ELDER BEERMAN STORES CORP
EXHIBIT 10(A)
<DOCUMENT>
<TYPE>EX-10.A
<SEQUENCE>3
<FILENAME>l90301aex10-a.txt
<DESCRIPTION>EXHIBIT 10(A)
<TEXT>
<PAGE>   1
                                                                  Exhibit 10a


                       SEPARATION AND RETIREMENT AGREEMENT
         THIS SEPARATION AND RETIREMENT AGREEMENT (this "Agreement"), is made,
entered into and effective as of September 4, 2001 (the "Effective Date"), by
and between The Elder-Beerman Stores Corp. (the "Company"), located at 3155
El-Bee Road, Dayton, Ohio 45439 and Frederick J. Mershad ("Mershad"), residing
at 502 David Parkway, Dayton, Ohio 45429.

                                   WITNESSETH:

                WHEREAS, Mershad currently serves as the Chairman and Chief
Executive Officer of the Company and is a member of the Board of Directors of
the Company; and

                WHEREAS, Mershad has determined that he shall resign as Chairman
and Chief Executive Officer as well as from any other position, office or
directorship of the Company or of any other entity for which he was serving at
the request of the Company, effective December 31, 2001 (the "Retirement Date"),
and

                WHEREAS, the Company accepts Mershad's resignations and
retirement as of the date mentioned above; and

                WHEREAS, the Company and Mershad are parties to that certain
Employment Agreement dated as of December 30, 1997 ("the Employment Agreement"),
which sets out certain terms and conditions for Mershad's employment and
termination of employment and the Company and Mershad desire to supercede the
terms of the Employment Agreement with this Agreement and to clarify precisely
the payments and benefits that Mershad will be entitled to receive from the
Company in connection with the cessation of his employment with the Company; and

                WHEREAS, the Company and Mershad wish to resolve, settle and/or
compromise certain matters, claims and issues between them, including, without
limitation, Mershad's resignation from the offices he held and from his
employment with the Company.

                NOW, THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound, the
Company and Mershad hereby agree as follows:

         1. RESIGNATION AND RETIREMENT. Mershad hereby resigns, effective on the
Retirement Date his position as Chairman and Chief Executive Officer of the
Company. Mershad further resigns, effective on the Retirement Date: (a) from all
other offices of the Company to which he has been elected by the Board of
Directors of the Company (or to which he has otherwise been appointed), (b) from
all offices of any entity that is a subsidiary of, or is otherwise related to or
affiliated with, the Company, (c) from all administrative, fiduciary or other
positions he may hold with respect to arrangements or plans for, of or relating
to the Company, and (d) from any other


<PAGE>   2

directorship, office, or position of any corporation, partnership, joint
venture, trust or other enterprise (each, an "Other Entity"). Mershad further
agrees that, effective on the Retirement Date, he shall retire and his
employment with the Company will cease. The Company hereby consents to and
accepts said resignations and retirement, effective on the Retirement Date.

         2. EMPLOYMENT AGREEMENT. The parties agree that the Employment
Agreement is hereby rendered null and void and is superceded in its entirety by
this Agreement.

         3. JOB DUTIES DURING TRANSITION PERIOD. The parties acknowledge and
agree that Mershad's base salary and benefits during the period from the
Effective Date to the Retirement Date (the "Transition Period") shall be the
same as he was entitled to prior to the Effective Date. Mershad agrees that, in
addition to his current job duties, during the Transition Period, he shall
assist the Company with the transition to his successor by undertaking the
following tasks: (a) participate, as requested by the Operating Committee of the
Company's Board of Directors (the "Operating Committee"), in the search for and
selection of a new Chief Executive Officer of the Company; (b) identify
significant transition issues for the Operating Committee; (c) participate in
communications about his separation and retirement as agreed with the Operating
Committee in the form of a press release attached hereto; (d) use his reasonable
best efforts to facilitate the transfer of his duties, and customer and vender
relationships, to his successor(s), including introducing the new chief merchant
to suppliers and explaining in general the current margin guarantee
requirements; and (e) effectively implement such other assignments as are agreed
upon between him and the Operating Committee.

