seller, the Purchaser, the Liquidity Providers, the Program Agent and the Trustee have entered into the Series 1997-1 Certificate Purchase Agreement dated December 30, 1997 (as such Certificate Purchase Agreement has been amended, supplemented or otherwise modified through the date thereof, the "CERTIFICATE PURCHASE AGREEMENT"; all capitalized terms not otherwise defined herein are used herein as defined in the Certificate Purchase Agreement). (2) Simultaneously herewith, the Seller and the Trustee (A) have entered into an Amendment No. 1 to the Elder-Beerman Master Trust Series 1997-1 Supplement dated as of the date hereof, substantially in the form of Exhibit A attached hereto (hereinafter referred to as the "AMENDMENT TO THE SUPPLEMENT"), and (B) have entered into a Waiver to the Pooling and Servicing Agreement dated as of the date hereof, substantially in the form of Exhibit B attached hereto (hereinafter referred to as the "WAIVER TO POOLING AND SERVICING AGREEMENT"). (3) The Seller has requested that the Series 1997-1 Class A Purchase Limit under the Certificate Purchase Agreement be increased. (4) The parties hereto have agreed to so increase the Series 1997-1 Class A Purchase Limit on the terms and conditions as set forth herein. SECTION 1. AMENDMENTS TO THE CERTIFICATE PURCHASE AGREEMENT. The Certificate Purchase Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof hereby amended as follows: 2 2 (a) The definition of "ELIGIBLE ASSIGNEE" in Section 1.01 thereof is hereby deleted in its entirety and replaced by the following definition: "ELIGIBLE ASSIGNEE" means (a) depository institution organized under the laws of the United States of America or any state thereof, or the District of Columbia (or any domestic branch of a foreign bank authorized under such laws), that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business, (i) whose senior long-term unsecured debt obligations are rated at least (A) A- or better by Standard & Poor's, and (B) A3 or better by Moody's, (ii) which is subject to regulation regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b) and (iii) which has a combined capital and surplus of at least $500,000,000, or (b) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity), that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business; PROVIDED that any such depository institution, finance company, insurance company, financial institution or fund that is investing the assets of (i) an "employee benefit plan" within the meaning of Section 3(3) or ERISA, (ii) a "plan" within the meaning of Section 4975 of the Code or (iii) any entity that is deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such employee benefit plan or plan in acquiring any Investor Certificate or any interest therein shall not, in any such case, be an "Eligible Assignee". (b) The definition of "INITIAL TERM" in Section 1.01 thereof is hereby deleted in its entirety and replaced by the following definition: "INITIAL TERM" means, with respect to each Liquidity Provider Commitment, the period which commences on the date such Liquidity Provider enters into this Agreement and ends on the Initial Term Termination Date." (c) Section 1.01 thereof is hereby amended by inserting therein, in the appropriate alphabetical order, the following definition: "INITIAL TERM TERMINATION DATE" means the later to occur of (x) November 25, 1998, and (y) the date on which the conditions of effectiveness set forth in Section 2 of that certain Amendment No. 1 to the Series 1997-1 Certificate Purchase Agreement, dated as of November 25, 1998, among the Seller, the Purchaser, the Liquidity Provider, the Program Agent and the Trustee shall have been either fulfilled or waived, PROVIDED, HOWEVER, that the Initial Term will not extend beyond December 28, 1998. 3 3 (d) The definition of "SERIES 1997-1 CLASS A PURCHASE LIMIT" in Section 1.01 thereof is hereby deleted in its entirety and replaced by the following definition: "SERIES 1997-1 CLASS A PURCHASE LIMIT" means, as of any date, $167,000,000 (or, if less, the aggregate amount of Commitments of all Liquidity Providers who as of such date are party to this Agreement), as such amount shall have been reduced pursuant to Section 2.04 hereof. (e) The first sentence of Section 2.07 thereof is hereby deleted in its entirety and replaced by the following sentence: "The Initial Term of each Liquidity Provider Commitment hereunder shall be for a period commencing on the date such Liquidity Provider enters into this Agreement and, subject to any earlier termination under Section 8.08, ending on the Initial Term Termination Date." SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective as of the date first above written when, and only when, (A) the Program Agent shall have received counterparts of this Amendment executed by all the parties hereto; (B) each of the conditions of effectiveness set forth in Section 