-----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, Uy3jYLqSd5pz2Zds3m2J0MxFmm2aJaddBUuQhy3t/6fcYOlljtd9eNYxzEy9e6s8 oUwxjn1QcIqQ3g7/Wi5c7g== 0000950152-98-003770.txt : 19980504 0000950152-98-003770.hdr.sgml : 19980504 ACCESSION NUMBER: 0000950152-98-003770 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980430 SROS: NONE 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: 98604988 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. FORM 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 31, 1998 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 23, 1998, 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 $311,789,475.* The number of shares of Common Stock outstanding on April 23, 1998, was 12,671,777 shares. 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 General Development of Business.........................................................................1 Background....................................................................................1 Chapter 11 Case...............................................................................2 Business ..............................................................................................2 Merchandising.................................................................................2 Pricing .....................................................................................3 Purchasing and Distribution...................................................................3 Information Systems...........................................................................3 Marketing.....................................................................................4 Credit Card Program...........................................................................4 Customer Service..............................................................................4 Expansion.....................................................................................4 Seasonality...................................................................................4 Competition...................................................................................4 Associates....................................................................................5 ITEM 2. PROPERTIES..............................................................................................5 ITEM 3. LEGAL PROCEEDINGS.......................................................................................8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................8 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................................9 ITEM 6. SELECTED HISTORICAL FINANCIAL DATA.....................................................................10 ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................11 Results of Operations..................................................................................11 Fiscal 1997 Compared to Fiscal 1996..........................................................11 Fiscal 1996 Compared to Fiscal 1995..........................................................12 Liquidity and Capital Resources........................................................................13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................15 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE......................16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.......................................................................16 Section 16(a) Beneficial Ownership Reporting Compliance................................................18 ITEM 11. EXECUTIVE COMPENSATION.................................................................................18 Cash Compensation Table................................................................................19 Fiscal 1997 Option Grants..............................................................................20 Fiscal 1997 Aggregated Option Exercises FY-End Option Values...........................................20 Employment and Severance Agreements With Certain Executives............................................21 i
3 Compensation Committee Interlocks and Insider Participation............................................21 Director Compensation..................................................................................22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................................23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................................24 SIGNATURES.......................................................................................................28 EXHIBIT INDEX....................................................................................................29 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 optimism 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. The statements described in the preceding paragraph constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act"). Because these statements are based on a number of beliefs, estimates and assumptions that could cause actual results to materially differ from those in the forward-looking statements, there is no assurance that forward-looking statements will prove to be accurate. Any number of factors could affect future operations and results, including 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; weather conditions that affect consumer traffic in stores; the continued availability and terms of financing; the outcome of pending and future litigation; and general economic conditions, such as the rate of employment, inflation and interest rates and the condition of the capital market. This list of factors is not exclusive. Forward-looking statements are subject to the safe harbors created in the Securities Act. 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) operates department stores that sell a wide range of moderate to better brand merchandise, including women's, men's, and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, the Company owns a specialty shoe store chain and a private label credit card program through its wholly-owned subsidiaries, The Bee-Gee Shoe Corp. ("Bee-Gee") and The El-Bee Chargit Corp. ("Chargit"), respectively. Elder-Beerman operates approximately 48 department stores and two furniture stores, principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Wisconsin, Kentucky, and West Virginia, and Bee-Gee operates 60 stores (48 shoe outlets and 12 Shoebilee! stores), principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Pennsylvania, Virginia and West Virginia. 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. GENERAL DEVELOPMENT OF BUSINESS BACKGROUND Elder-Beerman and its predecessors have been operating department stores since 1883. Historically, the Company's underlying strategy had been to manage the bottom-line through an aggressive approach to (a) containing operating costs, (b) enhancing gross profit percentages within its "moderate to better" brand merchandise, and (c) expanding its presence as a regional retailer. This strategy enabled the Company to experience steady sales growth and consistent earnings results beginning in the mid-1960s and continuing into the early 1990s. During 1992 and through 1994, the Company undertook a new and high volume merchandising strategy. During 1995, it became apparent that this strategy had a negative impact on the Company's financial position, and the Company entered into negotiations with its lenders for a plan to provide additional liquidity. These negotiations ultimately were unsuccessful. In addition, as the need for working capital to fund increased inventory purchases for the holiday season drew closer, Elder-Beerman's suppliers began to show concerns about further extensions of trade credit to the Company in the wake of other bankruptcies in the retail industry. The Company was faced with an absence of working capital financing and the prospect of being unable to secure inventory for the 1995 Christmas season. 5 CHAPTER 11 CASE On October 17, 1995 (the "Petition Date"), Elder-Beerman and its subsidiaries, Chargit, Bee-Gee, Margo's LaMode, Inc. ("Margo's"), McCook Wholesale Corp. ("McCook"), E-B Community Urban Redevelopment Corp. ("E-B"), and EBA, Inc. ("EBA") (collectively, the "Old Elder-Beerman Companies"), filed voluntary petitions for relief (the "Reorganization Cases") under chapter 11 of the United States Bankruptcy Code, as amended (the "Bankruptcy Code"), with the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"). The Old Elder-Beerman Companies filed their proposed joint plan of reorganization with the Bankruptcy Court on August 6, 1997, which was amended three times on October 16, 1997, November 7, 1997 and November 18, 1997 (the "Plan"). The Plan was confirmed by an order of the Bankruptcy Court entered on December 16, 1997 (the "Confirmation Date"). The Plan became effective on December 30, 1997, (the "Effective Date"). BUSINESS The Company sells a wide range of merchandise, including women's, men's, and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, as discussed above, the Company owns a shoe store chain and a private label credit card program through its wholly-owned subsidiaries, Bee-Gee and Chargit, respectively. 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, and the Company is a main department store anchor along with J.C. Penney, Sears, or a discount retailer such as Kmart. 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 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, by seeking to be the dominant destination retailer for fashion apparel, accessories, cosmetics, shoes, and home accessories for the entire family, while continuing its tradition of providing strong customer service in key product areas. In 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 and gifts. In addition, through continued efforts to develop a partnership with its most significant vendors, the Company is (a) pursuing automated replenishment of basic stock to increase sales and reduce basic inventories and (b) 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, watch repair 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. Leased department sales are included in Elder-Beerman's total sales. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines. 2 6 Bee-Gee operates two distinct discount footwear formats that are differentiated by varying degrees of fashion, value, and convenience. The Company's 48 El-Bee Shoe stores offer primarily close-out and special purchase budget footwear styles for women, men and children in a self-service, open-box rack format. The 12 Shoebilee! family footwear stores offer national brands in an updated shopping environment where moderate assortments are merchandised by lifestyle and classification rather than by size and gender. Merchandise is presented in a self-select caseline format and is promoted under a value-priced promotional umbrella. The Company is in the process of converting several El-Bee Shoe stores to the newer Shoebilee! format. Many Bee-Gee stores are positioned near existing Elder-Beerman stores to leverage credit marketing and cross-shopping opportunities. For the 52 weeks ending January 31, 1998 ("Fiscal 1997"), the 53 weeks ending February 1, 1997 ("Fiscal 1996") and the 52 weeks ending February 3, 1996 ("Fiscal 1995"), the Company's department store percentages of net sales by major merchandise category were as follows: THE ELDER-BEERMAN STORES CORP. RETAIL SALES BY DEPARTMENT
1997 1996 1995 MERCHANDISE CATEGORY % % % - --------------------------------------- --------- --------- --------- WOMEN'S READY TO WEAR 34.0% 33.2% 32.1% ACCESSORIES, SHOES & COSMETICS 21.7% 21.6% 21.4% MENS & CHILDRENS 24.3% 25.1% 24.9% HOME STORE 20.0% 20.1% 21.6% --------- --------- --------- 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/value appeal by offering competitive prices on fashion from premier national brands. The Company has effectively been able to generate sales from promotions with special pricing and of limited duration. The Company's management information systems provide timely sales and gross margin reports that identify sales and gross margins by stock keeping item and provide management with the information and flexibility to adjust prices and inventory levels as necessary. PURCHASING AND DISTRIBUTION During Fiscal 1997, 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 32% of net purchases. In Fiscal 1997, the Company also purchased approximately 8% of its merchandise, primarily private label merchandise, through Frederick Atkins, Inc. ("Atkins"), a national association of major retailers that provides 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. The Company owns a 20% limited partnership interest in Fairborn Commerce Center II, a partnership that owns Elder-Beerman's 300,000 square foot distribution center in Fairborn, Ohio. Merchandise is generally shipped from vendors, through three consolidation points, to this distribution center. 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. Merchandise is usually 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 "actual vs. plan" sales information for management. The Company is presently further enhancing its management information systems, through capital investment and training programs, to (a) improve the data integrity of financial and merchandise systems; (b) reduce administrative costs through automation and elimination of paperwork and redundant controls; (c) utilize Electronic Data Interchange and other industry standards to increase "floor 3 7 ready" merchandise receipts; (d) eliminate paperwork through automatic invoice processing; and (e) improve merchandise analysis and decision making. MARKETING The Company's marketing and advertising functions are centralized at its corporate headquarters and, for the department stores, are focused on communicating a timely and broad offering of premier branded merchandise, a strong quality/value relationship, and outstanding customer service. A comprehensive, multi-media advertising program is utilized 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. Marketing activities for the Bee-Gee subsidiary are limited primarily to newspaper, radio, coupons, and in-store displays emphasizing price, seasonal assortments, and special promotions. CREDIT CARD PROGRAM As discussed above, the Company operates a private label credit card program through its wholly-owned subsidiary, Chargit. During Fiscal 1997, the Company issued 158,000 Elder-Beerman credit cards for newly opened accounts and had approximately 450,000 Elder-Beerman active credit card accounts during Fiscal 1997. The Company has made a significant investment in its credit card program since it believes that Elder-Beerman credit card holders generally constitute the Company's most loyal and active customers. Elder-Beerman credit card holders shop more frequently with the Company and generally purchase more merchandise than customers who pay with cash or third-party credit cards. During Fiscal 1997, approximately 44% of Elder-Beerman's total sales were private label credit card sales whereas cash sales and third party credit cards accounted for 33% and 23% 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 penetration of its private label credit card program through a combination of efforts intended to increase the use of cards by existing Elder-Beerman credit card customers, either through incremental sales or shifting sales from other credit cards and other retailers, and 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. 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) eliminating nonselling activities from stores; (b) using training and recruiting practices to instill a culture of customer helpfulness and responsiveness; (c) developing tools and training to enhance selling skills and awareness; (d) implementing selling productivity measurement and compensation systems directed at encouraging selling activities and results; and (e) making increased use of technology and improved controls. EXPANSION The Company is currently implementing a controlled expansion of new stores with market characteristics consistent with current stores. The Company believes that sufficient new locations are available in strategic markets within the Company's current area of operations to support such an expansion. In addition, the Company believes that opportunities exist to expand approximately 10 existing stores where current space constraints prevent adequate presentation of certain core merchandise departments. The Company recently announced the relocation of its Southtowne Shopping Center store in Dayton, Ohio from a 132,000 square foot standalone site to a 212,000 square foot anchor store in the Dayton Mall, and the acquisition of a 120,000 square foot mall anchor store in Erie, Pennsylvania. The Company expects that both new stores will open in Summer 1998. 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 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, 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 and shoe store businesses, in particular, are intensely competitive. Generally, the Elder-Beerman department stores and Bee-Gee shoe stores are in competition not only with other department stores and 4 8 family shoe stores, respectively, in the geographic areas in which they operate, 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. The Bee-Gee shoe stores compete primarily on the basis of price and convenience. ASSOCIATES On January 31, 1998, the Company had approximately 8,140 regular and part-time employees, approximately 7,600 of which are employed by Elder-Beerman's department stores. Because of the seasonal nature of the retail business, the number of employees 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 48 department stores and two furniture stores, principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Wisconsin, Kentucky, and West Virginia, and Bee-Gee operates 60 stores (48 shoe outlets and 12 Shoebilee! stores), principally in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, Pennsylvania, Virginia and West Virginia. Substantially all of the Company's stores are leased properties. The Company owns, subject to a mortgage, the 302,570 square foot office/warehouse facility located in Dayton, Ohio, which serves as its principal executive offices. The Company also has a 20% limited partnership interest in a partnership that owns a 300,000 square foot distribution center located in Fairborn, Ohio. The following table sets forth certain information with respect to Elder-Beerman's department store locations and Bee-Gee's shoe store locations, operating as of January 31, 1998, the end of Elder-Beerman's and Bee-Gee'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 Dayton Southtowne Center 131,637 11/72 Lease Dayton Salem Furniture 124,987 11/72 Lease Dayton Van Buren Shopping Center 101,604 08/63 Lease Dayton Northpark Center 101,840 10/94 Lease Defiance Northtowne Mall 48,000 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 52,725 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
5 9 THE ELDER-BEERMAN STORES CORP. STORE SUMMARY BY REGION (CONT'D)
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/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 38,773 03/83 Lease Springfield Upper Valley Mall 71,868 10/92 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 INDIANA Anderson Mounds Mall 66,703 07/81 Lease Columbus Columbus Mall 53,446 02/90 Lease Elkhart Concord Mall 104,000 11/85 Lease Evansville Washington Square Mall 134,536 10/93 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 Home Store 22,912 10/89 Lease Richmond Downtown 100,000 08/74 Lease Terre Haute Honey Creek Mall 70,380 08/73 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 99,219 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 Paducah Kentucky Oaks Mall 60,092 08/82 Lease WEST VIRGINIA Morgantown Morgantown Mall 70,790 09/90 Lease
6 10 THE BEE-GEE SHOE CORP. STORE SUMMARY BY REGION
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- -------- ---- ------ --------- OHIO Akron West Market 4,000 12/76 Lease Alliance Carnation Mall 3,052 04/85 Lease Athens University Mall 3,600 11/88 Lease Centerville Centerville 6,938 11/94 Lease Chillicothe Chillicothe Mall 3,600 10/85 Lease Cincinnati Western Hills Shopping Center 7,800 08/91 Lease Cincinnati Colerain Hills 4,500 08/72 Lease Dayton Van Buren Shopping Center 4,355 01/70 Lease Dayton Sugar Creek Plaza 3,200 03/90 Lease Dayton Southtowne Shopping Center 10,000 08/74 Own Dayton Northwest Plaza 4,400 03/76 Lease Defiance Northtowne Mall 6,650 03/91 Lease East Liverpool Summit Square Shopping Center 3,600 08/91 Lease Englewood Northmont Plaza 4,200 12/72 Lease Fairfield Forest Fair Mall 5,172 02/89 Lease Fairfield Fairfield Plaza 2,910 03/81 Lease Findlay Flag City Station 5,900 08/91 Lease Greenville Buckeye Square 3,000 11/83 Lease Heath Indian Mound Mall 3,319 09/91 Lease Huber Heights North Park Center 6,700 11/94 Lease Lancaster River Valley Mall 3,106 08/91 Lease Lima Clocktower Shopping Center 3,200 04/92 Lease Mansfield Johnny Appleseed 5,365 11/72 Lease Marion Southland Mall 4,392 11/97 Lease Middletown Eastgate Shopping Center 3,500 10/85 Lease Milford Milford Shopping Center 3,750 10/74 Lease New Philadelphia New Towne Mall 3,621 08/91 Lease Piqua Miami Valley Mall 3,075 09/88 Lease Sandusky Park Place 3,705 05/91 Lease Sidney Westown Square 4,120 05/89 Lease Springfield Springfield Mall 3,000 04/93 Lease St. Mary's St. Mary's Shopping Center 3,200 08/94 Lease Streetsboro Streetsboro Market Shopping Center 6,890 09/95 Lease Tiffin Tiffin Mall 6,576 07/84 Lease Toledo Spring Meadows Shopping Center 6,000 05/87 Lease Troy Troy Town Center 3,892 08/90 Lease Westerville Westerville Shopping Center 3,750 11/71 Lease Wooster Wayne Towne Plaza 3,150 07/92 Lease Xenia Xenia Towne Square 3,500 08/85 Lease Zanesville Colony Square 5,571 11/85 Lease
7 11 THE BEE-GEE SHOE CORP. STORE SUMMARY BY REGION (CONT'D)
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- -------- ---- ------ --------- INDIANA Columbus Fair Oaks Mall 3,730 08/90 Lease Elkhart Concord Mall 6,340 09/90 Lease Kokomo Markland Mall 5,000 05/88 Lease Logansport Logansport Mall 3,600 04/90 Lease Muncie Northwest Shopping Center 3,500 12/71 Lease Plymouth Pilgrim Place 3,367 05/90 Lease Richmond Richmond Square Mall 5,450 10/97 Lease South Bend Scottsdale Mall 4,770 05/83 Lease Warsaw Marketplace 3,000 11/86 Lease ILLINOIS Huntley Huntley Outlet Center 5,000 11/95 Lease Mattoon Cross County Mall 4,175 08/92 Lease Peru Peru Mall 3,129 11/92 Lease Springfield Capital City Shopping Center 4,050 05/88 Lease Springfield White Oaks 3,075 03/87 Lease PENNSYLVANIA Grove City Grove City Outlet 4,520 11/94 Lease Mars Cranberry Mall 3,600 10/88 Lease Pittsburgh Robinson Towne Center 3,500 08/89 Lease MICHIGAN Kalamazoo Maple Hill Mall 2,850 03/87 Lease Mt. Pleasant Indian Hills Plaza 3,200 08/90 Lease WEST VIRGINIA Vienna Vienna 3,750 04/76 Lease VIRGINIA Harrisonburg Valley Mall 3,078 09/84 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. In addition, as a result of the Reorganization Cases, the Company remains subject to the jurisdiction of the Bankruptcy Court for matters relating to the consummation of the Plan. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 12 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, without par value, (the "Common Stock") is listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") and is designated a NASDAQ/National Market System Security trading under the symbol EBSC. The Common Stock did not begin trading, however, until February 17, 1998. As a result, no historical high and low bid information is available for Fiscal 1997. Prior to February 17, 1998, there was no established public trading market for the Common Stock. The number of shareholders of record as of April 17, 1998 was 1,667. 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. The Company issued Common Stock and a Series A Warrant and a Series B Warrant, each convertible into Common Stock, pursuant to the Plan in satisfaction of certain allowed claims against, or interests in, the Company in the Reorganization Cases. Based upon the exemptions provided by section 1145 of the Bankruptcy Code, the Company believes that none of these securities are required to be registered under the Securities Act in connection with their issuance and distribution pursuant to the Plan. The Company has no recent sales of unregistered securities other than such issuances pursuant to the Plan. 9 13 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 31, 1998, February 1, 1997, February 3, 1996, January 28, 1995, and January 29, 1994. 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 31, 1998 FEB 1, 1997 FEB 3, 1996 (a) JAN 28, 1995 JAN 29, 1994 ------------ ----------- --------------- ------------ ------------ DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues $ 607,946 $ 597,008 $ 608,931 $ 647,326 $ 633,936 Income / (Loss) Before Reorganization Items and Income Tax Expense (Benefit) 11,931 11,579 (33,631) (4,590) 23,194 Reorganization Items 27,542 23,648 19,711 -- -- Income / (Loss) Before Extraordinary Items and Discontinued Operations (b) (c) (8,199) (12,429) (51,010) (2,064) 15,244 Net Income / (Loss) $ (28,952) $ (12,429) $ (63,286) $ (13,355) $ 15,865 Basic and Diluted Earnings/(Loss) Per Common Share: Continuing Operations $ (6.58) $ (100.20) $ (411.25) $ (16.64) $ 122.90 Preferred Stock Dividend -- -- -- (7.43) (7.43) Discontinued Operations 5.92 -- (98.97) (91.03) 5.01 Extraordinary Items (22.58) -- -- -- -- --------- --------- --------- ----------- ----------- Net Earnings/(Loss) $ (23.24) $ (100.20) $ (510.22) $ (115.10) $ 120.48 ========= ========= ========= =========== =========== Cash Dividends Paid: Common $ -- $ -- $ -- $ 11.55 $ 10.50 Preferred $ -- $ -- $ -- $ 1.39 $ 1.39 BALANCE SHEET DATA Total Assets $ 371,365 $ 368,609 $ 367,069 $ 267,822 $ 285,996 Short Term Debt 1,105 57,931 50,100 6,221 -- Liabilities Subject to Compromise -- 231,675 229,409 -- -- Long-Term Obligations 142,024 5,669 3,100 109,487 108,010 OTHER DATA Sales Increase/(Decrease) From Prior Period 2.1% (3.5%) (6.5%) 1.8% 5.6% Dept. Store Comp. Sales Inc./ (Dec.) From Prior Period (d) 3.7% (1.2%) (8.4%) (3.8%) 0.6% 10
14 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 Margo's is included in discontinued operations for all period. (c) The financial information for Bee-Gee is included as part of continuing operations for all periods except for the initial reserve for discontinued operations that was recorded in Fiscal 1994 and the subsequent reversal recorded in Fiscal 1995. (d) Comparable store sales include only those department stores that operated during the applicable full fiscal year. And has also been adjusted for elimination of any complete product lines. 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 1997, Fiscal 1996 and Fiscal 1995. 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. RESULTS OF OPERATIONS FISCAL 1997 COMPARED TO FISCAL 1996 Net sales for Fiscal 1997 increased by 2.1% to $581.4 million from $569.6 million for Fiscal 1996. The increase is due to a 3.7% comparative store sales (sales from stores open for at least one year) increase for the department store division, offset partially by a 2.5% comparative stores sales decline for the Bee-Gee Shoe outlet division. The Company closed the outlet section of the Downtown Dayton, Ohio department store, the Fairborn, Ohio furniture store, and the outlet section of the Hamilton, Ohio department store, which contributed a combined total of approximately $5.5 million in Fiscal 1996 sales that were absent in Fiscal 1997. In addition, the Company closed the Northtowne Mall department store located in Toledo, Ohio and the department store in Carbondale, Illinois in November 1997, and liquidated the unprofitable electronics product line in December 1997. The Company's business is subject to seasonal fluctuations. Approximately one-third of the Company's annual sales occur in the fourth quarter (i.e., November - January), as well as a majority of the Company's profits. Financing revenue from the Company's private label credit card for Fiscal 1997 decreased by 3.2% to $26.6 million from $27.5 million for Fiscal 1996. The decline is due to a 2.0% decrease in sales attributed to the Company's private label credit card, and a resulting decline in the outstanding customer accounts receivable. The decline in finance charges due to outstanding customer accounts receivable has been partially offset by an increase in late fees charged. Cost of goods sold, occupancy, and buying expenses increased to 72.9% of net sales for Fiscal 1997 from 72.0% of net sales for Fiscal 1996. This increase is due to $8.6 million in excess markdowns in cost of goods due to store closings in Fiscal 1997. This increase in costs is partially offset by an increase in the initial rate of mark-up on goods sold coupled with a decrease in the markdown rate. In Fiscal 1997, the LIFO inventory valuation adjustment reduced cost of goods sold by $1.4 million compared to a decrease in cost of goods sold of $1.9 million in Fiscal 1996. Selling, general, administrative (including key employee performance bonus plan expense) and hiring and recruiting expenses for new executives decreased by $5.9 million to $157.4 million for Fiscal 1997 from $163.3 million for Fiscal 1996. This improvement is primarily due to a reduction in payroll and suspension of ongoing payments on certain computer leases resulting from settlements with the lessors in which such lessors received claims in the Reorganization Cases, offset partially by an increase in sales promotion expense. The payroll expense reduction is primarily attributable to a reduction in store payroll as the Company implemented several technology driven programs to eliminate store non-selling workload, such as automating the price change, transfer and return to vendor processes as well as re-engineering the store cash office and gift wrap functions. In addition, $4 million was incurred under the key employee retention bonus program for Fiscal 1997 compared to $5.0 million for Fiscal 1996. The decline is due to an increase in the profit threshold 11 15 to which such bonus is tied. The expense savings above were partially offset by an increase of $0.7 million in hiring and recruiting expenses for new executives. Provision for doubtful accounts increased to 1.5% of net sales for Fiscal 1997 compared to 1.2% of net sales for Fiscal 1996. Consistent with industry trends, net charge offs increased due to the rise in personal bankruptcy filings and delinquent customer balances. Interest Expense increased to $7.1 million for Fiscal 1997 from $6.5 million for Fiscal 1996. Interest expense increased due to the additional borrowings to support working capital requirements and capital expenditures. Other income fell from $1.1 million in Fiscal 1996 to $0.7 million in Fiscal 1997. The Company had certain interest rate swap agreements (old swaps) and was required to make adjustments to market value. For Fiscal 1997, the swap adjustment to market resulted in an expense of $0.6 million compared to income of $1.1 million in the prior period. Fiscal 1997's swap expense was offset by $1.3 million in interest income generated by a federal income tax refund received in 1997. With the emergence from bankruptcy protection, the old swaps were bought out and no longer in force. Also, on December 30, 1997 the Company entered into a new swap agreement with a notional amount of $115 million (expiring September 28, 2001). This agreement has been matched to the Company's securitization facility to reduce the impact of interest rate fluctuations. Reorganization expense increased by $3.9 million to $27.5 million for Fiscal 1997 from $23.6 million for Fiscal 1996. The Company expensed $6.9 million more in professional fees in Fiscal 1997 compared to Fiscal 1996. Also, in Fiscal 1997 there was a $2.6 million expense recorded for an adjustment to estimated allowed claims, and a $2.1 million expense recorded for reorganization bonus that did not occur in Fiscal 1996. In Fiscal 1996 there was an expense recorded of $7.4 million for equipment lease settlements which did not occur in Fiscal 1997. There was also a reduction in financing cost expense of $2.4 million. In Fiscal 1997 a state income tax expense provision was made for approximately $0.5 million. Fiscal 1997 operating loss resulted in additional federal net operating loss carryforwards ("NOLs"). The Company reviewed the status of its deferred tax valuation allowance and determined that a deferred tax asset of $7.9 million should be recognized. This results in a net income tax benefit being recorded in Fiscal 1997. See the Company's Consolidated Financial Statements and the accompanying notes set forth in Item 8. The discontinued operations loss, net of tax, recorded in 1997 is for the extinguishment of debt for Margo's. In December 1995 the Bankruptcy Court approved the disposal of Margo's. The loss 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. 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 is 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. FISCAL 1996 COMPARED TO FISCAL 1995 Net sales for Fiscal 1996 decreased 3.5% to $569.6 million from $590.0 million for Fiscal 1995. Fiscal 1995 contains 53 weeks and contained approximately $4.6 million in net sales for the extra week. The department store division comparative store sales for Fiscal 1996 and the first 52-weeks of Fiscal 1995 decreased approximately 0.4%. In Fiscal 1995 two department stores were closed and two new department stores were opened. In addition, the Bee-Gee Shoe division closed 11 El-Bee Shoe outlet stores in Fiscal 1996. Financing revenue for Fiscal 1996 increased by $8.6 million to $27.5 million from $18.9 million in Fiscal 1995. In Fiscal 1995 prior to the Petition Date, the Company maintained a financing facility through the sale ("securitization") of customer accounts receivable. With the filing of bankruptcy the securitization facility was canceled. In Fiscal 1995 gross financing revenue was reduced by $5.9 million of securitization expense. Cost of goods sold, occupancy, and buying decreased from 77.5% of net sales in Fiscal 1995 to 72.0% of net sales in Fiscal 1996. This improvement is attributable to a significant increase in the initial rate of mark-up on goods sold coupled with a significant decrease in the markdown rate for Fiscal 1996 compared to Fiscal 1995. In Fiscal 1995 increased 12 16 markdowns were taken to clear excess inventories. In Fiscal 1996, the LIFO inventory valuation adjustment reduced cost of goods sold by $1.9 million compared to an increase in cost of goods sold of $0.8 million in Fiscal 1995. Selling, general, and administrative expenses (including key employee performance bonus plan expense) and hiring and recruiting expenses for new executives, decreased by $6.7 million to $163.3 million, or 28.7% of net sales, in Fiscal 1996, compared to $170.0 million, or 28.8% of net sales, in Fiscal 1995. In Fiscal 1996 through expense reduction programs, the Company was able to reduce expenses in a significant number of expense categories, particularly in the areas of data processing and sales promotion, which was partially offset by implementation in Fiscal 1996 of a key employee retention bonus program and hiring and recruiting expenses. Provision for doubtful accounts increased $0.8 million to $6.7 million, or 1.2% of net sales, in Fiscal 1996, compared to $5.9 million, or 1.0% of net sales, in Fiscal 1995. This increase is primarily the result of an increase in customer personal bankruptcy filings. Interest expense decreased $3.1 million to $6.5 million, or 1.1% of net sales, in Fiscal 1996, compared to $9.6 million, or 1.6% of net sales, in Fiscal 1995. After the Petition Date, the primary method of financing was through a Debtor-In-Possession ("DIP") financing agreement. The required borrowings under the DIP after the Petition Date were significantly less than the total indebtedness outstanding prior to the Petition Date, resulting in substantially less interest expense for Fiscal 1996. Other income for Fiscal 1996 relates to income recorded for a market value adjustment in interest rate swaps. Reorganization expense increased $3.9 million to $27.6 million in Fiscal 1996 compared to $19.7 million in Fiscal 1995. Professional fees in Fiscal 1996 were $5.0 million higher than Fiscal 1995 because the bankruptcy filing occurred in October 1995. Other major differences include an expense of $7.5 million for equipment lease settlements in Fiscal 1996 for which there were no similar charges in Fiscal 1995, restructuring expenses that were $4.4 million less in Fiscal 1996, and an expense in Fiscal 1995 of $5.0 million for the market value adjustment of interest rate swaps. Income tax expenses/(benefit) for Fiscal 1996 was an expense of $0.4 million, compared to a benefit of $2.3 million in Fiscal 1995. The tax provision for Fiscal 1996 is for state and local taxes only, no federal tax benefit is recorded due to a valuation allowance. Fiscal 1995's tax benefit includes the carryback of net operating losses for a refund of prior tax paid net of state and local taxes paid, and was also subject to a valuation allowance. Loss/income from discontinued operations for Fiscal 1996 was zero compared to $12.3 million for Fiscal 1995. Fiscal 1995's expense relates to an additional reserve for disposal of Margo's and reversal of the reserve for discontinued operations set up for Bee-Gee in the 1994 fiscal year, as the Company had decided to retain Bee-Gee as a continuing operation in Fiscal 1995. The Margo's disposal was completed in January 1996 (i.e., Fiscal 1995). LIQUIDITY AND CAPITAL RESOURCES Prior to the filing for bankruptcy protection in October 1995, the Company's primary sources of funds were cash flow from operations and borrowings under various debt agreements, and during the Reorganization Cases were cash flow from operations and the DIP Credit Agreement. Since the Effective Date, the Company's principal sources of funds are cash flow from operations and borrowings under a three-year revolving credit facility and receivable securitization facility ("New Credit Facilities"). The Company's primary ongoing cash requirements are to fund debt service, make capital expenditures, and finance working capital. The Company believes that it will generate sufficient cash flow from operations, as supplemented by its available borrowings under the New Credit Facilities, to meet anticipated working capital and capital expenditure requirements, as well as debt service requirements under the New Credit Facilities and other debt instruments. The new revolving credit facility with Citicorp USA, Inc. as the Agent and Citibank N.A. as the Issuer (the "New Revolving Credit Facility"), provides for revolving credit loans of up to $125.0 million for seasonal working capital purposes (including a $30.0 million letter of credit subfacility). The borrowing base used in determining the aggregate availability for loans and other extensions of credit under the New Revolving Credit Facility is equal to (a) up to 95% of cash and (b) eligible finished-goods inventory as follows: January-October, up to 60%; and November-December, up to 65%, less such reserves as the Arranger deems appropriate. As of the end of Fiscal 1997, the Company's outstanding balance under the New Revolving Credit Facility was $11.0 million. 13 17 The Company's new receivable securitization facility with Citicorp North America, Inc., as agent (the "New Receivable Securitization Facility"), is a three-year variable rate loan agreement, in which the Company's customer accounts receivable serve as collateral. The New Receivable Securitization Facility is a revolving arrangement whereby the Company can borrow up to $125.0 million. The borrowings under the New Receivable Securitization Facility are subject to a borrowing base formula based primarily on outstanding customer accounts receivable. Borrowings bear interest at approximately LIBOR plus 50 basis points. As of the end of Fiscal 1997, the Company's outstanding balance under the New Receivable Securitization Facility was $123.0 million. The Company's capital expenditures for Fiscal 1997 were $21.0 million, of which $4.7 million related to data processing and the remaining $16.3 million related to store maintenance, remodeling, and expansions. The Company is in the process of reviewing its software inventory to determine the effort necessary to ensure a smooth transition through the year 2000 event. The results indicate that the costs of this effort will not be material. Third party software providers have either indicated that their software is currently year 2000 compliant, or that it will be compliant well before the year 2000. Third party providers are required to present their certification statement or project plans to ensure compliance by mid-1998. The Company is unable to ascertain any impact that the year 2000 event may have on other principal suppliers of the Company, but it has no reason to believe that any relationship with a principal supplier will be adversely affected. 14 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE INDEPENDENT AUDITORS' REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 31, 1998 AND FEBRUARY 1, 1997 AND FOR EACH OF THE THREE FISCAL YEARS IN THE PERIOD ENDED JANUARY 31, 1998: Balance Sheets 2 - 3 Statements of Operations 4 Statements of Shareholders' Equity 5 Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 - 21 15 19 INDEPENDENT AUDITORS' REPORT To the Board of Directors 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 31, 1998 and February 1, 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 1998 and February 1, 1997 and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. As discussed in Note A to the financial statements, on December 16, 1997, the Bankruptcy Court entered an order confirming the plan of reorganization, which became effective after the close of business on December 30, 1997. DELOITTE & TOUCHE LLP April 10, 1998 Dayton, Ohio 16 20 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
JANUARY 31, FEBRUARY 1, 1998 1997 ASSETS (DOLLARS IN THOUSANDS) Current assets: Cash and equivalents $ 6,497 $ 7,091 Customer accounts receivable (less allowance for doubtful accounts: fiscal 1997 - $4,177; fiscal 1996 - $3,800) 136,705 147,814 Merchandise inventories 137,507 126,850 Refundable income taxes 10,336 Assets of discontinued operations 3 Deferred tax asset 2,595 Other current assets 10,051 10,822 --------- --------- Total current assets 293,355 302,916 --------- --------- Property: Land and improvements 1,030 1,177 Buildings and leasehold improvements 62,074 54,361 Furniture, fixtures and equipment 87,132 76,047 --------- --------- Total cost 150,236 131,585 Less accumulated depreciation and amortization (86,980) (77,782) --------- --------- Property, net 63,256 53,803 --------- --------- Other assets 14,754 11,890 --------- --------- $ 371,365 $ 368,609 ========= =========
See notes to consolidated financial statements. 17 21
JANUARY 31, FEBRUARY 1, 1998 1997 (DOLLARS IN THOUSANDS, LIABILITIES AND SHAREHOLDERS' EQUITY EXCEPT SHARE DATA) Current liabilities: Current portion of long-term obligations $ 1,105 $ 57,931 Accounts payable 49,005 22,345 Accrued liabilities: Compensation and related items 8,562 8,696 Income and other taxes 6,581 6,421 Rent 2,079 2,009 Other 11,964 12,458 Liabilities of discontinued operations 10,216 --------- --------- Total current liabilities 79,296 120,076 --------- --------- Long-term obligations - less current portion 142,024 5,669 Deferred items 4,534 5,051 Liabilities subject to compromise 231,675 Commitments and contingencies Shareholders' equity: Series B convertible preferred stock, $.01 par value, 1,250,000 shares authorized, 662,474 issued and outstanding at February 1, 1997 7 Common stock, no par, 12,583,789 shares in fiscal 1997 and 124,036, shares in fiscal 1996 issued and outstanding 199,351 6,511 Additional paid-in capital 23,283 Unearned compensation - restricted stock, net (1,225) Deficit (52,615) (23,663) --------- --------- Total shareholders' equity 145,511 6,138 --------- --------- $ 371,365 $ 368,609 ========= =========
18 22 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED --------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Revenues: Net sales $ 581,372 $ 569,557 $ 590,018 Financing 26,574 27,451 18,913 ----------- --------- --------- Total revenues 607,946 597,008 608,931 ----------- --------- --------- Costs and Expenses: Cost of merchandise sold, occupancy and buying expenses 423,542 410,067 457,122 Selling, general and administrative expenses 151,293 156,892 169,919 Key employees retention bonus plan expense 4,000 4,994 Hiring and recruiting expenses for new executives 2,121 1,435 86 Provision for doubtful accounts 8,636 6,680 5,878 Interest expense 7,084 6,467 9,557 Other income (661) (1,106) ----------- --------- --------- Total costs and expenses 596,015 585,429 642,562 ----------- --------- --------- Income (loss) before reorganization items and income tax expense (benefit) 11,931 11,579 (33,631) Reorganization items (27,542) (23,648) (19,711) ----------- --------- --------- Loss before income tax expense (benefit), discontinued operations and extraordinary item (15,611) (12,069) (53,342) Income tax expense (benefit) (7,412) 360 (2,332) ----------- --------- --------- Loss from continuing operations (8,199) (12,429) (51,010) Discontinued operations 7,378 (12,276) ----------- --------- --------- Loss before extraordinary item (821) (12,429) (63,286) Extraordinary item (28,131) ----------- --------- --------- Net loss $ (28,952) $ (12,429) $ (63,286) =========== ========= ========= Basic and diluted earnings (loss) per common share: Loss from continuing operations $ (6.58) $ (100.20) $ (411.25) Discontinued operations 5.92 (98.97) Extraordinary item (22.58) ----------- --------- --------- Net loss $ (23.24) $ (100.20) $ (510.22) =========== ========= ========= Weighted average number of common shares outstanding 1,245,760 124,036 124,036 =========== ========= =========
See notes to consolidated financial statements. 19 23 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
UNEARNED TOTAL PREFERRED ADDITIONAL COMPENSATION - RETAINED SHARE- STOCK COMMON PAID-IN RESTRICTED EARNINGS HOLDERS' SERIES B STOCK CAPITAL STOCK (DEFICIT) EQUITY Shareholders' equity at January 28, 1995 (124,036 common shares outstanding) $ 7 $ 6,511 $ 23,283 $ $ 52,052 $ 81,853 Net loss (63,286) (63,286) --------- --------- --------- --------- --------- --------- Shareholders' equity at February 3, 1996 (124,036 common shares outstanding) 7 6,511 23,283 (11,234) 18,567 Net loss (12,429) (12,429) --------- --------- --------- --------- --------- --------- Shareholders' equity at February 1, 1997 (124,036 common shares outstanding) 7 6,511 23,283 (23,663) 6,138 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 (1,225) 35 --------- --------- --------- --------- --------- --------- Shareholders' equity at January 31, 1998 (12,583,789 common shares outstanding) $ $ 199,351 $ $ (1,225) $ (52,615) $ 145,511 ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements. 20 24 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ---------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net loss $ (28,952) $ (12,429) $ (63,286) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for doubtful accounts 8,636 6,680 5,878 Deferred income taxes (7,877) 5,270 Provision for depreciation and amortization 11,849 13,139 15,768 Loss on disposal of assets 665 1,737 6,640 Loss on equipment settlements 74 7,458 Stock-based compensation expense 85 Payment to general unsecured creditors (82,215) Discontinued operations (7,378) Extraordinary item 28,131 Changes in noncash assets and liabilities: Customer accounts receivable 2,473 (10,118) (9,621) Merchandise inventories (10,657) (7,545) 23,980 Refundable income taxes 10,336 Other current assets 2,308 (5,331) (2,841) Other long-term assets 1,566 916 (1,202) Discontinued operations 583 Accounts payable 16,423 (2,710) 66,850 Accrued liabilities 1,113 (2,478) 8,063 Deferred items 365 1,048 --------- --------- --------- Net cash provided by (used in) operating activities (53,420) (10,316) 57,130 --------- --------- --------- Cash flows from investing activities: Capital expenditures (20,994) (4,759) (11,401) Proceeds from surrender of insurance policies 271 3,000 Proceeds from sale of property 1,200 Proceeds from sale of investment 300 Acquisition of securitized receivables (115,000) --------- --------- --------- Net cash used in investing activities (20,994) (2,988) (123,401) --------- --------- --------- Cash flows from financing activities: Net borrowings under asset securization agreement 123,015 Net borrowings (payments) on bankers' acceptance and revolving lines of credit 10,960 29,500 Payments on long-term obligations (748) (991) (1,200) Debt acquisition costs (1,634) (1,052) (3,875) Net borrowings (payments) under DIP Facility (57,773) 7,773 50,000 --------- --------- --------- Net cash provided by financing activities 73,820 5,730 74,425 --------- --------- --------- Increase (decrease) in cash and equivalents (594) (7,574) 8,154 Cash and equivalents - beginning of year 7,091 14,665 6,511 --------- --------- --------- Cash and equivalents - end of year $ 6,497 $ 7,091 $ 14,665 ========= ========= ========= Supplemental cash flow information: Interest paid $ 6,945 $ 6,929 $ 11,053 Income taxes paid 497 335 300 Supplemental non-cash investing and financing activities: Property acquired from lease incentives $ 44 $ 366 $ 1,956 Property acquired from lease settlements 235 3,142
See notes to consolidated financial statements. 21 25 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- A. CHAPTER 11 CASE On October 17, 1995 (the "Filing Date") , The Elder-Beerman Stores Corp. and its Subsidiaries (collectively, the "Company") filed petitions for relief under chapter 11 of the United States Bankruptcy Code ("Chapter 11"). From that time until December 30, 1997, the Company operated its business as a debtor in possession subject to the jurisdiction of the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"). On December 30, 1997 (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 consolidated financial statements of the Company during its Chapter 11 case are presented in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"). As of the Effective Date, the reorganization value of assets of the Company exceeded total liabilities. As such, in accordance with SOP 90-7, fresh-start accounting and reporting was not adopted. The Joint Plan establishes 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 and preferred stock and the issuance of warrants. In addition, the Joint Plan provides 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. The cash disbursements upon the effectiveness of the Joint Plan are 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 are 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 ===========
22 26 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 (see Note I). 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 is 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 =========
The February 1, 1997, consolidated balance sheet includes liabilities subject to resolution in the Chapter 11 case. These liabilities are classified as liabilities subject to compromise under reorganization proceedings, and are comprised of the following:
FEBRUARY 1, 1997 Accounts payable and accrued liabilities $ 92,209 Unsecured debt 131,900 Secured debt 2,455 Capital lease obligations 2,834 Accrued interest 2,277 -------- $231,675 ========
B. SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - The Company operates principally in midwestern states, through retail department stores and free-standing shoe stores. The women's specialty stores (Margo's La Mode, Inc.) were liquidated in 1995 (see Note N). ESTIMATES - The preparation of the consolidated financial statements in conformity with generally accepted accounting principles 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. 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). All significant intercompany balances and transactions have been eliminated in consolidation. 23 27 FISCAL YEAR - The Company's fiscal year ends on the Saturday nearest January 31. Fiscal years 1997 and 1996 consist of 52 weeks, and fiscal year 1995 consists of 53 weeks ended January 31, 1998, February 1, 1997 and February 3, 1996, respectively. 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 since the average collection period is generally less than one year. MERCHANDISE INVENTORIES - Retail inventory is determined principally by the retail method applied on a last-in, first-out (LIFO) basis and is stated at the lower of cost or market. If the first-in, first-out (FIFO) basis had been used, inventories would be higher by $6,657 at January 31, 1998 and $8,043 at February 1, 1997. 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 include the value assigned to lease agreements acquired in an acquisition that is being amortized over the lease terms. The Company continually evaluates, based upon income and/or cash flow projections and other factors as appropriate, whether events and circumstances have occurred that indicate that the remaining estimated useful life of the asset warrants revision or that the remaining balance of this asset may not be recoverable. During fiscal year 1995, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Upon the adoption of SFAS No. 121, the Company recognized an impairment loss of $551 related to the value assigned to lease agreements associated with closed stores, which is included in cost of merchandise sold, occupancy and buying expenses. 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. PRE-OPENING COSTS associated with opening new stores are expensed as incurred. ADVERTISING EXPENSE - The cost of advertising is expensed as incurred. 24 28 NET EARNINGS (LOSS) PER COMMON SHARE are computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the year. Stock options, restricted shares and warrants outstanding at January 31, 1998, represent potential common shares and are not included in computing diluted earnings per share as the effect on the current year would be antidilutive. Share and per share amounts for all periods presented have been restated to reflect the adoption of SFAS No. 128, Earnings Per Share, and the effect of the issuance of new common stock upon the Company's emergence from bankruptcy. 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. RECLASSIFICATIONS - Certain amounts in the fiscal 1996 and 1995 financial statements have been reclassified to conform with the fiscal 1997 presentation. C. CUSTOMER ACCOUNTS RECEIVABLE Customer accounts receivable, which represent finance subsidiary receivables (Note D), are classified as shown in the following table. Interest is charged at an annual rate of 18% to 21%, depending on state law.