         4. ADDITIONAL COMPENSATION AND BENEFITS. In consideration of the
promises made by Mershad in this Agreement and subject to the conditions hereof,
the Company agrees to the following:

            a. CONTINUED SALARY. Mershad's current Base Salary ($660,000 per
year) shall be continued in accordance with the Company's usual payroll
practices from the Retirement Date to December 31, 2004 (the "Severance
Period").

            b. INCENTIVE COMPENSATION. Subject to Section 4.p below, Mershad
shall be eligible to receive an amount equal to a full year's annual bonus for
2001 under the terms and conditions of the Company's Equity and Performance
Incentive Plan (the "EPIP"). The percentage of Mershad's annual bonus to be paid
under such plan will be determined by the Company's performance for fiscal year
end 2001. Other than the compensation provided in this Section 4.b, Mershad
shall not be eligible for any additional incentive compensation, pursuant to the
EPIP or otherwise, after the Retirement Date.

            c. STOCK OPTIONS. As set forth on Schedule 4.c, Mershad has certain
stock options that are or, subject to Section 4.p below, will be vested as of
the Retirement Date (the "Vested Options"), Mershad's ability to exercise the
Vested Options is governed by the terms and conditions of those certain
Nonqualified Stock Option Agreements (the "Option Agreements") made pursuant to
the EPIP and executed by Mershad in connection with the periodic grants of stock
options that became the Vested Options. Mershad acknowledges that, under the
Option Agreements, the Vested Options terminate one year after the Retirement
Date on December 31, 2002. Mershad


<PAGE>   3

agrees and acknowledges that he is ineligible for any other stock options,
grants or awards, and that he forfeits upon the Retirement Date any rights in or
to any other stock option grants, including without limitation any right to vest
after the Retirement Date in any additional stock options.

            d. RESTRICTED SHARES. As set forth on Schedule 4.c, Mershad has
certain restricted shares of the Company's common stock that are or will be
vested as of the Retirement Date (the "Vested Restricted Shares"). Mershad's
rights with respect to the Vested Restricted Shares are governed by the terms
and conditions of those certain Restricted Shares Agreements (the "Restricted
Shares Agreements") made pursuant to the EPIP and executed by Mershad in
connection with the grant of the shares that became the Vested Restricted
Shares. Mershad agrees and acknowledges that he is ineligible for any other
stock grants or awards, and that he forfeits upon the Retirement Date any rights
In or to any other restricted shares, including without limitation any right to
vest after the Retirement Date in any additional restricted shares.

            e. MEDICAL COVERAGE DURING SEVERANCE PERIOD. Subject to Section 4.p
below, during the Severance Period, Mershad and his wife, Linda Mershad, shall
continue to be provided with medical and dental benefits equivalent to those
provided to them prior to the Retirement Date, as modified from time to time to
reflect changes made in the benefit plans generally available to other
executives of the Company. In the event of Mershad's death prior to the end of
the Severance Period, such benefits shall continue for his wife through the
remainder of such period.

            f. MEDICAL COVERAGE AFTER SEVERANCE PERIOD. Mershad's and his wife's
eligibility for medical and/or dental coverage after the end of the Severance
Period shall be pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1986, as amended ("COBRA"), provided, however, that the Company shall ensure
that Mershad and his wife shall continue to be able to purchase medical and/or
dental coverage at the COBRA rate from the end of the Severance Period to March
1, 2008. Such benefit shall continue for Linda Mershad in the event of Mershad's
death prior to March 1, 2008.

            g. DISCOUNT. After the Retirement Date, Mershad and Linda Mershad
shall continue to be entitled to the employee discount made available to other
retired employees, in accordance with the Company's current policy, and the
Company reserves the right to modify that policy in generally-applicable ways
from time to time.

            h. PROFESSIONAL FEES. The Company agrees to pay Mershad's or his
heirs', estate's or successor's legal fees and costs (and related disbursements)
incurred in connection with any enforcement or defense of his rights under this
Agreement.

            i. 401(K) PLANS. Mershad's post-retirement eligibility for benefits,
if any, as a past employee of the Company under the Company's 401(k) Plan shall
be as set forth in the respective plan documents and shall be based on the
Retirement Date.

            j. EPIP. Other than as provided in this Section 4, Mershad shall not
be eligible for any additional compensation under the EPIP, other than payment
of amounts that, pursuant to the EPIP; already were earned and fully vested as
of the Retirement Date.