2 of the Amendment to the Supplement shall have either been fulfilled or waived in accordance with the terms thereof; (C) each of the conditions of effectiveness set forth in Section 3 of the Waiver to Pooling and Servicing Agreement shall have either been fulfilled or waived in accordance with the terms thereof; (D) each of the conditions precedent set forth in Sections 4.02 and 4.03 of the Certificate Purchase Agreement with respect to an Increase (if an Increase shall occur on such date) shall have either been fulfilled or waived in accordance with the terms thereof; and (E) the Program Agent and the Trustee shall have received all of the following documents, each dated as of the date hereof (unless otherwise specified by the Program Agent), in form and substance satisfactory to the Program Agent (unless otherwise specified) and in sufficient copies as indicated by the Program Agent. (a) Counterparts of the Consent appended hereto (hereinafter referred to as the "CONSENT", and together with this Amendment, the Amendment to the Supplement and the Waiver to Pooling and Servicing Agreement, hereinafter collectively referred to as the "AMENDMENT DOCUMENTS" and, individually, as an "AMENDMENT DOCUMENT") executed by the Parent. (b) A consent by CITICORP USA, INC., as Bank Agent for the lenders party to the Credit Agreement, in form and substance satisfactory to the Program Agent, with respect to the transactions contemplated by the Amendment Documents. 4 4 (c) Certified copies of the resolutions of the Board of Directors of the Parent, the Servicer and the Seller approving each Amendment Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to each Amendment Document. (d) A copy of a certificate of the Secretary of State of the jurisdiction of its incorporation, dated reasonably near the date hereof, certifying that each of the Parent, the Servicer and the Seller is in good standing under the laws of the jurisdiction of its incorporation. (e) A certificate of the Parent, the Servicer and the Seller, signed on behalf of the Parent, the Servicer and Seller, respectively, by its President or a Vice President, dated as of the date hereof (the statements made in which certificate shall be true on and as of the date hereof), certifying as to (A) the absence of any amendments to its charter since the last date of delivery thereof pursuant to the Transaction Documents, (B) a true and correct copy of its bylaws (and all amendments thereto) as in effect on the date hereof, (C) its due incorporation and good standing as a corporation organized under the laws of the jurisdiction of its incorporation and the absence of any proceeding for its dissolution or liquidation, (D) the truth of its representations and warranties contained in the Transaction Documents as though made on and as of the date hereof and (E) the absence of any event occurring and continuing, or resulting from the transactions contemplated by the Amendment Documents,that constitutes, or with notice or the lapse of time would constitute, an Early Amortization Event or a Termination Event (as defined in the Purchase Agreements). (f) A certificate of the Secretary or an Assistant Secretary (or, in the case of the Trustee, an Assistant Treasurer) of the Parent, the Servicer, the Seller and the Trustee certifying the names and true signatures of the officers of the Parent, the Servicer, the Seller and the Trustee, respectively, authorized to sign the Amendment Documents to which such Person is a party and any other documents contemplated hereunder or thereunder, and appropriately evidencing the incumbency of such officers and such Secretary or Assistant Secretary. (g) A certificate of the Trustee,signed on its behalf by a Vice President, an Assistant Vice President, an Assistant Treasurer or an Assistant Secretary, dated the date hereof (the statements made in which certificate shall be true on and as of the date hereof), certifying as to (A) a true and correct copy of its bylaws (and all amendments thereto) as in effect on the date hereof and (B) the due authentication of any Class A Certificates issued pursuant to the transactions contemplated by the Amendment Documents. 