JANUARY 31, FEBRUARY 1, TYPE OF ACCOUNT 1998 1997 Optional and other $ 131,825 $ 140,623 Deferred payment 9,736 12,239 --------- --------- Total 141,561 152,862 Less: Allowance for doubtful accounts (4,177) (3,800) Unearned interest on deferred contracts (679) (1,248) --------- --------- Customer accounts receivable, net $ 136,705 $ 147,814 ========= =========
25 29
YEAR ENDED ------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 ------- ------- ------- Allowance for doubtful accounts: Balance, beginning of year $ 3,800 $ 3,200 $ 1,700 Provision 8,636 6,680 5,878 Charge offs, net of recoveries (8,259) (6,080) (4,378) ------- ------- ------- Balance, end of year $ 4,177 $ 3,800 $ 3,200 ======= ======= =======
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. Deferred payment accounts include the remaining unearned interest charge to be received. Unearned interest is amortized to finance income using the effective interest method. D. FINANCE SUBSIDIARY The El-Bee Chargit Corp. ("Chargit") purchases substantially all Elder-Beerman and subsidiaries' proprietary credit card receivables; such receivables are purchased at a 2% discount (as of January 1998, 3% discount). Customer accounts receivable held by the finance subsidiary are included in Note C; purchase discounts are eliminated in consolidation.
JANUARY 31, FEBRUARY 1, BALANCE SHEETS 1998 1997 Assets: Customer accounts receivable - net $ 136,705 $ 147,814 Unamortized purchase discount (2,923) (3,057) Intercompany - prepetition 4,845 Other assets 3,658 2,295 --------- --------- Total $ 137,440 $ 151,897 ========= ========= Liabilities and shareholder's equity: Liabilities $ 519 $ 2,286 Intercompany - postpetition 7,230 114,769 Liabilities subject to compromise 445 Long-term financing 123,015 Shareholder's equity 6,676 34,397 --------- --------- Total $ 137,440 $ 151,897 ========= =========
26 30
YEAR ENDED ---------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, STATEMENTS OF OPERATIONS 1998 1997 1996 -------- -------- -------- Revenues: Financing (net of securitization expense of $5,933, for fiscal 1995) $ 26,574 $ 27,451 $ 18,913 Purchase discount 5,507 5,277 5,594 -------- -------- -------- Total revenues 32,081 32,728 24,507 -------- -------- -------- Expenses: Occupancy costs 322 298 300 Selling, general and administrative 6,691 6,219 6,186 Provision for doubtful accounts 8,636 6,680 5,878 Other (income) expense 611 (1,106) Interest expense 748 -------- -------- -------- Total expenses 17,008 12,091 12,364 -------- -------- -------- Income before reorganization items and income taxes 15,073 20,637 12,143 Reorganization items (31) (5,288) -------- -------- -------- Income before income taxes and extraordinary item $ 15,042 $ 20,637 $ 6,855 ======== ======== ========
On December 30, 1997, Chargit entered into a three-year variable-rate securitization loan agreement ("Securitization Facility") with a commercial bank, in which Chargit's customer accounts receivable are pledged as collateral under the related Securitization Facility (see Note F). The Securitization Facility is a revolving arrangement whereby Chargit can borrow up to $125,000. As of January 31, 1998, borrowings on Chargit's financial statements were $123,015. On December 30, 1997, as a requirement of the Securitization Facility, the Company entered into an interest rate swap agreement with a notional amount of $115,000, expiring September 28, 2001, to reduce the impact of interest rate changes on future interest expense. This agreement has been matched to the Securitization Facility to reduce the impact of interest rate changes on cash flows. Prior to the Filing Date, the Company had a variable rate asset securitization agreement with a commercial bank whereby it could sell up to $115,000 of customer accounts receivable. The Company sold approximately $115,000 of customer accounts receivable under this agreement. These receivables were sold with a repurchase liability for balances ultimately determined to be uncollectible. As a result of the bankruptcy filing, the Company discontinued its accounts receivable sale program and terminated its asset securitization agreement. Upon termination of the accounts receivable sale program, the notional amount of the effective interest rate swap agreements hedged against receivables sold was $55,000. This notional amount was unmatched and a $5,025 mark-to-market adjustment was recorded as reorganization expense in fiscal 1995. For the period from the Filing Date to the Effective Date, the estimated market value of the interest rate swaps were recorded as liabilities subject to compromise. Mark-to-market adjustments of $619 and ($1,106) are recorded as other expense (income) in fiscal 1997 and 1996, respectively. The unmatched interest rate swap agreement was paid off in December 1997. 27 31 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 has outstanding swap agreements with notional amounts totaling $115,000 and $55,000 for the fiscal years ended 1997 and 1996, respectively. 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. E. OTHER ASSETS
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ----------- Deferred tax asset $ 5,282 $ Value assigned to lease agreements 3,042 3,554 Receivables from developers 2,380 Unamortized debt issuance costs 909 454 Import deposits 2,555 2,555 Other 2,966 2,947 ----------- ----------- $ 14,754 $ 11,890 =========== ===========
Receivables from developers represent receivables related to lease incentives, in the form of construction reimbursements and advertising allowances and are included in other long-term assets in fiscal 1996 because payment of certain construction reimbursements by the developer to the Company are contingent on the Company's lease assumption and/or payments for construction work performed. In fiscal 1997, these amounts are classified as current because the Company expects to receive all amounts in fiscal 1998. F. LONG-TERM OBLIGATIONS On December 30, 1997, the Company entered into a three-year $125,000 Revolving Credit Facility ("Credit Facility") and Securitization Facility that effectively replaced the prior DIP Facility and paid certain liabilities subject to compromise and administrative claims. The Credit Facility provides for borrowings and letters of credit in an aggregate amount up to $125,000, subject to a borrowing base formula based primarily on merchandise inventories. There was a $30,000 sublimit for letters of credit, which was temporarily increased to $60,000 in fiscal 1998. Borrowings bear interest at either prime plus 37.5 basis points or LIBOR plus 137.5 basis points through January 1999. Subsequent to January 1999, the interest rate on these borrowings can fluctuate based on certain financial ratios of the Company. As of January 31, 1998, the Company had $10,960 in outstanding borrowings, $8,167 in outstanding letters of credit and approximately $51,000 available for additional borrowings under the Credit Facility. The Securitization Facility provides for the Company to borrow up to $125,000. The borrowings under this facility are subject to a borrowing base formula based primarily on outstanding consumer accounts receivable. Borrowings bear interest at approximately 1-month LIBOR, plus 50 basis points. 28 32 Certain financial covenants related to debt, capital expenditures, interest and fixed charge expenditures are included in these 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. Long-term obligations consist of the following:
JANUARY 31, FEBRUARY 1, 1998 1997 -------- -------- DIP Facility $ $ 57,773 Revolving credit arrangement 3,600 Unsecured credit facility: Eurodollar borrowings 40,000 Bankers' acceptances 13,300 Competitive bid advances 5,000 Unsecured senior notes payable, Series A-C 50,000 Unsecured senior notes payable 20,000 Mortgage note payable, 9.75% 2,669 2,727 Industrial development revenue bonds, variable rates based on published index of tax-exempt bonds (5.15%) 4,260 5,555 Capital lease obligations (Note G) 2,225 2,834 Credit facility (8.0%) 10,960 Securitization facility (5.9%) 123,015 -------- -------- Total 143,129 200,789 Less: Liabilities subject to compromise 137,189 DIP Facility 57,773 Current portion of long-term obligations, not subject to compromise 1,105 158 -------- -------- Net long-term obligations $142,024 $ 5,669 ======== ========
Maturities of borrowings are $1,105 in 1998, $951 in 1999, $134,942 in 2000, $870 in 2001, $362 in 2002, and $4,899 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 $5,675 at January 31, 1998. Mechanics' liens have been filed in respect of improvements made to certain properties. 29 33 G. 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. Minimum annual rentals, for leases having initial or remaining noncancelable lease terms in excess of one year at January 31, 1998, are as follows:
OPERATING CAPITAL FISCAL YEAR LEASES LEASES -------- -------- 1998 $ 18,099 $ 824 1999 16,203 584 2000 13,676 525 2001 11,459 347 2002 10,358 174 Thereafter 77,872 121 -------- -------- Minimum lease payments $147,667 2,575 ======== Less imputed interest 350 -------- Present value of net minimum lease payments $ 2,225 ========
YEAR ENDED ----------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, RENT EXPENSE 1998 1997 1996 ------- ------- ------- Operating leases: Minimum $17,677 $20,489 $23,228 Contingent 2,108 2,136 2,766 ------- ------- ------- Total rent expense $19,785 $22,625 $25,994 ======= ======= =======
JANUARY 31, FEBRUARY 1, ASSETS HELD UNDER CAPITAL LEASES 1998 1997 -------- -------- Buildings $ 11,033 $ 11,033 Equipment 235 Less accumulated depreciation and amortization (9,997) (9,565) -------- -------- Net $ 1,271 $ 1,468 ======== ========
Assets acquired under capital leases are included in the consolidated balance sheets as property, while the related obligations are included in long-term obligations (see Note F). 30 34 H. INCOME TAXES Income tax expense (benefit) consists of the following:
YEAR ENDED ---------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 -------- -------- -------- Current: Federal $ $ $(10,400) State and local 465 360 504 -------- -------- -------- 465 360 (9,896) -------- -------- -------- Deferred: Net operating losses and tax credit carryforwards (5,529) (13,560) (6,487) Interest (6,119) 6,119 Deferred income 1,804 1,513 (270) Discontinued operations 2,362 158 (274) Other 3,364 (725) (4,200) Valuation allowance (3,759) 6,495 20,787 -------- -------- -------- (7,877) 9,556 -------- -------- -------- Income tax expense (benefit) $ (7,412) $ 360 $ (340) ======== ======== ======== Income statement classification: Continuing operations $ (7,412) $ 360 $ (2,332) Discontinued operations 1,992 -------- -------- -------- Total $ (7,412) $ 360 $ (340) ======== ======== ========
The current tax benefit in fiscal 1995 includes the carryback of net operating losses for a refund of prior taxes paid. During fiscal 1997, this income tax refund was received by the Company. 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 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 -------- -------- -------- Federal statutory tax rate $ (5,464) $ (4,224) $(18,670) State and local taxes 465 360 504 Valuation allowance (7,579) 3,767 15,824 Permanent items 5,166 457 10 -------- -------- -------- Income taxes $ (7,412) $ 360 $ (2,332) ======== ======== ======== Effective tax (benefit) rate (47.5)% --% (4.4)% ======== ======== ========
31 35 Deferred income taxes consist of the following:
JANUARY 31, FEBRUARY 1, 1998 1997 -------- -------- Deferred tax assets: Net operating losses and tax credit carryforwards $ 25,576 $ 20,047 Discontinued operations 2,362 Deferred income 602 2,406 Bad debts 1,518 1,414 Other 4,280 7,517 -------- -------- 31,976 33,746 Valuation allowance (23,523) (27,282) Total deferred tax assets 8,453 6,464 -------- -------- Deferred tax liabilities: Interest expense 6,119 Other 576 345 -------- -------- Total deferred tax liabilities 576 6,464 -------- -------- Net $ 7,877 $ ======== ======== Included in the balance sheets: Current assets - deferred tax asset $ 2,595 $ Other assets 5,282 -------- -------- Net deferred tax assets $ 7,877 $ ======== ========
Permanent items consist primarily of 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. The federal net operating loss carryforward is approximately $64,000 and is available to reduce federal taxable income through 2012. The tax credit carryforward is approximately $2,600; of which $600 will expire in 2009 and 2010, and the balance is an indefinite carryforward. I. EMPLOYEE BENEFIT PLANS A defined-contribution employee benefit plan (the "401(k) Plan") covers substantially all employees. The Company may contribute to the Plan based on a percentage of compensation and on a percentage of income before income taxes. No contributions were made in fiscal years 1997, 1996 and 1995. Eligible employees can make contributions to the Plan through payroll withholdings of one to fifteen percent of their annual compensation. 32 36 The Plan includes an employee stock ownership component. At February 1, 1997, the Plan held all of the outstanding preferred shares of the Company. These preferred shares were included in the settlement of the general unsecured claims on December 30, 1997 (See Note A). The preferred shares were settled with a distribution of $4,184 in cash and issuance of 644,680 common shares. A Stock Purchase Plan was established under the Joint Plan. The Stock Purchase Plan provides for the Company's employees to purchase Elder-Beerman common stock at a 15% discount. Employees can make contributions to the Plan through payroll withholdings of one percent to ten percent of their annual compensation, up to a maximum of $25 per year. A total of 625,000 shares of common stock are registered and unissued under this plan. J. BONUS PLANS In 1995, the Company established a key employee retention program (the "KERP"). The KERP provided for bonus payments to be made during the Company's bankruptcy proceedings based on operating results and continued employment. Expenses of $4,000 and $4,994 were recorded in fiscal years 1997 and 1996, respectively. K. TRANSACTIONS WITH RELATED PARTIES The Company leased real estate under operating leases from certain affiliated entities, and made payments to these related parties totaling $3,247, $3,742 and $4,129 in fiscal years 1997, 1996 and 1995, respectively. As a result of the issuance of new common shares of the Company as of the Effective Date (see Note A), these entities' are no longer related parties at January 31, 1998. Balances with related parties at February 1, 1997 were as follows: Customer accounts receivable $368 Other current assets 60 Other long-term assets 460 Accounts payable and other liabilities 536 Liabilities subject to compromise 951
L. SHAREHOLDERS' EQUITY The Company authorized 25 million no par new common shares effective with the Company's bankruptcy emergence. 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, 1998, unless the Board of Directors takes action prior to that date to extend the rights, and are presently redeemable at $.01 per right. At December 30, 1997, the Company issued shares of common stock to its general unsecured claimants, which included 644,680 shares of common stock issued in satisfaction of the claims of the old Series B Preferred Shareholders. The Board of Directors has the authority to issue five million shares of new preferred stock. At January 31, 1998, these shares are unissued. 33 37 M. STOCK-BASED COMPENSATION During the fourth quarter of 1997, stock options and restricted shares were granted to designated employees and nonemployee directors under the new Equity and Performance Incentive Plan. This plan also authorizes the Company's Board of Directors to grant 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 1,310,000 shares have been issued as of January 31, 1998. On December 30, 1997, 773,000 stock options with an exercise price of $10.89 per share were granted to directors, officers and key employees under the Equity and Performance Incentive Plan. The options granted have a maximum term of ten years and vest over a period of three to five years. At January 31, 1998, none of the 773,000 stock options outstanding are exercisable. The following table summarizes the fair value of options granted using the Black-Scholes Option Pricing Model: Fair value of options granted during the year $ 8.63 Weighted-average assumptions used for grants: Expected dividend yield 0 % Expected volatility 35 % Risk-free interest rate 6.5 % Expected life 7 years
The Restricted Stock 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. There were 86,793 shares awarded under this plan in January 1998. The fair value of the restricted shares awarded is $1,260 and is being amortized over the three year vesting period. Total compensation costs charged to loss from continuing operations before income taxes for all stock-based compensation awards was approximately $85 in fiscal 1997. Had compensation costs been determined based on the fair value method of SFAS No. 123 for all plans, the Company's net loss and loss per common share would have been reduced to the following pro forma amounts:
YEAR ENDED JANUARY 31, 1998 Net loss: As reported $ (28,952) Pro forma (29,018) Loss per common share: As reported (23.24) Pro forma (23.29)
34 38 N. DISCONTINUED OPERATIONS In fiscal 1994, the Company adopted formal plans to dispose of its subsidiaries, Margo's La Mode, Inc. ("Margo's") and The Bee-Gee Shoe Corp. ("Bee Gee") and recorded reserves for loss on disposal of $9,834, net of tax benefit of $5,066. During fiscal 1995, the Company was unsuccessful in its attempt to sell Margo's and decided to liquidate the subsidiary. During fiscal 1996, management determined the value of Bee Gee would be more effectively realized by retaining Bee Gee as a part of the Company's ongoing operations. Based on management's estimates and the change in the disposition strategy of Margo's in 1995, the Company provided an additional reserve of $19,262 (including income tax expense of $1,992) for the discontinued operations of Margo's. The discontinued operations expense of $12,276 for fiscal 1995 includes the additional reserve for Margo's net of the reversal of reserves for Bee Gee of $6,986 as a result of management's decision in fiscal 1996, previously discussed. Margo's operating losses of $322, $451 and $16,419 were charged against the reserve for discontinued operations for fiscal years 1997, 1996 and 1995, respectively. Margo's net sales were $34,227 in 1995. Margo's did not have any sales subsequent to fiscal 1995. The settlement of Margo's liabilities subject to compromise and other liabilities upon the Company's emergence from bankruptcy during fiscal 1997 resulted in a net gain from discontinued operations of $7,378. The Company was able to utilize operating loss carryforwards that were fully reserved in prior years to offset the income tax expense related to the gain on discontinued operations. Therefore, there is no income tax expense recorded in connection with this gain. O. REORGANIZATION ITEMS Reorganization costs consist of the following:
YEAR ENDED ----------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 ------- ------- ------- Professional fees $15,505 $ 8,612 $ 3,586 Equipment lease settlements 74 7,458 Restructuring 6,852 4,497 8,897 Adjustment to liabilities subject to compromise 2,326 Reorganization bonus 2,100 Financing costs 685 3,081 2,203 Market value adjustments of interest rate swaps 5,025 ------- ------- ------- Total $27,542 $23,648 $19,711 ======= ======= =======
Subsequent to the Chapter 11 filings, the Company began restructuring its business and decided, among other things, to close two outlet stores and certain Bee Gee locations and discontinue certain vendors in fiscal 1995 and closed a furniture store in fiscal 1996. In fiscal 1997 the Company closed two department stores and discontinued certain departments. Property impairment, severance and certain store closing costs are included in restructuring costs. The Company negotiated various equipment lease settlements primarily during fiscal 1996. Equipment lease settlement costs primarily resulted from renegotiated leases where cash payments and unsecured claims satisfied under the Joint Plan were granted in exchange for ownership of the equipment and relief from other claims previously filed in connection with the underlying leases. 35 39 In 1995, the market value adjustments of interest rate swaps represent the recognition of losses on interest rate swaps previously hedged against accounts receivable sold. Financing costs include the write-off of the unamortized balance of previously deferred financing costs and amortization of fees associated with the DIP facility. P. 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. ACCOUNTS RECEIVABLE AND DIP FACILITY - The net carrying amount approximates fair value because of the relatively short average maturity of the instruments. 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 following table summarizes the carrying amount and estimated fair value of the interest rate swap agreements.
JANUARY 31, 1998 FEBRUARY 1, 1997 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE Financial instruments - interest rate swaps $ -- $ -- $(1,415) $(1,415) Unrecognized financial instruments - interest rate swaps (1,548) (579) (844)
Q. 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 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. * * * * * * 36 40 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. 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 55 Chairman of the Board and Chief Executive Officer John A. Muskovich 51 President, Chief Operating Officer, Chief Financial Officer and Director James M. Zamberlan 51 Executive Vice President, Stores Steven D. Lipton 47 Senior Vice President, Controller Perry J. Schiller 40 Senior Vice President and Treasurer Scott J. Davido, Esq. 36 Senior Vice President, General Counsel, and Secretary Stewart M. Kasen 58 Director Steven C. Mason 62 Director Thomas J. Noonan, Jr. 58 Director Bernard Olsoff 69 Director Laura H. Pomerantz 50 Director Jack A. Staph 52 Director John J. Wiesner 60 Director
Frederick J. Mershad has served as Chairman of the Board of Elder-Beerman since December 1997, as Chief Executive Officer of Elder-Beerman since January 1997 and as President 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 Proffitt's, 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 Rich's Department Stores, Inc. 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, Chief Financial 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. 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 Department Stores, Inc. ("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. 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 Department Stores, Inc. 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. Perry J. Schiller has served as Senior Vice President and Treasurer of Elder-Beerman since November 1995. Prior to this time, Mr. Schiller served as the Director of Internal Audit for Elder-Beerman from October 1993 to November 1995 and served as a Senior Manager of Financial Audit for Deloitte & Touche LLP from May 1988 to October 1993. 37 41 Scott J. Davido, Esq. has served as Senior Vice President, General Counsel, and Secretary of Elder-Beerman since January 1998. 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. Stewart M. Kasen has served as a Director of Elder-Beerman since December 1997. Currently, Mr. Kasen is a private investor. 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 Chairman of the Board of Directors of Factory Card Outlet Corp., and as a Director of Markel Corp., O'Sullivan Industries Holdings, Inc., Bibb Co., and K2 Inc. Steven C. Mason has served as a Director of Elder-Beerman since December 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 is also currently a Director of PPG Industries, Inc. and Cincinnati Bell. Thomas J. Noonan, Jr. has served as a Director of Elder-Beerman since December 1997. Mr. Noonan serves as Managing Director of The Coppergate Group, a financial investment and management company, and has served in this capacity since April 1993. Mr. Noonan also serves 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, and has served in this capacity since August 1994. Prior to this time, Mr. Noonan served as Managing Director and Chief Executive Officer of TFGII, a financial investment and management company, from January 1993 to October 1994, and as Executive Vice President of Intrenet Inc., a trucking holding company, from September 1990 to March 1993. Mr. Noonan is also currently a Director of Intrenet Inc. and Richman Gordman 1/2 Price Stores Inc. Bernard Olsoff has served as a Director of Elder-Beerman since December 1997. Mr. Olsoff retired from Frederick Atkins, Inc., 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 and Chief Operating Officer from 1983 to 1994. Laura H. Pomerantz has served as a Director of Elder-Beerman since December 1997. 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 The Leslie Fay Companies, Inc. ("Leslie Fay"), an apparel design and manufacturing company, 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 December 1997. Currently, Mr. Staph is a consultant and a 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 December 1997. 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 is also currently a Director of Stage Stores, Inc. and Lamonts Apparel, Inc. 38 42 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 to file reports of ownership and changes of ownership with the Securities and Exchange Commission and NASDAQ. The Company assists its Directors and Executive Officers in completing and filing those reports. The Company believes that during the last completed fiscal year all filing requirements applicable to its Directors and Executive Officers were complied with except that Mr. Schiller's Initial Statement of Beneficial Ownership of Securities did not include the approximately 24 shares of Common Stock allocated to Mr. Schiller under the Elder-Beerman Stores Corp. Profit Sharing and Stock Ownership Plan. ITEM 11. EXECUTIVE COMPENSATION The compensation discussion that follows has been prepared based on the actual plan and non-plan compensation awarded to, earned by or paid to the Company's named executive officers during the periods presented. The Company's compensation arrangements with its directors and employment contracts and several arrangements with its named executive officers are also described below. 39 43 CASH COMPENSATION TABLE The following table sets forth the compensation paid or payable by the Company during Fiscal 1995, Fiscal 1996 and Fiscal 1997, to those individuals serving as the registrant's chief executive officer at any time during Fiscal 1997 and certain other highly compensated executive officers of the Company.
Annual Compensation Long-Term Compensation ------------------- --------------------------- Awards Payouts ------------------- ------- Securities Other Restricted Underlying Annual Stock Options/ LTIP All Other Name and Principal Salary Bonus Compen- Award(s) SARs Payouts Compen- Position Year ($) ($) sation ($) ($) (#) ($) sation ($) -------- ---- --- --- ---------- --- --- --- ---------- Frederick J. Mershad 1997 503,344 500,000 (1) 51,251(2) 47,087 194,000 -- -- Chairman of the Board and 1996 19,231 633,632 (3) -- -- -- -- -- Chief Executive Officer 1995 -- -- -- -- -- -- -- John A. Muskovich 1997 267,335 598,750 (4) -- 34,802 (5) 126,000 -- -- President, Chief Operating 1996 183,974 67,908 -- -- -- -- -- Officer and 1995 -- -- -- -- -- -- -- Chief Financial Officer James M. Zamberlan 1997 164,944 41,313 -- 1,404 (6) 61,000 -- -- Executive Vice President, 1996 -- -- -- -- -- -- -- Stores 1995 -- -- -- -- -- -- -- Steve D. Lipton 1997 132,897 19,763 -- 1,701 (7) 21,000 -- -- Senior Vice President, 1996 103,143 45,820 -- -- -- -- -- Controller 1995 -- -- -- -- -- -- -- Perry J. Schiller 1997 118,489 27,600 -- 594 (8) 15,000 -- -- Senior Vice President 1996 113,846 34,500 -- -- -- -- -- and Treasurer 1995 93,365 5,750 -- -- -- -- -- Max Gutmann (9) 1997 667,071(10) 800,000 (11) -- -- -- -- -- Chairman of the Board 1996 388,846 160,000 -- -- -- -- -- 1995 107,308 -- -- -- -- -- -- Herbert O. Glaser (12) 1997 517,159(13) 670,000 (14) -- -- -- -- -- Vice Chairman 1996 309,030 134,000 -- -- -- -- -- 1995 135,000 -- -- -- -- -- --
- ------------------------- (1) Amount includes a $250,000 reorganization bonus granted to Mr. Mershad by the Board of Directors on March 11, 1998, paid in the same manner as the reorganization bonus previously paid to Messrs. Muskovich, Gutmann and Glaser. (2) Moving expense reimbursement. (3) In accordance with his employment contract, Mr. Mershad received a signing bonus of $633,632 as reimbursement for forfeiting his performance bonus, restricted stock grants, and stock options that he would have received from his prior employer. (4) Amount includes a $550,000 reorganization bonus awarded to Mr. Muskovich pursuant to the Plan, paid 32.9% in cash and 62.1% in stock (at $14.52 per share). (5) Includes 3,357 deferred shares and 839 restricted shares awarded Mr. Muskovich as the deferred portion of his 1997 bonus pursuant to the Equity and Performance Incentive Plan. (6) Includes 1,123 deferred shares and 281 restricted shares awarded Mr. Zamberlan as the deferred portion of his 1997 bonus pursuant to the Equity and Performance Incentive Plan. (7) Includes 1,361 deferred shares and 340 restricted shares awarded Mr. Lipton as the deferred portion of his 1997 bonus pursuant to the Equity and Performance Incentive Plan. (8) Includes 475 deferred shares and 119 restricted shares awarded to Mr. Schiller as the deferred portion of his 1997 bonus pursuant to the Equity and Performance Incentive Plan. (9) Effective December 30, 1997, Mr. Gutmann was replaced by Mr. Mershad as Chairman of the Board of Directors. (10) Includes severance payment of $400,000. (11) Amount represents a reorganization bonus awarded to Mr. Gutmann pursuant to the Plan, paid 32.9% in cash and 62.1% in Stock (at $14.52 per share). (12) Effective August 1997, Mr. Glaser is no longer employed by the Company. (13) Includes severance payment of $335,000. (14) Amount represents a reorganization bonus awarded to Mr. Glaser pursuant to the Plan, paid 32.9% in cash and 62.1% in stock (at $14.52 per share). 40 44 FISCAL 1997 OPTION GRANTS The following table sets forth information concerning individual grants of stock options to the Company's named executive officers during Fiscal 1997.
Individual Grants Potential Realizable Value ----------------------------------------------------- At Assumed Annual Rate Of Stock Price Appreciation For Option Term ---------------------------- Percent Of Number Of Total Securities Options Underlying Granted To Exercise Options Employees In Of Base Expiration Name Granted (#) Fiscal Year Price ($/Sh) Date 0% ($) 5% ($) 10% ($) ---- ----------- ----------- ------------ ---- ------ ------ ------- Frederick J. Mershad 194,000 24.6 $10.89 12/30/07 704,220 2,475,440 5,193,380 John A. Muskovich 126,000 16.0 $10.89 12/30/07 457,380 1,607,760 3,373,020 James M. Zamberlan 61,000 7.7 $10.89 12/30/07 221,430 778,360 1,632,970 Steve D. Lipton 21,000 2.7 $10.89 12/30/07 76,230 267,960 562,170 Perry J. Schiller 15,000 1.9 $10.89 12/30/07 54,450 191,400 401,550 Max Gutmann 0 0.0 -- -- 0 0 0 Herbert O. Glaser 0 0.0 -- -- 0 0 0
- ------------------------- (1) One-fifth of the options vest on each of December 30, 1998, 1999, 2000, 2001, 2002. (2) There was no established market price for the Company's stock on the date of grant. The Company's stock did not begin trading on NASDAQ until February 17, 1998, following distribution shares of Common Stock to creditors under the Plan. FISCAL 1997 AGGREGATED OPTION EXERCISES FY-END OPTION VALUES The following table sets forth information concerning the exercise of stock options by each of the Company's named executive officers during Fiscal 1997 and fiscal year end value of unexercised options.