<PAGE>   4

            k. LIFE INSURANCE. Mershad's participation in the Company's group
life insurance plan shall terminate as of the Retirement Date, and his rights
with respect to conversion of that group life insurance coverage to individual
coverage shall be as set forth in the group life insurance plan.

            l. BUSINESS EXPENSES. During the Transition Period, Mershad shall
continue to receive reimbursement for business expenses in accordance with
company policies. After the Retirement Date, Mershad shall promptly pay any
balance due on any Company credit card or other account used by him. The Company
will either (i) reimburse Mershad for any pending, reasonable business-related
credit card charge for which Mershad has not already been reimbursed provided
Mershad files a proper Travel and Expense Report, or (ii) pay such charge
directly to the card-issuing bank.

            m. AUTOMOBILE. Subject to Section 4.p below, during the Severance
Period, Mershad shall continue to be entitled to the same automobile benefit
that he received prior to the Retirement Date.

            n. OTHER COMPANY PROPERTY. After the Retirement Date, Mershad shall
immediately return to the Company (to the extent he has not already returned) in
good condition (ordinary wear and tear excepted) all Company property in his
possession, including, without limitation, a cellular telephone, laptop
computer, computer equipment, and Company credit cards.

            o. VACATION PAY. During the Transition Period, Mershad shall
continue to accrue vacation in accordance with company policies. After the
Retirement Date, Mershad shall be paid for any unused vacation time that he had
earned prior to the Retirement Date.

            p. CONDITIONAL ENTITLEMENTS. The parties acknowledge and agree the
benefits and compensation specified in Sections 4.b, 4.e, and 4.m, as well as
the additional vesting of both the 12/30/97 and 12/5/00 option grants set out on
Schedule 4.c that took place during the Transition Period, are contingent on
Mershad's satisfactory completion, as reasonably determined by the Operating
Committee, of the job duties set out in Section 3 above prior to the Retirement
Date. In the event Mershad does not satisfactorily complete these duties, the
contingent benefits and option vesting shall be revoked and Mershad shall have
no further entitlements to said benefits and option vesting. Mershad's receipt
of such benefits and compensation is not contingent on the Company selecting or
employing a new Chief Executive Officer.

            q. OTHER COMPENSATION AND BENEFITS. Except as specifically set forth
herein, no other compensation or benefits are due Mershad, including without
limitation any compensation under the Employment Agreement.

         5. NO SOLICITATION OF EMPLOYEES. Mershad agrees that he will not from
the Effective Date until the end of the Severance Period: (i) employ, assist in
employing any person who is, or has been in the 12 month period prior thereto,
an employee, officer or agent of the Company, or any of its affiliated, related
or subsidiary entities, unless such employee was involuntarily terminated by the


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<PAGE>   5

Company; or (ii) induce any person who is an employee, officer or agent of the
Company, or any of its affiliated, related, or subsidiary entities to terminate
such relationship.

         6. RELEASE BY MERSHAD.

            a. Mershad for himself and his dependents, successors, assigns,
heirs, executors and administrators (and his and their legal representatives of
every kind), hereby releases, dismisses, and forever discharges the Company
from, and agrees to indemnify the Company against, any and all arbitrations,
claims (including claims for attorney's fees), demands, damages, suits,
proceedings, actions and/or causes of action of any kind and every description,
whether known or unknown, which Mershad now has or may have had for, upon, or by
reason of any cause whatsoever (except that this release shall not apply to the
obligations of the Company arising under this Agreement), against the Company
("Claims"), including but not limited to:

               (i) any and all Claims, directly or indirectly, arising out of or
relating to: (A) Mershad's employment with the Company; (B) Mershad's
resignation as Chairman and Chief Executive Officer and any other position
described in Section 1 of this Agreement; and (C) Mershad's retirement from the
Company.