5 5 (h) A favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Parent, the Servicer and the Seller, in form and substance satisfactory to the Program Agent which shall include, without limitation, (A) an opinion as to enforceability of the Amendment Documents and (B) a general corporate opinion. (i) (A) An executed Notice of Increase, substantially in the form of Exhibit C to the Certificate Purchase Agreement, if any, and (B) the Class A Certificates, if any, each delivered in accordance with the provisions of Section 2.05(b) of the Certificate Purchase Agreement. (j) Evidence of payment of all related fees and expenses then due and payable in connection with the Amendment Documents. This Amendment is subject to the provisions of Section 8.01 of the Certificate Purchase Agreement. SECTION 3. LIQUIDITY PROVIDER COMMITMENTS, WAIVER. (A) Subject to fulfillment of all of the conditions of effectiveness set forth in Section 2 hereof, each Liquidity Provider party hereto hereby agrees that, (i) as of the date hereof, such Liquidity Provider's Commitment under the Certificate Purchase Agreement will be the amount set forth opposite such Liquidity Provider's name on the signature pages hereto under the caption "Liquidity Provider Commitment", and (ii) for purposes of the definition of "COMMITMENT" in Section 1.01 of the Certificate Purchase Agreement, such Liquidity Provider's signature page hereto will constitute a signature page to the Certificate Purchase Agreement. (B) Subject to fulfillment of all of the conditions of effectiveness set forth in Section 2 hereof, the parties hereto hereby (i) waive the notice requirements set forth in the second sentence of Section 2.07 of the Certificate Purchase Agreement, and (ii) agree that, notwithstanding anything provided for under Section 2.07 of the Certificate Purchase Agreement, the first Extension Term shall have commenced as of such date of the fulfillment of all of the conditions of effectiveness set forth in Section 2 hereof. SECTION 4. REFERENCE TO AND EFFECT ON THE TRANSACTION DOCUMENTS. (a) On and after the effectiveness of this Amendment, each reference in the Certificate Purchase Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Certificate Purchase Agreement, and each reference in the Transaction Documents to "the Certificate Purchase Agreement", "thereunder", "thereof" or words of like import referring to the Certificate Purchase Agreement with respect to the Series 1997-1, shall mean and be a reference to such Certificate Purchase Agreement, as amended by this Amendment. 6 6 (b) The Certificate Purchase Agreement, as specifically amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed (except to the extent of the waiver set forth in Section 3(B) hereof). (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party hereto under the Transaction Documents, nor constitute a waiver of any provision of the Transaction Documents. SECTION 5. COSTS AND EXPENSES. The Seller agrees to pay on demand all costs and expenses of the Program Agent and the Trustee in connection with the preparation, execution, delivery and administration, modification and amendment of the Amendment Documents and the other instruments and documents to be delivered hereunder and thereunder without limitation, the reasonable fees and expenses of counsel for the Program Agent and the Trustee. SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date firt above written. THE EL-BEE RECEIVABLES CORPORATION, as Seller By:/s/Perry Schiller ---------------------- Name: Perry Schiller Title: CORPORATE RECEIVABLES CORPORATION, as Purchaser By: CITICORP NORTH AMERICA, INC., as Attorney-in-Fact By /s/Radford C. West ----------------------- Name: Radford C. West Title: Vice President CITICORP NORTH AMERICA, INC., as Program Agent By /s/Radford C. West ---------------------------- Name: Radford C. West Title: Vice President BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee By /s/Louis Bodi ---------------------------- Name: Louis Bodi Title: Vice President 8 LIQUIDITY PROVIDERS: Liquidity Provider Commitment: Thirty Million Dollars, $30,000,000 ABN AMRO, N.V., as Liquidity Provider By:/s/Carrie A. Penee ------------------------------- Name: Carrie A. Penee Title: Vice President By:/s/Patrick M. Pastore ------------------------------- Name: Patrick M. Pastore Title: Vice President 9 Liquidity Provider Commitment: Seventy-Five Million Dollars, $75,000,000 CITIBANK, N.A., as Liquidity Provider By/s/Radford C. West ----------------------------------- Name: Radford C. West Title: Attorney-in-Fact 10 Liquidity Provider Commitment: $50,000,000 PEOPLES BENEFIT LIFE INSURANCE COMPANY, as Liquidity Provider By:/s/Robert A. Smedley ------------------------------- Name: Robert A. Smedley Title: Senior Vice President - Investment 11 Liquidity Provider Commitment: Twelve Million Dollars, $12,000,000 CREDIT COMMUNAL DE BELGIQUE, as Liquidity Provider By:/s/Jan E. van Panhuys --------------------------- Name: Jan E. van Panhuys Title: General Manager /s/Caroline Junius --------------------------- Name: Caroline Junius Title: Vice President 12 CONSENT Dated as of November 25, 1998 The undersigned, THE ELDER-BEERMAN STORES CORP., and Ohio Corporation, as Parent under the Parent Undertaking Agreement dated as of December 30, 1998 (the "PARENT UNDERTAKING") in favor of the Trustee on behalf of the holders of the Investor Certificates, hereby consents to the foregoing Amendment, the Amendment to the Supplement and the Waiver to Pooling and Servicing Agreement (collectively, the "AMENDMENTS") and hereby confirms and agrees that notwithstanding the effectiveness of