Number Of Securities Value Of Unexercised Underlying Unexercised In-The-Money Shares Value Options At Fiscal Year-End (#) Options At Fiscal Year-End ($) Acquired On Realized ------------------------------ ------------------------------ Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable ---- ------------ --- ----------- ------------- ----------- ------------- Frederick J. Mershad 0 0 194,000 0 John A. Muskovich 0 0 126,000 0 James M. Zamberlan 0 0 61,000 0 Steve D. Lipton 0 0 21,000 0 Perry J. Schiller 0 0 15,000 0 Max Gutmann 0 0 0 0 Herbert O. Glaser 0 0 0 0
- ------------------------- (1) One-fifth of the options vest on each of December 30, 1998, 1999, 2000, 2001, 2002. (2) There was no established market price for the Company's stock on the date of grant. The Company's stock did not begin trading on NASDAQ until February 17, 1998, following distribution shares of Common Stock to creditors under the Plan. 41 45 EMPLOYMENT AND SEVERANCE AGREEMENTS WITH CERTAIN EXECUTIVES The Company has entered into employment agreements with Frederick J. Mershad, Chairman and Chief Executive Officer, and John A. Muskovich, President, Chief Operating Officer, and Chief Financial Officer and several of its other executive officers as described below (the "Employment Agreements"). The Employment Agreements with Messrs. Mershad and Muskovich were effective as of the Effective Date and will end on the third anniversary of the Effective Date. These Employment Agreements will be automatically renewed every year on the anniversary date of the employment agreement for an additional one year period, unless Mr. Mershad or Mr. Muskovich provides the Company or the Company provides Mr. Mershad or Mr. Muskovich with 180 days prior notice terminating this yearly renewal. 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. 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, 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, Lipton and Schiller. These executives serve the Company under their respective agreements for terms ending on the second anniversary, with respect to Mr. Schiller, or the third anniversary, with respect to Messrs. Davido, Lipton and Zamberlan, of the Effective Date with automatic yearly extensions thereafter, unless the Company or the executive has given written notice of termination not less than 120 days prior to the yearly renewal date. 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 master severance plan for certain key employees. 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 or her 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. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of Messrs. Olsoff, Staph and Wiesner. Prior to the Effective Date, the Company never had a Compensation Committee or other committee of the Board of Directors performing similar functions. 42 46 Previously, decisions concerning compensation of executive officers of the Company were made by the Company's Chief Executive Officer. DIRECTOR COMPENSATION Commencing on December 30, 1997, each director of Elder-Beerman who is not an employee of Elder-Beerman or any of its subsidiaries will be paid an annual base retainer fee of $15,000, with the choice to take such retainer as cash, in the form of a discounted stock option or as a combination of the two. Non-employee directors also will be paid $1,500 for each meeting of the Board of Directors attended and $500 for any committee meeting of the Board of Directors attended. Each such director also received an initial grant of (a) 1,300 shares of restricted stock and (b) 7,000 options to purchase shares of Common Stock. Members of the Board of Directors who are also employees of any of Elder-Beerman or any of its subsidiaries will receive no additional compensation for service on the Board of Directors. 43 47 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 the beneficial ownership of the Company's Common Stock as of March 27, 1998 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. Unless otherwise indicated, the named persons exercise sole voting and investment power over the shares that are shown as beneficially owned by them.
AMOUNT AND NATURE OF BENEFICIAL PERCENT BENEFICIAL OWNER OWNERSHIP (1) OF CLASS - --------------------------------------- ------------- -------- Perry Corp. (2) 772,943 6.10% 599 Lexington Avenue New York, New York 10022 Beerman-Peal Holdings, Inc. (3) 748,558 5.63% 11 West Monument Building 8th Floor Dayton, Ohio 45402 Bank of Montreal (4) 707,211 5.58% 115 South LaSalle Street Chicago, Illinois 60603 The Elder-Beerman Stores Corp. 644,680 5.09% Profit Sharing and Stock Ownership Plan 3155 El-Bee Road Dayton, Ohio 45401-1448 Stewart M. Kasen 1,300 * Steven C. Mason 1,300 * Frederick J. Mershad 105,075 * John A. Muskovich 76,023 * Thomas J. Noonan, Jr. 1,300 * Bernard Olsoff 1,300 * Laura H. Pomerantz 1,300 * Jack A. Staph 1,300 * John J. Wiesner 1,300 * James M. Zamberlan 10,000 * Max Gutmann 91,308 (5) * Herbert O. Glaser 45,443 (6) * All directors and executive officers as a group 200,198 1.57% (13 persons)
* less than 1% - ------------------------- (1) Information with respect to beneficial ownership is based on information furnished to the Company by each stockholder included in this table. Each stockholder included in this table has sole voting and investment power with respect to the shares shown to be beneficially owned by him. (2) According to Schedule 13G dated March 3, 1998 filed by Perry Corp. and Richard C. Perry, President and sole stockholder of Perry Corp. (3) Includes a Series A Warrant and a Series B Warrant with respect to 249,809 and 374,713 shares of Common Stock, respectively, both of which were granted December 30, 1997. Does not include approximately 34,161 shares owned by the beneficial owners of Beerman-Peal Holdings, Inc. through other entities. (4) According to Schedule 13G dated February 27, 1998 filed by Bank of Montreal. (5) Includes 54,338 shares distributed to Mr. Gutmann pursuant to the Plan in satisfaction of his claims in Class C-5, General Unsecured Claims. (6) Includes 14,381 shares distributed to Mr. Glaser pursuant to the Plan in satisfaction of his claims in Class C-5, General Unsecured Claims. 44 48 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 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 31, 1998 and February 1, 1997 - Consolidated Statements of Operations -- For the Years Ended January 31, 1998, February 1, 1997 and February 3, 1996 - Consolidated Statements of Changes in Shareholders' Equity -- For the Years Ended January 31, 1998, February 1, 1997 and February 3, 1996 - Consolidated Statements of Cash Flows -- For the Years Ended January 31, 1998, February 1, 1997 and February 3, 1996 - Notes to Consolidated Financial Statements - Report of Independent Auditors (a)(2) The following consolidated financial statement schedule of the Company and its subsidiaries is submitted herewith: - Financial Statement Schedule II, Valuation and Qualifying Accounts, for the years ended January 31, 1998, February 1, 1997 and February 3, 1996. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission 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 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) 3(a) Amended Articles of Incorporation 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)
45 49 4(c) Rights Agreement By and Between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 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 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 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 American, 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)
46 50 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)* 10(i) The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan, Effective December 30, 1997* 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
47 51 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* 10(t) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Frederick J. Mershad, dated December 30, 1997* 21 Subsidiaries of the Company 23 Consent of Independent Auditors 24 Powers of Attorney 27 Financial Data Schedule (b) There were no reports on Form 8-K filed during the three months ended January 31, 1998. (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.
48 52 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 30th day of April, 1998. THE ELDER-BEERMAN STORES CORP. By: /s/ Scott J. Davido, Esq. --------------------------------------------- Scott J. Davido, Esq. Senior Vice President, General Counsel 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 30, 1998.
Signature Title --------- ----- * Chairman of the Board of Directors and Chief Executive ______________________________ Officer Frederick J. Mershad (Principal Executive Officer) * President, Chief Operating Officer and Chief Financial ______________________________ Officer; Director John A. Muskovich (Principal Financial Officer) * Senior Vice President, Controller ______________________________ (Principal Accounting Officer) Steven D. Lipton * Director ______________________________ Stewart M. Kasen * Director ______________________________ Steven C. Mason * 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 30, 1998 By: /s/ Scott J. Davido, Esq. ------------------------------------- Scott J. Davido, Esq. Attorney-in-Fact 49 53 EXHIBIT INDEX 2 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) 3(a) Amended Articles of Incorporation 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 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 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 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 American, 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)
50 54 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)* 10(i) The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan, Effective December 30, 1997* 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)*
51 55 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 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* 10(t) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Frederick J. Mershad, dated December 30, 1997* 21 Subsidiaries of the Company 23 Consent of Independent Auditors 24 Powers of Attorney 27 Financial Data Schedule
52 EX-3.A 2 EXHIBIT 3(A) 1 Exhibit 3(A) AMENDED ARTICLES OF INCORPORATION OF THE ELDER-BEERMAN STORES CORP. ARTICLE I --------- The name of the corporation is The Elder-Beerman Stores Corp. (the "Corporation"). ARTICLE II ---------- The place in the State of Ohio where the Corporation's principal office is located is the City of Moraine, Montgomery County. ARTICLE III ----------- The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code. ARTICLE IV ---------- A. AUTHORIZED CAPITAL STOCK. The Corporation is authorized to issue 30,000,000 shares of capital stock, consisting of 25,000,000 shares of common stock, without par value ("Common Stock"), and 5,000,000 shares of preferred stock, without par value ("Preferred Stock"). B. PREFERRED STOCK. The Board of Directors shall have authority to issue Preferred Stock from time to time in one or more classes or series. The express terms of shares of a different series of any particular class shall be identical except for such variations as may be permitted by law. Without limiting the generality of the foregoing, the initial classes of Preferred Stock shall be designated Class A Preferred Stock, Class B Preferred Stock, and Class C Preferred Stock. Subject to such express terms as may hereafter be adopted by the Board of Directors, the voting rights of Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock shall be follows: 1. Each holder of Class A Preferred Stock shall be entitled to 100 votes per share and, except as otherwise required by law, shall vote together with the Common Stock as a single class on all matters properly submitted to a vote at a meeting of the shareholders. 2. Each holder of Class B Preferred Stock shall be entitled to one vote per share and, except as otherwise required by law, shall vote together with the 2 Common Stock as a single class on all matters properly submitted to a vote at a meeting of shareholders. 3. Holders of Class C Preferred Stock shall have no voting rights. ARTICLE V --------- The Board of Directors shall be authorized hereby to exercise all powers now or hereafter permitted by law providing rights to the Board of Directors to adopt amendments to these Amended Articles of Incorporation to fix or change the express terms of any unissued or treasury shares of any class, including, without limiting the generality of the foregoing: division of such shares into series and the designation and authorized number of shares of each series; voting rights of such shares (to the extent now or hereafter permitted by law); dividend or distribution rate; dates of payment of dividends or distributions and the dates from which they are cumulative; liquidation price; redemption rights and price; sinking fund requirements; conversion rights; and restrictions on the issuance of shares of the same series or any other class or series; all as may be established by resolution of the Board of Directors from time to time (collectively, a "Preferred Stock Designation"). ARTICLE VI ---------- Except as may be provided in any Preferred Stock Designation, holders of shares of capital stock of the Corporation shall not be entitled to cumulative voting rights in the election of directors. ARTICLE VII ----------- Except as may be provided in any Preferred Stock Designation, no holder of any shares of capital stock of the Corporation shall have any preemptive right to acquire any shares of unissued capital stock of any class or series, now or hereafter authorized, or any treasury shares or securities convertible into such shares or carrying a right to subscribe to or acquire such shares of capital stock. ARTICLE VIII ------------ The Corporation may from time to time, pursuant to authorization by the Board of Directors and without action by the shareholders, purchase or otherwise acquire capital stock of the Corporation of any class or classes in such manner, upon such terms and in such amounts as the Board of Directors shall determine; subject, however, to such limitation or restriction, if any, as is contained in any Preferred Stock Designation at the time of such purchase or acquisition. ARTICLE IX ---------- Except as may be provided in any Preferred Stock Designation, the Board of Directors shall consist of not less than eight nor more than 11 directors, as shall be fixed from time to time in the -2- 3 manner provided in the Amended Code of Regulations of the Corporation. The directors, other than those who may be expressly elected by virtue of the terms of any Preferred Stock Designation, will be classified with respect to the time for which they severally hold office into three classes, as nearly equal in size as possible and consisting of not less than three directors in each class, designated Class I, Class II, and Class III. The directors first appointed to Class I will hold office for a term expiring at the annual meeting of shareholders to be held in 1999; the directors first appointed to Class II will hold office for a term expiring at the annual meeting of shareholders to be held in 2000; and the directors first appointed to Class III will hold office for a term expiring at the annual meeting of shareholders to be held in the year 2001, with the members of each class to hold office until their successors are elected. Except as may be otherwise provided in any Preferred Stock Designation, at each annual meeting of shareholders of the Corporation, the successors of the class of directors whose terms expire at that meeting shall be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. Except as provided otherwise in any Preferred Stock Designation, directors may be elected by the shareholders only (i) at an annual meeting of shareholders or (ii) at a special meeting of shareholders called for that purpose if (a) no annual meeting is held, (b) an annual meeting is held but directors are not elected at such annual meeting, or (c) the shareholders increase the number of directors. Neither the holding of a special meeting of shareholders nor the election of directors at a special meeting of shareholders will, by itself, shorten the term of any incumbent director. No decrease in the number of directors constituting the Board of Directors may shorten the term of any incumbent director. Election of directors of the Corporation need not be by written ballot unless requested by the presiding officer or by the holders of a majority of the voting power of the Corporation present in person or represented by proxy at a meeting of shareholders at which directors are to be elected. For purposes of these Amended Articles of Incorporation, "voting power of the Corporation" means the aggregate voting power of (1) all the outstanding shares of Common Stock of the Corporation and (2) all the outstanding shares of any class or series of capital stock of the Corporation that has (i) rights to distributions senior to those of the Common Stock including, without limitation, any relative, participating, optional, or other special rights and privileges of, and any qualifications, limitations or restrictions on, such shares and (ii) voting rights entitling such shares to vote generally in the election of directors. ARTICLE X --------- Notwithstanding anything to the contrary contained in these Amended Articles of Incorporation, the affirmative vote of the holders of at least 72% of the voting power of the Corporation, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, Article VI, Article VII, Article VIII, Article IX or this Article X; PROVIDED, HOWEVER, that this Article X shall not alter the voting entitlement of shares that, by virtue of any Preferred Stock Designation, are expressly entitled to vote on any amendment to these Amended Articles of Incorporation. ARTICLE XI ---------- Notwithstanding anything to the contrary in these Amended Articles of Incorporation, the Corporation shall not issue any nonvoting equity securities to the extent prohibited by Section 1123 -3- 4 of the United States Bankruptcy Code as in effect on the effective date of the Plan of Reorganization of the Corporation and certain of its affiliated debtors, duly confirmed by the Bankruptcy Court in Jointly Administered Case No. 95-33643; PROVIDED, HOWEVER, that this Article XI (a) shall have no further force and effect beyond that required under Section 1123 of the United States Bankruptcy Code, (b) shall have such force and effect, if any, only for so long as such Section is in effect and applicable to the Corporation, and (c) in all events may be amended or eliminated in accordance with applicable law as from time to time in effect. ARTICLE XII ----------- Any and every statute of the State of Ohio hereafter enacted, whereby the rights, powers or privileges of corporations or of the shareholders of corporations organized under the laws of the State of Ohio are increased or diminished or in any way affected, or whereby effect is given to the action taken by any number, less than all, of the shareholders of any such corporation, shall apply to the Corporation and shall be binding not only upon the Corporation but upon every shareholder of the Corporation to the same extent as if such statute had been in force at the date of filing these Amended Articles of Incorporation in the office of the Secretary of State of Ohio. ARTICLE XIII ------------ These Amended Articles of Incorporation supersede the Corporation's existing Articles of Incorporation and all prior amendments thereto. -4- EX-4.C 3 EXHIBIT 4(C) 1 Exhibit 4(c) ================================================================================ RIGHTS AGREEMENT Dated as of December 30, 1997 By and Between THE ELDER-BEERMAN STORES CORP. and NORWEST BANK MINNESOTA, N.A., as Rights Agent ================================================================================ 2 TABLE OF CONTENTS ----------------- Page ---- 1. Certain Definitions......................................................1 2. Appointment of Rights Agent..............................................5 3. Issue of Right Certificates..............................................5 4. Form of Right Certificates...............................................6 5. Countersignature and Registration........................................6 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates..................7 7. Exercise of Rights; Purchase Price; Expiration Date of Rights............7 8. Cancellation and Destruction of Right Certificates.......................9 9. Company Covenants Concerning Securities and Rights.......................9 10. Record Date.............................................................10 11. Adjustment of Purchase Price, Number and Kind of Securities or Number of Rights ..............................................................11 12. Certificate of Adjusted Purchase Price or Number of Securities..........19 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power....19 14. Fractional Rights and Fractional Securities.............................21 15. Rights of Action........................................................23 16. Agreement of Rights Holders.............................................23 17. Right Certificate Holder Not Deemed a Stockholder.......................24 18. Concerning the Rights Agent.............................................24 19. Merger or Consolidation or Change of Name of Rights Agent...............24 (i) 3 Page ---- 20. Duties of Rights Agent..................................................25 21. Change of Rights Agent..................................................26 22. Issuance of New Right Certificates......................................27 23. Redemption..............................................................28 24. Exchange................................................................29 25. Notice of Certain Events................................................29 26. Notices.................................................................30 27. Supplements and Amendments..............................................31 28. Successors; Certain Covenants...........................................31 29. Benefits of This Agreement..............................................31 30. Governing Law...........................................................32 31. Severability............................................................32 32. Descriptive Headings, Etc...............................................32 33. Determinations and Actions by the Board.................................32 34. Counterparts............................................................33 Exhibit A...................................................................A-1 Exhibit B...................................................................B-1 Exhibit C...................................................................C-1 (ii) 4 RIGHTS AGREEMENT ---------------- This RIGHTS AGREEMENT, dated as of December 30, 1997 (this "Agreement"), is made and entered into by and between The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), and Norwest Bank Minnesota, N.A. (the "Rights Agent"). RECITALS -------- WHEREAS, pursuant to the final confirmation order entered by the Bankruptcy Court in Jointly Administered Case No. 95-33643 on December 30, 1997, the Company has effected a distribution of one right (a "Right") for each Common Share (as hereinafter defined) outstanding as of the Close of Business (as hereinafter defined) on the day that is ten days after the date on which the Company's Registration Statement on Form 10 is declared effective by the Securities and Exchange Commission (the "Record Date"), each Right initially representing the right to purchase one one-hundredth of a Preferred Share (as hereinafter defined), on the terms and subject to the conditions herein set forth, and further authorized and directed the issuance of one Right (subject to adjustment as provided herein) with respect to each Common Share issued or delivered by the Company (whether originally issued or delivered from the Company's treasury) after the Record Date but prior to the earlier of the Distribution Date (as hereinafter defined) and the Expiration Date (as hereinafter defined) or as provided in Section 22. NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "ACQUIRING PERSON" means any Person (other than the Company or any Related Person) who or which, together with all Affiliates and Associates of such Person, is the Beneficial Owner of 20% or more of the then-outstanding Common Shares; PROVIDED, HOWEVER, that a Person will not be deemed to have become an Acquiring Person solely as a result of a reduction in the number of Common Shares outstanding unless and until such time as (i) such Person or any Affiliate or Associate of such Person thereafter becomes the Beneficial Owner of additional Common Shares representing 1% or more of the then-outstanding Common Shares, other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Common Shares are treated equally, or (ii) any other Person who is the Beneficial Owner of Common Shares representing 1% or more of the then-outstanding Common Shares thereafter becomes an Affiliate or Associate of such Person; PROVIDED FURTHER, HOWEVER, that a Person (other than the Company or any Related Person) who or which, together with all Affiliates and Associates of such Person, was, at the time of the public announcement by the Company on December 30, 1997 of the distribution of the Rights, the Beneficial Owner of 20% or more of the then-outstanding Common Shares shall not be deemed to have become an Acquiring Person unless and until such time as (A) such Person or any Affiliate or Associate of such Person thereafter becomes the Beneficial Owner of additional Common Shares representing 1% or more of the then-outstanding Common Shares other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Common Shares are treated equally or (B) any other Person who is the Beneficial Owner of Common 5 Shares representing 1% or more of the then-outstanding Common Shares thereafter becomes an Affiliate or Associate of such Person. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person" as defined pursuant to the foregoing provisions of this paragraph (a), has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person" as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. (b) "AFFILIATE" and "ASSOCIATE" will have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Agreement. (c) A Person will be deemed the "BENEFICIAL OWNER" of, and to "BENEFICIALLY OWN," any securities: (i) the beneficial ownership of which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, warrants, options or other rights (in each case, other than upon exercise or exchange of the Rights); PROVIDED, HOWEVER, that a Person will not be deemed the Beneficial Owner of, or to Beneficially Own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has or shares the right to vote or dispose of, including pursuant to any agreement, arrangement or understanding (whether or not in writing); or (iii) of which any other Person is the Beneficial Owner, if such Person or any of such Person's Affiliates or Associates has any agreement, arrangement, or understanding (whether or not in writing) with such other Person (or any of such other Person's Affiliates or Associates) with respect to acquiring, holding, voting or disposing of any securities of the Company; PROVIDED, HOWEVER, that a Person will not be deemed the Beneficial Owner of, or to Beneficially Own, any security (A) if such Person has the right to vote such security pursuant to an agreement, arrangement or understanding (whether or not in writing) which (1) arises solely from a revocable proxy given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report), or (B) if such beneficial ownership arises solely as a result of such Person's status as a "clearing agency," as defined in Section 3(a)(23) of the Exchange Act; PROVIDED FURTHER, HOWEVER, that nothing in this paragraph (c) will cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to Beneficially Own, any securities acquired through such Person's 2 6 participation in good faith in an underwriting syndicate until the expiration of 40 calendar days after the date of such acquisition, or such later date as the Board of Directors of the Company may determine in any specific case. (d) "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banking institutions in the State of Ohio (or such other state in which the principal office of the Rights Agent is located) are authorized or obligated by law or executive order to close. (e) "CLOSE OF BUSINESS" on any given date means 5:00 P.M., Eastern time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it means 5:00 P.M., Eastern time, on the next succeeding Business Day. (f) "COMMON SHARES" when used with reference to the Company means the shares of common stock, without par value, of the Company; PROVIDED, HOWEVER, that, if the Company is the continuing or surviving corporation in a transaction described in Section 13(a)(ii), "Common Shares" when used with reference to the Company means shares of the capital stock or units of the equity interests with the greatest aggregate voting power of the Company. "Common Shares" when used with reference to any corporation or other legal entity other than the Company, including an Issuer, means shares of the capital stock or units of the equity interests with the greatest aggregate voting power of such corporation or other legal entity. (g) "DISTRIBUTION DATE" means the earlier of: (i) the Close of Business on the Share Acquisition Date, or (ii) the Close of Business on the tenth Business Day (or, unless the Distribution Date shall have previously occurred, such later date as may be specified by the Board of Directors of the Company) after the date of the commencement of a tender or exchange offer by any Person (other than the Company or any Related Person), if upon the consummation thereof such Person would be the Beneficial Owner of 20% or more of the then-outstanding Common Shares. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "EXPIRATION DATE" means the earliest of (i) the Close of Business on the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in Section 23 or exchanged as provided in Section 24, and (iii) the time at which all exercisable Rights are exchanged as provided in Section 24. (j) "FINAL EXPIRATION DATE" means (i) the first anniversary of the Effective Date or (ii) such later date as the Board of Directors, by resolution adopted prior to the first anniversary of the Effective Date, may establish, but not later than the tenth anniversary of the Effective Date. (k) "FLIP-IN EVENT" means any event described in clauses (A), (B) or (C) of Section 11(a)(ii). (l) "FLIP-OVER EVENT" means any event described in clauses (i), (ii) or (iii) of Section 13(a). (m) "ISSUER" has the meaning set forth in Section 13(b). 3 7 (n) "NASDAQ" means The National Association of Securities Dealers' Automated Quotation System, commonly referred to as "The NASDAQ Stock Market." (o) "PERSON" means any individual, firm, corporation or other legal entity, and includes any successor (by merger or otherwise) of such entity. (p) "PREFERRED SHARES" means shares of Series A Preferred Stock, without par value, of the Company having the rights and preferences set forth in the form of Certificate of Designation of Series A Preferred Stock attached as EXHIBIT A. (q) "PURCHASE PRICE" means initially $60.00 per one one-hundredth of a Preferred Share, subject to adjustment from time to time as provided in this Agreement. (r) "RECORD DATE" has the meaning set forth in the Recitals to this Agreement. (s) "REDEMPTION PRICE" means $.01 per Right, subject to adjustment by resolution of the Board of Directors of the Company to reflect any stock split, stock dividend or similar transaction occurring after the Record Date. (t) "RELATED PERSON" means (i) any Subsidiary of the Company or (ii) any employee benefit or stock ownership plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan. (u) "RIGHT" has the meaning set forth in the Recitals to this Agreement. (v) "RIGHT CERTIFICATES" means certificates evidencing the Rights, in substantially the form attached as EXHIBIT B. (w) "RIGHTS AGENT" means Norwest Bank Minnesota, N.A., unless and until a successor Rights Agent has become such pursuant to the terms of this Agreement, and thereafter, "Rights Agent" means such successor Rights Agent. (x) "SECURITIES ACT" means the Securities Act of 1933, as amended. (y) "SHARE ACQUISITION DATE" means the first date of public announcement by the Company (by press release, filing made with the Securities and Exchange Commission or otherwise) that an Acquiring Person has become such. (z) "SUBSIDIARY" when used with reference to any Person means any corporation or other legal entity of which a majority of the voting power of the voting equity securities or equity interests is owned, directly or indirectly, by such Person; PROVIDED, HOWEVER, that for purposes of Section 13(b), "Subsidiary" when used with reference to any Person means any corporation or other legal entity of which at least 20% of the voting power of the voting equity securities or equity interests is owned, directly or indirectly, by such Person. 4 8 (bb) "TRADING DAY" means any day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Business Day. (cc) "TRIGGERING EVENT" means any Flip-in Event or Flip-over Event. 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3, will also be, prior to the Distribution Date, the holders of the Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment and hereby certifies that it complies with the requirements of the New York Stock Exchange governing transfer agents and registrars. The Company may from time to time act as co-Rights Agent or appoint such co-Rights Agents as it may deem necessary or desirable. Any actions which may be taken by the Rights Agent pursuant to the terms of this Agreement may be taken by any such co-Rights Agent. To the extent that any co-Rights Agent takes any action pursuant to this Agreement, such co-Rights Agent will be entitled to all of the rights and protections of, and subject to all of the applicable duties and obligations imposed upon, the Rights Agent pursuant to the terms of this Agreement. 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the Distribution Date, (i) the Rights will be evidenced by the certificates representing Common Shares registered in the names of the record holders thereof (which certificates representing Common Shares will also be deemed to be Right Certificates), (ii) the Rights will be transferable only in connection with the transfer of the underlying Common Shares, and (iii) the surrender for transfer of any certificates evidencing Common Shares in respect of which Rights have been issued will also constitute the transfer of the Rights associated with the Common Shares evidenced by such certificates. On or as promptly as practicable after the Record Date, the Company will send by first class, postage prepaid mail, to each record holder of Common Shares as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company as of such date, a copy of a Summary of Rights to Purchase Preferred Stock in substantially the form attached as EXHIBIT C. (b) Rights will be issued by the Company in respect of all Common Shares (other than Common Shares issued upon the exercise or exchange of any Right) issued or delivered by the Company (whether originally issued or delivered from the Company's treasury) after the Record Date but prior to the earlier of the Distribution Date and the Expiration Date. Certificates evidencing such Common Shares will have stamped on, impressed on, printed on, written on, or otherwise affixed to them the following legend or such similar legend as the Company may deem appropriate and as is not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or transaction reporting system on which the Common Shares may from time to time be listed or quoted, or to conform to usage: This Certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on 5 9 file at the principal executive offices of The Elder-Beerman Stores Corp. The Rights are not exercisable prior to the occurrence of certain events specified in the Rights Agreement. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged, may expire, may be amended, or may be evidenced by separate certificates and no longer be evidenced by this Certificate. The Elder-Beerman Stores Corp. will mail to the holder of this Certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written request therefor. Under certain circumstances as set forth in the Rights Agreement, Rights that are or were beneficially owned by an Acquiring Person or any Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement) may become null and void. (c) As promptly as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign and the Company will send or cause to be sent (and the Rights Agent will, if requested, send), by first class, insured, postage prepaid mail, to each record holder of Common Shares as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate evidencing one Right for each Common Share so held, subject to adjustment as provided herein. As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (d) In the event that the Company purchases or otherwise acquires any Common Shares after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares will be deemed canceled and retired so that the Company will not be entitled to exercise any Rights associated with the Common Shares so purchased or acquired. 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the form of election to purchase and the form of assignment to be printed on the reverse thereof) will be substantially in the form attached as EXHIBIT B with such changes and marks of identification or designation, and such legends, summaries or endorsements printed thereon, as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or transaction reporting system on which the Rights may from time to time be listed or quoted, or to conform to usage. Subject to the provisions of Section 22, the Right Certificates, whenever issued, on their face will entitle the holders thereof to purchase such number of one one-hundredths of a Preferred Share as are set forth therein at the Purchase Price set forth therein, but the Purchase Price, the number and kind of securities issuable upon exercise of each Right and the number of Rights outstanding will be subject to adjustment as provided herein. 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates will be executed on behalf of the Company by any one or more of its Chairman of the Board, any Vice Chairman, its President or any Vice President, either manually or by facsimile signature, and will have affixed thereto the Company's seal or a facsimile thereof which will be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates will countersigned, either manually or by facsimile, by the Rights Agent and will not be valid for any purpose unless so countersigned. In case any officer of the Company who signed any of the Right Certificates ceases to be such officer of the Company before countersignature by the Rights Agent 6 10 and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, is a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at the principal office of the Rights Agent designated for such purpose and at such other offices as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or any transaction reporting system on which the Rights may from time to time be listed or quoted, books for registration and transfer of the Right Certificates issued hereunder. Such books will show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the provisions of Sections 7(d) and 14, at any time after the Close of Business on the Distribution Date and prior to the Expiration Date, any Right Certificate or Right Certificates representing exercisable Rights may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a Preferred Share (or other securities, as the case may be) as the Right Certificate or Right Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any such Right Certificate or Right Certificates must make such request in a writing delivered to the Rights Agent and must surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent designated for such purpose. Thereupon or as promptly as practicable thereafter, subject to the provisions of Sections 7(d) and 14, the Company will prepare, execute and deliver to the Rights Agent, and the Rights Agent will countersign and deliver, one or more new Right Certificates as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, if requested by the Company, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will prepare, execute and deliver a new Right Certificate of like tenor to the Rights Agent and the Rights Agent will countersign and deliver such new Right Certificate to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise 7 11 provided herein) in whole or in part at any time after the Distribution Date and prior to the Expiration Date, upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office or offices of the Rights Agent designated for such purpose, together with payment in cash, in lawful money of the United States of America by certified check or bank draft payable to the order of the Company, equal to the sum of (i) the exercise price for the total number of securities as to which such surrendered Rights are exercised and (ii) an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with the provisions of Section 9(d). (b) Upon receipt of a Right Certificate representing exercisable Rights with the form of election to purchase duly executed, accompanied by payment as described above, the Rights Agent will promptly (i) requisition from any transfer agent of the Preferred Shares (or make available, if the Rights Agent is the transfer agent) certificates representing the number of one one-hundredths of a Preferred Share to be purchased (and the Company hereby irrevocably authorizes and directs its transfer agent to comply with all such requests), or, if the Company elects to deposit Preferred Shares issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a Preferred Share as are to be purchased (and the Company hereby irrevocably authorizes and directs such depositary agent to comply with all such requests), (ii) after receipt of such certificates (or depositary receipts, as the case may be), cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, (iii) when appropriate, requisition from the Company or any transfer agent therefor (or make available, if the Rights Agent is the transfer agent) certificates representing the number of equivalent common shares to be issued in lieu of the issuance of Common Shares in accordance with the provisions of Section 11(a)(iii), (iv) when appropriate, after receipt of such certificates, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, (v) when appropriate, requisition from the Company the amount of cash to be paid in lieu of the issuance of fractional shares in accordance with the provisions of Section 14 or in lieu of the issuance of Common Shares in accordance with the provisions of Section 11(a)(iii), (vi) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate, and (vii) when appropriate, deliver any due bill or other instrument provided to the Rights Agent by the Company for delivery to the registered holder of such Right Certificate as provided by Section 11(l). (c) In case the registered holder of any Right Certificate exercises less than all the Rights evidenced thereby, the Company will prepare, execute and deliver a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised and the Rights Agent will countersign and deliver such new Right Certificate to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14. (d) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company will be obligated to undertake any action with respect to any purported transfer, split up, combination or exchange of any Right Certificate pursuant to Section 6 or exercise of a Right Certificate as set forth in this Section 7 unless the registered holder of such Right Certificate has (i) completed and signed the certificate following the form of assignment or the form of election to purchase, as applicable, set forth on the reverse side of the Right Certificate surrendered for such 8 12 transfer, split up, combination, exchange or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company may reasonably request. 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange will, if surrendered to the Company or to any of its stock transfer agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, will be canceled by it, and no Right Certificates will be issued in lieu thereof except as expressly permitted by the provisions of this Agreement. The Company will deliver to the Rights Agent for cancellation and retirement, and the Rights Agent will so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent will deliver all canceled Right Certificates to the Company, or will, at the written request of the Company, destroy such canceled Right Certificates, and in such case will deliver a certificate of destruction thereof to the Company. 9. COMPANY COVENANTS CONCERNING SECURITIES AND RIGHTS. The Company covenants and agrees that: (a) It will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, a number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. (b) So long as the Preferred Shares (and, following the occurrence of a Triggering Event, Common Shares and/or other securities) issuable upon the exercise of the Rights may be listed on a national securities exchange, or quoted on NASDAQ, it will endeavor to cause, from and after such time as the Rights become exercisable, all securities reserved for issuance upon the exercise of Rights to be listed on such exchange, or quoted on NASDAQ, upon official notice of issuance upon such exercise. (c) It will take all such action as may be necessary to ensure that all Preferred Shares (and, following the occurrence of a Triggering Event, Common Shares and/or other securities) delivered upon exercise of Rights, at the time of delivery of the certificates for such securities, will be (subject to payment of the Purchase Price) duly authorized, validly issued, fully paid and nonassessable securities. (d) It will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Right Certificates and of any certificates representing securities issued upon the exercise of Rights; PROVIDED, HOWEVER, that the Company will not be required to pay any transfer tax or charge which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts representing securities issued upon the exercise of Rights in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise, or to issue or deliver any certificates or depositary receipts representing securities issued upon the exercise of any Rights until any such tax or charge has been paid (any such tax or charge being payable by the holder of such 9 13 Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. (e) It will use its best efforts (i) to file on an appropriate form, as soon as practicable following the later of the Share Acquisition Date and the Distribution Date, a registration statement under the Securities Act with respect to the securities issuable upon exercise of the Rights, (ii) to cause such registration statement to become effective as soon as practicable after such filing, and (iii) to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities and (B) the Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time after the date set forth in clause (i) of the first sentence of this Section 9(e), the exercisability of the Rights in order to prepare and file such registration statement and to permit it to become effective. Upon any such suspension, the Company will issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. In addition, if the Company determines that a registration statement should be filed under the Securities Act or any state securities laws following the Distribution Date, the Company may temporarily suspend the exercisability of the Rights in each relevant jurisdiction until such time as a registration statement has been declared effective and, upon any such suspension, the Company will issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding anything in this Agreement to the contrary, the Rights will not be exercisable in any jurisdiction if the requisite registration or qualification in such jurisdiction has not been effected or the exercise of the Rights is not permitted under applicable law. (f) Notwithstanding anything in this Agreement to the contrary, after the later of the Share Acquisition Date and the Distribution Date it will not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will eliminate or otherwise diminish the benefits intended to be afforded by the Rights. (g) In the event that the Company is obligated to issue other securities of the Company and/or pay cash pursuant to Section 11, 13, 14 or 24 it will make all arrangements necessary so that such other securities and/or cash are available for distribution by the Rights Agent, if and when appropriate. 10. RECORD DATE. Each Person in whose name any certificate representing Preferred Shares (or Common Shares and/or other securities, as the case may be) is issued upon the exercise of Rights will for all purposes be deemed to have become the holder of record of the Preferred Shares (or Common Shares and/or other securities, as the case may be) represented thereby on, and such certificate will be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the transfer books of 10 14 the Company for the Preferred Shares (or Common Shares and/or other securities, as the case may be) are closed, such Person will be deemed to have become the record holder of such securities on, and such certificate will be dated, the next succeeding Business Day on which the transfer books of the Company for the Preferred Shares (or Common Shares and/or other securities, as the case may be) are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate will not be entitled to any rights of a holder of any security for which the Rights are or may become exercisable, including without limitation the right to vote, to receive dividends or other distributions, or to exercise any preemptive rights, and will not be entitled to receive any notice of any proceedings of the Company, except as provided herein. 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SECURITIES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of securities issuable upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event that the Company at any time after the Record Date (A) declares a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivides the outstanding Preferred Shares, (C) combines the outstanding Preferred Shares into a smaller number of Preferred Shares, or (D) issues any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification and/or the number and/or kind of shares of capital stock issuable on such date upon exercise of a Right, will be proportionately adjusted so that the holder of any Right exercised after such time is entitled to receive upon payment of the Purchase Price then in effect the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the transfer books of the Company for the Preferred Shares were open, the holder of such Right would have owned upon such exercise (and, in the case of a reclassification, would have retained after giving effect to such reclassification) and would have been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value, if any, of the shares of capital stock issuable upon exercise of one Right. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) or Section 13, the adjustment provided for in this Section 11(a)(i) will be in addition to, and will be made prior to, any adjustment required pursuant to Section 11(a)(ii) or Section 13. (ii) Subject to the provisions of Section 24, if: (A) any Person becomes an Acquiring Person; or (B) any Acquiring Person or any Affiliate or Associate of any Acquiring Person, directly or indirectly, (1) merges into the Company or otherwise combines with the Company and the Company is the continuing or surviving corporation of such merger or combination (other 11 15 than in a transaction subject to Section 13), (2) merges or otherwise combines with any Subsidiary of the Company, (3) in one or more transactions (otherwise than in connection with the exercise, exchange or conversion of securities exercisable or exchangeable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries) transfers cash, securities or any other property to the Company or any of its Subsidiaries in exchange (in whole or in part) for shares of any class of capital stock of the Company or any of its Subsidiaries or for securities exercisable or exchangeable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries, or otherwise obtains from the Company or any of its Subsidiaries, with or without consideration, any additional shares of any class of capital stock of the Company or any of its Subsidiaries or securities exercisable or exchangeable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries (otherwise than as part of a pro rata distribution to all holders of shares of any class of capital stock of the Company, or any of its Subsidiaries), (4) sells, purchases, leases, exchanges, mortgages, pledges, transfers or otherwise disposes (in one or more transactions) to, from, with or of, as the case may be, the Company or any of its Subsidiaries (otherwise than in a transaction subject to Section 13), any property, including securities, on terms and conditions less favorable to the Company than the Company would be able to obtain in an arm's-length transaction with an unaffiliated third party, (5) receives any compensation from the Company or any of its Subsidiaries other than compensation as a director or a regular full-time employee, in either case at rates consistent with the Company's (or its Subsidiaries') past practices, or (6) receives the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantage provided by the Company or any of its Subsidiaries; or (C) during such time as there is an Acquiring Person, there is any reclassification of securities of the Company (including any reverse stock split), or any recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries, or any other transaction or series of transactions involving the Company or any of its Subsidiaries (whether or not with or into or otherwise involving an Acquiring Person), other than a transaction subject to Section 13, which has the effect, directly or indirectly, of increasing by more than 1% the proportionate share of the outstanding shares of any class of equity securities of the Company or any of its Subsidiaries, or of securities exercisable or exchangeable for or convertible into equity securities of the Company or any of its Subsidiaries, of which an Acquiring Person, or any Affiliate or Associate of any Acquiring Person, is the Beneficial Owner; then, and in each such case, proper provision will be made so that each holder of a Right, except as provided below, will thereafter have the right to receive, upon exercise thereof in accordance with the terms of this Agreement at an exercise price per Right equal to the product of the then-current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the date of the first occurrence of a Flip-in Event (or, if any other Flip-in Event shall have previously occurred, the product of the then-current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the date of the first occurrence of a Flip-in Event), in lieu of Preferred Shares, such number of 12 16 Common Shares as equals the result obtained by (x) multiplying the then-current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the date of the occurrence of a Flip-in Event (or, if any other Flip-in Event shall have previously occurred, multiplying the then-current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the date of the first occurrence of a Flip-in Event), and dividing that product by (y) 50% of the current per share market price of the Common Shares (determined pursuant to Section 11(d)) on the date of the first occurrence of such Flip-in Event. Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Flip-in Event, any Rights that are Beneficially Owned by (A) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (B) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the occurrence of a Flip-in Event, or (C) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the occurrence of a Flip-in Event pursuant to either (1) a transfer from an Acquiring Person to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (2) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this Section 11(a)(ii), and subsequent transferees of any of such Persons, will be void without any further action and any holder of such Rights will thereafter have no rights whatsoever with respect to such Rights under any provision of this Agreement. The Company will use all reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are complied with, but will have no liability to any holder of Right Certificates or any other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. Upon the occurrence of a Flip-in Event, no Right Certificate that represents Rights that are or have become void pursuant to the provisions of this Section 11(a)(ii) will thereafter be issued pursuant to Section 3 or Section 6, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have become void pursuant to the provisions of this Section 11(a)(ii) will be canceled. Upon the occurrence of a Flip-over Event, any Rights that shall not have been previously exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable only pursuant to Section 13 and not pursuant to this Section 11(a)(ii). (iii) Upon the occurrence of a Flip-in Event, if there are not sufficient Common Shares authorized but unissued or issued but not outstanding to permit the issuance of all the Common Shares issuable in accordance with Section 11(a)(ii) upon the exercise of a Right, the Board of Directors of the Company will use its best efforts promptly to authorize and, subject to the provisions of Section 9(e), make available for issuance additional Common Shares or other equity securities of the Company having equivalent voting rights and an equivalent value (as determined in good faith by the Board of Directors of the Company) to the Common Shares (for purposes of this Section 11(a)(iii), "equivalent common shares"). In the event that equivalent common shares are so authorized, upon the exercise of a Right in accordance with the provisions of Section 7, the registered holder will be entitled to receive (A) Common Shares, to the extent any are available, and (B) a number of equivalent common shares, which the Board of Directors of the Company has determined in good faith to have 13 17 a value equivalent to the excess of (x) the aggregate current per share market value on the date of the occurrence of the most recent Flip-in Event of all the Common Shares issuable in accordance with Section 11(a)(ii) upon the exercise of a Right (the "Exercise Value") over (y) the aggregate current per share market value on the date of the first occurrence of a Flip-in Event of any Common Shares available for issuance upon the exercise of such Right; PROVIDED, HOWEVER, that if at any time after 90 calendar days after the latest of the Share Acquisition Date, the Distribution Date and the date of the first occurrence of a Flip-in Event, there are not sufficient Common Shares and/or equivalent common shares available for issuance upon the exercise of a Right, then the Company will be obligated to deliver, upon the surrender of such Right and without requiring payment of the Purchase Price, Common Shares (to the extent available), equivalent common shares (to the extent available) and then cash (to the extent permitted by applicable law and any agreements or instruments to which the Company is a party in effect immediately prior to the Share Acquisition Date), which securities and cash have an aggregate value equal to the excess of (1) the Exercise Value over (2) the product of the then-current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the date of the occurrence of the most recent Flip-in Event (or, if any other Flip-in Event shall have previously occurred, the product of the then-current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right would have been exercisable immediately prior to the date of the occurrence of such Flip-in Event if no other Flip-in Event had previously occurred). To the extent that any legal or contractual restrictions prevent the Company from paying the full amount of cash payable in accordance with the foregoing sentence, the Company will pay to holders of the Rights as to which such payments are being made all amounts which are not then restricted on a pro rata basis and will continue to make payments on a pro rata basis as promptly as funds become available until the full amount due to each such Rights holder has been paid. (b) In the event that the Company fixes a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or securities having equivalent rights, privileges and preferences as the Preferred Shares (for purposes of this Section 11(b), "equivalent preferred shares")) or securities convertible into Preferred Shares or equivalent preferred shares at a price per Preferred Share or equivalent preferred share (or having a conversion price per share, if a security convertible into Preferred Shares or equivalent preferred shares) less than the current per share market price of the Preferred Shares (determined pursuant to Section 11(d)) on such record date, the Purchase Price to be in effect after such record date will be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which is the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current per share market price and the denominator of which is the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value, if any, of the shares of capital stock issuable upon 14 18 exercise of one Right. In case such subscription price may be paid in a consideration part or all of which is in a form other than cash, the value of such consideration will be as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company will not be deemed outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such a record date is fixed, and in the event that such rights, options or warrants are not so issued, the Purchase Price will be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In the event that the Company fixes a record date for the making of a distribution to all holders of Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness, cash (other than a regular periodic cash dividend), assets, stock (other than a dividend payable in Preferred Shares) or subscription rights, options or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date will be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which is the current per share market price of the Preferred Shares (as determined pursuant to Section 11(d)) on such record date or, if earlier, the date on which Preferred Shares begin to trade on an ex-dividend or when issued basis for such distribution, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent) of the portion of the evidences of indebtedness, cash, assets or stock so to be distributed or of such subscription rights, options or warrants applicable to one Preferred Share, and the denominator of which is such current per share market price of the Preferred Shares; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value, if any, of the shares of capital stock issuable upon exercise of one Right. Such adjustments will be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price will again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, the "current per share market price" of Common Shares on any date will be deemed to be the average of the daily closing prices per share of such Common Shares for the 30 consecutive Trading Days immediately prior to such date; PROVIDED, HOWEVER, that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (A) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights) or (B) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price will be appropriately adjusted to take into account ex-dividend trading or to reflect the current per share market price per Common Share equivalent. The closing price for each day will be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to 15 19 trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board of Directors of the Company. If the Common Shares are not publicly held or not so listed or traded, or are not the subject of available bid and asked quotes, "current per share market price" will mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent. (ii) For the purpose of any computation hereunder, the "current per share market price" of the Preferred Shares will be determined in the same manner as set forth above for Common Shares in Section 11(d)(i), other than the last sentence thereof. If the current per share market price of the Preferred Shares cannot be determined in the manner provided above, the "current per share market price" of the Preferred Shares will be conclusively deemed to be an amount equal to the current per share market price of the Common Shares multiplied by one hundred (as such number may be appropriately adjusted to reflect events such as stock splits, stock dividends, recapitalizations or similar transactions relating to the Common Shares occurring after the date of this Agreement). If neither the Common Shares nor the Preferred Shares are publicly held or so listed or traded, or the subject of available bid and asked quotes, "current per share market price" of the Preferred Shares will mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent. For all purposes of this Agreement, the current per share market price of one one-hundredth of a Preferred Share will be equal to the current per share market price of one Preferred Share divided by one hundred. (e) Except as set forth below, no adjustment in the Purchase Price will be required unless such adjustment would require an increase or decrease of at least 1% in such price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 11(e) are not required to be made will be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 will be made to the nearest cent or to the nearest one one-millionth of a Preferred Share or one ten-thousandth of a Common Share or other security, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 will be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment and (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a), the holder of any Right thereafter exercised becomes entitled to receive any securities of the Company other than Preferred Shares, thereafter the number and/or kind of such other securities so receivable upon exercise of any Right (and/or the Purchase Price in respect thereof) will be subject to adjustment from time to time 16 20 in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares (and the Purchase Price in respect thereof) contained in this Section 11, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares (and the Purchase Price in respect thereof) will apply on like terms to any such other securities (and the Purchase Price in respect thereof). (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder will evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a Preferred Share issuable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company has exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price pursuant to Section 11(b) or Section 11(c), each Right outstanding immediately prior to the making of such adjustment will thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a Preferred Share (calculated to the nearest one one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number of one one-hundredths of a Preferred Share issuable upon exercise of a Right immediately prior to such adjustment of the Purchase Price by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect, on or after the date of any adjustment of the Purchase Price, to adjust the number of Rights in substitution for any adjustment in the number of one one-hundredths of a Preferred Share issuable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights will be exercisable for the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights will become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company will make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. Such record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, will be at least 10 calendar days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company will, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to the provisions of Section 14, the additional Rights to which such holders are entitled as a result of such adjustment, or, at the option of the Company, will cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof if required by the Company, new Right Certificates evidencing all the Rights to which such holders are entitled after such adjustment. Right Certificates so to be distributed will be issued, executed, and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and will be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. 17 21 (j) Without respect to any adjustment or change in the Purchase Price and/or the number and/or kind of securities issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number and kind of securities which were expressed in the initial Right Certificate issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-hundredth of the then par value, if any, of the Preferred Shares or below the then par value, if any, of any other securities of the Company issuable upon exercise of the Rights, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares or such other securities, as the case may be, at such adjusted Purchase Price. (l) In any case in which this Section 11 otherwise requires that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of Preferred Shares or other securities of the Company, if any, issuable upon such exercise over and above the number of Preferred Shares or other securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company delivers to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Preferred Shares or other securities upon the occurrence of the event requiring such adjustment. (m) Notwithstanding anything in this Agreement to the contrary, the Company will be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in its good faith judgment the Board of Directors of the Company determines to be advisable in order that any (i) consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for cash of Preferred Shares at less than the current per share market price therefor, (iii) issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, (iv) stock dividends, or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Shares is not taxable to such stockholders. (n) Notwithstanding anything in this Agreement to the contrary, in the event that the Company at any time after the Record Date prior to the Distribution Date (i) pays a dividend on the outstanding Common Shares payable in Common Shares, (ii) subdivides the outstanding Common Shares, (iii) combines the outstanding Common Shares into a smaller number of shares, or (iv) issues any shares of its capital stock in a reclassification of the outstanding Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), the number of Rights associated with each Common Share then outstanding, or issued or delivered thereafter but prior to the Distribution Date, will be proportionately adjusted so that the number of Rights thereafter associated with each Common Share following any such event equals the result obtained by multiplying the number of Rights associated with each Common Share immediately prior to such event by a fraction the numerator of which is the total number of Common Shares outstanding immediately prior to the occurrence of the event and the denominator of which is the total number of Common Shares outstanding immediately following the occurrence of such event. The adjustments provided for in this Section 11(n) will be made 18 22 successively whenever such a dividend is paid or such a subdivision, combination or reclassification is effected. 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SECURITIES. Whenever an adjustment is made as provided in Section 11 or Section 13, the Company will promptly (a) prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Preferred Shares and the Common Shares a copy of such certificate, and (c) if such adjustment is made after the Distribution Date, mail a brief summary of such adjustment to each holder of a Right Certificate in accordance with Section 26. 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event that: (i) at any time after a Person has become an Acquiring Person, the Company consolidates with, or merges with or into, any other Person and the Company is not the continuing or surviving corporation of such consolidation or merger; or (ii) at any time after a Person has become an Acquiring Person, any Person consolidates with the Company, or merges with or into the Company, and the Company is the continuing or surviving corporation of such merger or consolidation and, in connection with such merger or consolidation, all or part of the Common Shares is changed into or exchanged for stock or other securities of any other Person or cash or any other property; or (iii) at any time after a Person has become an Acquiring Person, the Company, directly or indirectly, sells or otherwise transfers (or one or more of its Subsidiaries sells or otherwise transfers), in one or more transactions, assets or earning power (including without limitation securities creating any obligation on the part of the Company and/or any of its Subsidiaries) representing in the aggregate more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons other than the Company or one or more of its wholly owned Subsidiaries; then, and in each such case, proper provision will be made so that from and after the latest of the Share Acquisition Date, the Distribution Date and the date of the occurrence of such Flip-over Event (A) each holder of a Right thereafter has the right to receive, upon the exercise thereof in accordance with the terms of this Agreement at an exercise price per Right equal to the product of the then-current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the Share Acquisition Date, such number of duly authorized, validly issued, fully paid, nonassessable and freely tradeable Common Shares of the Issuer, free and clear of any liens, encumbrances and other adverse claims and not subject to any rights of call or first refusal, as equals the result obtained by (x) multiplying the then-current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the Share Acquisition Date and dividing that product by (y) 50% of the current per share market price of the Common Shares of the Issuer (determined pursuant to Section 11(d)), on the date of the occurrence of such Flip-over Event; (B) the Issuer will thereafter be liable for, and will assume, by virtue of the occurrence of such Flip-over Event, all the obligations and duties of the 19 23 Company pursuant to this Agreement; (C) the term "Company" will thereafter be deemed to refer to the Issuer; and (D) the Issuer will take such steps (including without limitation the reservation of a sufficient number of its Common Shares to permit the exercise of all outstanding Rights) in connection with such consummation as may be necessary to assure that the provisions hereof are thereafter applicable, as nearly as reasonably may be possible, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights. (b) For purposes of this Section 13, "Issuer" means (i) in the case of any Flip-over Event described in Sections 13(a)(i) or (ii) above, the Person that is the continuing, surviving, resulting or acquiring Person (including the Company as the continuing or surviving corporation of a transaction described in Section 13(a)(ii) above), and (ii) in the case of any Flip-over Event described in Section 13(a)(iii) above, the Person that is the party receiving the greatest portion of the assets or earning power (including without limitation securities creating any obligation on the part of the Company and/or any of its Subsidiaries) transferred pursuant to such transaction or transactions; PROVIDED, HOWEVER, that, in any such case, (A) if (1) no class of equity security of such Person is, at the time of such merger, consolidation or transaction and has been continuously over the preceding 12-month period, registered pursuant to Section 12 of the Exchange Act, and (2) such Person is a Subsidiary, directly or indirectly, of another Person, a class of equity security of which is and has been so registered, the term "Issuer" means such other Person; and (B) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, a class of equity security of two or more of which are and have been so registered, the term "Issuer" means whichever of such Persons is the issuer of the equity security having the greatest aggregate market value. Notwithstanding the foregoing, if the Issuer in any of the Flip-over Events listed above is not a corporation or other legal entity having outstanding equity securities, then, and in each such case, (x) if the Issuer is directly or indirectly wholly owned by a corporation or other legal entity having outstanding equity securities, then all references to Common Shares of the Issuer will be deemed to be references to the Common Shares of the corporation or other legal entity having outstanding equity securities which ultimately controls the Issuer, and (y) if there is no such corporation or other legal entity having outstanding equity securities, (I) proper provision will be made so that the Issuer creates or otherwise makes available for purposes of the exercise of the Rights in accordance with the terms of this Agreement, a kind or kinds of security or securities having a fair market value at least equal to the economic value of the Common Shares which each holder of a Right would have been entitled to receive if the Issuer had been a corporation or other legal entity having outstanding equity securities; and (II) all other provisions of this Agreement will apply to the issuer of such securities as if such securities were Common Shares. (c) The Company will not consummate any Flip-over Event if, (i) at the time of or immediately after such Flip-over Event, there are or would be any rights, warrants, instruments or securities outstanding or any agreements or arrangements in effect which would eliminate or substantially diminish the benefits intended to be afforded by the Rights, (ii) prior to, simultaneously with or immediately after such Flip-over Event, the stockholders of the Person who constitutes, or would constitute, the Issuer for purposes of Section 13(a) shall have received a distribution of Rights previously owned by such Person or any of its Affiliates or Associates, or (iii) the form or nature of the organization of the Issuer would preclude or limit the exercisability of the Rights. In addition, the Company will not consummate any Flip-over Event unless the Issuer has a sufficient number of authorized Common Shares (or other securities as contemplated in Section 13(b) above) which have 20 24 not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior to such consummation the Company and the Issuer have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in subsections (a) and (b) of this Section 13 and further providing that as promptly as practicable after the consummation of any Flip-over Event, the Issuer will: (A) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities issuable upon exercise of the Rights on an appropriate form, and use its best efforts to cause such registration statement to (1) become effective as soon as practicable after such filing and (2) remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date; (B) take all such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights; and (C) deliver to holders of the Rights historical financial statements for the Issuer and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. (d) The provisions of this Section 13 will similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Flip-over Event occurs at any time after the occurrence of a Flip-in Event, except for Rights that have become void pursuant to Section 11(a)(ii), Rights that shall not have been previously exercised will cease to be exercisable in the manner provided in Section 11(a)(ii) and will thereafter be exercisable in the manner provided in Section 13(a). 14. FRACTIONAL RIGHTS AND FRACTIONAL SECURITIES. (a) The Company will not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, the Company will pay as promptly as practicable to the registered holders of the Right Certificates with regard to which such fractional Rights otherwise would be issuable, an amount in cash equal to the same fraction of the current market value of one Right. For the purposes of this Section 14(a), the current market value of one Right is the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights otherwise would have been issuable. The closing price for any day is the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If the Rights are not 21 25 publicly held or are not so listed or traded, or are not the subject of available bid and asked quotes, the current market value of one Right will mean the fair value thereof as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent. (b) The Company will not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-hundredth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement provides that the holders of such depositary receipts have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-hundredth of a Preferred Share, the Company may pay to any Person to whom or which such fractional Preferred Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of one Preferred Share. For purposes of this Section 14(b), the current market value of one Preferred Share is the closing price of the Preferred Shares (as determined in the same manner as set forth for Common Shares in the second sentence of Section 11(d)(i)) for the Trading Day immediately prior to the date of such exercise; PROVIDED, HOWEVER, that if the closing price of the Preferred Shares cannot be so determined, the closing price of the Preferred Shares for such Trading Day will be conclusively deemed to be an amount equal to the closing price of the Common Shares (determined pursuant to the second sentence of Section 11(d)(i)) for such Trading Day multiplied by one hundred (as such number may be appropriately adjusted to reflect events such as stock splits, stock dividends, recapitalizations or similar transactions relating to the Common Shares occurring after the date of this Agreement); PROVIDED FURTHER, HOWEVER, that if neither the Common Shares nor the Preferred Shares are publicly held or listed or admitted to trading on any national securities exchange, or the subject of available bid and asked quotes, the current market value of one Preferred Share will mean the fair value thereof as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent. (c) Following the occurrence of a Triggering Event, the Company will not be required to issue fractions of Common Shares or other securities issuable upon exercise or exchange of the Rights or to distribute certificates which evidence any such fractional securities. In lieu of issuing any such fractional securities, the Company may pay to any Person to whom or which such fractional securities would otherwise be issuable an amount in cash equal to the same fraction of the current market value of one such security. For purposes of this Section 14(c), the current market value of one Common Share or other security issuable upon the exercise or exchange of Rights is the closing price thereof (as determined in the same manner as set forth for Common Shares in the second sentence of Section 11(d)(i)) for the Trading Day immediately prior to the date of such exercise or exchange; PROVIDED, HOWEVER, that if neither the Common Shares nor any such other securities are publicly held or listed or admitted to trading on any national securities exchange, or the subject of available bid and asked quotes, the current market value of one Common Share or such other security will mean the fair value thereof as determined in good faith by the Board of Directors of the Company, whose determination will be described in a statement filed with the Rights Agent. 22 26 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the holder of any Common Shares), may in his own behalf and for his own benefit enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will therefore be entitled to specific performance of the obligations under this Agreement, and injunctive relief against actual or threatened violations of the obligations of any Person subject to this Agreement. 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) Prior to the Distribution Date, the Rights are transferable only in connection with the transfer of the Common Shares. (b) After the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer. (c) The Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificate or the associated Common Share certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent will be affected by any notice to the contrary. (d) Such holder expressly waives any right to receive any fractional Rights and any fractional securities upon exercise or exchange of a Right, except as otherwise provided in Section 14. (e) Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent will have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; 23 27 PROVIDED, HOWEVER, that the Company will use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Right Certificate will be entitled to vote, receive dividends, or be deemed for any purpose the holder of Preferred Shares or any other securities of the Company which may at any time be issuable upon the exercise of the Rights represented thereby, nor will anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of Directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions of this Agreement or exchanged pursuant to the provisions of Section 24. 18. CONCERNING THE RIGHTS AGENT. (a) The Company will pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company will also indemnify the Rights Agent for, and hold it harmless against, any loss, liability, suit, action, proceeding or expense, incurred without negligence, bad faith, or willful misconduct on the part of the Rights Agent, for anything done or omitted to be done by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. (b) The Rights Agent will be protected and will incur no liability for or in respect of any action taken, suffered, or omitted by it in connection with its administration of this Agreement in reliance upon any Right Certificate or certificate evidencing Preferred Shares or Common Shares or other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed, and, where necessary, verified or acknowledged, by the proper Person or Persons. 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21. If at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and if at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name 24 28 of the successor Rights Agent; and in all such cases such Right Certificates will have the full force provided in the Right Certificates and in this Agreement. (b) If at any time the name of the Rights Agent changes and at such time any of the Right Certificates have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and if at that time any of the Right Certificates have not been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates will have the full force provided in the Right Certificates and in this Agreement. 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, will be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the President, any Vice President, the Secretary or the Treasurer of the Company and delivered to the Rights Agent, and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent will be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Company only. (e) The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Company of any covenant contained in this Agreement or in any Right Certificate; nor will it be responsible for any adjustment required under the provisions of Sections 11 or 13 (including any adjustment which results in Rights becoming void) or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right 25 29 Certificates after actual notice of any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of stock or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of stock or other securities will, when issued, be duly authorized, validly issued, fully paid and nonassessable. (f) The Company will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the President, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it will not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer, or employee of the Rights Agent may buy, sell, or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein precludes the Rights Agent from acting in any other capacity for the Company or for any other Person. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. The Rights Agent will not be under any duty or responsibility to ensure compliance with any applicable federal or state securities laws in connection with the issuance, transfer or exchange of Right Certificates. (j) If, with respect to any Right Certificate surrendered to the Rights Agent for exercise, transfer, split up, combination or exchange, either (i) the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 or 2 thereof, or (ii) any other actual or suspected irregularity exists, the Rights Agent will not take any further action with respect to such requested exercise, transfer, split up, combination or exchange without first consulting with the Company, and will thereafter take further action with respect thereto only in accordance with the Company's written instructions. 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 calendar days' notice in writing mailed to the Company and to each transfer agent of the Preferred Shares or the Common Shares by 26 30 registered or certified mail, and to the holders of the Right Certificates by first class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 calendar days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Preferred Shares and the Common Shares by registered or certified mail, and to the holders of the Right Certificates by first class mail. If the Rights Agent resigns or is removed or otherwise becomes incapable of acting, the Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30 calendar days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who will, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, will be a corporation or other legal entity organized and doing business under the laws of the United States or of the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of New York), in good standing, having a principal office in the State of New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties, and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent will deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act, or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Preferred Shares or the Common Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, will not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind of securities issuable upon exercise of the Rights made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale by the Company of Common Shares following the Distribution Date and prior to the Expiration Date, the Company (a) will, with respect to Common Shares so issued or sold pursuant to the exercise, exchange or conversion of securities (other than Rights) issued prior to the Distribution Date which are exercisable or exchangeable for, or convertible into Common Shares, and (b) may, in any other case, if deemed necessary, appropriate or desirable by the Board of Directors of the Company, issue Right Certificates representing an equivalent number of Rights as would have been issued in respect of such Common Shares if they had been issued or sold prior to the Distribution Date, as appropriately adjusted as provided herein as if they had been so issued or sold; PROVIDED, HOWEVER, that (i) no such Right Certificate will be issued if, and to the extent that, in its good faith judgment the Board of Directors of the Company determines that the issuance of such Right Certificate could have a material adverse tax consequence to the Company or to the 27 31 Person to whom or which such Right Certificate otherwise would be issued and (ii) no such Right Certificate will be issued if, and to the extent that, appropriate adjustment otherwise has been made in lieu of the issuance thereof. 23. REDEMPTION. (a) Prior to the Expiration Date, the Board of Directors of the Company may, at its option, redeem all but not less than all of the then-outstanding Rights at the Redemption Price at any time prior to the Close of Business on the Share Acquisition Date. Any such redemption will be effective immediately upon the action of the Board of Directors of the Company ordering the same, unless such action of the Board of Directors of the Company expressly provides that such redemption will be effective at a subsequent time or upon the occurrence or nonoccurrence of one or more specified events (in which case such redemption will be effective in accordance with the provisions of such action of the Board of Directors of the Company). (b) Immediately upon the effectiveness of the redemption of the Rights as provided in Section 23(a), and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights will be to receive the Redemption Price, without interest thereon. Promptly after the effectiveness of the redemption of the Rights as provided in Section 23(a), the Company will publicly announce such redemption and, within 10 calendar days thereafter, will give notice of such redemption to the holders of the then-outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Company; PROVIDED, HOWEVER, that the failure to give, or any defect in, any such notice will not affect the validity of the redemption of the Rights. Any notice that is mailed in the manner herein provided will be deemed given, whether or not the holder receives the notice. The notice of redemption mailed to the holders of Rights will state the method by which the payment of the Redemption Price will be made. The Company may, at its option, pay the Redemption Price in cash, Common Shares (based upon the current per share market price of the Common Shares (determined pursuant to Section 11(d)) at the time of redemption), or any other form of consideration deemed appropriate by the Board of Directors of the Company (based upon the fair market value of such other consideration, determined by the Board of Directors of the Company in good faith) or any combination thereof. The Company may, at its option, combine the payment of the Redemption Price with any other payment being made concurrently to holders of Common Shares and, to the extent that any such other payment is discretionary, may reduce the amount thereof on account of the concurrent payment of the Redemption Price. If legal or contractual restrictions prevent the Company from paying the Redemption Price (in the form of consideration deemed appropriate by the Board of Directors) at the time of redemption, the Company will pay the Redemption Price, without interest, promptly after such time as the Company ceases to be so prevented from paying the Redemption Price. (c) At any time following the Share Acquisition Date, the Board of Directors of the Company may relinquish the right to redeem the Rights under this Section 23 by duly adopting a resolution to that effect. Immediately upon adoption of such resolution, the rights of the Board of Directors of the Company to redeem the Rights will terminate without further action and without any notice. Promptly after adoption of such a resolution, the Company will publicly announce such action; PROVIDED, HOWEVER, that the failure to give, or any defect in, any such notice will not affect the validity of the action of the Board of Directors of the Company. 28 32 24. EXCHANGE. (a) The Board of Directors of the Company may, at its option, at any time after the Share Acquisition Date, exchange all or part of the then-outstanding and exercisable Rights (which will not include Rights that have become void pursuant to the provisions of Section 11(a)(ii)) for Common Shares at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the Record Date (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Any such exchange will be effective immediately upon the action of the Board of Directors of the Company ordering the same, unless such action of the Board of Directors of the Company expressly provides that such exchange will be effective at a subsequent time or upon the occurrence or nonoccurrence of one or more specified events (in which case such exchange will be effective in accordance with the provisions of such action of the Board of Directors of the Company). Notwithstanding the foregoing, the Board of Directors of the Company will not be empowered to effect such exchange at any time after any Person (other than the Company or any Related Person), who or which, together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the then-outstanding Common Shares. (b) Immediately upon the effectiveness of the exchange of any Rights as provided in Section 24(a), and without any further action and without any notice, the right to exercise such Rights will terminate and the only right with respect to such Rights thereafter of the holder of such Rights will be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. Promptly after the effectiveness of the exchange of any Rights as provided in Section 24(a), the Company will publicly announce such exchange and, within 10 calendar days thereafter, will give notice of such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent; PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice will not affect the validity of such exchange. Any notice that is mailed in the manner herein provided will be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange will be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii)) held by each holder of Rights. (c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute for any Common Share exchangeable for a Right (i) equivalent common shares (as such term is used in Section 11(a)(iii)), (ii) cash, (iii) debt securities of the Company, (iv) other assets, or (v) any combination of the foregoing, in any event having an aggregate value, as determined in good faith by the Board of Directors of the Company (whose determination will be described in a statement filed with the Rights Agent), equal to the current market value of one Common Share (determined pursuant to Section 11(d)) on the Trading Day immediately preceding the date of the effectiveness of the exchange pursuant to this Section 24. 25. NOTICE OF CERTAIN EVENTS. (a) If, after the Distribution Date, the Company proposes (i) to pay any dividend payable in stock of any class to the holders of Preferred Shares or to make any other distribution to the holders of Preferred Shares (other than a regular periodic cash dividend), (ii) to offer to the holders of Preferred Shares rights, options or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights, or 29 33 options, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of assets or earning power (including without limitation securities creating any obligation on the part of the Company and/or any of its Subsidiaries) representing more than 50% of the assets and earning power of the Company and its Subsidiaries, taken as a whole, to any other Person or Persons other than the Company or one or more of its wholly owned Subsidiaries, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination or reclassification of the Common Shares then, in each such case, the Company will give to each holder of a Right Certificate, to the extent feasible and in accordance with Section 26, a notice of such proposed action, which specifies the record date for the purposes of such stock dividend, distribution or offering of rights, options or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of the Common Shares and/or Preferred Shares, if any such date is to be fixed, and such notice will be so given, in the case of any action covered by clause (i) or (ii) above, at least 10 calendar days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and, in the case of any such other action, at least 10 calendar days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares and/or Preferred Shares, whichever is the earlier. (b) In case any Triggering Event occurs, then, in any such case, the Company will as soon as practicable thereafter give to the Rights Agent and each holder of a Right Certificate, in accordance with Section 26, a notice of the occurrence of such event, which specifies the event and the consequences of the event to holders of Rights. 26. NOTICES. (a) Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company will be sufficiently given or made if sent by first class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: The Elder-Beerman Stores Corp. 3155 El-Bee Road Dayton, Ohio 45439 Attention: Executive Vice President - Administration (b) Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent will be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: 30 34 Norwest Bank Minnesota, N.A. c/o Norwest Shareowner Services 161 North Concord Exchange South St. Paul, Minnesota 55075 (c) Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate (or, if prior the Distribution Date, to the holder of any certificate evidencing Common Shares) will be sufficiently given or made if sent by first class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. 27. SUPPLEMENTS AND AMENDMENTS. Prior to the time at which the Rights cease to be redeemable pursuant to Section 23, and subject to the last sentence of this Section 27, the Company may in its sole and absolute discretion, and the Rights Agent will if the Company so directs, supplement or amend any provision of this Agreement in any respect without the approval of any holders of Rights or Common Shares. From and after the time at which the Rights cease to be redeemable pursuant to Section 23, and subject to the last sentence of this Section 27, the Company may, and the Rights Agent will if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights or Common Shares in order (a) to cure any ambiguity, (b) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (c) to shorten or lengthen any time period hereunder, or (d) to supplement or amend the provisions hereunder in any manner which the Company may deem desirable; provided that no such supplement or amendment shall adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no such supplement or amendment shall cause the Rights again to become redeemable or cause this Agreement again to become supplementable or amendable otherwise than in accordance with the provisions of this sentence. Without limiting the generality or effect of the foregoing, this Agreement may be supplemented or amended to provide for such voting powers for the Rights and such procedures for the exercise thereof, if any, as the Board of Directors of the Company may determine to be appropriate. Upon the delivery of a certificate from an officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent will execute such supplement or amendment; PROVIDED, HOWEVER, that the failure or refusal of the Rights Agent to execute such supplement or amendment will not affect the validity of any supplement or amendment adopted by the Board of Directors of the Company, any of which will be effective in accordance with the terms thereof. Notwithstanding anything in this Agreement to the contrary, no supplement or amendment may be made which decreases the stated Redemption Price to an amount less than $0.01 per Right. 28. SUCCESSORS; CERTAIN COVENANTS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent will be binding on and inure to the benefit of their respective successors and assigns hereunder. 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will be construed to give to any Person other than the Company, the Rights Agent, and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement. This Agreement will be for the sole and exclusive benefit of 31 35 the Company, the Rights Agent, and the registered holders of the Right Certificates (or prior to the Distribution Date, the Common Shares). 30. GOVERNING LAW. This Agreement, each Right and each Right Certificate issued hereunder will be deemed to be a contract made under the internal substantive laws of the State of Ohio and for all purposes will be governed by and construed in accordance with the internal substantive laws of such State applicable to contracts to be made and performed entirely within such State. 31. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect and will in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that nothing contained in this Section 31 will affect the ability of the Company under the provisions of Section 27 to supplement or amend this Agreement to replace such invalid, void or unenforceable term, provision, covenant or restriction with a legal, valid and enforceable term, provision, covenant or restriction. 32. DESCRIPTIVE HEADINGS, ETC. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and will not control or affect the meaning or construction of any of the provisions hereof. Unless otherwise expressly provided, references herein to Sections, paragraphs and Exhibits are to Sections, paragraphs and Exhibits of or to this Agreement. 33. DETERMINATIONS AND ACTIONS BY THE BOARD. For all purposes of this Agreement, any calculation of the number of Common Shares outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding Common Shares of which any Person is the Beneficial Owner, will be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company will have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including without limitation the right and power to (a) interpret the provisions of this Agreement and (b) make all determinations deemed necessary or advisable for the administration of this Agreement (including any determination as to whether particular Rights shall have become void). All such actions, calculations, interpretations and determinations (including, for purposes of clause (ii) below, any omission with respect to any of the foregoing) which are done or made by the Board of Directors of the Company in good faith will (i) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and (ii) not subject the Board of Directors of the Company to any liability to any Person, including without limitation the Rights Agent and the holders of the Rights. 34. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts will for all purposes be deemed to be an original, and all such counterparts will together constitute but one and the same instrument. 32 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. [SEAL] Attest: THE ELDER-BEERMAN STORES CORP. /s/ Scott J. Davido By: /s/ John A. Muskovich - --------------------------------------- ---------------------- Scott J. Davido John A. Muskovich Senior Vice President, General Counsel President, Chief Operating Officer and Secretary and Chief Financial Officer [SEAL] Attest: NORWEST BANK MINNESOTA, N.A. /s/ Kelly A. Beenen By: /s/ William J. Kennedy - --------------------------------------- ---------------------- Name: Kelly A. Beenen William J. Kennedy ----------------------------- Vice President Title: Vice President ----------------------------- 33 37 EXHIBIT A --------- CERTIFICATE OF ADOPTION OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF THE ELDER-BEERMAN STORES CORP. We, John A. Muskovich, President, and Scott J. Davido, Secretary, of The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), do hereby certify that pursuant to the final confirmation order entered by the Bankruptcy Court in Jointly Administered Case No. 95-33643 on December 30, 1997, the Company has duly and validly caused the adoption of the following resolution to amend the Amended Articles of Incorporation of the Company to establish the express terms of the Series A Preferred Stock: RESOLVED, that Article IV of the Amended Articles of Incorporation of this Company be, and it hereby is, amended by adding after Division B of Article IV of the Amended Articles of Incorporation a new Division B, Part A as set forth below: DIVISION B, PART A SERIES A PREFERRED STOCK Section 1. The Series A Preferred Stock (hereinafter sometimes called this "Series" or the "Series A Preferred Shares") shall have the express terms set forth in this Division B, Part A. Section 2. The number of shares of this Series shall be 250,000. Section 3. (a) The holders of record of Series A Preferred Shares shall be entitled to receive, when and as declared by the Directors in accordance with the terms hereof, out of funds legally available for the purpose, cumulative quarterly dividends payable in cash on the first day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Preferred Share or fraction of a Series A Preferred Share in an amount per share (rounded to the nearest cent) equal to the greater of (i) $1.00 per share or (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions (other than a dividend payable in shares or Common Stock, or a subdivision of the outstanding Common Stock (by reclassification or otherwise)), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Series A Preferred Share or fraction of a Series A Preferred Share. In the event the Company shall at any time declare or pay any dividend A-1 38 on the Common Stock payable in Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series A Preferred Shares were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Dividends shall begin to accrue and be cumulative on outstanding Series A Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Series A Preferred Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issues is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. No dividends shall be paid upon or declared and set apart for any Series A Preferred Shares for any dividend period unless at the same time a dividend for the same dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid upon or declared and set apart for all Serial Preferred Stock of all series then outstanding and entitled to receive such dividend. The Board of Directors may fix a record date for the determination of holders of Series A Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 40 days prior to the date fixed for the payment thereof. Section 4. The Series A Preferred Shares are not redeemable. Section 5. (a) As provided in the Amended Articles of Incorporation, subject to the provision for adjustment hereinafter set forth, each Series A Preferred Share will entitle the holder thereof to one hundred votes on all matters submitted to a vote of the shareholders of the Company. In the event the Company at any time (i) declares a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivides the outstanding shares of Common Stock, (iii) combines the outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock in a reclassification of the outstanding shares of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then, in each such case and regardless of whether any Series A Preferred Shares are then issued or outstanding, the number of votes per share to which holders of Series A Preferred Shares would otherwise be entitled immediately prior to such event will be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided herein, in any other Preferred Stock Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of Series A Preferred Shares and the holders of shares of Common Stock and any other capital stock of the Company A-2 39 having general voting rights will vote together as one class on all matters submitted to a vote of shareholders of the Company. (c) Except as set forth in the Amended Articles of Incorporation or herein, or as otherwise provided by law, holders of Series A Preferred Shares will have no voting rights. Section 6. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (hereinafter referred to as a "Liquidation"), no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon Liquidation) to the Series A Preferred Shares, unless, prior thereto, the holders of Series A Preferred Shares shall have received at least an amount per share equal to one hundred times the then applicable Purchase Price as defined in the Rights Agreement, as the same may be from time to time amended in accordance with its terms (which Purchase Price shall be determined by the Company's Board of Directors at its first meeting following December 30, 1997), subject to adjustment from time to time as provided in the Rights Agreement, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series A Preferred Shares shall be entitled to receive at least an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock (the "Series A Preferred Shares Liquidation Preference"). (b) In the event, however, that the net assets of the Company are not sufficient to pay in full the amount of the Series A Preferred Shares Liquidation Preference and the liquidation preferences of all other series of Serial Preferred Stock, if any, which rank on a parity with the Series A Preferred Shares as to distribution of assets in Liquidation, all shares of this Series and of such other series of Serial Preferred Stock shall share ratably in the distribution of assets (or proceeds thereof) in Liquidation in proportion to the full amounts to which they are respectively entitled. (c) In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series A Preferred Shares were entitled immediately prior to such event pursuant to the proviso set forth in paragraph (a) above, shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (d) The merger or consolidation of the Company into or with any other corporation, or the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the property or business of the Company, shall not be deemed to be a Liquidation for the purpose of this Section 6. Section 7. The Series A Preferred Shares shall not be convertible into Common Stock. A-3 40 IN WITNESS WHEREOF, John A. Muskovich, President, and Scott J. Davido, Secretary, of The Elder-Beerman Stores Corp., acting for and on behalf of the Company, have hereunto subscribed their names this __th day of December, 1997. -------------------------------------------- John A. Muskovich President -------------------------------------------- Scott J. Davido Secretary A-4 41 FORM OF RIGHT CERTIFICATE Certificate No. R- __________ Rights NOT EXERCISABLE AFTER DECEMBER 30, 1998 (SUBJECT TO POSSIBLE EXTENSION AT THE OPTION OF THE COMPANY) OR EARLIER IF REDEEMED, EXCHANGED OR AMENDED. THE RIGHTS ARE SUBJECT TO REDEMPTION, EXCHANGE AND AMENDMENT AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS THAT ARE OR WERE BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR A TRANSFEREE THEREOF MAY BECOME NULL AND VOID. Right Certificate THE ELDER-BEERMAN STORES CORP. This certifies that _______________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions, and conditions of the Rights Agreement, dated as of December 30, 1997 (the "Rights Agreement"), between The Elder-Beerman Stores Corp., an Ohio corporation (the "Company"), and Norwest Bank Minnesota, N.A. (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (Eastern time) on the Expiration Date (as such term is defined in the Rights Agreement) at the principal office or offices of the Rights Agent designated for such purpose, one one-hundredth of a fully paid nonassessable share of Series A Preferred Stock, without par value (the "Preferred Shares"), of the Company, at a purchase price per one one-hundredth of a Preferred Share as determined by the Company's Board of Directors at its first meeting following December 30, 1997 (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase and related Certificate duly executed. If this Right Certificate is exercised in part, the holder will be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. The number of Rights evidenced by this Right Certificate (and the number of one one-hundredths of a Preferred Share which may be purchased upon exercise thereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of the date of the Rights Agreement, based on the Preferred Shares as constituted at such date. B-1 42 As provided in the Rights Agreement, the Purchase Price and/or the number and/or kind of securities issuable upon the exercise of the Rights evidenced by this Right Certificate are subject to adjustment upon the occurrence of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities of the Rights Agent, the Company and the holders of the Right Certificates, which limitations of rights include the temporary suspension of the exercisability of the Rights under the circumstances specified in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and can be obtained from the Company without charge upon written request therefor. Terms used herein with initial capital letters and not defined herein are used herein with the meanings ascribed thereto in the Rights Agreement. Pursuant to the Rights Agreement, from and after the first occurrence of a Flip-in Event, any Rights that are Beneficially Owned by (i) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (ii) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the occurrence of a Flip-in Event, or (iii) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the occurrence of a Flip-in Event pursuant to either (a) a transfer from an Acquiring Person to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (b) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding certain provisions of the Rights Agreement, and subsequent transferees of any of such Persons, will be void without any further action and any holder of such Rights will thereafter have no rights whatsoever with respect to such Rights under any provision of the Rights Agreement. From and after the occurrence of a Flip-in Event, no Right Certificate will be issued that represents Rights that are or have become void pursuant to the provisions of the Rights Agreement, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have become void pursuant to the provisions of the Rights Agreement will be canceled. This Right Certificate, with or without other Right Certificates, may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates entitling the holder to purchase a like number of one one-hundredths of a Preferred Share (or other securities, as the case may be) as the Right Certificate or Right Certificates surrendered entitled such holder (or former holder in the case of a transfer) to purchase, upon presentation and surrender hereof at the principal office of the Rights Agent designated for such purpose, with the Form of Assignment (if appropriate) and the related Certificate duly executed. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.01 per Right or may be exchanged in whole or in part. The Rights Agreement may be supplemented and amended by the Company, as provided therein. The Company is not required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share, which may, at the option of the B-2 43 Company, be evidenced by depositary receipts) or other securities issuable upon the exercise of any Right or Rights evidenced hereby. In lieu of issuing such fractional Preferred Shares or other securities, the Company may make a cash payment, as provided in the Rights Agreement. No holder of this Right Certificate, as such, will be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable upon the exercise of the Right or Rights represented hereby, nor will anything contained herein or in the Rights Agreement be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate have been exercised in accordance with the provisions of the Rights Agreement. This Right Certificate will not be valid or obligatory for any purpose until it has been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of __________, ____. [SEAL] ATTEST: THE ELDER-BEERMAN STORES CORP. By: - ----------------------------------- ------------------------------- Secretary John A. Muskovich President Countersigned: NORWEST BANK MINNESOTA, N.A. By: ------------------------------ Authorized Signature B-3 44 Form of Reverse Side of Right Certificate FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Right Certificate) FOR VALUE RECEIVED, _______________ hereby sells, assigns and transfers unto - -------------------------------------------------------------------------------- (Please print name and address of transferee) - -------------------------------------------------------------------------------- this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: __________, ____ ------------------------------- Signature Signature Guaranteed: B-4 45 CERTIFICATE ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not being sold, assigned, transferred, split up, combined or exchanged by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: __________, ____ ----------------------------------- Signature B-5 46 FORM OF ELECTION TO PURCHASE ---------------------------- (To be executed if holder desires to exercise the Right Certificate) To The Elder-Beerman Stores Corp.: The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Right Certificate to purchase the one one-hundredths of a Preferred Share or other securities issuable upon the exercise of such Rights and requests that certificates for such securities be issued in the name of and delivered to: Please insert social security or other identifying number: -------------------- - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- If such number of Rights is not all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights will be registered in the name of and delivered to: Please insert social security or other identifying number: --------------------------------------------------- - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- Dated: __________, ____ ------------------------------------------- Signature Signature Guaranteed: B-6 47 CERTIFICATE ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any Person who is, was, or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: __________, ____ ------------------------------------------- Signature NOTICE SIGNATURES ON THE FOREGOING FORM OF ASSIGNMENT AND FORM OF ELECTION TO PURCHASE AND IN THE RELATED CERTIFICATES MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE PROGRAM) PURSUANT TO RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. B-7 48 EXHIBIT C --------- SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On December 30, 1997, pursuant to the final confirmation order entered by the Bankruptcy Court in Jointly Administered Case No. 95-33643, The Elder-Beerman Stores Corp. (the "Company") effected a distribution of one right (a "Right") for each outstanding share of Common Stock, without par value (the "Common Shares"), of the Company. The distribution is payable on the day that is ten days after the date on which the Company's Registration Statement on Form 10 is declared effective by the Securities and Exchange Commission (the "Record Date") to the stockholders of record as of the close of business on the Record Date. Each Right entitles the registered holder thereof to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, without par value (the "Preferred Shares"), of the Company at a price (the "Purchase Price") per one one-hundredth of a Preferred Share as determined by the Company's Board of Directors at its first meeting following December 30, 1997, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement, dated as of December 30, 1997 (the "Rights Agreement"), between the Company and Norwest Bank Minnesota, N.A. as Rights Agent (the "Rights Agent"). Under the Rights Agreement, the Rights will be evidenced by the certificates evidencing Common Shares until the earlier (the "Distribution Date") of: (i) the close of business on the first date (the "Share Acquisition Date") of public announcement by the Company that a person (other than a person that has maintained beneficial ownership of at least 20% of the outstanding Common Shares since the adoption of the Rights Agreement, the Company, a subsidiary or employee benefit or stock ownership plan of the Company or any of its affiliates or associates), together with its affiliates and associates, has acquired beneficial ownership of 20% or more of the outstanding Common Shares (any such person or group being hereinafter called an "Acquiring Person") or (ii) the close of business on the tenth business day (or such later date as may be specified by the Company's Board of Directors (the "Board")) following the commencement of a tender offer or exchange offer by any person (other than the Company, a subsidiary or employee benefit or stock ownership plan of the Company or any of its affiliates or associates), the consummation of which would result in beneficial ownership by such person 20% or more of the outstanding Common Shares. The Rights Agreement provides that, until the Distribution Date, the Rights may be transferred with and only with the Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights), any certificate evidencing Common Shares of the Company issued upon transfer or new issuance of the Common Shares will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates evidencing Common Shares will also constitute the transfer of the Rights associated with such certificates. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to holders of record of Common Shares as of the close of business on the Distribution Date and such separate Rights Certificates alone will evidence the Rights. No Right is exercisable at any time prior to the Distribution Date. The Rights will expire on the first anniversary of the Effective Date or such later date as the Board of Directors, by resolution adopted prior to the first anniversary of the Effective Date, may establish, but not later than the tenth anniversary of the Effective Date (the "Final Expiration Date") unless earlier redeemed, exchanged or amended by the Company as described below. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including the right to vote or to receive dividends. C-1 49 The Purchase Price payable, and the number of the Preferred Shares or other securities issuable, upon exercise of the Rights will be subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Shares, (ii) upon the grant to holders of Preferred Shares of certain rights or warrants to subscribe for or purchase the Preferred Shares at a price, or securities convertible into the Preferred Shares with a conversion price, less than the then-current market price of the Preferred Shares, or (iii) upon the distribution to holders of the Preferred Shares of evidences of indebtedness, cash (excluding regular periodic cash dividends), assets, stock (excluding dividends payable in the Preferred Shares) or subscription rights or warrants (other than those referred to above). The number of outstanding Rights and the number of one one-hundredths of the Preferred Shares issuable upon exercise of each Right will be subject to adjustment in the event of a stock dividend on the Common Shares payable in Common Shares or a subdivision, combination or reclassification of Common Shares occurring, in any such case, prior to the Distribution Date. The Preferred Shares issuable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled, in connection with the declaration of a dividend on the Common Shares, to a preferential dividend payment equal to the greater of (i) $1.00 per share and (ii) an amount equal to 100 times the related dividend declared per Common Share. Subject to customary anti-dilution provisions, in the event of liquidation, the holders of Preferred Shares will be entitled to a preferential liquidation payment equal to the greater of (a) $100 per share and (b) an amount equal to 100 times the liquidation payment made per Common Share. Because of the nature of the Preferred Shares' dividend, voting and liquidation rights, the value of the one one-hundredth interest in a Preferred Share purchasable upon exercise of a Right should approximate the value of one Common Share. Rights will be exercisable to purchase Preferred Shares only after the Distribution Date occurs and prior to the occurrence of a Flip-in Event as described below. A Distribution Date resulting from the commencement of a tender offer or exchange offer described in clause (ii) of the second paragraph of this summary could precede the occurrence of a Flip-in Event and thus result in the Rights being exercisable to purchase Preferred Shares. A Distribution Date resulting from any occurrence described in clause (i) of the second paragraph of this summary would necessarily follow the occurrence of a Flip-in Event and thus result in the Rights being exercisable to purchase Common Shares or other securities as described below. Under the Rights Agreement, in the event (a "Flip-in Event") that (i) any person or group, together with its affiliates and associates, becomes an Acquiring Person, (ii) any Acquiring Person or any affiliate or associate thereof merges into or combines with the Company and the Company is the surviving corporation, (iii) any Acquiring Person or any affiliate or associate thereof effects certain other transactions with the Company, or (iv) during such time as there is an Acquiring Person the Company effects certain transactions, in each case as described in the Rights Agreement, then, in each such case, proper provision will be made so that from and after the later of the Distribution Date and the date of the occurrence of such Flip-in Event each holder of a Right, other than Rights that are or were owned beneficially by an Acquiring Person (which, from and after the date of a Flip-in Event, will be void), will have the right to receive, upon exercise thereof at the then-current exercise price of the Right, that number of Common Shares (or, under certain circumstances, an C-2 50 economically equivalent security or securities of the Company) that at the time of such Flip-in Event have a market value of two times the exercise price of the Right. In the event (a "Flip-over Event") that, at any time after a person has become an Acquiring Person, (i) the Company merges with or into any person and the Company is not the surviving corporation, (ii) any person merges with or into the Company and the Company is the surviving corporation, but all or part of the Common Shares are changed or exchanged for stock or other securities of any other person or cash or any other property, or (iii) 50% or more of the Company's assets or earning power, including securities creating obligations of the Company, are sold, in each case as described in the Rights Agreement, then, and in each such case, proper provision will be made so that each holder of a Right, other than Rights which have become void, will thereafter have the right to receive, upon the exercise thereof at the then-current exercise price of the Right, that number of shares of common stock (or, under certain circumstances, an economically equivalent security or securities) of such other person that at the time of such Flip-over Event have a market value of two times the exercise price of the Right. From and after the later of the Share Acquisition Date and the Distribution Date, Rights (other than any Rights that have become void) will be exercisable to purchase Common Shares as described above, upon payment of the aggregate exercise price in cash. In addition, at any time after the Share Acquisition Date and prior to the acquisition by any person or group of affiliated or associated persons of 50% or more of the outstanding Common Shares, the Company may exchange the Rights (other than any rights that have become void), in whole or in part, at an exchange ratio of one Common Share per Right (subject to adjustment). For all purposes of the Rights Agreement, any person that, at the time of the public announcement by the Company on December 30, 1997 of the distribution of the Rights, has beneficial ownership of 20% or more of the then-outstanding Common Shares, or that becomes the beneficial owner of 20% or more of the then-outstanding Common Shares solely as a result of a reduction in the number of Common Shares outstanding, will not be deemed to have become an Acquiring Person unless and until such time as (i) such person, or any affiliate or associate of such person, thereafter becomes the beneficial owner of additional Common Shares representing 1% or more of the then-outstanding Common Shares or (ii) any other person that is the beneficial owner of Common Shares representing 1% or more of the then-outstanding Common Shares thereafter becomes an affiliate or associate of such person. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment in the Purchase Price of at least 1%. The Company will not be required to issue fractional Preferred Shares (other than fractions that are integral multiples of one one-hundredth of a Preferred Share, which may, at the option of the Company, be evidenced by depositary receipts) or fractional Common Shares or other securities issuable upon the exercise of Rights. In lieu of issuing such securities, the Company may make a cash payment, as provided in the Rights Agreement. The Company may, at its option, redeem the Rights in whole, but not in part, at a price of $.01 per Right, subject to adjustment (the "Redemption Price"), at any time prior to the close of business on the Share Acquisition Date. Immediately upon any redemption of the Rights, the right C-3 51 to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. The Rights Agreement may be amended by the Company without the approval of any holders of Right Certificates, including amendments that increase or decrease the Purchase Price, that add other events requiring adjustment to the Purchase Price payable and the number of the Preferred Shares or other securities issuable upon the exercise of the Rights or that modify procedures relating to the redemption of the Rights, except that no amendment may be made that decreases the stated Redemption Price to an amount less than $.01 per Right. The Board will have the exclusive power and authority to administer the Rights Agreement and to exercise all rights and powers specifically granted to the Board or to the Company therein, or as may be necessary or advisable in the administration of the Rights Agreement, including without limitation the right and power to interpret the provisions of the Rights Agreement and to make all determinations deemed necessary or advisable for the administration of the Rights Agreement (including any determination to redeem or not redeem the Rights or to amend or not amend the Rights Agreement). All such actions, calculations, interpretations and determinations (including any omission with respect to any of the foregoing) which are done or made by the Board in good faith will be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and will not subject the Board to any liability to any person, including without limitation the Rights Agent and the holders of the Rights. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form 10. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights is as of the Record Date, does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by this reference. C-4 EX-4.D 4 EXHIBIT 4(D) 1 Exhibit 4(d) ================================================================================ WARRANT AGREEMENT by and between BEERMAN-PEAL HOLDINGS, INC. and THE ELDER-BEERMAN STORES CORP. Dated as of December 30, 1997 ================================================================================ 2 TABLE OF CONTENTS PAGE ARTICLE 1. GRANT OF WARRANT...........................................1 1.1 Grant......................................................1 1.2 Shares To Be Issued; Reservation of Shares.................1 ARTICLE 2. ADJUSTMENTS TO WARRANT RIGHTS..............................1 2.1 Stock Combinations.........................................1 2.2 Reorganizations............................................2 2.3 Adjustment Upon Changes in Capitalization..................2 2.4 Notice.....................................................3 2.5 Fractional Interests.......................................3 2.6 Effect of Alternate Securities.............................4 2.7 Successive Application.....................................4 2.8 Minimum Exercise Price for Adjustment......................4 ARTICLE 3. EXERCISE...................................................4 3.1 Exercise of Warrant........................................4 3.2 Issuance of Warrant Shares.................................4 ARTICLE 4. RIGHTS OF HOLDER...........................................4 ARTICLE 5. MISCELLANEOUS..............................................5 5.1 Amendments.................................................5 5.2 Notices....................................................5 5.3 Waiver By Consent..........................................6 5.4 No Implied Waiver; Rights Are Cumulative...................6 5.5 Governing Law..............................................6 5.6 Severability...............................................6 5.7 Captions...................................................6 5.8 Entire Agreement...........................................6 -i- 3 WARRANT AGREEMENT This WARRANT AGREEMENT (the "Warrant") is being entered into this 30th day of December, 1997, by and between The Elder-Beerman Stores Corp., an Ohio corporation (together with its successors and permitted assigns, the "Company") and Beerman-Peal Holdings, Inc., an Ohio corporation (together with his successors and permitted assigns, the "Holder"). RECITALS WHEREAS, on October 17, 1995, each of the Company and six of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"); and WHEREAS, this Warrant for the New Series A Warrants is contemplated by the Joint Plan of Reorganization of the Company and Its Subsidiaries confirmed by an order entered by the Bankruptcy Court on December 16, 1997 (the "Plan"). NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE 1. GRANT OF WARRANT 1.1 GRANT. The Company hereby grants to Holder this Warrant, which, subject to the terms and conditions of the Plan, is exercisable as provided herein, in whole or in part, at any time and from time to time during the period commencing on the date hereof (the "Effective Date") and ending on the fifth anniversary of the Effective Date at 11:59 p.m., local time in Dayton, Ohio (the "Exercise Period"), to purchase an aggregate of up to 249,809 of the outstanding shares of common stock (the "Warrant Shares"), at an exercise price of $12.80 per share (as it may be hereinafter adjusted, the "Exercise Price"). 1.2 SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized, validly issued and outstanding, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issuance thereof, except as otherwise provided in the Plan. The Company further covenants and agrees that it will from time to time take all actions required to assure that the par value per share of the New Common Stock is at all times equal to or less than the effective Exercise Price. The Company further covenants and agrees that, during the Exercise Period, the Company will at all times have authorized and reserved sufficient shares of New Common Stock to provide for the exercise of this Warrant in full. ARTICLE 2. ADJUSTMENTS TO WARRANT RIGHTS 2.1 STOCK COMBINATIONS. If the Company combines all of the outstanding New Common Stock proportionately into a smaller number of shares, the Exercise Price per Warrant Share 4 hereunder in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares issuable to the Holder upon exercise of this Warrant shall be proportionately decreased, as of the effective date of such combination, as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the effective date of such combination, shall be adjusted so that the Holder of the Warrant exercised after that date shall be entitled to receive the number and kind of Warrant Shares which the Holder of the Warrant would have owned and been entitled to receive as a result of the combination had the Warrants been exercised immediately prior to that date, and (b) the Exercise Price in effect immediately prior to such adjustment shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately thereafter. 2.2 REORGANIZATIONS. If any of the following transactions (each, a "Special Transaction") occurs after the Effective Date; (i) a capital reorganization or reclassification of the capital stock of the Company, (ii) a consolidation or merger of the Company with and into another entity, or (iii) a sale or conveyance of all or substantially all of the Company's assets, then, as a condition of any such Special Transaction, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive, at any time after the consummation of such Special Transaction until the expiration of the Exercise Period, upon the basis and upon the terms and conditions specified herein, and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant for the aggregate Exercise Price in effect immediately prior to such consummation, such shares of stock, other securities, cash or other assets as may be issued or payable in and pursuant to the terms of such Special Transaction with respect to or in exchange for a number of outstanding shares of New Common Stock equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant had such Special Transaction not taken place (pro rated in the case of any partial exercises). In connection with any Special Transaction, appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions of this Warrant (including without limitation provisions for adjustment of the Exercise Price and the number of Warrant Shares issuable upon the exercise of the Warrant), shall thereafter be applicable, as nearly as may be, to any shares of stock, other securities, cash or other assets thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any Special Transaction unless prior to or simultaneously with the closing the successor entity (if other than the Company), if any, resulting from such consolidation or merger or the entity acquiring such assets shall assume by a written instrument executed and mailed by certified mail or delivered to the Holder at the address of the Holder appearing on the books of the Company, the obligation of the Company or such successor corporation to deliver to such Holder such shares of stock, securities, cash or other assets as, in accordance with the foregoing provisions, such Holder has rights to purchase. 2.3 ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change in the New Common Stock by reason of stock dividends, stock splits, recapitalizations or reclassifications, the type and number of Warrant Shares issuable upon exercise of this Warrant, and the Exercise Price, as the case may be, shall be adjusted as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the record date for such dividend or distribution, or the effective date of such recapitalization or reclassification shall be adjusted so that 2 5 the holder of the Warrant exercised after that date shall be entitled to receive the number and kind of Warrant Shares which the holder of the Warrant would have owned and been entitled to receive as a result of the dividend, distribution, recapitalization or reclassification had the Warrants been exercised immediately prior to that date, and (b) the Exercise Price in effect immediately prior to such adjustment shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately thereafter. No such adjustment shall be made on account of any dividend payable other than in securities of the Company. 2.4 NOTICE. Whenever this Warrant or the number of Warrant Shares issuable hereunder is to be adjusted as provided herein or a dividend or distribution (in cash, stock or otherwise and including, without limitation, any liquidating distributions) is to be declared by the Company, or a definitive agreement with respect to a Special Transaction has been entered into, the Company shall forthwith cause to be sent to the Holder at the last address of the Holder shown on the books of the Company, by first-class mail, postage prepaid, at least ten (10) days prior to the record date specified in (A) below or at least twenty (20) days before the date specified in (B) below, a notice stating in reasonable detail the relevant facts and any resulting adjustments and the calculation thereof, if applicable, and stating (if applicable): (A) the date to be used to determine (i) which holders of New Common Stock will be entitled to receive notice of such dividend, distribution, subdivision or combination (the "Record Date"), and (ii) the date as of which such dividend, distribution, subdivision or combination shall be made; or, if a record is not to be taken, the date as of which the holders of New Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined (provided, that in the event the Company institutes a policy of declaring cash dividends on a periodic basis, the Company need only provide the relevant information called for in this clause (A) with respect to the first cash dividend payment to be made pursuant to such policy and thereafter provide only notice of any changes in the amount or the frequency of any subsequent dividend payments), or (B) the date on which a Special Transaction is expected to become effective, and the date as of which it is expected that holders of New Common Stock of record shall be entitled to exchange their shares of New Common Stock for securities or other property deliverable upon consummation of the Special Transaction (the "Exchange Date"). 2.5 FRACTIONAL INTERESTS. The Company shall not be required to issue fractions of shares of New Common Stock on the exercise of this Warrant. If any fraction of a share of New Common Stock would, except for the provisions of this Section 2.5, be issuable upon the exercise of this Warrant, the Company shall, upon such issuance, purchase such fraction for an amount in cash equal to the current value of such fraction, computed on the basis of the last reported close price of the New Common Stock on the National Association of Securities Dealers Automated Quotation System or the principal market on which the New Common Stock is then traded on the last business day prior to the date of exercise upon which such a sale shall have been effected, or, if the New 3 6 Common Stock is not publicly traded, as the Board of Directors of the Company may in good faith determine. 2.6 EFFECT OF ALTERNATE SECURITIES. If at any time, as a result of an adjustment made pursuant to this Section 2, the Holder of the Warrants shall thereafter become entitled to receive any securities of the Company other than shares of New Common Stock, then the number of such other securities receivable upon exercise of an Warrant shall be subject to adjustment from time to time on terms as nearly equivalent as practicable to the provisions with respect to shares of New Common Stock contained in this Section 2. 2.7 SUCCESSIVE APPLICATION. The provisions of this Section 2 shall similarly apply to successive events covered by this Section. 2.8 MINIMUM EXERCISE PRICE FOR ADJUSTMENT. No adjustment in the Exercise Price in accordance with this Article 2 need be made if such adjustment would amount to a change in such Exercise Price of less than $.001; provided, however, that the amount by which any adjustment is not made by reason of the provisions of this Section 2.8 shall be carried forward and taken into account at the time of any subsequent adjustment. ARTICLE 3. EXERCISE 3.1 EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant by (i) surrendering this Warrant, with the form of exercise notice attached hereto as EXHIBIT "A" duly executed by Holder, and (ii) making payment to the Company of the aggregate Exercise Price for the applicable Warrant Shares in cash, by certified check or bank check or by wire transfer to an account designated by the Company. Upon any partial exercise of this Warrant, the Company, at its expense, shall forthwith issue to the Holder for its surrendered warrant a replacement Warrant identical in all respects to this Warrant, except that the number of Warrant Shares shall be reduced accordingly. (b) RECORD DATE FOR OWNERSHIP OF WARRANT SHARES. Each person in whose name any Warrant Share certificate is issued upon exercise of the Warrant shall for all purposes been deemed to have become the holder of record of the Warrant Shares for which such Warrant was exercised, and such Warrant Share certificate shall be dated the date upon which the Warrant exercise notice was duly surrendered and payment of the Exercise Price was tendered to the Company. 3.2 ISSUANCE OF WARRANT SHARES. The Warrant Shares purchased shall be issued to the Holder exercising this Warrant as of the close of business on the date on which all actions and payments required to be taken or made by Holder, pursuant to Section 3.1, shall have been so taken or made. Certificates for the Warrant Shares so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days after this Warrant is surrendered. ARTICLE 4. RIGHTS OF HOLDER Holder shall not, solely by virtue of this Warrant and prior to the issuance of the Warrant Shares upon due exercise thereof, be entitled to any rights of a shareholder in the Company. 4 7 ARTICLE 5. MISCELLANEOUS 5.1 AMENDMENTS. The parties may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Warrant or changing in any manner the rights of either of the parties hereunder. No amendment, supplement or modification shall be binding on either party unless made in writing and signed by a duly authorized representative of each party. 5.2 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery, or confirmed facsimile transmission, which transmission is confirmed: (a) if to the Company to: The Elder-Beerman Stores Corp. 3155 El-Bee Road Dayton, Ohio 45439 Attention: John A. Muskovich Telecopy: (937) 296-4625 with a copy to: Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114-1190 Attention: Richard M. Cieri, Esq. Telecopy: (216) 579-0212 (b) if to Holder to: Beerman-Peal Holdings, Inc. 11 W. Monument Building 8th Floor Dayton, Ohio 45402 Attention: William S. Weprin Telecopy: (937) 222-5472 5 8 with a copy to: McDonald, Hopkins, Burke & Haber Co., L.P.A. 2100 Bank One Center 600 Superior Avenue, East Cleveland, Ohio 44114-2653 Attention: Shawn M. Riley Telecopy: (216) 348-5474 (c) or, in each case, at such other address or to such other person as may be specified in writing to the other party. 5.3 WAIVER BY CONSENT. The Holder may execute and deliver to the Company a written instrument waiving, on such terms and conditions as the Holder may specify in such instrument, any of the requirements of this Warrant. 5.4 NO IMPLIED WAIVER; RIGHTS ARE CUMULATIVE. The failure to exercise or the delay in exercising by either party of any right, remedy, power or privilege under this Warrant, shall not operate as a waiver thereof. The single or partial exercise of any right, remedy, power or privilege under this Warrant shall not preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 5.5 GOVERNING LAW. This Warrant and rights and obligations of the parties hereunder shall be governed by, construed and interpreted in accordance with the laws of the State of Ohio applicable to agreements executed by residents of that state, and fully to be performed, in that state. 5.6 SEVERABILITY. If any provision of this Warrant is found to be unenforceable for any reason whatsoever, such provision shall be deemed null and void to the extent of such unenforceability but shall be deemed separable from and shall not invalidate any other provision of this Warrant. 5.7 CAPTIONS. Captions to the various paragraphs of this Agreement are provided for convenience only and shall not be used to construe the provisions of this Warrant. 5.8 ENTIRE AGREEMENT. This Warrant and the Plan constitute the entire understanding of the parties with respect to the subject matter of the Warrant and supersedes all prior discussions, agreements and representations, whether oral or written, concerning the subject matter hereof and whether or not executed by Holder and the Company. 6 9 IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed and delivered by the proper and duly authorized officers as of the day and year first above written. THE ELDER-BEERMAN STORES CORP. By: /s/ John A. Muskovich --------------------------------------- John A. Muskovich President, Chief Operating Officer and Chief Financial Officer BEERMAN-PEAL HOLDINGS, INC. By: /s/ William S. Weprin --------------------------------------- William S. Weprin President 7 10 EXHIBIT "A" ----------- [To be signed only upon exercise of Warrant] To The Elder-Beerman Stores Corp.: The undersigned, the Holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _______________ shares of the common stock, without par value, of The Elder-Beerman Stores Corp. and herewith makes payment of $_______________ therefor, and requests that the certificates for such shares be issued in the name of, and be delivered to, _______________ whose address is _________________________________________________. Dated:_________________ --------------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) --------------------------------------------------- Address EX-4.E 5 EXHIBIT 4(E) 1 Exhibit 4(e) ================================================================================ WARRANT AGREEMENT by and between BEERMAN-PEAL HOLDINGS, INC. and THE ELDER-BEERMAN STORES CORP. Dated as of December 30, 1997 ================================================================================ 2 TABLE OF CONTENTS PAGE ARTICLE 1. GRANT OF WARRANT.............................................1 1.1 Grant........................................................1 1.2 Shares To Be Issued; Reservation of Shares...................1 ARTICLE 2. ADJUSTMENTS TO WARRANT RIGHTS................................1 2.1 Stock Combinations...........................................1 2.2 Reorganizations..............................................2 2.3 Adjustment Upon Changes in Capitalization....................2 2.4 Notice.......................................................3 2.5 Fractional Interests.........................................3 2.6 Effect of Alternate Securities...............................4 2.7 Successive Application.......................................4 2.8 Minimum Exercise Price for Adjustment........................4 ARTICLE 3. EXERCISE.....................................................4 3.1 Exercise of Warrant..........................................4 3.2 Issuance of Warrant Shares...................................4 ARTICLE 4. RIGHTS OF HOLDER.............................................4 ARTICLE 5. MISCELLANEOUS................................................5 5.1 Amendments...................................................5 5.2 Notices......................................................5 5.3 Waiver By Consent............................................6 5.4 No Implied Waiver; Rights Are Cumulative.....................6 5.5 Governing Law................................................6 5.6 Severability.................................................6 5.7 Captions.....................................................6 5.8 Entire Agreement.............................................6 -i- 3 WARRANT AGREEMENT This WARRANT AGREEMENT (the "Warrant") is being entered into this 30th day of December, 1997, by and between The Elder-Beerman Stores Corp., an Ohio corporation (together with its successors and permitted assigns, the "Company") and Beerman-Peal Holdings, Inc., an Ohio corporation (together with his successors and permitted assigns, the "Holder"). RECITALS WHEREAS, on October 17, 1995, each of the Company and six of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"); and WHEREAS, this Warrant for the New Series B Warrants is contemplated by the Joint Plan of Reorganization of the Company and Its Subsidiaries confirmed by an order entered by the Bankruptcy Court on December 16, 1997 (the "Plan"). NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE 1. GRANT OF WARRANT 1.1 GRANT. The Company hereby grants to Holder this Warrant, which, subject to the terms and conditions of the Plan, is exercisable as provided herein, in whole or in part, at any time and from time to time during the period commencing on the date hereof (the "Effective Date") and ending on the fifth anniversary of the Effective Date at 11:59 p.m., local time in Dayton, Ohio (the "Exercise Period"), to purchase an aggregate of up to 374,713 of the outstanding shares of common stock (the "Warrant Shares"), at an exercise price of $14.80 per share (as it may be hereinafter adjusted, the "Exercise Price"). 1.2 SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized, validly issued and outstanding, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issuance thereof, except as otherwise provided in the Plan. The Company further covenants and agrees that it will from time to time take all actions required to assure that the par value per share of the New Common Stock is at all times equal to or less than the effective Exercise Price. The Company further covenants and agrees that, during the Exercise Period, the Company will at all times have authorized and reserved sufficient shares of New Common Stock to provide for the exercise of this Warrant in full. ARTICLE 2. ADJUSTMENTS TO WARRANT RIGHTS 2.1 STOCK COMBINATIONS. If the Company combines all of the outstanding New Common Stock proportionately into a smaller number of shares, the Exercise Price per Warrant Share 4 hereunder in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares issuable to the Holder upon exercise of this Warrant shall be proportionately decreased, as of the effective date of such combination, as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the effective date of such combination, shall be adjusted so that the Holder of the Warrant exercised after that date shall be entitled to receive the number and kind of Warrant Shares which the Holder of the Warrant would have owned and been entitled to receive as a result of the combination had the Warrants been exercised immediately prior to that date, and (b) the Exercise Price in effect immediately prior to such adjustment shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately thereafter. 2.2 REORGANIZATIONS. If any of the following transactions (each, a "Special Transaction") occurs after the Effective Date; (i) a capital reorganization or reclassification of the capital stock of the Company, (ii) a consolidation or merger of the Company with and into another entity, or (iii) a sale or conveyance of all or substantially all of the Company's assets, then, as a condition of any such Special Transaction, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive, at any time after the consummation of such Special Transaction until the expiration of the Exercise Period, upon the basis and upon the terms and conditions specified herein, and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant for the aggregate Exercise Price in effect immediately prior to such consummation, such shares of stock, other securities, cash or other assets as may be issued or payable in and pursuant to the terms of such Special Transaction with respect to or in exchange for a number of outstanding shares of New Common Stock equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant had such Special Transaction not taken place (pro rated in the case of any partial exercises). In connection with any Special Transaction, appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions of this Warrant (including without limitation provisions for adjustment of the Exercise Price and the number of Warrant Shares issuable upon the exercise of the Warrant), shall thereafter be applicable, as nearly as may be, to any shares of stock, other securities, cash or other assets thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any Special Transaction unless prior to or simultaneously with the closing the successor entity (if other than the Company), if any, resulting from such consolidation or merger or the entity acquiring such assets shall assume by a written instrument executed and mailed by certified mail or delivered to the Holder at the address of the Holder appearing on the books of the Company, the obligation of the Company or such successor corporation to deliver to such Holder such shares of stock, securities, cash or other assets as, in accordance with the foregoing provisions, such Holder has rights to purchase. 2.3 ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change in the New Common Stock by reason of stock dividends, stock splits, recapitalizations or reclassifications, the type and number of Warrant Shares issuable upon exercise of this Warrant, and the Exercise Price, as the case may be, shall be adjusted as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the record date for such dividend or distribution, or the effective date of such recapitalization or reclassification shall be adjusted so that 2 5 the holder of the Warrant exercised after that date shall be entitled to receive the number and kind of Warrant Shares which the holder of the Warrant would have owned and been entitled to receive as a result of the dividend, distribution, recapitalization or reclassification had the Warrants been exercised immediately prior to that date, and (b) the Exercise Price in effect immediately prior to such adjustment shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of New Common Stock purchasable upon exercise of the Warrants immediately thereafter. No such adjustment shall be made on account of any dividend payable other than in securities of the Company. 2.4 NOTICE. Whenever this Warrant or the number of Warrant Shares issuable hereunder is to be adjusted as provided herein or a dividend or distribution (in cash, stock or otherwise and including, without limitation, any liquidating distributions) is to be declared by the Company, or a definitive agreement with respect to a Special Transaction has been entered into, the Company shall forthwith cause to be sent to the Holder at the last address of the Holder shown on the books of the Company, by first-class mail, postage prepaid, at least ten (10) days prior to the record date specified in (A) below or at least twenty (20) days before the date specified in (B) below, a notice stating in reasonable detail the relevant facts and any resulting adjustments and the calculation thereof, if applicable, and stating (if applicable): (A) the date to be used to determine (i) which holders of New Common Stock will be entitled to receive notice of such dividend, distribution, subdivision or combination (the "Record Date"), and (ii) the date as of which such dividend, distribution, subdivision or combination shall be made; or, if a record is not to be taken, the date as of which the holders of New Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined (provided, that in the event the Company institutes a policy of declaring cash dividends on a periodic basis, the Company need only provide the relevant information called for in this clause (A) with respect to the first cash dividend payment to be made pursuant to such policy and thereafter provide only notice of any changes in the amount or the frequency of any subsequent dividend payments), or (B) the date on which a Special Transaction is expected to become effective, and the date as of which it is expected that holders of New Common Stock of record shall be entitled to exchange their shares of New Common Stock for securities or other property deliverable upon consummation of the Special Transaction (the "Exchange Date"). 2.5 FRACTIONAL INTERESTS. The Company shall not be required to issue fractions of shares of New Common Stock on the exercise of this Warrant. If any fraction of a share of New Common Stock would, except for the provisions of this Section 2.5, be issuable upon the exercise of this Warrant, the Company shall, upon such issuance, purchase such fraction for an amount in cash equal to the current value of such fraction, computed on the basis of the last reported close price of the New Common Stock on the National Association of Securities Dealers Automated Quotation System or the principal market on which the New Common Stock is then traded on the last business day prior to the date of exercise upon which such a sale shall have been effected, or, if the New 3 6 Common Stock is not publicly traded, as the Board of Directors of the Company may in good faith determine. 2.6 EFFECT OF ALTERNATE SECURITIES. If at any time, as a result of an adjustment made pursuant to this Section 2, the Holder of the Warrants shall thereafter become entitled to receive any securities of the Company other than shares of New Common Stock, then the number of such other securities receivable upon exercise of an Warrant shall be subject to adjustment from time to time on terms as nearly equivalent as practicable to the provisions with respect to shares of New Common Stock contained in this Section 2. 2.7 SUCCESSIVE APPLICATION. The provisions of this Section 2 shall similarly apply to successive events covered by this Section. 2.8 MINIMUM EXERCISE PRICE FOR ADJUSTMENT. No adjustment in the Exercise Price in accordance with this Article 2 need be made if such adjustment would amount to a change in such Exercise Price of less than $.001; provided, however, that the amount by which any adjustment is not made by reason of the provisions of this Section 2.8 shall be carried forward and taken into account at the time of any subsequent adjustment. ARTICLE 3. EXERCISE 3.1 EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant by (i) surrendering this Warrant, with the form of exercise notice attached hereto as EXHIBIT "A" duly executed by Holder, and (ii) making payment to the Company of the aggregate Exercise Price for the applicable Warrant Shares in cash, by certified check or bank check or by wire transfer to an account designated by the Company. Upon any partial exercise of this Warrant, the Company, at its expense, shall forthwith issue to the Holder for its surrendered warrant a replacement Warrant identical in all respects to this Warrant, except that the number of Warrant Shares shall be reduced accordingly. (b) RECORD DATE FOR OWNERSHIP OF WARRANT SHARES. Each person in whose name any Warrant Share certificate is issued upon exercise of the Warrant shall for all purposes been deemed to have become the holder of record of the Warrant Shares for which such Warrant was exercised, and such Warrant Share certificate shall be dated the date upon which the Warrant exercise notice was duly surrendered and payment of the Exercise Price was tendered to the Company. 3.2 ISSUANCE OF WARRANT SHARES. The Warrant Shares purchased shall be issued to the Holder exercising this Warrant as of the close of business on the date on which all actions and payments required to be taken or made by Holder, pursuant to Section 3.1, shall have been so taken or made. Certificates for the Warrant Shares so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days after this Warrant is surrendered. ARTICLE 4. RIGHTS OF HOLDER Holder shall not, solely by virtue of this Warrant and prior to the issuance of the Warrant Shares upon due exercise thereof, be entitled to any rights of a shareholder in the Company. 4 7 ARTICLE 5. MISCELLANEOUS 5.1 AMENDMENTS. The parties may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Warrant or changing in any manner the rights of either of the parties hereunder. No amendment, supplement or modification shall be binding on either party unless made in writing and signed by a duly authorized representative of each party. 5.2 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery, or confirmed facsimile transmission, which transmission is confirmed: (a) if to the Company to: The Elder-Beerman Stores Corp. 3155 El-Bee Road Dayton, Ohio 45439 Attention: John A. Muskovich Telecopy: (937) 296-4625 with a copy to: Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114-1190 Attention: Richard M. Cieri, Esq. Telecopy: (216) 579-0212 (b) if to Holder to: Beerman-Peal Holdings, Inc. 11 W. Monument Building 8th Floor Dayton, Ohio 45402 Attention: William S. Weprin Telecopy: (937) 222-5472 5 8 with a copy to: McDonald, Hopkins, Burke & Haber Co., L.P.A. 2100 Bank One Center 600 Superior Avenue, East Cleveland, Ohio 44114-2653 Attention: Shawn M. Riley Telecopy: (216) 348-5474 (c) or, in each case, at such other address or to such other person as may be specified in writing to the other party. 5.3 WAIVER BY CONSENT. The Holder may execute and deliver to the Company a written instrument waiving, on such terms and conditions as the Holder may specify in such instrument, any of the requirements of this Warrant. 5.4 NO IMPLIED WAIVER; RIGHTS ARE CUMULATIVE. The failure to exercise or the delay in exercising by either party of any right, remedy, power or privilege under this Warrant, shall not operate as a waiver thereof. The single or partial exercise of any right, remedy, power or privilege under this Warrant shall not preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 5.5 GOVERNING LAW. This Warrant and rights and obligations of the parties hereunder shall be governed by, construed and interpreted in accordance with the laws of the State of Ohio applicable to agreements executed by residents of that state, and fully to be performed, in that state. 5.6 SEVERABILITY. If any provision of this Warrant is found to be unenforceable for any reason whatsoever, such provision shall be deemed null and void to the extent of such unenforceability but shall be deemed separable from and shall not invalidate any other provision of this Warrant. 5.7 CAPTIONS. Captions to the various paragraphs of this Agreement are provided for convenience only and shall not be used to construe the provisions of this Warrant. 5.8 ENTIRE AGREEMENT. This Warrant and the Plan constitute the entire understanding of the parties with respect to the subject matter of the Warrant and supersedes all prior discussions, agreements and representations, whether oral or written, concerning the subject matter hereof and whether or not executed by Holder and the Company. 6 9 IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed and delivered by the proper and duly authorized officers as of the day and year first above written. THE ELDER-BEERMAN STORES CORP. By: /s/ John A. Muskovich ---------------------------------------------- John A. Muskovich President, Chief Operating Officer and Chief Financial Officer BEERMAN-PEAL HOLDINGS, INC. By: /s/ William S. Weprin ---------------------------------------------- William S. Weprin President 7 10 EXHIBIT "A" ----------- [To be signed only upon exercise of Warrant] To The Elder-Beerman Stores Corp.: The undersigned, the Holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _______________ shares of the common stock, without par value, of The Elder-Beerman Stores Corp. and herewith makes payment of $_______________ therefor, and requests that the certificates for such shares be issued in the name of, and be delivered to, _______________ whose address is ________________________________________________. Dated: ____________________ -------------------------------------------------- Signature must conform in all respects to name of Holder as specified on the face of the Warrant) -------------------------------------------------- Address 8 EX-10.I 6 EHIBIT 10(I) 1 Exhibit 10(i) THE ELDER-BEERMAN STORES CORP. EQUITY AND PERFORMANCE INCENTIVE PLAN (Effective December 30, 1997) 2 THE ELDER-BEERMAN STORES CORP. EQUITY AND PERFORMANCE INCENTIVE PLAN (Effective December 30, 1997) Table of Contents -----------------