               (ii) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age, national
origin, marital status, religion or disability, including, specifically, but
without limiting the generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended (the "ADEA"), Title VII of the
Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of
1990, the Family and Medical Leave Act of 1993 and Ohio Revised Code Chapter
4112;

               (iii) any and all claims of wrongful or unjust discharge or
breach of any contract or promise, express or implied; and

               (iv) any and all claims under or relating to any and all employee
compensation, employee benefit, employee severance or employee incentive bonus
plans and arrangements; provided that he shall remain entitled to the amounts
and benefits specified in Section 4 above. Mershad agrees that he intends to
release any and all worker compensation claims he may have against the Company
by this Agreement, and further agrees to execute any documentation as may be
reasonably required to perfect such release when presented to him by the
Company.

            b. Mershad understands and acknowledges that the Company does not
admit any violation of law, liability or invasion of any of his rights and that
any such violation, liability or invasion is expressly denied. The consideration
provided under this Agreement is made for the purpose of settling and
extinguishing all claims and rights (and every other similar or dissimilar
matter) that Mershad ever had or now may have or ever will have against the
Company to the extent provided in this Section 6. Mershad further agrees and
acknowledges that no representations, promises or inducements have been made by
the Company other than as appear in this Agreement.

            c. Mershad further understands and acknowledges that:


                                                                               5
<PAGE>   6

               (i) The release provided for in this Section 6, including claims
under the ADEA to and including the date of this Agreement, is in exchange for
the additional consideration provided for in this Agreement, to which
consideration he was not heretofore entitled;

               (ii) He has been advised by the Company to consult with legal
counsel prior to executing this Agreement and the release provided for in this
Section 6, has had an opportunity to consult with and to be advised by legal
counsel of his choice, fully understands the terms of this Agreement, and enters
into this Agreement freely, voluntarily and intending to be bound;

               (iii) He has been given a period of twenty-one days to review and
consider the terms of this Agreement, and the release contained herein, prior to
its execution and that he may use as much of the twenty-one day period as he
desires; and

               (iv) He may, within seven days after execution, revoke this
Agreement. Revocation shall be made by delivering a written notice of revocation
to the Chairman of the Operating Committee. For such revocation to be effective,
written notice must be actually received by the Chairman of the Operating
Committee no later than the close of business on the seventh day after Mershad
executes this Agreement. If Mershad does exercise his right to revoke this
Agreement, all of the terms and conditions of the Agreement shall be of no force
and effect and the Company shall have no obligation to satisfy the terms or make
any payment to Mershad as set forth in Section 4 of this Agreement.

            d. Mershad will never file a lawsuit or other complaint asserting
any claim that is released in this Section 6. If Mershad breaches this Section
6.d, he agrees to indemnify the Company against any costs or expenses, including
attorney fees, that the Company may incur in connection with such breach.

            e. Mershad and the Company acknowledge that his resignation is
by mutual agreement between the Company and Mershad, and that Mershad waives and
releases any claim that he has or may have to reemployment.

            f. For purposes of the above provisions of this Section 6, the
"Company" shall include its predecessors, subsidiaries, divisions, related or
affiliated companies, officers, directors, stockholders, members, employees,
heirs, successors, assigns, representatives, agents and counsel.

         7. CONFIDENTIAL INFORMATION.

            a. Mershad acknowledges and agrees that in the performance of his
duties as an officer and employee of the Company, he was or may be brought into
frequent contact with, had or may have access to, and/or became or may become
informed of confidential and proprietary information of the Company and/or
information that is a competitive asset of the Company (collectively,
"Confidential Information") and the disclosure of which would be harmful to the
interests of the Company or its subsidiaries. Confidential Information shall
include, without