such Amendments, the Parent Undertaking is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Amendments, each reference in the Parent Undertaking to a Transaction Document shall mean and be a reference to such Transaction Documents, as amended by such Amendments, as the case may be. THE ELDER-BEERMAN STORES CORP. By: /s/ Perry Schiller --------------------------- Name: Perry Schiller Title: EX-10.JJ 10 EXHIBIT 10.JJ 1 Exhibit 10(jj) GUARANTY GUARANTY, dated December 30, 1999 made by ELDER-BEERMAN HOLDINGS, INC., an Ohio corporation ("Holdings"), ELDER-BEERMAN OPERATIONS, LLC, an Ohio limited liability company ("Operations"), and ELDER-BEERMAN INDIANA, L.P., an Indiana limited liability partnership ("EBI") (each a "Guarantor" and collectively the "Guarantors"), in favor of the Guarantied Parties referred to below. WITNESSETH: WHEREAS, THE ELDER-BEERMAN STORES CORP., an Ohio corporation (the "Borrower"), has entered into an Amended and Restated Credit Agreement, dated as of July 27, 1998, with the financial institutions party thereto (the "Lenders"), Citibank, N.A., as issuer (the "Issuer"), and CITICORP USA, INC. ("CUSA"), as Agent for the Lenders, the Issuer and the Swing Loan Bank (in such capacity, the "Agent") (said Agreement, as it may be amended or otherwise modified from time to time, being the "Credit Agreement", and capitalized terms not defined herein but defined therein being used herein as therein defined); and WHEREAS, the Borrower owns beneficially and of record 100% of the capital stock of Holdings, the Borrower and Holdings together own beneficially and of record 100% of the membership interests of Operations, and the Borrower and Holdings together own beneficially and of record 100% of the partnership interests of EBI, and the Borrower and the Guarantors are members of the same consolidated group of companies and are engaged in related businesses, and the Guarantor will derive direct and indirect economic benefit from the Loans and Letters of Credit;and WHEREAS, it is a condition precedent to the effectiveness of the Lenders' consent granted under Section 3 of Amendment No. 3 and Consent, dated as of December ___, 1999 ("Amendment No. 3"), to the Credit Agreement that the Guarantors shall have executed and delivered this Guaranty;and WHEREAS, the Lenders, the Issuer, the Agent and Citibank, as obligee of the Borrower on Interest Rate Contracts, are herein referred to collectively as the "Guaranteed Parties", NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make Loans and the Issuer to issue Letters of Credit, the Guarantors hereby agree as follows: SECTION 1. GUARANTY. Each Guarantor hereby, jointly and severally, unconditionally and irrevocably guarantees the full and prompt payment when due, whether at stated maturity, by acceleration or otherwise, of, and the performance of, the Obligations, whether now or hereafter existing and whether for principal, interest, fees, expenses or otherwise, and any and all expenses (including, without limitation, counsel 2 fees and expenses) incurred by any of the Guarantied Parties in enforcing any rights under this Guaranty. This Guaranty is an absolute guaranty of payment and performance and not a guaranty of collection. SECTION 2. GUARANTY ABSOLUTE. Each Guarantor, jointly and severally, guaranties that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, the Notes and the other Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Guarantied Parties with respect thereto. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any provision of any other Loan Document or any other agreement or instrument relating to any Loan Document, or avoidance or subordination of any of the Obligations; (ii) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, the Credit Agreement, the Notes or any of the other Loan Documents; (iii) an exchange, release or non-perfection of any Lien on any collateral for, or any release or amendment or waiver of any term of any other guaranty of, or any consent to departure from any requirement of any other guaranty of, all or any of the Obligations; (iv) the absence of any attempt to collect any of the Obligations from the Borrower or for any other guarantor or any other action to enforce the same or the election of any remedy by any of the Guarantied Parties; (v) any waiver, consent, extension, forbearance or granting of any indulgency by any of the Guarantied Parties with respect to any provision of any other Loan Document; (vi) the election by any of the Guarantied Parties in any proceeding under chapter 11 of the Bankruptcy Code of the application of section 1111(b)(2) of the Bankruptcy Code; (vii) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under section 364 of the Bankruptcy Code; (viii) the disallowance, under section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Guarantied Parties for payment of any of the Obligations;or (ix) any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a borrower or a guarantor. 