Page ---- ARTICLE I: Purpose and Definitions......................................................................1 1.1 Purpose......................................................................................1 1.2 Effective Date...............................................................................1 1.3 Definitions..................................................................................1 ARTICLE II: Shares Available Under the Plan..............................................................5 2.1 Shares Available Under the Plan..............................................................5 ARTICLE III: Long-Term Incentive Awards...................................................................6 3.1 Purpose......................................................................................6 3.2 Option Rights................................................................................6 3.3 Appreciation Rights..........................................................................8 3.4 Restricted Shares............................................................................9 3.5 Deferred Shares.............................................................................10 3.6 Performance Shares and Performance Units....................................................10 3.7 Transferability.............................................................................12 3.8 Participation by Employees of a Designated Subsidiary.......................................12 3.9 Awards on the Effective Date................................................................12 ARTICLE IV: Awards to Non-Employee Directors............................................................13 4.1 Purpose.....................................................................................13 4.2 Awards to Non-Employee Directors............................................................13 4.3 Awards on the Effective Date................................................................13 ARTICLE V: Annual Incentive Awards.....................................................................13 5.1 Purpose.....................................................................................13 5.2 Definitions.................................................................................13 5.3 Eligibility for Annual Incentive Award......................................................14 5.4 Annual Incentive Awards.....................................................................14 5.5 Deferral Election...........................................................................14 5.6 Grants of Restricted Shares.................................................................14 5.7 Retirement, Disability, Death, Termination of Employment, Change of Ownership 14 5.8 Administration..............................................................................15 5.9 Claims Procedure............................................................................15
i 3 ARTICLE VI: Administration; General Provisions..........................................................16 6.1 Adjustments.................................................................................16 6.2 Fractional Shares...........................................................................16 6.3 Withholding Taxes...........................................................................16 6.4 Administration of the Plan..................................................................16 6.5 Amendments, Etc.............................................................................17 6.6 Termination.................................................................................18
ii 4 THE ELDER-BEERMAN STORES CORP. EQUITY AND PERFORMANCE INCENTIVE PLAN ARTICLE I Purpose and Definitions ----------------------- 1.1 PURPOSE. The purpose of the Equity and Performance Incentive Plan (the "Plan") is to attract and retain directors, officers and key employees for The Elder-Beerman Stores Corp. (the "Corporation") and its Subsidiaries and to provide to such persons incentives and rewards for superior performance. 1.2 EFFECTIVE DATE. The Plan will be effective on the confirmation date of the Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries (the "Joint Plan of Reorganization"). As of the date the Plan becomes effective, the Plan will be deemed authorized and approved in all respects and for all purposes, as provided in the Joint Plan of Reorganization, without any requirements of further action by any shareholders or directors of The Elder-Beerman Stores Corp. 1.3 DEFINITIONS. As used in the Plan, "Appreciation Right" means a right granted pursuant to Section 3.3 of the Plan, and includes both Tandem Appreciation Rights and Free-Standing Appreciation Rights. "Bankruptcy Code" means 11 U.S.C. ss.ss. 101-1330. "Board" means the Board of Directors of the Corporation and, to the extent of any delegation by the Board to a committee (or subcommittee thereof) pursuant to Section 6.5 of the Plan, such committee (or subcommittee thereof). "Change of Ownership" means any of the following events: (a) The sale to any purchaser unaffiliated with the Corporation of all or substantially all of the assets of the Corporation; (b) The sale, distribution, or accumulation of more than 50% of the outstanding voting stock of the Corporation to/by any acquiror or group of affiliated acquirors that are unaffiliated with the Corporation; (c) Individuals who, on the completion of the Corporation's chapter 11 reorganization under 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 5 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 the Corporation in which such person is named as a nominee for director, without objection to such nomination) will be an Incumbent Director; provided, however, that no individual elected or nominated as a director of the Corporation 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 will be deemed to be an Incumbent Director; or (d) The merger or consolidation of the Corporation with another entity (as such term is defined in section 101(16) of the Bankruptcy Code) (an "Entity") unaffiliated with the Corporation 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 the Corporation entitled to vote generally in the election of directors. (e) In no event may "Change of Ownership" be construed to include any change of control of the Corporation or any Subsidiary that occurs solely as a result of any exchange or distribution of equity securities of the Corporation or any Subsidiary upon consummation of a plan of reorganization for the Corporation or any Subsidiary in its chapter 11 case. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the committee described in Section 6.4. "Common Shares" means shares of common stock, $0.01 par value per share, of the Corporation or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 6.1 of the Plan. "Covered Employee" means a Participant who is, or is determined by the Board to be likely to become, a "covered employee" within the meaning of Section 162(m) of the Code (or any successor provision). "Date of Grant" means the date specified by the Board on which a grant of Option Rights, Appreciation Rights, Performance Shares or Performance Units or a grant or sale of Restricted Shares or Deferred Shares will become effective (which date may not be earlier than the date on which the Board takes action with respect thereto) and may also include the date on which a grant of Option Rights to a Non-Employee Director becomes effective pursuant to Section 4.2 of the Plan. "Deferral Period" means the period of time during which Deferred Shares are subject to deferral limitations under Section 3.5 of the Plan. "Deferred Shares" means an award made pursuant to Section 3.5 of the Plan of the right to receive Common Shares or cash in lieu thereof at the end of a specified Deferral Period. 2 6 "Designated Subsidiary" means a Subsidiary that is (i) not a corporation or (ii) a corporation in which at the time the Corporation owns or controls, directly or indirectly, less than 80% of the total combined voting power represented by all classes of stock issued by such corporation. "Exercise Right" means the price payable upon exercise of a Free-Standing Appreciation Right. "Free-Standing Appreciation Right" means an Appreciation Right not granted in tandem with an Option Right. "Incentive Stock Options" means Option Rights that are intended to qualify as "incentive stock options" under Section 422 of the Code or any successor provision. "Market Value per Share" means, as of any particular date, the fair market value of the Common Shares as determined by the Board, except that, with respect to options granted pursuant to Section 3.9 and 4.3, Market Value per Share will be $10.89 per share. "Non-Employee Director" means a Director of the Corporation who is not an employee of the Corporation or any Subsidiary. "Optionee" means the optionee named in an agreement evidencing an outstanding Option Right. "Option Price" means the purchase price payable on exercise of an Option Right. "Option Right" means the right to purchase Common Shares upon exercise of an option granted pursuant to Section 3.2 or Section 4.2 of the Plan. "Participant" means a person who is selected by the Board to receive benefits under the Plan and who is at the time an officer, or other key employee of the Corporation or any one or more of its Subsidiaries, or who has agreed to commence serving in any of such capacities within 90 days of the Date of Grant, and also includes each Non-Employee Director who receives an award of Option Rights pursuant to Section 4.2 of the Plan; provided, however, that for purposes of Articles III and V of the Plan, Participant does not include such Non-Employee Director. "Performance Objectives" means the measurable performance objective or objectives established pursuant to the Plan for Participants who have received grants of Performance Shares or Performance Units or, when so determined by the Board, Option Rights, Appreciation Rights, Restricted Shares and dividend credits pursuant to the Plan. Performance Objectives may be described in terms of Corporation-wide objectives and/or objectives that are related to the performance of the individual Participant or of the Subsidiary, division, department, region, store or function within the Corporation or Subsidiary in which the Participant is employed. The Performance Objectives may be made relative to the performance of other corporations. The Performance 3 7 Objectives applicable to any award to a Covered Employee will be based on specified levels of or growth in one or more of the following criteria: 1. earnings; 2. earnings before interest, tax, depreciation and amortization; 3. earnings per share (earnings per share will be calculated without regard to any change in accounting standards that may be required by the Financial Accounting Standards Board after the goal is established); 4. share price; 5. total shareholder return; 6. return on invested capital, equity, or assets; 7. operating earnings; 8. sales growth. Except where a modification would result in an award no longer qualifying as performance based compensation within the meaning of Section 162(m) of the Code, if the Board determines that a change in the business, operations, corporate structure or capital structure of the Corporation, or the manner in which it conducts its business, or other events or circumstances render the Performance Objectives unsuitable, the Board may in its discretion modify such Performance Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Board deems appropriate and equitable. "Performance Period" means, in respect of a Performance Share or Performance Unit, a period of time established pursuant to Section 3.6 of the Plan within which the Performance Objectives relating to such Performance Share or Performance Unit are to be achieved. "Performance Share" means a bookkeeping entry that records the equivalent of one Common Share awarded pursuant to Section 3.6 of the Plan. "Performance Unit" means a bookkeeping entry that records a unit equivalent to $1.00 awarded pursuant to Section 3.6 of the Plan. "Reload Option Rights" means additional Option Rights granted automatically to an Optionee upon the exercise of Option Rights pursuant to Section 3.2(g) of the Plan. "Restricted Shares" means Common Shares granted or sold pursuant to Section 3.4 or Section 4.2 of the Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers referred to in Section 3.4 of the Plan has expired. "Spread" means the excess of the Market Value per Share on the date when an Appreciation Right is exercised, or on the date when Option Rights are surrendered in payment of the Option Price of other Option Rights, over the Option Price provided for in the related Option Right or Free-Standing Appreciation Right, respectively. 4 8 "Subsidiary" means a corporation, company or other entity (i) more than 50% of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Corporation, except that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, "Subsidiary" means any corporation in which at the time the Corporation owns or controls, directly or indirectly, more than 50% of the total combined voting power represented by all classes of stock issued by such corporation. "Tandem Appreciation Right" means an Appreciation Right granted in tandem with an Option Right. "Voting Shares" means at any time the then-outstanding securities entitled to vote generally in the election of directors of the Corporation. ARTICLE II Shares Available Under the Plan ------------------------------- 2.1 SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided in Section 6.1 of the Plan, the number of Common Shares that may be issued or transferred (i) upon the exercise of Option Rights or Appreciation Rights, (ii) as Restricted Shares and released from substantial risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in payment of Performance Shares or Performance Units that have been earned, (v) as awards to Non-Employee Directors or (vi) in payment of dividend equivalents paid with respect to awards made under the Plan may not exceed in the aggregate 2,250,000 shares plus any shares relating to awards that expire or are forfeited or canceled. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. Upon the payment of any Option Price by the transfer to the Corporation of Common Shares or upon satisfaction of any withholding amount by means of transfer or relinquishment of Common Shares, there will be deemed to have been issued or transferred under the Plan only the net number of Common Shares actually issued or transferred by the Corporation. (b) The number of shares available in Subsection (a) of this Section will be adjusted to account for shares relating to awards that expire; are forfeited; or are transferred, surrendered, or relinquished upon the payment of any Option Price by the transfer to the Corporation of Common Shares or upon satisfaction of any withholding amount. (c) Notwithstanding anything in this Section or elsewhere in the Plan to the contrary, the aggregate number of Common Shares actually issued or transferred by the Corporation upon the exercise of Incentive Stock Options may not exceed 200,000 shares, subject to adjustments as provided in Section 6.1 of the Plan. Further, no Participant may be granted Option Rights for more 5 9 than 300,000 Common Shares during any calendar year, subject to adjustments as provided in Section 6.1 of the Plan. (d) Upon payment in cash of the benefit provided by any award granted under the Plan, any shares that were covered by that award will again be available for issue or transfer hereunder. (e) Notwithstanding any other provision of the Plan to the contrary, in no event may any Participant in any calendar year receive more than 300,000 Appreciation Rights, subject to adjustments as provided in Section 6.1 of the Plan. (f) Notwithstanding any other provision of the Plan to the contrary, in no event may any Participant in any calendar year receive more than 75,000 Restricted Shares or 5,000 Deferred Shares, subject to adjustments as provided in Section 6.1 of the Plan. (g) Notwithstanding any other provision of the Plan to the contrary, in no event may any Participant in any calendar year receive an award of Performance Shares or Performance Units having an aggregate maximum value as of their respective Dates of Grant in excess of $1,000,000. ARTICLE III Long-Term Incentive Awards -------------------------- 3.1 PURPOSE. The purpose of the long-term incentive awards provided under this Article is to provide the Corporation a means to devise tailored long-term stock and other incentive awards to officers and other key employees of the Corporation or a Subsidiary, which will provide incentive for such employees to act in the best interests of the Corporation's shareholders, will reinforce such employees' mutuality of interest with shareholders, and will promote the long-term interests of the Corporation and its Subsidiaries. 3.2 OPTION RIGHTS. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of options to purchase Common Shares. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions: (a) Each grant will specify the number of Common Shares to which it pertains subject to the limitations set forth in Section 2.1 of the Plan. (b) Each grant will specify an Option Price per share, which may be equal to or more or less than (but not less than 75% of) the Market Value per Share on the Date of Grant, except that the Option Price per share for any Incentive Stock Option will not be less than 100% of the Market Value per Share on the Date of Grant. (c) Each grant will specify whether the Option Price will be payable (i) in cash or by check acceptable to the Corporation, (ii) by the actual or constructive transfer to the Corporation of 6 10 nonforfeitable, unrestricted Common Shares owned by the Optionee (or other consideration authorized pursuant to Subsection (d) of this Section) having a value at the time of exercise equal to the total Option Price, or (iii) by a combination of such methods of payment. (d) The Board may determine, at or after the Date of Grant, that payment of the Option Price of any option (other than an Incentive Stock Option) may also be made in whole or in part in the form of Restricted Shares or other Common Shares that are forfeitable or subject to restrictions on transfer, Deferred Shares, Performance Shares (based, in each case, on the Market Value per Share on the date of exercise), other Option Rights (based on the Spread on the date of exercise) or Performance Units. Unless otherwise determined by the Board at or after the Date of Grant, whenever any Option Price is paid in whole or in part by means of any of the forms of consideration specified in this Subsection, the Common Shares received upon the exercise of the Option Rights will be subject to such risks of forfeiture or restrictions on transfer as may correspond to any that apply to the consideration surrendered, but only to the extent of (i) the number of shares or Performance Shares, (ii) the Spread of any unexercisable portion of Option Rights, or (iii) the stated value of Performance Units surrendered. (e) Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Corporation of some or all of the shares to which such exercise relates. (f) Any grant may provide for payment of the Option Price, at the election of the Optionee, in installments, with or without interest, upon terms determined by the Board. (g) Any grant may, at or after the Date of Grant, provide for the automatic grant of Reload Option Rights to an Optionee upon the exercise of Option Rights (including Reload Option Rights) using Common Shares or other consideration specified in Subsection (d) of this Section. Reload Option Rights will cover up to the number of Common Shares, Deferred Shares, Option Rights or Performance Shares (or the number of Common Shares having a value equal to the value of any Performance Units) surrendered to the Corporation upon any such exercise in payment of the Option Price or to meet any withholding obligations. Reload Options may have an Option Price that is no less than the applicable Market Value per Share at the time of exercise and will be on such other terms as may be specified by the Board, which may be the same as or different from those of the original Option Rights. (h) Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised. (i) Each grant will specify the period or periods of continuous service by the Optionee with the Corporation or any Subsidiary following the grant which is necessary before the Option Rights or installments thereof will become exercisable and may provide for the earlier exercise of such Option Rights in the event of retirement, disability or death of the Participant or a Change of Ownership or other similar transaction or event. 7 11 (j) Any grant of Option Rights may specify Performance Objectives that must be achieved as a condition to the exercise of such rights. (k) Option Rights granted under the Plan may be (i) options, including, without limitation, Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii) options that are not intended so to qualify, or (iii) combinations of the foregoing. (l) The Board may, at or after the Date of Grant of any Option Rights (other than Incentive Stock Options), provide for the payment of dividend equivalents to the Optionee on either a current or deferred or contingent basis or may provide that such equivalents will be credited against the Option Price. (m) The exercise of an Option Right will result in the cancellation on a share-for-share basis of any Tandem Appreciation Right authorized under Section 3.3 of the Plan. (n) No Option Right may be exercised more than 10 years from the Date of Grant. (o) Each grant of Option Rights will be evidenced by an agreement executed on behalf of the Corporation by an officer and delivered to the Optionee and containing such terms and provisions, consistent with the Plan, as the Board may approve. 3.3 APPRECIATION RIGHTS. (a) The Board may also authorize the granting to any Optionee of Tandem Appreciation Rights in respect of Option Rights granted hereunder at any time prior to the exercise or termination of such related Option Rights; provided, however, that a Tandem Appreciation Right awarded in relation to an Incentive Stock Option must be granted concurrently with such Incentive Stock Option. A Tandem Appreciation Right will be a right of the Optionee, exercisable by surrender of the related Option Right, to receive from the Corporation an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. (b) The Board may also authorize the granting to any Participant of Free-Standing Appreciation Rights. A Free-Standing Appreciation Right will be a right of the Participant to receive from the Corporation an amount determined by the Board, which will be expressed as a percentage of the spread (not exceeding 100%) at the time of exercise. (c) Each grant of Appreciation Rights may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions: (i) Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by the Corporation in cash, in Common Shares or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives. (ii) Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Board at the Date of Grant. 8 12 (iii) Any grant may specify waiting periods before exercise and permissible exercise dates or periods and will provide that no Appreciation Right may be exercised except at a time when the related Option Right (if applicable) is also exercisable and at a time when the Spread is positive. (iv) Any grant may specify that such Appreciation Right may be exercised only in the event of retirement, disability or death of the Participant or a Change of Ownership or other similar transaction or event. (v) Each grant of Appreciation Rights will be evidenced by an agreement executed on behalf of the Corporation by an officer and delivered to and accepted by the Participant, which agreement will describe such Appreciation Rights, identify the related Option Rights (if applicable), state that such Appreciation Rights are subject to all the terms and conditions of the Plan, and contain such other terms and provisions, consistent with the Plan, as the Board may approve. (vi) Any grant of Appreciation Rights may specify Performance Objectives that must be achieved as a condition of the exercise of such rights. 3.4 RESTRICTED SHARES. The Board may also authorize the grant or sale to Participants of Restricted Shares. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions: (a) Each such grant or sale will constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to. (b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than Market Value per Share at the Date of Grant. (c) Each such grant or sale will provide that the Restricted Shares covered by such grant or sale will be subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code except (if the Board so determines) in the event of retirement, disability or death of the Participant or a Change of Ownership or other similar transaction or event, for a period of not less than 3 years as determined by the Board at the Date of Grant. (d) Each such grant or sale will provide that during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares will be prohibited or restricted in the manner and to the extent prescribed by the Board at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Corporation or provisions subjecting the Restricted Shares to a continuing substantial risk of forfeiture in the hands of any transferee). 9 13 (e) Any grant of Restricted Shares may specify Performance Objectives which, if achieved, will result in termination or early termination of the restrictions applicable to such shares and each grant may specify in respect of such specified Performance Objectives, a minimum acceptable level of achievement and will set forth a formula for determining the number of Restricted Shares on which restrictions will terminate if performance is at or above the minimum level, but falls short of full achievement of the specified Performance Objectives. (f) Any such grant or sale of Restricted Shares may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional Restricted Shares, which may be subject to the same restrictions as the underlying award. (g) Each grant or sale of Restricted Shares will be evidenced by an agreement executed on behalf of the Corporation by an officer and delivered to and accepted by the Participant and will contain such terms and provisions, consistent with the Plan, as the Board may approve. Unless otherwise directed by the Board, all certificates representing Restricted Shares will be held in custody by the Corporation until all restrictions thereon have lapsed, together with a stock power executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such Shares. 3.5 DEFERRED SHARES. The Board may also authorize the granting or sale of Deferred Shares to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements contained in the following provisions: (a) Each such grant or sale will constitute the agreement by the Corporation to deliver Common Shares to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the Deferral Period as the Board may specify. (b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is equal to or less than the Market Value per Share at the Date of Grant. (c) Each such grant or sale will be subject to a Deferral Period of not less than one year, as determined by the Board at the Date of Grant, except (if the Board so determines) in the event of retirement, disability, hardship or death of the Participant or a Change of Ownership or other similar transaction or event. (d) During the Deferral Period, the Participant will have no right to transfer any rights under his or her award and will have no rights of ownership in the Deferred Shares and will have no right to vote them, but the Board may, at or after the Date of Grant, authorize the payment of dividend equivalents on such Shares on either a current or deferred or contingent basis, either in cash or in additional Common Shares. 10 14 (e) Each grant or sale of Deferred Shares will be evidenced by an agreement executed on behalf of the Corporation by any officer and delivered to and accepted by the Participant and will contain such terms and provisions, consistent with the Plan, as the Board may approve. 3.6 PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also authorize the granting of Performance Shares and Performance Units that will become payable to a Participant upon achievement of specified Performance Objectives. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions: (a) Each grant will specify the number of Performance Shares or Performance Units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors; provided, however, that no such adjustment will be made in the case of a Covered Employee. (b) The Performance Period with respect to each Performance Share or Performance Unit will be such period of time (not less than one year, except in the event of retirement, disability or death of the Participant or a Change of Ownership or other similar transaction or event, if the Board so determines) commencing with the Date of Grant as is determined by the Board at the Date of Grant. (c) Any grant of Performance Shares or Performance Units will specify Performance Objectives which, if achieved, will result in payment or early payment of the award, and each grant may specify in respect of such specified Performance Objectives a minimum acceptable level of achievement below which no payment will be made and will set forth a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is at or above the minimum level, but falls short of full achievement of the specified Performance Objectives. The grant of Performance Shares or Performance Units will specify that, before the Performance Shares or Performance Units are earned and paid, the Board must certify that the Performance Objectives have been satisfied. (d) Each grant will specify a minimum acceptable level of achievement in respect of the specified Performance Objectives below which no payment will be made and will set forth a formula for determining the amount of payment to be made if performance is at or above such minimum but short of full achievement of the Performance Objectives. (e) Each grant will specify the time and manner of payment of Performance Shares or Performance Units which have been earned. Any grant may specify that the amount payable with respect thereto may be paid by the Corporation in cash, in Common Shares or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives. (f) Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Board at the Date of Grant. Any grant of Performance Units may specify that the amount payable or the number of Common Shares issued with respect thereto may not exceed maximums specified by the Board at the Date of Grant. 11 15 (g) The Board may, at or after the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof on either a current or deferred or contingent basis, either in cash or in additional Common Shares. (h) Each grant of Performance Shares or Performance Units will be evidenced by an agreement executed on behalf of the Corporation by any officer and delivered to and accepted by the Participant, which agreement will state that such Performance Shares or Performance Units are subject to all the terms and conditions of the Plan, and contain such other terms and provisions, consistent with the Plan, as the Board may approve. 3.7 TRANSFERABILITY. (a) Except as otherwise determined by the Board on a case-by-case basis, no Option Right, Appreciation Right or other derivative security granted under the Plan will be transferable by an Optionee other than by will or the laws of descent and distribution, except (in the case of a Participant who is not a Director or officer of the Corporation) to a fully revocable trust of which the Optionee is treated as the owner for federal income tax purposes. Except as otherwise determined by the Board on a case-by-case basis, Option Rights and Appreciation Rights will be exercisable during the Optionee's lifetime only by him or her or by his or her guardian or legal representative. (b) The Board may specify at the Date of Grant that part or all of the Common Shares that are (i) to be issued or transferred by the Corporation upon the exercise of Option Rights or Appreciation Rights, upon the termination of the Deferral Period applicable to Deferred Shares or upon payment under any grant of Performance Shares or Performance Units or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 3.4 of the Plan, will be subject to further restrictions on transfer. 3.8 PARTICIPATION BY EMPLOYEES OF A DESIGNATED SUBSIDIARY. As a condition to the effectiveness of any grant or award to be made hereunder to a Participant who is an employee of a Designated Subsidiary, regardless whether such Participant is also employed by the Corporation or another Affiliate, the Board may require the Designated Subsidiary to agree to transfer to the Participant (as, if and when provided for under the Plan and any applicable agreement entered into between the Participant and the Designated Subsidiary pursuant to the Plan) the Common Shares that would otherwise be delivered by the Corporation upon receipt by the Designated Subsidiary of any consideration then otherwise payable by the Participant to the Corporation. Any such grant or award may be evidenced by an agreement between the Participant and the Designated Subsidiary, in lieu of the Corporation, on terms consistent with the Plan and approved by the Board and the Designated Subsidiary. All Common Shares so delivered by or to a Designated Subsidiary will be treated as if they had been delivered by or to the Corporation for purposes of Section 2.1 of the Plan and all references to the Corporation in the Plan are deemed to refer to the Designated Subsidiary except with respect to the definitions of the Board and the Committee and in other cases where the context otherwise requires. 3.9 AWARDS ON THE EFFECTIVE DATE. Long-term incentive awards pursuant to this Article will be initially made on the Effective Date as provided in Exhibit A hereto, with such awards to each applicable employee based on gain objective and salary. 12 16 ARTICLE IV Awards to Non-Employee Directors -------------------------------- 4.1 PURPOSE. The purpose of providing awards to non-employee directors is to provide the Corporation a means to attract and retain qualified directors, provide an incentive for such directors to act in the best interests of the Corporation's shareholders, reinforce such directors' mutuality of interest with shareholders and promote the long-term interests of the Corporation. 4.2 AWARDS TO NON-EMPLOYEE DIRECTORS. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Non-Employee Directors of Option Rights (other than Incentive Stock Options) and may also authorize the grant or sale of Restricted Shares to Non-Employee Directors. A grant of Option Rights may be in lieu of all or a portion of such Non-Employee Director's annual retainer, as elected by the Non-Employee Director. Each grant of Option Rights awarded pursuant to this Section will be upon terms and conditions consistent with Section 3.2 of the Plan. Each grant or sale of Restricted Shares pursuant to this Article will be upon terms and conditions consistent with Section 3.4 of the Plan. 4.3 AWARDS ON THE EFFECTIVE DATE. Awards to non-employee directors will be initially made on the Effective Date as provided in Exhibit A hereto. ARTICLE V Annual Incentive Awards ----------------------- 5.1 PURPOSE. The purpose of the annual incentive awards provided under the Plan is to provide for the grant of short-term performance awards to certain key employees of the Corporation or a Subsidiary based on their attainment of predetermined goals which will further the interests of the Corporation and its shareholders. 5.2 DEFINITIONS. As used in this Article, "Annual Incentive Award" means an award made pursuant to this Article. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Goal" means the threshold or thresholds to be satisfied in order for a Participant to qualify for all or a portion of an Annual Incentive Award, as determined by the Board. "Retirement" means termination of employment on or after attainment of age 55 with a combined total of age and service with the Company equal to at least 64. 13 17 5.3 ELIGIBILITY FOR ANNUAL INCENTIVE AWARD. The Board annually will select Participants eligible to receive an Annual Incentive Award, based on the impact of the employee's position on Corporation performance, the measurability of such impact, and the Participant's performance and potential. 5.4 ANNUAL INCENTIVE AWARDS. (a) As soon as practicable (but not later than the April 15) following the end of the Corporation's fiscal year, the Board will determine whether and to what extent the Goals have been met and what Annual Incentive Awards have been earned, and will notify each Participant of his entitlement, if any, to an Annual Incentive Award. Except as provided in this Article, an Annual Incentive Award will become nonforfeitable upon such a determination by the Board that such Award has been earned. (b) In the event of special or unusual events or circumstances affecting the application of one or more performance measures to an annual incentive award, the Board may revise the performance measures and/or underlying factors and criteria applicable to the Annual Incentive Awards affected, to the extent deemed appropriate by the Board, in its sole discretion, to avoid unintended windfalls or hardship. (c) Annual Incentive Awards earned will be paid in cash as soon as practicable following the determination by the Board of such Award, subject to any deferral election made pursuant to Section 5.5 of the Plan. Anything in this Article to the contrary notwithstanding, the Corporation will have no obligation to make payment of any Annual Incentive Award in the event the Participant's employment is terminated for Cause. 5.5 DEFERRAL ELECTION. A Participant entitled to receive an Annual Incentive Award may elect to defer up to 50% of such Award (in whole percentages). Any such election must be made prior to the last business day of July of the year for which such Award may be earned and will be irrevocable with respect to such Annual Incentive Award; provided, however, that for the Annual Incentive Award applicable to the fiscal year in which the Effective Date occurs, such election must be made by January 15, 1998. The portion of an Annual Incentive Award deferred pursuant to this Subsection will be converted and granted as Deferred Shares under Section 3.5 of the Plan using the Market Value per Share on the last day of the Corporation's fiscal year for which such Award is earned. 5.6 GRANTS OF RESTRICTED SHARES. The Corporation will grant Restricted Shares under Section 3.4 of the Plan to each Participant who defers a percentage of his Annual Incentive Award pursuant to Section 5.5 of the Plan. The number of Restricted Shares so granted will be equal in value, using the Market Value per Share on the last day of the Corporation's fiscal year to which the Award relates, to 25% of the deferred portion of such Award deferred. 5.7 RETIREMENT, DISABILITY, DEATH, TERMINATION OF EMPLOYMENT, CHANGE OF OWNERSHIP. (a) In the event of the Retirement, disability or death of any Participant prior to the determination of any Annual Incentive Award, and in the event the Board determines that the Goal(s) set for the Participant are attained, such Participant or such Participant's beneficiary, as the case may be, will be eligible to receive a pro rata portion of his Annual Incentive Award, such portion determined by 14 18 multiplying the Annual Incentive Award by a fraction, the numerator of which is the number of days during the year prior to his Retirement, disability or death and the denominator of which is 365. (b) OTHER TERMINATION OF EMPLOYMENT. If a Participant's employment is terminated (by him or by the Corporation or a Subsidiary) prior to the date on which any Annual Incentive Award is paid for any reason other than Retirement, disability or death, the Participant will forfeit any right to an Annual Incentive Award or any portion thereof; provided, however, that in unusual circumstances the Board in its sole discretion may waive the forfeiture in whole or in part. (c) CHANGE OF OWNERSHIP. If a Participant is employed on the date a Change of Ownership occurs, the Participant will be eligible to receive an Annual Incentive Award for the year in which such Change of Ownership occurs of not less than the Annual Incentive Award payable for the year immediately preceding such year. 5.8 ADMINISTRATION. (a) This Article will be administered by the Board, which is the "administrator" for purposes of, and to the extent required by, ERISA (the "Administrator"). The Board will have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, to construe and interpret any provision of this Article or related provisions of the Plan or of any related agreement, notification or document (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in the language of this Article or related provisions of the Plan or such agreement, notification or document), to determine the rights and status under this Article of Participants and other persons, to decide disputes arising under this Article and to make any determinations and findings with respect to benefits under this Article and the persons entitled thereto as may be required for the purposes of this Article. (b) The Board may, from time to time, employ and/or designate agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with legal counsel who may be counsel to the Corporation. No member of the Board may act in respect of his own interests under this Article. All decisions and determinations by the Administrator will be final and binding on all parties. All decisions of the Board will be made by the vote of the majority, including actions in writing taken without a meeting. (c) All elections, notices and directions under this Article by a Participant must be made on such forms and in such manner as the Board prescribes. 5.9 CLAIMS PROCEDURE. To the extent required by ERISA, the Board will provide to any Participant or beneficiary whose claim for benefits under this Article has been fully or partially denied (the "claimant") a written notice setting forth (a) the specific reasons for such denial, (b) a designation of any additional material or information required and (c) an explanation of this claim review procedure. Such notice will state that the claimant is entitled to request a review in writing, by the Board, of the decision denying the claim. The claim will be reviewed by the Board who may, but need not, grant the claimant a hearing. On review, the claimant may have legal representation, examine pertinent documents and submit issues and comments in writing. The decision on review 15 19 will be made within 120 days following the request, will be provided in writing to the claimant and will be final and binding on all parties concerned. ARTICLE VI Administration; General Provisions ---------------------------------- 6.1 ADJUSTMENTS. The Board may make or provide for such adjustments in the numbers of Common Shares covered by outstanding Option Rights, Appreciation Rights, Deferred Shares, and Performance Shares granted hereunder, in the prices per share applicable to such Option Rights and Appreciation Rights and in the kind of shares covered thereby, as the Board, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants or Optionees that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Corporation, or (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Board, in its discretion, may provide in substitution for any or all outstanding awards under the Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced. The Board may also make or provide for such adjustments in the numbers of shares specified in Section 2.1 of the Plan and in the number of Option Rights to be granted pursuant to Section 4.2 of the Plan as the Board in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described in this Section. Notwithstanding any other provision of the Plan, following any adjustment pursuant to this Section, the total percent of share equivalents to be made available under the Plan will be 15% of shares outstanding after such adjustment. 6.2 FRACTIONAL SHARES. The Corporation will not be required to issue any fractional Common Shares pursuant to the Plan. The Board may provide for the elimination of fractions or for the settlement of fractions in cash. 6.3 WITHHOLDING TAXES. To the extent that the Corporation is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under the Plan, and the amounts available to the Corporation for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Corporation for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. The Corporation and a Participant or such other person may also make similar arrangements with respect to the payment of any taxes with respect to which withholding is not required. 6.4 ADMINISTRATION OF THE PLAN. (a) Except as otherwise provided in Section 5.8 of the Plan, the Plan will be administered by the Board, which may from time to time delegate all or any part 16 20 of its authority under the Plan to a committee of the Board (or subcommittee thereof). A majority of the committee (or subcommittee thereof) will constitute a quorum, and the action of the members of the committee (or subcommittee thereof) present at any meeting at which a quorum is present, or acts unanimously approved in writing, will be the acts of the committee (or subcommittee thereof). To the extent of any such delegation, references in the Plan to the Board (other than in Section 6.5(a) of the Plan) are deemed to be references to any such committee or subcommittee. (b) The interpretation and construction by the Board of any provision of the Plan or of any agreement, notification or document evidencing the grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares or Performance Units and any determination by the Board pursuant to any provision of the Plan or of any such agreement, notification or document will be final and conclusive. No member of the Board may be liable for any such action or determination made in good faith. 6.5 AMENDMENTS, ETC. (a) The Board may at any time and from time to time amend the Plan in whole or in part; provided, however, that any amendment which must be approved by the shareholders of the Corporation in order to comply with applicable law or the rules of any national securities exchange upon which the Common Shares are traded or quoted will not be effective unless and until such approval has been obtained. Presentation of the Plan or any amendment thereof for shareholder approval may not be construed to limit the Corporation's authority to offer similar or dissimilar benefits under other plans without shareholder approval. (b) The Board will not, without the further approval of the shareholders of the Corporation, authorize the amendment of any outstanding Option Right to reduce the Option Price. Furthermore, no Option Right may be canceled and replaced with awards having a lower Option Price without further approval of the shareholders of the Corporation. This Subsection is intended to prohibit the repricing of "underwater" Option Rights and may not be construed to prohibit the adjustments provided for in Section 6.1 of the Plan. (c) The Board also may permit Participants to elect to defer the issuance of Common Shares or the settlement of awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of the Plan. The Board also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts. (d) The Board may condition the grant of any award or combination of awards authorized under the Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Corporation or a Subsidiary to the Participant. (e) In case of termination of employment by reason of death, disability or normal or early retirement, or in the case of hardship or other special circumstances, of a Participant who holds an Option Right or Appreciation Right not immediately exercisable in full, or any Restricted Shares as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Deferred Shares as to which the Deferral Period has not been completed, or any Performance 17 21 Shares or Performance Units which have not been fully earned, or who holds Common Shares subject to any transfer restriction imposed pursuant to Section 3.7(b) of the Plan, the Board may, in its sole discretion, accelerate the time at which such Option Right or Appreciation Right may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Deferral Period will end or the time at which such Performance Shares or Performance Units will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award. (f) The Plan does not confer upon any Participant any right with respect to continuance of employment or other service with the Corporation or any Subsidiary, nor does it interfere in any way with any right the Corporation or any Subsidiary would otherwise have to terminate such Participant's employment or other service at any time. (g) To the extent that any provision of the Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of the Plan. 6.6 TERMINATION. No grant (other than an automatic grant of Reload Option Rights) may be made under the Plan more than 10 years after the date on which the Plan is first approved by the shareholders of the Corporation, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of the Plan. 18 22 EXHIBIT A
NUMBER OF TOTAL OPTIONS NUMBER RESTRICTED AND RESTRICTED TITLE OF OPTIONS SHARES SHARES - --------------------------------------------------- ---------- ---------- -------------- Chairman of the Board of Directors and Chief Executive Officer.................... 193,917 47,087 241,004 President, Chief Operating Officer, Chief Financial Officer, and Director............ 126,046 30,606 156,652 Executive Vice President - Stores.................. 60,599 -- 60,599 Senior Vice Presidents(12)......................... 215,975 -- 215,975 Vice Presidents(23)................................ 130,363 -- 130,363 Other Key Employees(3)............................. 12,120 -- 12,120 Outside Directors1(7).............................. 49,000 9,100 58,100 ------- ------ ------- TOTALS 788,020 86,793 874,813 ======= ====== ======= - -------- 1 The number of options and restricted shares assumes seven outside directors and includes the annual stock option grant for three years.