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<PAGE>   7

limitation: (i) customer and distributor information such as names, addresses,
sales histories, purchasing habits, credit status, pricing levels, etc., (ii)
certain prospective customer and distributor information lists, etc., (iii)
product and systems specifications, schematics, designs, concepts for new or
improved products and services and other products and services data, (iv)
product and material costs, (v) suppliers' and prospective suppliers' names,
addresses and contracts, (vi) future corporate planning data, (vii) production
methods and equipment, (viii) marketing strategies, (ix) the Company's financial
results and business condition, (x) any of the foregoing which belong to any
other person or company but to which Mershad has had access by reason of his
employment with the Company, and (xi) any other information which constitutes a
"trade secret" under federal or state law. Mershad acknowledges that the
Confidential Information of the Company gained by Mershad during his association
with the Company was developed by and/or for the Company through substantial
expenditure of time, effort and money and constitutes valuable and unique
property of the Company.

            b. Mershad will keep in strict confidence, and will not, directly or
indirectly, at any time, disclose, furnish, disseminate, make available, use or
suffer to be used in any manner any Confidential Information of the Company
without limitation as to when or how Mershad may have acquired such Confidential
Information. Mershad specifically acknowledges that Confidential information
includes any and all information, whether reduced to writing (or in a form from
which information can be obtained, translated, or derived into reasonably usable
form), or maintained in the mind or memory of Mershad and whether compiled or
created by the Company, which derives independent economic value from not being
readily known to or ascertainable by proper means by others who can obtain
economic value from the disclosure or use of such information, that reasonable
efforts have been put forth by the Company to maintain the secrecy of
confidential or proprietary or trade secret information, that such information
is and will remain the sole property of the Company, and that any retention
(other than in his mind or memory) or use by Mershad of confidential or
proprietary or trade secret information after the termination of Mershad's
employment with, and performance of services for, the Company shall constitute a
misappropriation of the Company's Confidential Information.

            c. Mershad will immediately return to the Company (to the extent he
has not already returned), equipment, software, electronic files, computers,
including any laptop, in good condition (normal wear and tear excepted), all
property of the Company, including, without limitation, property, documents
and/or all other materials (including copies, reproductions, summaries and/or
analyses) which constitute, refer or relate to Confidential Information of the
Company.

            d. Mershad further acknowledges that his obligation of
confidentiality shall survive, regardless of any other breach of this Agreement
or any other agreement, by any party hereto, until and unless such Confidential
Information of the Company shall have become, through no fault of Mershad
generally known to the public or shall become known to Mershad from a source not
obligated to keep such information confidential or Mershad is required by law
(after providing the Company with notice and opportunity to contest such
requirement) or in order to enforce this Agreement to make disclosure. Mershad's
obligations under this Section 7 are in addition to, and

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<PAGE>   8

not in limitation or preemption of, all other obligations of confidentiality
which Mershad may have to the Company under general legal or equitable
principles or statutes.

         8. DISCLOSURE. From the date of this Agreement through the end of the
Severance Period, Mershad will communicate the contents of Sections 5, 7, 9.b,
10, and 12 of this Agreement to any person, firm, association, or corporation
which he intends to be employed by, associated in business with, or represent if
such employment or association would constitute a breach of such provisions.

         9. BREACH; ARBITRATION.

            a. If Mershad breaches any of the provisions of this Agreement, and
such breach has not been cured within thirty days of receipt of notice of such
breach from the Company, then the Company may immediately terminate all
remaining payments and benefits described in this Agreement with the remainder
of this Agreement, and all promises and covenants herein, remaining in full
force and effect.

               (i) The Company will not terminate pursuant to Section 9.a any
benefits in which Mershad had vested as of the Retirement Date under the
Retirement Plans. Mershad's and Linda Mershad's COBRA rights, if any, will not
be reduced by any action taken by the Company under Section 9.a.