2 3 SECTION 3. WAIVER. (a) Each Guarantor hereby (i) waives (A) promptness, diligence, notice of acceptance and any and all other notices with respect to any of the Obligations or this Guaranty, (B) any requirement that any of the Guarantied Parties protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any Collateral, (C) the filing of any claim with a court in the event of receivership or bankruptcy of the Borrower, (D) protest or notice with respect to nonpayment of all or any of the Obligations, (E) the benefit of any statute of limitation, (F) all demands whatsoever (and any requirement that the same be made on the Borrower as a condition precedent to each Guarantor's obligations hereunder); and (ii) covenants and agrees that this Guaranty will not be discharged except by complete performance of the Obligations and any other obligations of the Guarantors contained herein. (b) If, in the exercise of any of its rights and remedies, any of the Guarantied Parties shall forfeit any of its rights or remedies, including, without limitation, its right to enter a deficiency judgment against the Borrower or any other Person, whether because of any applicable law pertaining to "election of remedies" or the like, the Guarantor hereby consents to such action by such Guarantied Party and waives any claim based upon such action. Any election of remedies which results in the denial or impairment of the right of such Guarantied Party to seek a deficiency judgment against the Borrower shall not impair the obligation of the Guarantors to pay the full amount of the Obligations or any other obligation of the Guarantors contained herein. (c) Each Guarantor agrees that notwithstanding the foregoing and without limiting the generality of the foregoing if, after the occurrence and during the continuance of an Event of Default, the Guarantied Parties are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Obligations, to collect interest on the Obligations,or to enforce or exercise any other right or remedy with respect to the Obligations, or the Agent is prevented from taking any action to realize on the Collateral, each Guarantor agrees to pay to the Agent for the account of the Guarantied Parties, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Guarantied Parties. (d) Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower and of each other guarantor of all or any part of the Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Obligations or any part thereof, that diligent inquiry would reveal. The Guarantor hereby agrees that the Guarantied Parties shall have no duty to advise the Guarantor of information known to any of the Guarantied Parties regarding such condition or any such circumstance. In the event that any Guarantied Party in its sole discretion undertakes at any time or from time to time to provide any such information to the Guarantors, such Guarantied Party shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable banking or commercial finance practices, such Guarantied Party wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to the Guarantors. 3 4 (e) Each Guarantor consents and agrees that the Guarantied Parties shall be under no obligation to marshall any assets in favor of the Guarantors or otherwise in connection with obtaining payment of any or all of the Obligations from any Person or source. SECTION 4. DELAY OF SUBROGATION, ETC. Each Guarantor agrees that it will not exercise any rights which it may acquire by way of subrogation, contribution or reimbursement by reason of this Guaranty or by any payment made hereunder until the Obligations have been paid in full. SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and warrants to the Guarantied Parties as follows: (a) Such Guarantor (i) is a corporation duly organized, validly existing and in good standing under its jurisdiction of organization, (ii) is duly qualified as a foreign corporation, partnership or limited liability company, as the case may be, and in good standing under the laws of each jurisdiction, except for failures which in the aggregate would have no Material Adverse Effect, (iii) has all requisite corporate, partnership or limited liability company power and authority, as the case may be, and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted, (iv) is in compliance with its certificate of incorporation, by-laws, partnership agreement, operating agreement or other comparable governing documents (v) is in compliance with all other applicable Requirements of Law except for such noncompliances as in the aggregate would have no Material Adverse Effect, and (vi) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents or approvals which can be obtained by the taking of ministerial action to secure the grant or transfer thereof or failures which in the aggregate would have no Material