EX-10.P 7 EXHIBIT 10(P) 1 Exhibit 10(p) COMPREHENSIVE SETTLEMENT AGREEMENT ---------------------------------- THIS COMPREHENSIVE SETTLEMENT AGREEMENT (this "Agreement") is entered into as of December 30, 1997 by and among the Parties (as defined below). Any capitalized terms not defined herein have the meanings assigned to them in the Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and Its Subsidiaries, dated November 17, 1997, as modified (the "Plan"). THE PARTIES ----------- The "Parties" to this Agreement are as follows: 1. The Debtors: The Elder-Beerman Stores Corp., an Ohio corporation ("Elder- Beerman"); The El-Bee Chargit Corp., an Ohio corporation ("Chargit"); The Bee-Gee Shoe Corp., an Ohio corporation ("Bee-Gee"); Margo's LaMode, Inc., a Texas corporation ("Margo's"); McCook Wholesale Corp., an Ohio corporation ("McCook"); E-B Community Urban Redevelopment Corp., an Ohio corporation ("E-B"); and EBA, Inc., an Ohio corporation ("EBA"). Elder-Beerman, Chargit, Bee-Gee, Margo's, McCook, E-B, and EBA are referred to in this Agreement collectively as the "Debtors." 2. The ESOP and the ESOP Committee: The Elder-Beerman Stores Corp. Profit Sharing and Stock Ownership Plan (the "ESOP"), as represented by The Elder Beerman Stores Corp. Profit Sharing and Stock Ownership Plan Administration Committee (the "ESOP Committee"). 3. The Shareholders of Elder-Beerman: a. Beerman-Peal Holdings, Inc., an Ohio corporation ("Beerman-Peal"), the holder of all Old Common Stock of Elder-Beerman; 2 b. Indirect Shareholders of Elder-Beerman (1) as shareholders of Beerman-Peal and former directors of Elder-Beerman, Barbara B. Weprin ("BBW"), William S. Weprin ("WSW"), and Leonard B. Peal ("LBP"), collectively referred to as the "Equity Directors"; (2) family members of and subsidiary or affiliated entities wholly or partially owned or controlled by the Equity Directors (collectively with the Equity Directors, the "Beerman Family Entities"). RECITALS -------- THE CHAPTER 11 CASES -------------------- A. The Debtors filed their respective petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.ss. 101-1330 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of Ohio (the "Bankruptcy Court") on October 17, 1995 (the "Petition Date"). During their chapter 11 cases, the Debtors operated and managed their respective businesses as debtors in possession in accordance with sections 1107 and 1108 of the Bankruptcy Code. B. The Bankruptcy Court entered an order on __________, 1997 confirming the Plan under section 1129 of the Bankruptcy Code. It is a condition to the consummation of the Plan and occurrence of the Effective Date that each of the Parties execute and deliver this Agreement. REAL PROPERTY LEASE ISSUES C. Twenty of the Debtors' locations are or were governed by leases under which various Beerman Family Entities are or were the landlords. Exhibit A to this Agreement lists these Beerman 2 3 Family Entities and the corresponding Elder-Beerman or Bee-Gee locations. Certain Beerman Family Entities have asserted claims against the Debtors' estates for amounts allegedly due under such leases and allegedly arising both before and after the Petition Date. A schedule of these claims (collectively, the "Beerman Family Lease Claims"), including the holders of such claims and the nature and amount of such claims, is part of Exhibit A. D. Elder-Beerman is a tenant under two real property lease agreements (collectively, the "Zane Leases") for retail space located in the Zane Plaza Shopping Center ("Zane Plaza") in Chillicothe, Ohio. The first lease, dated December 30, 1980 (the "1980 Agreement") and amended by agreement dated September 29, 1992 (the "1992 Agreement"), is between Elder-Beerman as tenant and Zane Development Co. In 1985, a Beerman Family Entity, Beerman-Chillicothe Limited Partnership ("BCLP") acquired Zane Plaza and succeeded to Zane Development Co.'s interest in the 1980 Agreement. The Beerman Corporation and BBW each served as both general and limited partners of BCLP. In 1991, another Beerman Family Entity, The Abco Land Development Corp. ("Abco"), and The Beerman Corporation acquired Zane Plaza and became the lessors under the 1980 Agreement. The 1992 Agreement amended the 1980 Agreement by terminating a then-existing lease with Bee-Gee for a parcel contiguous with Elder-Beerman's store. The second lease, dated November 8, 1990 (the "1990 Agreement"), was between BCLP as landlord and Elder-Beerman as tenant. For purposes of the Zane Leases, Abco and BCLP are referred to collectively as the "Zane Lessors." E. The 1980 Agreement, as amended, contains options to extend the term of the lease, exercised by Elder-Beerman giving the lessor written notice of its intent to renew the lease at least six months before the current lease term expired. The 1990 Agreement contains substantially similar language. The Zane Leases were set to expire by their terms on January 31, 1996. Because Elder- 3 4 Beerman gave no written notice to the Zane Lessors of its intention to renew the Zane Leases, the Zane Lessors have asserted that the Zane Leases have expired. Elder-Beerman disputes such assertion in light of, among other things, Elder-Beerman's unequivocal oral representations to the Zane Lessors of its intent to renew the Zane Leases and the Zane Lessors' continued acceptance of Elder-Beerman's rental payments. MISCELLANEOUS BEERMAN FAMILY CLAIMS ----------------------------------- F. In addition to the Beerman Family Lease Claims, certain of the Beerman Family Entities assert various claims in respect of contribution or reimbursement, indemnification, and other miscellaneous matters. Exhibit B lists these Beerman Family Entities and the corresponding claims asserted by these entities (the "Miscellaneous Beerman Family Claims"). Conversely, Elder-Beerman asserts claims against certain of the Beerman Family Entities in respect of personal use of company aircraft and credit card charges. Exhibit C lists these Beerman Family Entities and the corresponding claims asserted by Elder-Beerman against these entities (collectively, the "Elder-Beerman Claims"). CLAIMS ARISING OUT OF EQUITY DIRECTORS' ACTIONS ----------------------------------------------- G. During the course of the Reorganization Cases, Elder-Beerman learned of previous communications between the Equity Directors and several competitor retailers and one potential financial investor. The disclosures by the Equity Directors to these entities included disclosure of confidential, proprietary information concerning Elder-Beerman -- made without the knowledge or consent of Elder-Beerman management -- in an effort by the Equity Directors to locate a purchaser of the Debtors' assets and operations. The Debtors believe that such actions may have constituted a breach of the Equity Directors' fiduciary duties and violated certain confidentiality agreements between the Equity Directors and Elder-Beerman. All potential claims arising from such actions, 4 5 including equitable subordination claims, are referred to collectively in this Agreement as the "Disclosure Claims." FAIRBORN DISTRIBUTION CENTER PURCHASE OPTION/RIGHT OF FIRST REFUSAL -------------------------------------- H. Elder-Beerman also claims to hold a purchase option and a right of first refusal (collectively, the "Fairborn Right") with respect to the purchase of an approximately 18-acre parcel of real property adjacent to Elder-Beerman's Fairborn distribution center. The principal terms of the Fairborn Right are set forth in Exhibit D. PREVIOUSLY RESOLVED CLAIMS BETWEEN THE BEERMAN FAMILY ENTITIES AND ELDER-BEERMAN ----------------------------------------- I. In addition to the Beerman Family Lease Claims, the dispute regarding renewal of the Zane Leases, the Miscellaneous Beerman Family Claims, the Elder-Beerman Claims, and the Disclosure Claims, Elder-Beerman and certain of the Beerman Family Entities faced disputes regarding: (1) entitlement to approximately $12.0 million of federal tax refunds and interest earned thereon; (2) the repayment to Elder-Beerman of more than $600,000 in respect of an unexercised option to acquire from Centerville Associates III Limited Partnership the fee simple ownership of the Elder-Beerman department store in Centerville, Ohio; and (3) the timeliness of a proof of claim filed by certain Beerman Family Entities asserting rejection damage claims arising from Elder-Beerman's rejection of its lease for its former Fairborn furniture store (collectively, the "Previously Resolved Claims"). The Previously Resolved Claims have been compromised and settled pursuant to orders of the Bankruptcy Court entered on November 17, 1997 and are not affected by this Agreement. 5 6 THE ESOP CLAIMS AND APPLICATION ------------------------------- J. The ESOP holds its participants' interests in the Old Preferred Stock of Elder- Beerman. In connection with its interests in the Old Preferred Stock, the ESOP asserted prepetition claims (collectively, the "ESOP Prepetition Claims") of approximately $16 million, as follows: (1) a claim of approximately $14 million against each of the Debtors based on the Debtors' alleged obligations to provide a "guaranteed minimum return" on the Old Preferred Stock held by the ESOP and (2) a claim of approximately $2 million against each of the Debtors based on the Debtors' alleged obligations to make a so-called "retirement security contribution" for 1995. The Debtors dispute their alleged liability under the ESOP Prepetition Claims. K. On June 27, 1996, the ESOP filed an Application for Payment of Administrative Expenses (the "ESOP Application") in which it sought payment of expenses related to (1) Elder- Beerman's alleged obligation to make a postpetition retirement security contribution to the ESOP and (2) the fees and expenses of the ESOP's professional advisors incurred in connection with the Debtors' chapter 11 cases. In response to an objection by the Institutional Lenders' Committee, the Bankruptcy Court vacated its own prior order granting certain relief regarding the ESOP Application, and the parties have since been unable to reach a resolution of the ESOP Application. L. Although not formally asserted, the ESOP may also have certain claims or causes of action against either (1) Elder-Beerman, (2) the present and former directors and officers of Elder- Beerman, or (3) Beerman-Peal, arising out of the creation of the ESOP or the failure to make retirement security contributions for 1996 or 1997 (collectively, the "Potential ESOP Claims"). These Potential ESOP Claims are defined as broadly as possible to include all possible claims, rights, and causes of action, in law or equity, of any nature and accruing at any time, arising out of or in any way related to the ESOP. 6 7 SETTLEMENT AND RELEASE OF POTENTIAL CLAIMS AND DISPUTES AMONG THE PARTIES ------------------------------------------------------------------------- M. Litigation of the factual and legal issues underlying the various claims and disputes set forth above would prevent an efficient and feasible reorganization of the Debtors' businesses and would inure to the detriment of all Parties, as well as all of the creditors of the Debtors. Accordingly, to avoid the possibility of costly and lengthy litigation, with its attendant risks and uncertainties, in connection with various claims and disputes set forth above, the Parties desire to enter into this Agreement to settle and release all potential claims and disputes without admitting liability of any kind and to any extent. IN CONSIDERATION OF THE FOREGOING, the consideration provided under this Agreement and under the Plan, each Party's execution and delivery of this Agreement, and the mutual promises, settlements, releases, and other agreements set forth below (the receipt, performance, and sufficiency of which are acknowledged), the Parties agree as follows: THE AGREEMENT ------------- Section 1. AFFIRMATIVE OBLIGATIONS, WAIVERS, AND PROVISIONS. All consideration for the mutual promises, settlements, releases, and other agreements set forth below are provided in this Section 1 and the Plan. If any provision in this Agreement directly conflicts with any provision of the Plan or Disclosure Statement, the applicable provision in this Agreement governs. Section 1.1. Tax Indemnification Obligations. The Debtors' membership, before the Effective Date, in a consolidated group of companies of which Beerman-Peal was the common parent requires a determination of the rights and obligations of Beerman-Peal and its direct and indirect shareholders on the one hand, and Reorganized Elder-Beerman and its surviving subsidiaries on the other, with respect to certain federal income tax matters, including the filing of returns, the conducting of audits, and the preservation and orderly utilization of Reorganized Elder-Beerman's 7 8 tax attributes in accordance with applicable laws and regulations. The nature and extent of these rights and obligations are fully set forth in the New Tax Indemnification Agreement (an Exhibit to the Plan), which is incorporated herein by reference. On the Effective Date, each of the Reorganized Debtors and the Beerman Family Entities named therein shall execute and deliver the New Tax Indemnification Agreement. The rights and obligations set forth in the New Tax Indemnification Agreement provide certain consideration for certain of the releases set forth below. Section 1.2. Renewal of the Zane Leases. Notwithstanding the merits of any theory or theories in law or equity regarding Elder-Beerman's alleged failure to exercise the renewal option contained in the Zane Leases, the Zane Lessors agree to waive any claims of any kind based on such theory or theories. Accordingly, this Section 1.2 (the "Zane Leases Renewal") effects the binding renewal by Elder-Beerman of the Zane Leases and the Zane Lessors' consent to such renewal on the terms set forth in Exhibit E as though the renewal option were duly and timely exercised in accordance with the Zane Leases. Nothing in this Section 1.2 affects the validity of any Beerman Family Lease Claims or any amounts with respect to the Zane Leases set forth on Exhibit A hereto. Section 1.3. Beerman Family Lease Claims. The Debtors and the Beerman Family Entities agree that all Beerman Family Lease Claims are disallowed or allowed in the stipulated, agreed amount set forth in Exhibit A in the column labeled "Resolved Amount." Nothing in this Section 1.3 should be construed to alter the respective rights of the lessors or lessees under the leases set forth on Exhibit A, the treatment of such leases under the applicable provisions of the Plan, or the rights of such lessors to assert (and the lessees to dispute) claims for administrative rent and other obligations as provided for in such leases accruing between the Petition Date and the Effective Date, except as provided in Exhibit A with respect to the allowance or disallowance of any postpetition amounts. 8 9 Section 1.4. Miscellaneous Beerman Family Claims. The Debtors and the Beerman Family Entities agree that all Miscellaneous Beerman Family Claims are disallowed, or allowed in the stipulated, agreed amount set forth in Exhibit B in the column labeled "Resolved Amount." Section 1.5. Elder-Beerman Claims. The Debtors and the Beerman Family Entities agree that all Elder-Beerman Claims are compromised in the stipulated, agreed amount set forth in Exhibit C in the column labeled "Resolved Amount." The Debtors and the Beerman Family Entities acknowledge that the compromised and stipulated, agreed amounts set forth in the columns labeled "Resolved Amount" in Exhibits B and C reflect the net amount of the particular claims after applying appropriate setoffs of corresponding claims asserted between Elder-Beerman and certain corresponding Beerman Family Entities. Accordingly, the Resolved Amount on either Exhibit B or Exhibit C is in full satisfaction of both the claim to which it refers and the corresponding claim between the same parties reflected on the other Exhibit. Section 1.6. ESOP Prepetition Claims and ESOP Application. On account of, and in complete satisfaction of, the ESOP Prepetition Claims, the ESOP Application, and the ESOP's Old Preferred Stock Interests, the ESOP will receive the consideration set forth in the Plan. Section 1.7. Acknowledgment of Fairborn Right. Beerman-Peal acknowledges the existence and enforceability of the Fairborn Right and agrees that Reorganized Elder-Beerman may exercise the Fairborn Right on the terms set forth in Exhibit D. Section 2. EXCHANGE OF RELEASES AMONG THE PARTIES Section 2.1. Releases Among the Debtors and the Beerman Family Entities. In consideration of (a) the Equity Directors' execution and performance of the New Tax Indemnification Agreement, (b) the allowance, in accordance with the Plan, of certain claims as set forth on Exhibits A, B, and C, (c) the distributions provided under the Plan in respect of Class E-2 Interests of 9 10 Beerman-Peal, and (d) the settlement of all Beerman Family Lease Claims, the Miscellaneous Beerman Family Claims, and the Elder-Beerman Claims set forth in Exhibits A, B, and C, except as may be provided in the Plan or in this Agreement, each of the Debtors and each of the Debtors' respective predecessors, successors, estates, assigns, directors, officers, managers, employees, professionals, agents and other representatives (in such capacities), on the one hand, and each of the Beerman Family Entities and their respective estates, assigns, predecessors, successors, partners, directors, officers, employees, professionals, agents, and other representatives (in such capacities), on the other hand, releases and forever discharges one another from all claims, remedies, debts, liabilities, obligations, demands, damages, rights, actions, causes of action, agreements, and claims for attorneys' fees whether known or unknown, now existing or that may arise in the future arising from, involving, or relating to the Disclosure Claims, the Beerman Family Lease Claims, the Miscellaneous Beerman Family Claims, the Elder-Beerman Claims, the Debtors' chapter 11 cases, or any transaction, act, or omission related to Elder-Beerman or the Debtors' chapter 11 cases occurring before the Effective Date. Section 2.2. Releases Among the Debtors, the ESOP, and the ESOP Committee. In consideration of the settlement of the ESOP Prepetition Claims, the ESOP Application, and the Potential ESOP Claims as set forth above and in the Plan at Section III.B.2.c., except as may be provided expressly in the Plan or in this Agreement, each of the Debtors and each of the Debtors' respective predecessors, successors, estates, assigns, directors, officers, employees, professionals, agents, and other representatives, and the ESOP, and each of the members of the ESOP Committee, and their respective estates, assigns, predecessors, successors, directors, officers, employees, professionals, agents, and other representatives releases and forever discharges one another from all claims, remedies, debts, liabilities, obligations, demands, damages, rights, actions, causes of action, 10 11 agreements, and claims for attorneys' fees whether known or unknown, now existing or that may arise in the future arising from, involving or relating to the ESOP Prepetition Claims, the ESOP Application, the Potential ESOP Claims, the Debtors' chapter 11 cases, or any transaction, action or omission occurring before the Effective Date. Section 3. REPRESENTATIONS AND WARRANTIES Section 3.1. Representations and Warranties of Debtors. Elder-Beerman represents and warrants to the other Parties that (a) it is a corporation duly organized, validly existing, and in good standing under the laws of the state of Ohio and (b) entry of the order of the Bankruptcy Court confirming the Plan under section 1129 of the Bankruptcy Code (the "Confirmation Order") authorizes Elder-Beerman's execution and delivery of this Agreement and authorizes Elder-Beerman to perform its obligations under this Agreement. Section 3.2. Representations and Warranties of the ESOP. The ESOP represents and warrants to the other Parties that (a) it is an employee stock ownership plan qualified under section 401(a) of the Internal Revenue Code and as defined in section 4975(e)(7) of the Internal Revenue Code and (b) is authorized to execute, deliver, and perform its obligations under this Agreement. Section 3.3. Representations and Warranties of the ESOP Committee. The ESOP Committee represents and warrants to the other Parties that it is authorized to execute, deliver, and perform its obligations under this Agreement on behalf of the ESOP. The members of the ESOP Committee each represent and warrant to the other Parties that the ESOP Committee is authorized to execute, deliver, and perform the ESOP Committee's obligations under this Agreement. Section 3.4. Representations and Warranties of Beerman-Peal. Beerman-Peal represents and warrants to the other Parties that (a) it is a corporation duly organized, validly existing 11 12 and in good standing under the laws of the state of Ohio and (b) is authorized to execute, deliver, and perform its obligations under this Agreement. Section 3.5. Representations and Warranties of the Beerman Family Entities. The Beerman Family Entities, including, the Beerman Corporation, the Zane Lessors, and all lessors listed on Exhibit A hereto, each represent and warrant to the other Parties that (a) it is a business entity (corporation, partnership, limited partnership, or trust) duly organized, validly existing, and in good standing under the laws of the state of Ohio, or is a competent individual and (b) is authorized to execute, deliver, and perform his, her, or its obligations under this Agreement. Each Beerman Family Entity further represents and warrants that he, she, or it is authorized to execute this Agreement, if it does so, on behalf of its respective subsidiaries and affiliates, predecessors, and successors in interest, partners, officers, directors, managers, agents, and employees. Section 3.6. Representations and Warranties of the Equity Directors. BBW, WSW, and LBP each represents and warrants to the other Parties that he or she has all requisite power and authority to execute, deliver, and perform his or her obligations under this Agreement. BBW, WSW, and LBP each further represents and warrants that he or she is authorized to execute this Agreement, if he or she does so, on behalf of any Beerman Family Entity. Section 4. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The effectiveness of this Agreement is expressly conditioned on the Bankruptcy Court's approval of this Agreement by entry of an order (which may be, but does not have to be, part of the Confirmation Order) not subject to any stay authorizing the Debtors to enter into, implement, and consummate this Agreement in accordance with Bankruptcy Rule 9019. Section 5. REORGANIZED DEBTORS AS SUCCESSORS IN INTEREST TO THE DEBTORS. From and after the Effective Date, Reorganized Elder-Beerman, Reorganized Chargit, and Reorganized Bee- 12 13 Gee (as defined in Article I of the Plan), as successors in interest to the Debtors, will perform all of the obligations of each of the Debtors under this Agreement and succeed to the Debtors rights under this Agreement. Section 6. MISCELLANEOUS PROVISIONS Section 6.1. Scope of Agreement. This Agreement does not affect any rights or obligations under the Plan or any contract, instrument, release, indenture, or other agreement or document delivered under the Plan. Section 6.2. Entire Agreement; Modification; Waiver. This Agreement constitutes the entire agreement among the Parties and, subject to the provisions of Section 6.1 above, supersedes any prior or contemporaneous agreements, representations, warranties, and understandings of the Parties, whether oral, written or implied, as to the subject matter of this Agreement. No amendment or modification of this Agreement or any of its provisions is binding unless executed in writing by all Parties affected by such amendment or modification and agreed to unanimously by the Parties. No waiver is binding unless executed in writing by the Party making such waiver. No waiver of any of the provisions of this Agreement constitutes or is to be deemed a waiver of any other provision, whether or not similar to the provision waived, nor does any waiver constitute a continuing waiver. Section 6.3. Assignment. This Agreement is binding on, and inures to the benefit of, the Parties and their respective predecessors, successors, estates, heirs, and assigns, including all Reorganized Debtors as successors in interest to the Debtors. Section 6.4. Further Documents. Each of the Parties agrees to execute all contracts, instruments, releases, agreements, or other documents and to perform all acts necessary or appropriate to implement or further evidence the provisions of this Agreement. 13 14 Section 6.5. No Representations or Warranties. Except as expressly set forth in this Agreement, none of the Parties makes, or is deemed to have made, any representation or warranty, written or oral, express or implied, to any other Party. Section 6.6. Severability. If any term or provision of this Agreement is held by the Bankruptcy Court or any other court or tribunal of competent jurisdiction to be invalid, void, or unenforceable, the Bankruptcy Court or such court or tribunal may alter and interpret such term or provision to make it valid or enforceable to the maximum extent possible, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision will then be applicable as so altered or interpreted. Notwithstanding such holding, alteration, or interpretation, the remainder of this Agreement remains in full force and will in no way be affected, impaired, or invalidated by such holding, alteration, or interpretation. Section 6.7. Consent to Entry of Bankruptcy Court Orders. Each of the Parties consents to the jurisdiction of the Bankruptcy Court to resolve any cases, controversies, suits, or disputes arising in connection with the implementation, interpretation, reformation, modification, remediation of any defect in, or rescission of this Agreement or any portion of it and determination or declaration of the rights or obligations of any Party arising under this Agreement. Section 6.8. No Admissions. Neither this Agreement or any of its terms, nor any negotiations, proceedings, or other actions taken or not taken by any Party in connection with this Agreement constitute or may be deemed to evidence an admission on the part of any Party of any liability or wrongdoing or the truth or falsity, merit, or lack of merit of any claim released by this Agreement or any defense to such claim. If any claim similar to any claim released by this Agreement arises after this Agreement becomes effective, this Agreement may not be deemed a waiver or release of such later arising claim or any evidence as to the legitimacy of such later arising claim or the 14 15 propriety or legitimacy of the transactions, acts, omissions, proceedings, matters, events, or dealings providing the basis for such later arising claim. Section 6.9. Applicable Law. This Agreement is governed in all respects by the law of the State of Ohio, without giving effect to Ohio's principles of conflict of laws. Section 6.10. Notices. All notices, requests, demands, and other communications in connection with this Agreement must be in writing and be delivered personally or by facsimile transmission on the first business day after mailing (if sent by overnight courier service) or on the third business day after mailing (if mailed by first class mail, postage prepaid, or by registered or certified mail) addressed as follows: THE ELDER-BEERMAN STORES CORP. Kevin E. Irwin 3155 El-Bee Road KEATING, MUETHING & KLEKAMP Dayton, Ohio 45439 1800 Provident Tower (937) 296-2700 One East Fourth Street Attn: General Counsel Cincinnati, Ohio 45402 (513) 579-6427 Richard M. Cieri (Counsel to the ESOP Committee) JONES, DAY, REAVIS & POGUE North Point Shawn M. Riley 901 Lakeside Avenue McDONALD, HOPKINS, BURKE & HABER CO. LPA Cleveland, Ohio 44114 2100 Bank One Center (216) 586-3939 600 Superior Avenue, NE Cleveland, Ohio 44114 (Counsel to the Debtors and Reorganized Debtors) (216) 348-5400 (Counsel to the Beerman Family Entities, including Equity Directors and Zane Lessors)
Section 6.11. Counterparts. This Agreement may be executed in several counterparts, each of which is to be deemed an original, but all of which together constitute one instrument. Section 6.12. Headings. The descriptive headings in this Agreement are inserted for convenience of reference only and do not constitute substantive provisions of this Agreement. 15 16 IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date set forth above. THE ELDER-BEERMAN STORES CORP. LEONARD B. PEAL On behalf of itself and all Debtors In his individual capacity ("LBP"); as 31% owner of Beerman and 11% owner of Abco Land Development Corp. ("ALD"); as trustee for LPST and TWT; as By: /s/ John A. Muskovich beneficiary of the Rhea Peal Trust; and on behalf of all ------------------------------------------ Beerman Family Entities wholly or partially owned and/or John A. Muskovich controlled by LBP Executive Vice President - Administration THE ELDER-BEERMAN STORES CORP. /s/ Leonard B. Peal Profit Sharing and Stock Ownership Plan ------------------------------------------ By: /s/ Patricia L. Gifford BEERMAN-PEAL HOLDINGS, INC. ------------------------------------------ On its behalf and that of its wholly-owned subsidiary, The Beerman-Peal Corporation THE ELDER-BEERMAN STORES CORP. Profit Sharing and Stock Ownership Plan By: /s/ William S. Weprin Administration Committee ------------------------------------------ William S. Weprin President By: /s/ Patricia L. Gifford ------------------------------------------ THE BEERMAN CORPORATION BARBARA B. WEPRIN By: /s/ William S. Weprin In her individual capacity ("BBW"); as 50% owner of The ------------------------------------------ Beerman Corporation ("Beerman"); trustee for The William S. Weprin Leonard Peal Stock Trust ("LPST"), The Todd Weprin President Trust ("TWT"), and Barbara B. Weprin, Trustee ("BWTr"); and on behalf of all Beerman Family Entities BEERMAN INVESTMENTS, INC. wholly or partially owned and/or controlled by BBW By: /s/ William S. Weprin /s/ Barbara B. Weprin ------------------------------------------ - ------------------------------------------ William S. Weprin President WILLIAM S. WEPRIN THE LEONARD PEAL STOCK TRUST In his individual capacity ("WSW"), and on behalf of all Beerman Family Entities wholly or partially owned and/or controlled by WSW By: /s/ Barbara B. Weprin ------------------------------------------ Barbara B. Weprin /s/ William S. Weprin Trustee - ------------------------------------------
16 17 BARBARA B. WEPRIN, TRUSTEE POINT WEST III LIMITED PARTNERSHIP By: /s/ Barbara B. Weprin By: /s/ Barbara B. Weprin ------------------------------ ------------------------------ Barbara B. Weprin Barbara B. Weprin General Partner ABCO LAND DEVELOPMENT CORP. UNIVERSITY MALL ASSOCIATES PARTNERSHIP By: /s/ William S. Weprin ------------------------------ William S. Weprin By: /s/ William S. Weprin President ------------------------------ William S. Weprin WILDCAT DEVELOPMENT LIMITED General Partner PARTNERSHIP FAIRBORN COMMERCE CENTER II LIMITED PARTNERSHIP By: /s/ Barbara B. Weprin ------------------------------ Barbara B. Weprin By: /s/ Barbara B. Weprin General Partner ------------------------------ Barbara B. Weprin CENTERVILLE ASSOCIATES LTD. General Partner LIVE OAK ASSOCIATES LIMITED By: /s/ Barbara B. Weprin PARTNERSHIP ------------------------------ Barbara B. Weprin Trustee of BWTr, General Partner By: /s/ Barbara B. Weprin ------------------------------ CENTERVILLE ASSOCIATES III LIMITED Barbara B. Weprin PARTNERSHIP General Partner By: /s/ Barbara B. Weprin ------------------------------ Barbara B. Weprin Trustee of BWTr, General Partner
17 18 EXHIBIT A -- BEERMAN FAMILY LEASE CLAIMS
- ------------------------------------------------------------------------------------------------------------------------ AMOUNT RESOLVED CLAIMANT DEBTOR BASIS CLAIMED AMOUNT - ------------------------------------------------------------------------------------------------------------------------ BWTr Elder-Beerman Broadmoor Plaza a. Prepetition Real Estate ("R/E") Taxes $ 24,000.71 $ 24,000.71 b. Lease Rejection Damages 147,333.10 147,333.10 c. Postpetition R/E Taxes 7,639.15 7,639.15 ----------- -------- $ 179,026.96 $ 179,026.96 TOTAL - ------------------------------------------------------------------------------------------------------------------------ BC Elder-Beerman Van Buren Shopping Center a. Prepetition R/E Taxes $ 38,638.64 $ 38,638.64 b. Percentage Rent 109,847.75 109,847.75 c. Postpetition R/E Taxes 5,364.80 5,364.80 ---------- ---------- TOTAL $ 153,851.19 $ 153,851.19 - ------------------------------------------------------------------------------------------------------------------------ The Beerman-Peal Elder-Beerman 1. Westgate Shopping Center Corp. a. Prepetition R/E Taxes $ 106,558.83 b. Postpetition R/E Taxes 7,835.20 2. Woodville Mall To be addressed a. Prepetition R/E Taxes 32,528.17 by Toledo Stores b. Postpetition R/E Taxes 4,273.07 Modification 3. North Towne Shopping Center Agreements a. Prepetition R/E Taxes 152,163.53 b. Postpetition R/E Taxes 11,188.50 ---------- TOTAL $ 314,547.30 - ------------------------------------------------------------------------------------------------------------------------ Centerville Elder-Beerman Centerville Place Shopping Center Associates III a. Prepetition R/E Taxes $ 76,387.91 $ -0- Limited b. Postpetition R/E Taxes 10,606.12 10,606.12 Partnership TOTAL $ 86,994.03 $ 10,606.12 - ------------------------------------------------------------------------------------------------------------------------ BC and ALD Elder-Beerman Zane Plaza Shopping Center 1. Dept. Store a. Prepetition R/E Taxes $ 6,864.00 $ 6,864.00 b. Percentage Rent 73,050.42 73,050.42 c. Repairs 491.57 491.57 d. Postpetition R/E Taxes 953.04 953.04 2. Home Store a. Prepetition R/E Taxes 5,667.20 5,667.20 b. Postpetition R/E Taxes 786.86 786.86 ---------- --------- TOTAL $ 87,813.09 $ 87,813.09 - ------------------------------------------------------------------------------------------------------------------------ Fairborn Elder-Beerman Elder-Beerman Distribution Center Commerce Center Prepetition R/E Taxes $ 101,623.19 $ 101,623.19 II Limited Partnership - ------------------------------------------------------------------------------------------------------------------------
1 19
- ------------------------------------------------------------------------------------------------------------------------ AMOUNT RESOLVED CLAIMANT DEBTOR BASIS CLAIMED AMOUNT - ------------------------------------------------------------------------------------------------------------------------ BBW, LBP, and Elder-Beerman Skyway Plaza Shopping Center BC a. Insurance $ 2,407.14 $ 2,407.14 b. Lease Rejection Damages 339,376.08 339,376.08 c. Contingent Claim unliquidated -0- d. Rent for 11/96-1/97 31,958.50 31,958.50 e. Prepetition R/E Taxes 22,523.23 22,523.23 f. Postpetition R/E Taxes 37,666.82 37,666.82 g. Damage to Premises 27,550.00 13,775.00 ---------- TOTAL $ 461,481.77 $ 447,706.77 - ------------------------------------------------------------------------------------------------------------------------ University Mall Elder-Beerman University Mall Shopping Center Associates a. Prepetition R/E Taxes $ 31,134.21 $ 31,134.21 Partnership b. Prepetition Insurance 1,888.59 1,888.59 c. Postpetition R/E Taxes 4,322.89 4,322.89 d. Postpetition Insurance 1,575.40 1,575.40 ---------- ---------- TOTAL $ 38,921.09 $ 38,921.09 - ------------------------------------------------------------------------------------------------------------------------ Wildcat Elder-Beerman North Park Center Development a. Prepetition R/E Taxes $ 76,658.91 $ 76,658.91 Limited b. Prepetition Insurance 4,464.54 4,464.54 Partnership c. Prepetition Disposal Charge 859.78 859.78 d. Postpetition R/E Taxes 18,472.41 18,472.41 e. Prepetition Water Charge 390.86 390.86 f. Prepetition Late Charges 1,633.67 1,633.67 ---------- ---------- TOTAL $ 102,480.17 $ 102,480.17 - ------------------------------------------------------------------------------------------------------------------------ BWTr Bee-Gee Eastown Strip Center Postpetition Insurance $ 235.86 $ 235.86 - ------------------------------------------------------------------------------------------------------------------------ BC Bee-Gee Van Buren Shopping Center Percentage Rent $ 3,668.85 $ 3,668.85 - ------------------------------------------------------------------------------------------------------------------------ Centerville Bee-Gee Centerville Place Shopping Center $ 0.00 Associates Ltd. - ------------------------------------------------------------------------------------------------------------------------ Point West III Bee-Gee Bee-Gee Corporate Offices Limited a. 10/95 Rent $ 8,252.75 $ 8,252.75 Partnership b. Lease Rejection Damages 159,465.64 153,276.00 c. Repairs 17,566.53 8,783.27 d. Lost Access Card 5.00 5.00 e. 3/96, 4/96 Rent 16,505.50 16,505.50 f. Maintenance Billing 612.20 612.20 ---------- TOTAL $ 202,407.62 $ 187,434.72 - ------------------------------------------------------------------------------------------------------------------------ BBW, LBP, and Bee-Gee Skyway Plaza Shopping Center BC Lease Rejection Damages $ 41,292.00 $ 41,292.00 - ------------------------------------------------------------------------------------------------------------------------ University Mall Bee-Gee University Mall Shopping Center Associates a. Prepetition R/E Taxes $ 85.56 $ 85.56 Partnership b. Utilities 137.19 137.19 c. Claim unliquidated 0.00 ---------- -------- TOTAL $ 222.75 $ 222.75 - ------------------------------------------------------------------------------------------------------------------------
2 20
- ------------------------------------------------------------------------------------------------------------------------ AMOUNT RESOLVED CLAIMANT DEBTOR BASIS CLAIMED AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Wildcat Bee-Gee North Park Center Development a. Postpetition Disposal Charges $ 39.35 $ 39.35 Limited b. Prepetition Water 287.10 287.10 Partnership c. Postpetition Water 229.91 229.91 d. Claim unliquidated 0.00 ---------- ---------- TOTAL $ 556.36 $ 556.36 - ------------------------------------------------------------------------------------------------------------------------ Live Oak Margo's Margo's Headquarters Associates Limited a. Prepetition Rent $ 4,383.52 $ 4,383.52 Partnership b. Prepetition Taxes 10,340.42 10,340.42 ---------- ---------- TOTAL $ 14,723.94 $ 14,723.94 - ------------------------------------------------------------------------------------------------------------------------
3 21 EXHIBIT B -- MISCELLANEOUS BEERMAN FAMILY CLAIMS
- ------------------------------------------------------------------------------------------------------------------------ AMOUNT RESOLVED CLAIMANT BASIS CLAIMED AMOUNT - ------------------------------------------------------------------------------------------------------------------------ LBP Indemnification unliquidated $ 0.00 Guaranty $ 1,800,000.00 0.00 Deferred Compensation unliquidated 0.00 Wages 0.00 0.00 ---------- TOTAL $ 1,800,000.00 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------ BBW Indemnification unliquidated $ 0.00 Guarantee $ 1,800,000.00 0.00 ESOP (as former employee) unliquidated 0.00 Van Buren Shopping Center Parking Lot 965.80 965.80 a. Prepetition R/E Taxes 133.10 133.10 b. Postpetition R/E Taxes 0.00 0.00 Wages __________ $ 1,801,098.90 $ 1,098.90 TOTAL - ------------------------------------------------------------------------------------------------------------------------ WSW Indemnification unliquidated $ 0.00 Guarantee $ 1,800,000.00 0.00 ---------- TOTAL $ 1,800,000.00 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------ The Beerman Realty 937 Patterson Boulevard Co. a. Repairs $ 4,857.45 $ 4,857.45 b. Claim 8,636.90 8,636.90 c. Environmental Remediation 86,000.00 76,739.34 ---------- ---------- TOTAL $ 99,494.35 $90,233.69 - ------------------------------------------------------------------------------------------------------------------------