               (ii) Mershad may challenge any Company action under Section 9.a.

            b. If the Company breaches any of the provisions of this Agreement,
and such breach has not been cured within thirty days of receipt of notice of
such breach from Mershad, Mershad shall be relieved of all of his obligations
hereunder from the date of such breach until such breach has been cured by the
Company.

            c. The parties shall endeavor to resolve any dispute arising
out of or relating to this agreement by mediation under the CPR Mediation
Procedure. Unless the parties agree otherwise, the mediator will be selected
from the CPR Panels of Distinguished Neutrals. Any controversy or claim arising
out of or relating to this contract or the breach, termination or validity
thereof, which remains unresolved 45 days after appointment of a mediator, shall
be settled by arbitration by a sole arbitrator in accordance with the CPR Rules
for Non-Administered Arbitration, and judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof; provided,
however, that the parties agree that in the event of any alleged breach by
Mershad of any of his obligations under Sections 5 and 7 of the Agreement, the
arbitration requirements of this Section 9.b shall not apply, and that instead,
the Company may elect, in its sole discretion, to seek relief in a court of
general jurisdiction in the State of Ohio, and the parties hereby consent to the
exclusive jurisdiction of such court. In addition, in connection with any such
court action, Mershad acknowledges and agrees that the remedy at law available
to the Company for breach by Mershad of any of his obligations under Sections 5
and 7 of this Agreement would be inadequate and that damages flowing from such a
breach would not readily be susceptible to being measured in monetary terms.
Accordingly, Mershad acknowledges, consents and agrees that, in

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<PAGE>   9

addition to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of Mershad's violation of
any provision of Sections 5 and 7 of this Agreement, the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach, without the necessity of proof of
actual damage.

         10. CONTINUED AVAILABILITY, COOPERATION, AND INDEMNIFICATION.

             a. Mershad shall cooperate fully with the Company and with the
Company's counsel in connection with any present and future actual or threatened
litigation or administrative proceeding involving the Company that relates to
events, occurrences or conduct occurring (or claimed to have occurred) during
the period of Mershad's employment by the Company. This cooperation by Mershad
shall include, but not be limited to:

                (i) making himself reasonably available for interviews and
discussions with the Company's counsel as well as for depositions and trial
testimony;

                (ii) if depositions or trial testimony are to occur, making
himself reasonably available and cooperating in the preparation therefor as and
to the extent that the Company or the Company's counsel reasonably requests;

                (iii) refraining from impeding in any way the Company's
prosecution or defense of such litigation or administrative proceeding; and

                (iv) cooperating fully in the development and presentation of
the Company's prosecution or defense of such litigation or administrative
proceeding.

             b. Mershad shall be reimbursed by the Company for reasonable
travel, lodging, telephone and similar expenses incurred in connection with such
cooperation, which the Company shall reasonably endeavor to schedule at times
not conflicting with the reasonable requirements of any employer of Mershad, or
with the requirements of any third party with whom Mershad has a business
relationship permitted hereunder that provides remuneration to Mershad. Mershad
shall not unreasonably withhold his availability for such cooperation.

             c. Upon the Retirement Date, Mershad will update the Company as to
the status of all pending matters for which he was responsible or otherwise
involved.

             d. The Company agrees to release Mershad and indemnify and hold him
harmless against all liability or loss, (including costs and expenses), and
against all claims or actions, pending or threatened, arising from or connected
with his past activities as an employee, officer or director of the Company,
including but not limited to those claims or actions based upon or arising out
of negligent or wrongful acts to persons or property and the defense of any such
claims or actions. Notwithstanding the foregoing, the Company will have no
obligation to release, indemnify, hold harmless or defend Mershad for any
conduct by Mershad found by a court of final jurisdiction to be undertaken with
deliberate intent to cause injury to the Company or undertaken with reckless
disregard for the best interests of the Company or that arises from a violation
of any statutory

                                                                               9

<PAGE>   10

prohibition unless such conduct was specifically requested or authorized by the
Company. Mershad warrants that he has disclosed to the Company all claims and
circumstances and potential claims and circumstances that to his knowledge may
exist or could reasonably be brought against him concerning his past activities
as an employee. The Company agrees to continue to include Mershad as a named
insured under any directors and officers liability insurance policy maintained
by the Company from time to time with full coverage as a former director,
officer and employee. The parties agree that Mershad does not admit any
violation of law, liability or invasion of any rights of the Company, and that
such violation, liability or invasion is expressly denied. The Company agrees
that it shall never file a lawsuit asserting any claim that is released in this
Section 10.d.