Adverse Effect. (b) The execution, delivery and performance by such Guarantor of this Guaranty and the other Loan Documents to which it is party: (i) are within its corporate, partnership or limited liability company powers, as the case may be; (ii) have been duly authorized by all necessary corporate, partnership or limited liability company action, as the case may be, including, without limitation, the consent of stockholders, partners or members, as the case may be, where required; and (iii) do not and will not (A) contravene its certificate of incorporation or by-laws, partnership agreement, operating agreement or other comparable governing documents, (B) violate any other applicable Requirement of Law (including, without limitation, Regulations T, U and X of the Board of Governors 4 5 of the Federal Reserve System), or any order or decree of any Governmental Authority or arbitrator, (C) conflict with or result in the breach of, or constitute a default under, or result in or perrmit the termination or acceleration of, any of its Contractual Obligations, (D) result in the creation or imposition of any Lien upon any of its property other than those in favor of the Agent on behalf of and for the ratable benefit of the Secured Parties, or (E) require the consent, authorization by, or approval of, or notice to, or filing or registration with, any Governmental Authority or any other Person, other than those which have been obtained and copies of which have been delivered to the Agent pursuant to Amendment No. 3, each of which is in full force and effect. (c) This Guaranty has been duly executed and delivered by such Guarantor and is the legal, valid and binding obligation of such Guarantor enforceable against it in accordance with its terms. (d) There are no pending or, to the knowledge of such Guarantor, threatened actions, investigations or proceedings affecting such Guarantor or any of its subsidiaries before any Governmental Authority or arbitrator other than those that in the aggregate could not reasonably be expected to have a Material Adverse Effect. The performance by such Guarantor under this Guaranty and under each of the other Loan Documents to which it is a party is not restrained or enjoined (either temporarily, preliminarily or permanently) and no conditions have been imposed by any Governmental Authority or arbitrator that in the aggregate could reasonably be expected to have a Material Adverse Effect. SECTION 6. AMENDMENTS, ETC. No amendment or waiver of any provision of this Guaranty nor consent to any departure by any Guarantor herefrom shall in any event be effective unless the same shall be in writing, approved by the Majority Lenders and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by all the Guarantied Parties, limit the liability of the Guarantors (other than as expressly provided herein) or postpone any date fixed for payment hereunder. SECTION 7. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to a Guarantor, addressed to it at the address of such Guarantor specified on the signature pages hereof, if to any Guarantied Party, addressed to it at the address of such Guarantied Party specified in the Credit Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective when deposited in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. 5 6 SECTION 8. NO WAIVER: REMEDIES. (a) No failure on the part of any Guarantied Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or any of the other Loan Documents. (b) Failure by any of the Guarantied Parties at any time or times hereafter to require strict performance by the Borrower, any Guarantor or any other Person of any of the provisions, warranties, terms or conditions contained in any of the Loan Documents now or at any time or times hereafter executed by the Borrower, any Guarantor or such other Person and delivered to any of the Guarantied Parties shall not waive, affect or diminish any right of any of the Guarantied Parties at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of any of the Guarantied Parties or any agent, officer, employee of any of the Guaranteed Parties. (c) No waiver by the Guarantied Parties of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by any of the Guarantied Parties permitted hereunder shall in any way affect or impair any of the rights of the Guarantied Parties or the obligations of any Guarantor under this Guaranty or under any of the other Loan Documents. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Obligations shall be conclusive and binding on the Guarantors irrespective of whether the Guarantors were a party to the suit or action in which such determination was made. SECTION 9. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each of the Guarantied Parties is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Guarantied Party to or for the credit or the account of a Guarantor against any and all of the obligations of such Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Guarantied Party shall have made any demand under this Guaranty and although such obligations may be contingent and unmatured. Each of the Guarantied Parties agrees promptly to notify such Guarantor after any such set-off and application made by such Guarantied Party; PROVIDED HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Guarantied Party under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Guarantied Party may have. SECTION 10. CONTINUING GUARANTY; TRANSFER OF NOTES. This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until indefeasible payment in full of the Obligations and all other amounts payable under this Guaranty, (ii) be binding upon the Guarantors, their respective successors and assigns, and (iii) inure to the benefit of and be enforceable by the Guarantied Parties and their respective 6 7 successors, transferees, and assigns. Without limiting the generality of the foregoing clause (iii), any of the Guarantied Parties may assign or otherwise transfer any Note held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Guarantied Party herein or otherwise with respect to such of the Notes and Obligations so transferred or assigned, subject, however, to compliance with the provisions of Section 10.7 of the Credit Agreement in respect of assignments; PROVIDED HOWEVER, that in the event of a sale by the Borrower of all of the stock of a Guarantor approved by the Majority Lenders, the Guarantor's obligations hereunder shall terminate upon the consummation of such sale and the application of the proceeds in accordance with the terms of the Amended and Restated Credit Agreement. SECTION 11. LIMITATION OF GUARANTY. Any term or provision of this Guaranty or any other Loan Document to the contrary notwithstanding, the maximum aggregate amount of the Obligations for which a Guarantor shall be liable shall not exceed the maximum amount for which such Guaranty can be liable without rendering this Guaranty or any other Loan Document, as it related to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer. SECTION 12. CONTRIBUTION. To the extent that any Guarantor shall be required hereunder to pay a portion of the Obligations which shall exceed the greater of (i) the amount of the economic benefit actually received by such Guarantor from the Obligations and (ii) the amount which such Guarantor would otherwise have paid if such Guarantor had paid the aggregate amount of the Obligations (excluding the amount thereof repaid by the Borrower and the other Guarantor) in the same proportion as such Guarantor's net worth at the date enforcement hereunder is sought bears to the aggregate net worth of all the Guarantors at the date enforcement hereunder is sought, then such Guarantor shall be reimbursed by the other Guarantors for the amount of such excess, pro rata based on the respective net worths of the other Guarantors at the date enforcement hereunder is sought. SECTION 13. REINSTATEMENT. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Loan Party for liquidation or reorganization, should any Loan Party become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Loan Party's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations or such part thereof, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 7 8 SECTION 14. GOVERNING LAW. This Guaranty shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Guaranty. SECTION 15. SUBMISSION TO JURISDICTION; JURY TRIAL. (a) Any legal action or proceeding with respect to this Guaranty or any document related thereto may be brought in the courts of the State of New York or the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, each Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions and consents to the granting of such legal or equitable relief as is deemed appropriate by the court. (b) Each Guarantor irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Guarantor at its address provided herein, such service to become effective 30 days after such mailing. (c) Nothing contained in this Section 15 shall affect the right of any Guarantied Party to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against a Guarantor or any of such Guarantor's property in any other jurisdiction. (d) Each Guarantor waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Guaranty or any other loan document, or any course of conduct, course of dealing, verbal or written statement or other action of any Loan Party or any Guarantied Party. SECTION 16. SECTION TITLES. The Section titles contained in this Guaranty are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Guaranty. SECTION 17. EXECUTION IN COUNTERPARTS. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Guaranty. SECTION 18. MISCELLANEOUS. All references herein to the Borrower or to the Guarantors shall include their respective successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession of or for the Borrower or any of the 8 9 Guarantors. All references to the singular shall be deemed to include the plural where the context so requires. 