22 EXHIBIT C -- ELDER-BEERMAN CLAIMS
- ------------------------------------------------------------------------------------------------------------------------ AMOUNT RESOLVED AFFILIATE BASIS CLAIMED AMOUNT - ------------------------------------------------------------------------------------------------------------------------ LBP Personal Use of Company Airplane $ 14,552.49 $ 14,552.49 Credit Card Balance 82,046.74 76,548.95 ---------- ---------- TOTAL $ 96,599.23 $ 91,101.44 - ------------------------------------------------------------------------------------------------------------------------ BBW Personal Use of Company Airplane $ 39,954.11 $ 39,954.11 - ------------------------------------------------------------------------------------------------------------------------ The Beerman Realty Co. Personal Use of Company Airplane $ 1,947.91 $ 1,947.91 Credit Card Balance 192,379.27 192,379.27 ---------- ---------- TOTAL $ 194,327.18 $ 194,327.18 - ------------------------------------------------------------------------------------------------------------------------
23 EXHIBIT D -- FAIRBORN RIGHT TERMS Subject Real Property: All of the real property contiguous to the real property currently leased (the "Leased Parcel") to Elder-Beerman by Fairborn Commerce Center II Ltd. and east of Exchange Court (being approximately 13.6 acres) and north of the Leased Parcel (being approximately 4.3 acres). Option to Purchase: At any time during the term (or any extension thereof) of the lease for the Elder-Beerman Fairborn Distribution Center, Elder-Beerman will have the option to purchase the Subject Real Property at a per acre cost calculated at fair market value. If the parties cannot agree on a fair market value, the determination of fair market value will be made in binding arbitration. Right of First Refusal: 1. At any time during the term (or any extension thereof) of the lease for the Elder-Beerman Fairborn Distribution Center, if Beerman Realty receives a bona fide offer to purchase all or a portion of the Subject Real Property (the "Triggering Offer"), Beerman Realty shall provide notice of the Triggering Offer to Elder-Beerman within five days of receipt of the Triggering Offer and Elder-Beerman shall have 30 days from receiving notice of the Triggering Offer in which to purchase the Subject Real Property under the terms and conditions of such offer, subject to the purchase price provision set forth in 2 below. 2. The Elder-Beerman offer and sale must be for all of the Subject Real Estate, provided that if the Triggering Offer is for less than all of the Subject Real Estate, the purchase price to be paid by Elder-Beerman shall be at a per acre cost calculated at fair market value for all of the Subject Real Estate. If the parties cannot agree on a fair market value, the determination of fair market value will be made in binding arbitration. 24 EXHIBIT E--ZANE LEASE TERMS CHILLICOTHE, OHIO - ------------------------------------------------------------------------------------------------------------------------------ Size: 55,940 sq. ft. plus 3,000 sq. ft. Men's Store and 17,609 sq. ft. Furniture Store. - --------------------------------------- -------------------------------------------------------------------------------------- Expansion: Tenant has the right to expand the existing 55,940 sq. ft. department store up to 100,000 sq. ft. - --------------------------------------- -------------------------------------------------------------------------------------- Term: 40 years with a base term of 20 years and two 10 year options. - --------------------------------------- -------------------------------------------------------------------------------------- Rent $4.50/sq. ft. First 10 years (on 55,940 sq. ft. only). $5.00/sq. ft. Second 10 years (on 55,940 sq. ft. only). - --------------------------------------- -------------------------------------------------------------------------------------- Percentage Rent: First 10 years--2% over $12,586,500 and 1 1/2% over $14,586,500. Then adjusted each 10 years. - --------------------------------------- -------------------------------------------------------------------------------------- Common Area Maintenance: Five years $.40/sq. ft. with an increase of $.05 every five years. - --------------------------------------- -------------------------------------------------------------------------------------- Taxes: Pro rata share. - --------------------------------------- -------------------------------------------------------------------------------------- Insurance: Pro rata. - --------------------------------------- -------------------------------------------------------------------------------------- Maintenance: Roof and structure by landlord. All other maintenance by tenant including glass and doors. - --------------------------------------- -------------------------------------------------------------------------------------- Operating Covenant: Ten years as "Elder-Beerman." - --------------------------------------- -------------------------------------------------------------------------------------- Recapture by Landlord: Tenant to turn over 17,609 sq. ft. Home Store space and 3,000 sq. ft. Men's Store space to landlord if tenant exercises right to expand. - --------------------------------------- -------------------------------------------------------------------------------------- Construction: Tenant to build expansion. Estimated cost: $70/sq. ft. Landlord to raze existing Goodyear building and compact soil for tenant's building. - --------------------------------------- -------------------------------------------------------------------------------------- Land Purchase: Landlord to cover the $25,000 expense to acquire adequate land to accommodate the building expansion. - --------------------------------------- -------------------------------------------------------------------------------------- Timing: Tenant has the right to expand the existing department store from the current 55,940 sq. ft. to between 80,000 and 100,000 sq. ft. during the first 36 months of the primary term of the lease. The tenant will pay any increase in land cost over the current $25,000 price caused by the timing of the expansion. - ------------------------------------------------------------------------------------------------------------------------------
EX-10.S 8 EXHIBIT 10(S) 1 Exhibit 10(s) EMPLOYMENT AGREEMENT FOR JOHN A. MUSKOVICH THIS AGREEMENT, dated as of the 30th day of December, 1997, between The Elder-Beerman Stores Corp., an Ohio corporation (the "Employer"), and John A. Muskovich (the "Executive"). R E C I T A L S : 1. On October 17, 1995, Employer and its subsidiaries (collectively, the "Debtors") filed voluntarily petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.ss. 101-1330 (the "Bankruptcy Code"). The Debtors continue to manage and operate their businesses as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. Employer's chapter 11 case is pending in the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"). On December 16, 1997, the Bankruptcy Court entered an order (the "Confirmation Order") confirming 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"). 2. Employer has determined that it is critical to the success of its efforts to reorganize under chapter 11 that it select the most qualified person to serve as President, Chief Operating Officer and Chief Financial Officer and as a member of the Board of Directors of Employer effective upon the Effective Date (as defined in the Plan). 3. Employer wants to enter into this Agreement with Executive based on its belief that Executive is uniquely qualified to assume the role of President, Chief Operating Officer and Chief Financial Officer and serve as a member of the Board of Directors of Employer, effective upon the Effective Date, subject to the terms and conditions set forth below. 2 4. Executive wants to enter into this Agreement with Employer, subject to the terms and conditions set forth below. Employer is entering into this Employment Agreement pursuant to authority provided under the Plan and the Confirmation Order. 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 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 (a) 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; (b) intentional wrongful damage to material assets of Employer; or (c) intentional wrongful engagement in any activity that would constitute a material breach of Sections 3.1 through 3.4 hereof. 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 2 3 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, excluding Executive, 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: (a) the sale to any purchaser unaffiliated with Employer of all or substantially all of the assets of Employer; (b) the sale, 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; (c) individuals who, on the completion of Employer's chapter 11 reorganization under 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 (d) the 3 4 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. 1.5 "COMPETING BUSINESS" means any of the following companies: (a) Mercantile Stores Co., Inc.; Proffitt's, Inc.; or Carson Pirie Scott & Co., including each of their respective Affiliates; (b) Lazarus, Inc.; (c) Lazarus PA, Inc.; or (d) Rich's Department Stores, Inc. 1.6 "EFFECTIVE DATE" means the first date on which (a) the Bankruptcy Court has entered an order approving this Agreement and (b) such order is not subject to any stay. 1.7 "ENTITY" shall have the meaning provided in section 101(16) of the Bankruptcy Code. ARTICLE II ---------- EMPLOYMENT ---------- 2.1 EFFECTIVENESS. Notwithstanding any other provision of the Agreement, the Agreement shall not be effective until 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 term of this Agreement shall 4 5 extend initially until the third anniversary of the Effective Date; provided, however, that commencing on December 30, 1998 and each December 30 thereafter, the term of this Agreement shall be automatically extended for a period of one year unless Employer or Executive shall have given written notice of termination to the other not less than 180 days prior to such December 30 (commencing December 30, 1998). Upon termination of this Agreement pursuant to any such notice, Executive's employment with Employer shall terminate, and Employer's only obligation to Employer will be payment of the amounts described in Section 2.7(c)(ii). 2.3 DUTIES. Executive will serve as and perform the duties of President, Chief Operating Officer and Chief Financial Officer of Employer and serve as a member of the Board of Directors of Employer in accordance with the terms of this Agreement. The duties of Executive shall be those commensurate with his office and shall include those responsibilities reasonably assigned to Executive by the Chairman and Chief Executive Officer of Employer, with responsibility for reporting to the Chairman and Chief Executive Officer of Employer. Although it is understood that the right to elect directors of Employer is by law vested in the shareholders and directors of Employer, it is nevertheless mutually contemplated, subject to such rights, that Executive shall be a member of the Board of Directors of Employer. 2.4 COMPENSATION. In consideration of Executive's services hereunder, Employer shall pay Executive cash compensation consisting of an annual "Base Salary" and "Incentive Compensation." Effective as of the Effective Date, Executive's Base Salary shall be $325,000 per year. 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. In addition to his Base Salary, the Executive shall be entitled, commencing with the fiscal year 5 6 commencing February 2, 1997, to Incentive Compensation of up to 50% 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 (the "Incentive Plan") and Executive's Incentive Compensation thereunder shall consist of an incentive bonus of up to 50% of Executive's Base Salary, to be earned as determined by the Board of Directors under the Incentive Plan. 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 the same rate for any fraction of a month unexpired at the end of the term. Incentive Compensation shall be paid annually in a lump sum not later than April 15 or, if such day is not a business day on which 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 any reason, or without reason; or (iii) 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 6 7 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 (A) 2.99 times his "base amount" as such term is defined in Section 280G of the Code, or (B) 2 times his most recent Base Salary and Bonus. 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 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 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 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 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, 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 7 8 end of the then current term. If there is any dispute 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 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. If Executive's employment is terminated pursuant to this Section 2.7(b), Employer shall pay to Executive or his personal representative, in a lump sum, an amount equal to his Base Salary for the lesser of one year or the then remaining term of this Agreement. (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 under the circumstances described in paragraphs (a), (b) or (c)(i) of this Section 2.7, Employer shall remain obligated to Executive for (A) payment of Executive's unpaid Base Salary (as described in Section 2.4) through the then-remaining term of this Agreement pursuant to Section 2.2, (B) any Incentive Compensation (as described in Section 2.4) earned on or before Executive's last day worked and (C) payment for any vacation accrued but unused as of Executive's last day worked. 8 9 (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 then 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 the 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 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 9 10 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 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 10 11 damages, costs, attorneys' fees and other expenses incurred in searching for, taking, removing and/or recovering such property. 3.3 NONCOMPETITION. It is recognized by Executive and Employer 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 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 minimis 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 Employer terminates Executive other than for Cause. For purposes of the preceding sentence, a de minimis investment is ownership of less than 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. 11 12 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. 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 3 years after the date of termination; PROVIDED, HOWEVER, that after such 3-year period, if Executive has not obtained new employment, Executive will be offered the opportunity to continue health benefits similar to those that would be provided to him under COBRA upon a termination of employment without reference to the length of time such 12 13 COBRA rights would be in force. During the period of continued coverage pursuant to this Section 4.1(b)(i), 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. Executive will cease to be eligible for continued health and life insurance benefits provided by Employer if he (A) waives such coverage or (B) fails to pay any amount required for such coverage. (ii) Executive will be reimbursed by Employer for reasonable expenses incurred for outplacement counseling (A) which are pre-approved by Employer's Senior Vice President - Human Resources, (B) which do not exceed 15% of Executive's Base Salary and (C) which are incurred by Executive within 6 months following such termination. 4.2 RELOCATION. Executive shall relocate to a residence within 25 miles of downtown Dayton, Ohio. Employer shall retain a relocation service to assist Executive in the disposition of Executive's former residence. Employer shall, within 60 days of receipt of appropriate documentation, reimburse Executive reasonable moving costs from Cincinnati, Ohio. Executive shall be entitled to all payments and reimbursements to which executives are entitled under Employer's applicable relocation policy for transferred employees. If the reimbursement payable pursuant to this Section is taxable to Executive, then the Executive shall be entitled to receive an additional payment (a "Gross-up Payment"). The Gross-up Payment shall be in an amount such that, after payment by the Executive of all taxes incurred as a result of the reimbursement (including any interest or penalties imposed with respect to such taxes), including any tax imposed on the Gross-up Payment, the Executive retains a portion of the Gross-up Payment equal to the taxes, penalties and interest imposed on the reimbursement amount. 13 14 4.3 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 LEGAL FEES AND EXPENSES. (a) It is the intent of Employer that the Executive not be required to incur legal fees and the related expenses associated with the interpretation, enforcement or defense of Executive's rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to Executive that Employer has failed to comply with any of its obligations under this Agreement or in the event that Employer or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive hereunder, Employer irrevocably authorizes the Executive from time to time to retain counsel of Executive's choice, at the expense of Employer as hereafter provided, to advise and represent the Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against Employer or any Director, officer, stockholder or other person affiliated with Employer, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between Employer and such counsel, Employer irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection Employer and the Executive agree that a confidential relationship shall exist between the Executive 14 15 and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, Employer will pay and be solely financially responsible for any and all attorneys' and related fees and expenses incurred by the Executive in connection with any of the foregoing. (b) Without limiting the generality or effect of Section 5.1, in order to ensure the benefits intended to be provided to the Executive under Section 5.1(a), Employer will promptly use its best efforts following written notice to Employer by the Executive to secure an irrevocable standby letter of credit (the "Letter of Credit"), issued by Citibank or another bank having combined capital and surplus in excess of $500 million (the "Bank") for the benefit of the Executive and providing that the fees and expenses of counsel selected from time to time by the Executive pursuant to this Section 5.1 shall be paid, or reimbursed to the Executive if paid by the Executive, on a regular, periodic basis upon presentation by the Executive to the Bank of a statement or statements prepared by such counsel in accordance with its customary practices. Employer shall pay all amounts and take all action necessary to maintain the Letter of Credit. 5.2 RELEASE. Payment of the amount described in Section 2.7(a) and the benefits described in Section 4.1(b) to Executive is conditioned upon Executive executing and delivering a release satisfactory to Employer releasing Employer from any and all claims, demands, damages, actions and/or causes of action whatsoever, which 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 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 Employer that are qualified under Section 401(a) of the Code or under any "welfare benefit plan" of 15 16 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 Employer arising under this Agreement, or rights of indemnification Executive may have under Employer's policies or by contract or by statute. 5.3 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 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 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 5.3(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 16 17 attempts any assignment or transfer contrary to this Section 5.3, Employer will have no liability to pay any amount Executive attempts to assign, transfer or delegate. 5.4 GOVERNING LAW. 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 laws of the State of Ohio, without giving effect to principles of conflict of laws. Employer and Executive each consent to the jurisdiction of, and agree that any controversy between them arising out of this Agreement shall be brought in, the United States District Court for the Southern District of Ohio, Western Division; the Court of Common Pleas for Montgomery County, Ohio; or such other court venued within Montgomery County, Ohio as may have subject matter jurisdiction over the controversy; PROVIDED, HOWEVER, that until consummation of a plan of reorganization for Employer, any such controversy shall be brought in the Bankruptcy Court. 5.5 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. 5.6 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. 5.7 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) 5 business days after being sent by certified U.S. mail, return receipt requested, to the Secretary of Employer at its principal place 17 18 of business in the City of Moraine or to Executive at his last known address as shown on the records of Employer. 5.8 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. 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/ John A. Muskovich ---------------------------------------------- John A. Muskovich 18 EX-10.T 9 EXHIBIT 10(T) 1 Exhibit 10(t) AMENDED AND RESTATED EMPLOYMENT AGREEMENT FOR FREDERICK J. MERSHAD THIS AGREEMENT, dated as of the 30th day of December, 1997, between The Elder-Beerman Stores Corp., an Ohio corporation (the "Employer"), and Frederick J. Mershad (the "Executive"). R E C I T A L S : 1. On October 17, 1995, Employer and its subsidiaries (collectively, the "Debtors") filed voluntarily petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.ss. 101-1330 (the "Bankruptcy Code"). The Debtors continue to manage and operate their businesses as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. Employer's chapter 11 case is pending in the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court"). On December 16, 1997, the Bankruptcy Court entered an order (the "Confirmation Order") confirming 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"). 2. Employer and Executive have previously entered into an Employment Agreement dated January 3, 1997. 3. Employer and Executive want to enter into this Amended and Restated Employment Agreement, subject to the terms and conditions set forth below. Employer is entering into this Amended and Restated Employment Agreement pursuant to authority provided under the Plan and the Confirmation Order. 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: 2 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 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 (a) 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; (b) intentional wrongful damage to material assets of Employer; or (c) intentional wrongful engagement in any activity that would constitute a material breach of Sections 3.1 through 3.4 hereof. 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, excluding Executive, at a meeting called for the purpose of determining 2 3 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: (a) the sale to any purchaser unaffiliated with Employer of all or substantially all of the assets of Employer; (b) the sale, 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; (c) individuals who, on the completion of Employer's chapter 11 reorganization under 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 (d) 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. 3 4 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. 1.5 "COMPETING BUSINESS" means any of the following companies: (a) Mercantile Stores Co., Inc.; Proffitt's, Inc.; or Carson Pirie Scott & Co., including each of their respective Affiliates; (b) Lazarus, Inc.; (c) Lazarus PA, Inc.; or (d) Rich's Department Stores, Inc. 1.6 "EFFECTIVE DATE" means the first date on which (a) the Bankruptcy Court has entered an order approving this Agreement and (b) such order is not subject to any stay. 1.7 "ENTITY" shall have the meaning provided in section 101(16) of the Bankruptcy Code. ARTICLE II ---------- EMPLOYMENT ---------- 2.1 EFFECTIVENESS. Notwithstanding any other provision of the Agreement, the Agreement shall not be effective until the Effective Date (as such term is defined in the Plan). 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 term of this Agreement shall extend initially until the third anniversary of the Effective Date; provided, however, that commencing on December 30, 1998 and each December 30 thereafter, the term of this Agreement shall be automatically extended for a period of one year unless Employer or Executive shall have given written notice of termination to the other not less than 180 days prior to such December 30 (commencing December 30, 1998). Upon termination of this Agreement pursuant to any such notice, Executive's 4 5 employment with Employer shall terminate, and Employer's only obligation to Employer will be payment of the amounts described in Section 2.7(c)(ii). 2.3 DUTIES. Executive will serve as and perform the duties of Chairman and Chief Executive Officer of Employer and serve as a member of the Board of Directors of Employer in accordance with the terms of this Agreement. The duties of Executive shall be those commensurate with his office and shall include those responsibilities reasonably assigned to Executive by the Board of Directors of Employer, with responsibility for reporting to the Board of Directors and the designated committees thereof. Although it is understood that the right to elect directors of Employer is by law vested in the shareholders and directors of Employer, it is nevertheless mutually contemplated, subject to such rights, that Executive shall be a member of the Board of Directors of Employer. 2.4 COMPENSATION. In consideration of Executive's services hereunder, Employer shall pay Executive cash compensation consisting of an annual "Base Salary" and "Incentive Compensation." Effective as of the Effective Date, Executive's Base Salary shall be $500,000 per year. 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. In addition to his Base Salary, the Executive shall be entitled, commencing with the fiscal year commencing February 2, 1997, to Incentive Compensation of up to 50% of Executive's Base Salary, to be earned as determined by the Board of Directors; PROVIDED, HOWEVER, that for the 1997 fiscal year Executive shall be guaranteed Incentive Compensation of at least $175,000 and a nonguaranteed portion of up to an additional $75,000. In each fiscal year thereafter, Executive shall participate in the Employer's Equity and Performance Incentive Plan (the "Incentive Plan") and Executive's 5 6 Incentive Compensation thereunder shall consist of an incentive bonus up to 50% of Executive's Base Salary, to be earned as determined by the Board of Directors under the Incentive Plan. 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 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 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 any reason, or without reason; or (iii) 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 (A) 2.99 times his "base amount" as such term is defined in Section 280G of the Code, or (B) 2 times his most recent 6 7 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 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 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 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 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, 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 there is any dispute 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 7 8 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 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. If Executive's employment is terminated pursuant to this Section 2.7(b), Employer shall pay to Executive or his personal representative, in a lump sum, an amount equal to his Base Salary for the lesser of one year or the then remaining term of this Agreement. (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 (A) payment of Executive's unpaid Base Salary (as described in Section 2.4) through the then-remaining term of this Agreement pursuant to Section 2.2, (B) any Incentive Compensation (as described in Section 2.4) earned on or before Executive's last day worked and (C) payment for any vacation accrued but unused as of Executive's last day worked. 8 9 (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 then 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 the 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 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 9 10 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 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 10 11 damages, costs, attorneys' fees and other expenses incurred in searching for, taking, removing and/or recovering such property. 3.3 NONCOMPETITION. It is recognized by Executive and Employer 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 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 minimis 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 Employer terminates Executive other than for Cause. For purposes of the preceding sentence, a de minimis investment is ownership of less than 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. 11 12 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. 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 3 years after the date of termination; PROVIDED, HOWEVER, that after such 3-year period, if Executive has not obtained new employment, Executive will be offered the opportunity to continue health benefits similar to those that would be provided to him under COBRA upon a termination of employment without reference to the length of time COBRA 12 13 rights would be in force. During the period of continued coverage pursuant to this Section 4.1(b)(i), 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. Executive will cease to be eligible for continued health and life insurance benefits provided by Employer if he (A) waives such coverage or (B) fails to pay any amount required for such coverage. (ii) Executive will be reimbursed by Employer for reasonable expenses incurred for outplacement counseling (A) which are pre-approved by Employer's Senior Vice President - Human Resources, (B) which do not exceed 15% of Executive's Base Salary and (C) which are incurred by Executive within 6 months following such termination. 4.2 RELOCATION. Executive shall relocate to a residence within 25 miles of downtown Dayton, Ohio. Employer shall, within 60 days of receipt of appropriate documentation, reimburse Executive for reasonable costs for temporary, furnished housing in the Dayton area for up to six months from the Effective Date. Employer shall, within 60 days of receipt of appropriate documentation, reimburse Executive reasonable moving costs from Executive's temporary housing in Dayton, Ohio to Executive's permanent Dayton residence. Executive shall be entitled to all payments and reimbursements to which executives are entitled under Employer's applicable relocation policy for transferred employees. If the reimbursement payable pursuant to this Section is taxable to Executive, then the Executive shall be entitled to receive an additional payment (a "Gross-up Payment"). The Gross-up Payment shall be in an amount such that, after payment by the Executive of all taxes incurred as a result of the reimbursement (including any interest or penalties imposed with respect to such taxes), including any tax imposed on the Gross-up Payment, the Executive retains a 13 14 portion of the Gross-up Payment equal to the taxes, penalties and interest imposed on the reimbursement amount. 4.3 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 LEGAL FEES AND EXPENSES. (a) It is the intent of Employer that the Executive not be required to incur legal fees and the related expenses associated with the interpretation, enforcement or defense of Executive's rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to Executive that Employer has failed to comply with any of its obligations under this Agreement or in the event that Employer or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive hereunder, Employer irrevocably authorizes the Executive from time to time to retain counsel of Executive's choice, at the expense of Employer as hereafter provided, to advise and represent the Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against Employer or any Director, officer, stockholder or other person affiliated with Employer, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between Employer and such counsel, Employer irrevocably consents to 14 15 the Executive's entering into an attorney-client relationship with such counsel, and in that connection Employer and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, Employer will pay and be solely financially responsible for any and all attorneys' and related fees and expenses incurred by the Executive in connection with any of the foregoing. (b) Without limiting the generality or effect of Section 5.1, in order to ensure the benefits intended to be provided to the Executive under Section 5.1(a), Employer will promptly use its best efforts following written notice to Employer by the Executive to secure an irrevocable standby letter of credit (the "Letter of Credit"), issued by Citibank or another bank having combined capital and surplus in excess of $500 million (the "Bank") for the benefit of the Executive and providing that the fees and expenses of counsel selected from time to time by the Executive pursuant to this Section 5.1 shall be paid, or reimbursed to the Executive if paid by the Executive, on a regular, periodic basis upon presentation by the Executive to the Bank of a statement or statements prepared by such counsel in accordance with its customary practices. Employer shall pay all amounts and take all action necessary to maintain the Letter of Credit. 5.2 RELEASE. Payment of the amount described in Section 2.7(a) and the benefits described in Section 4.1(b) to Executive is conditioned upon Executive executing and delivering a release satisfactory to Employer releasing Employer from any and all claims, demands, damages, actions and/or causes of action whatsoever, which 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 Executive may revoke the release or any provision thereof having expired), and any and all claims, 15 16 demands and causes of action for retirement (other than under the retirement plans maintained by Employer that are qualified under Section 401(a) of the Code or under any "welfare benefit plan" of 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 Employer arising under this Agreement, or rights of indemnification Executive may have under Employer's policies or by contract or by statute. 5.3 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 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 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 5.3(a) and (b). Without limiting the generality or effect of the foregoing, Executive's right to receive payments hereof will not be 16 17 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 5.3, Employer will have no liability to pay any amount Executive attempts to assign, transfer or delegate. 5.4 GOVERNING LAW. 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 laws of the State of Ohio, without giving effect to principles of conflict of laws. Employer and Executive each consent to the jurisdiction of, and agree that any controversy between them arising out of this Agreement shall be brought in, the United States District Court for the Southern District of Ohio, Western Division; the Court of Common Pleas for Montgomery County, Ohio; or such other court venued within Montgomery County, Ohio as may have subject matter jurisdiction over the controversy; PROVIDED, HOWEVER, that until consummation of a plan of reorganization for Employer, any such controversy shall be brought in the Bankruptcy Court. 5.5 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. 5.6 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. 5.7 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) 5 business days after being 17 18 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. 5.8 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. 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/ John A. Muskovich ------------------------------------------ John A. Muskovich President and Chief Operating Officer /s/ Frederick J. Mershad ---------------------------------------------- Frederick J. Mershad 18 EX-21 10 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 EX-23 11 EXHIBIT 23 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-48367 and 333-48369 of The Elder-Beerman Stores Corp. on Form S-8 of our report dated April 10, 1998 (which expresses an unqualified opinion and includes an explanatory paragraph concerning the company's plan of reorganization), appearing in this Annual Report on Form 10-K of The Elder-Beerman Stores Corp. for the year ended January 31, 1998. DELOITTE & TOUCHE LLP Dayton, Ohio April 27, 1998 EX-24 12 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/or 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 31, 1998 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 22nd day of April, 1998. /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 and Chief Financial Executive Officer Officer; Director (Principal Executive Officer) (Principal Financial and Officer) /s/ Steven D. Lipton /s/ Thomas J. Noonan, Jr. - -------------------------------------------- -------------------------------------------- Steven D. Lipton Thomas J. Noonan, Jr. Senior Vice President, Controller Director (Principal Accounting Officer) /s/ Bernard Olsoff /s/ Laura H. Pomerantz - -------------------------------------------- -------------------------------------------- Bernard Olsoff Laura H. Pomerantz Director Director /s/ Stewart M. Kasen /s/ John J. Wiesner - -------------------------------------------- -------------------------------------------- Stewart M. Kasen John J. Wiesner Director Director /s/ Steven C. Mason /s/ Jack A. Staph - -------------------------------------------- -------------------------------------------- Steven C. Mason Jack A. Staph Director Director
EX-27 13 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K OF THE ELDER-BEERMAN STORES CORP. FOR THE YEAR ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION STATEMENT TO WHICH IT RELATES. 1,000 YEAR JAN-31-1998 JAN-31-1998 6,497 0 140,882 4,177 137,507 293,355 150,236 86,980 371,365 79,296 142,024 0 0 199,351 (53,840) 371,365 581,372 607,946 423,542 423,542 0 8,636 7,084 11,931 (7,412) (8,199) 7,378 (28,131) 0 (28,952) (23.24) (23.24)
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