                (i) Mershad acknowledges that the Company and Mershad are
parties to a Director and Officer Indemnification Agreement (the
"Indemnification Agreement") dated as of December 30, 1997, which sets out
certain terms and conditions under which the Company would indemnify Mershad if
or when he was a party to any threatened, pending or completed action, suit, or
proceeding by reason of the fact that he was a director or an officer of the
Company or was serving at the request of the Company as a director, trustee,
officer, employee against costs, charges, expenses, judgments, fines, and
settlement amounts incurred by Mershad. The parties agree that this Section 10
supercedes the Indemnification Agreement and governs the Company's and Mershad's
respective rights and obligations with respect to indemnification.

         11. SUCCESSORS AND BINDING AGREEMENT.

             a. This Agreement shall be binding upon and inure to the benefit of
the Company and any successor of or to the Company, including, without
limitation, any persons acquiring, directly or indirectly, all or substantially
all of the business and/or assets of the Company whether by purchase, merger,
consolidation, reorganization, or otherwise (and such successor shall thereafter
be deemed included in the definition of "the Company" for purposes of this
Agreement), but shall not otherwise be assignable or delegable by the Company;
provided, however, that any such successor that results from a "Change in
Control," as that term is defined in the Employment Agreement, or the Company
(at Mershad's option) simultaneously with the Change in Control, shall secure
all of Mershad's benefits and entitlements of this Agreement, including in
particular those set forth in Section 4, with an appropriate letter of credit
with a financial institution approved by Mershad and in the form and amount
approved by Mershad. The Company or its successor shall pay all amounts and take
all action necessary to maintain such letter of credit.

             b. This Agreement shall inure to the benefit of and be enforceable
by Mershad's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and/or legatees ("Successors"). If Mershad
shall die while amounts are or may be payable to him under this Agreement,
references to "Mershad" shall, where appropriate, be deemed to refer to his
Successors.

             c. This Agreement is personal in nature and none of the parties
hereto shall, without the consent of the other parties, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 11.a and 11.b.


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<PAGE>   11

             d. This Agreement is intended to be for the exclusive benefit of
the parties hereto, and except as provided in Sections 11.a and 11.b, no third
party shall have any rights hereunder.

             e. Mershad shall not be required to mitigate the amount of any
payment provided for in this Agreement either by seeking other employment or
otherwise. The amount of any payment provided for herein shall not be reduced by
any remuneration that Mershad may earn from employment with another employer or
otherwise following the Retirement Date.

         12. NON-DISCLOSURE, STATEMENTS TO THIRD PARTIES.

             a. Except as permitted or required herein, all provisions of this
Agreement and the circumstances giving rise hereto are and shall remain
confidential and shall not be disclosed to any person not a party hereto (other
than (i) Mershad's spouse, if any, (ii) each party's attorney, financial advisor
and/or tax advisor to the extent necessary for such advisor to render
appropriate legal, financial and tax advice, and (iii) persons or entities that
fall within the scope of Section 5 of this Agreement, but only to the extent
required thereby), except as necessary to carry out the provisions of this
Agreement, and except as may be required by law. Notwithstanding the foregoing,
this Agreement may be filed with or provided to the Securities and Exchange
Commission or any other governmental instrumentality or agency, including the
Internal Revenue Service, if the Company deems such filing or provision to be
necessary.

             b. Because the purpose of this Agreement is to settle amicably any
and all potential disputes or claims among the parties, neither Mershad nor the
Company shall, directly or indirectly, make or cause to be made any statements
to any third parties criticizing or disparaging the other or commenting on the
character or business reputation of the other. Mershad further hereby agrees
that, other than upon the agreement and approval of the Operating Committee, he
shall not: (i) make any comment to the media, or respond to any media questions,
whether on the record or otherwise, about his separation or retirement from the
Company; (ii) make any comment to any individual that Mershad knows is a
shareholder of the Company or to any individual that Mershad knows is affiliated
with a shareholder of the Company, whether in a public shareholder meeting, any
other public forum, or in any private setting, about his separation or
retirement from the Company; (iii) comment to others concerning the non-public
status, plans or prospects of the business of the Company existing at or prior
to the Retirement Date, or (iv) engage in any act or omission that would be
detrimental, financially or otherwise, to the Company, or that would subject the
Company to public disrespect, scandal, or ridicule. For purposes of this Section
12.b, the "Company" shall mean Elder-Beer-man and its directors, officers,
predecessors, parents, subsidiaries, divisions, and related or affiliated
companies.