9 10 IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly executed and delivered by its duly authorized officer on the date first above written. ELDER-BEERMAN HOLDINGS, INC. By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Vice President, Controller Address for Notices: Elder-Beerman Holdings, Inc. 3155 El-Bee Road Dayton, OH 45439 Attention: General Counsel Fax No.: (937) 296-4625 ELDER-BEERMAN OPERATIONS, LLC By: The Elder-Beerman Stores Corp., as its Managing Member By: /s/ Steven D. Lipton ---------------------------------------- Name: Steven D. Lipton Title: Vice President, Controller Address for Notices: Elder-Beerman Operations, LLC 3155 El-Bee Road Dayton, OH 45439 Attention: General Counsel Fax No.: (937) 296-4625 10 11 ELDER-BEERMAN INDIANA, L.P. By: /s/ Steven D. Lipton ------------------------------- Name: Steven D. Lipton Title: Vice President, Controller Address for Notices: Elder-Beerman Indiana, L.P. 3155 El-Bee Road Dayton, OH 45439 Attention: General Counsel Fax No.: (937) 296-4625 11 EX-21 11 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF THE ELDER-BEERMAN STORES CORP. ---------------------------------------------- The Bee-Gee Shoe Corp. The El-Bee Chargit Corp. The El-Bee Receivables Corporation Elder-Beerman West Virginia, Inc. Elder-Beerman Holdings, Inc. Elder-Beerman Operations, LLC Elder-Beerman Indiana, L.P. EX-23 12 EXHIBIT 23 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-48367 and 333-483369 of The Elder-Beerman Stores Corp. on Form S-8 of our report dated April 20, 2000 (which expresses an unqualified opinion and includes an explanatory paragraph relating to a restatement), appearing in this Annual Report on Form 10-K of The Elder-Beerman Stores Corp. for the year ended January 29, 2000. DELOITTE & TOUCHE LLP Dayton, Ohio April 20, 2000 EX-24 13 EXHIBIT 24 1 Exhibit 24 THE ELDER-BEERMAN STORES CORP. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of The Elder-Beerman Stores Corp., an Ohio corporation, hereby constitutes and appoints each of Scott J. Davido and Steven D. Lipton as the true and lawful attorney or attorney-in-fact, with full power of substitution and revocation, for each of the undersigned and in the name, place and stead of each of the undersigned, to sign on behalf of each of the undersigned an Annual Report on Form 10-K for the fiscal year ended January 29, 2000 pursuant to the Securities Exchange Act of 1934, as amended, and to sign any amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to each attorney or attorney-in-fact full power and authority to do so and to perform any act requisite and necessary to be done as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that each attorney or attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it. IN WITNESS WHEREOF, the undersigned have subscribed these presents as of the 13th day of April, 2000. /s/ Frederick J. Mershad /s/ John A. Muskovich - --------------------------------------------------- --------------------------------------------------- Frederick J. Mershad John A. Muskovich Chairman of the Board of Directors and Chief President, Chief Operating Officer; Director Executive Officer (Principal Executive Officer) /s/ Scott J. Davido /s/ Steven D. Lipton - --------------------------------------------------- --------------------------------------------------- Scott J. Davido Steven D. Lipton Executive Vice President, Chief Financial Officer Senior Vice President, Controller (Principal Financial Officer) (Principal Accounting Officer) /s/ Bernard Olsoff /s/ Thomas J. Noonan, Jr. - --------------------------------------------------- --------------------------------------------------- Bernard Olsoff Thomas J. Noonan, Jr. Director Director /s/ Stewart M. Kasen /s/ Laura H. Pomerantz - --------------------------------------------------- --------------------------------------------------- Stewart M. Kasen Laura H. Pomerantz Director Director /s/ Steven C. Mason /s/ John J. Wiesner - --------------------------------------------------- --------------------------------------------------- Steven C. Mason John J. Wiesner Director Director /s/ Dennis B. Bookshester /s/ Charles Macaluso - --------------------------------------------------- --------------------------------------------------- Dennis B. Bookshester Charles Macaluso Director Director /s/ Jack A. Staph --------------------------------------------------- Jack A. Staph Director
EX-27 14 EXHIBIT 27
5 1 YEAR JAN-29-2000 JAN-31-1999 JAN-29-2000 8,276 0 140,356 2,048 165,451 334,333 171,907 (96,975) 454,895 193,534 6,130 0 0 260,171 (13,994) 454,895 637,797 666,782 459,728 459,728 0 3,906 11,771 12,616 (5,399) 18,015 (2,787) 0 0 15,228 .99 .99
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