         13. NOTICES. For all purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered, addressed to the Company (marked Confidential and directed
to the attention of the Operating Committee) at its principal executive offices
and to Mershad at his principal residence, or to such other address as any party
may have furnished to the other in writing and in accordance herewith. Notices
of change of address shall be effective only upon receipt.


                                                                              11

<PAGE>   12

         14. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by Mershad and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by any of the parties that are not set forth expressly in
this Agreement and every one of them (if, in fact, there have been any) is
hereby terminated without Liability or any other legal effect whatsoever.

         15. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
shall supersede all prior verbal or written agreements, including the Employment
Agreement, covenants, communications, understandings, commitments,
representations or warranties, whether oral or written, by any party hereto or
any of its representatives pertaining to such subject matter; provided, however,
that the Option Agreements, the Restricted Shares Agreements and the
Indemnification Agreement shall remain in full force and effect.

         16. GOVERNING LAW. Any dispute, controversy, or claim of whatever
nature arising out of or elating to this Agreement or breach thereof shall be
governed by and under the laws of the State of Ohio.

         17. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall nevertheless remain in full force and
effect.

         18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.

         19. CAPTIONS AND SECTION HEADINGS. Captions and section headings used
herein are for convenience and are not part of this Agreement and shall not be
used in construing it.

         20. FURTHER ASSURANCES. Each party hereto shall execute such additional
documents, and do such additional things, as may reasonably be requested by the
other party to effectuate the purposes and provisions of this Agreement.


                                                                              12

<PAGE>   13




         IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first set forth above.

                                           THE ELDER-BEERMAN STORES CORP.

                                           /s/ Steven C. Mason
                                              -----------------------------
                                           Chairman of the Executive Committee


                                           /s/ Scott J. Davido
                                              -----------------------------
                                               Scott J. Davido


                                           /s/ Frederick J. Mershad
                                              -----------------------------
                                           Frederick J. Mershad




                                                                              13

<PAGE>   14


                                  SCHEDULE 4.c
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
     TYPE OF GRANT       DATE OF GRANT    NO. OF SHARES     STRIKE PRICE    NO. OF SHARES VESTED    TERMINATION DATE
     -------------       -------------    -------------     ------------    ---------------------   ----------------
                                                                              ON RETIREMENT DATE
                                                                              ------------------
----------------------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>               <C>                 <C>                  <C>
Options                     12/30/97         194,000           $10.89              155,200              12/31/02
----------------------------------------------------------------------------------------------------------------------
                            02/01/98          75,000           $21.00               45,000              12/31/02
----------------------------------------------------------------------------------------------------------------------
                            02/25/99          90,000           $ 8.00               60,000              12/31/02
----------------------------------------------------------------------------------------------------------------------
                            02/25/99         100,000           $ 9.60               66,666              12/31/02
----------------------------------------------------------------------------------------------------------------------
                            02/25/99         110,000           $11.20               73,333              12/31/02
----------------------------------------------------------------------------------------------------------------------
                            12/05/00         100,000           $3.125               20,000              12/31/02
----------------------------------------------------------------------------------------------------------------------
Restricted Stock            12/30/97          47,087             n/a                47,087                 n/a
----------------------------------------------------------------------------------------------------------------------
                            02/01/98          50,000             n/a                50,000                 n/a
----------------------------------------------------------------------------------------------------------------------
                            02/25/99          75,000             n/a                  0                    n/a
----------------------------------------------------------------------------------------------------------------------
</TABLE>

































                                                                              14

</TEXT>
</DOCUMENT>
