General Counsel Employment Agreement

EMPLOYMENT AGREEMENT FOR SCOTT J. DAVIDO


THIS AGREEMENT, dated as of the 30th day of December, 1997, between The Elder-Beerman Stores Corp., an Ohio corporation (the "Employer"), and Scott J. Davido (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. sections 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 Senior Vice President, General Counsel and Secretary for Employer 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 Senior Vice President, General Counsel and Secretary upon the Effective Date, subject to the terms and conditions set forth below.


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.


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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
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DEFINITIONS
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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 (i) an intentional act of fraud, embezzlement, theft or any other material violation of law in connection with Executive's duties or in the course of his employment with Employer involving material harm to Employer; (ii) intentional wrongful damage to material assets of Employer; (iii) intentional wrongful engagement in any activity that would constitute a material breach of Sections 3.1 through 3.4 hereof; or (iv) physical or mental disability that causes Executive to fail to perform his duties under this Agreement for a continuous period of 12 months, as provided in Section 2.7(b). No act or omission by Executive shall be deemed "intentional" if it was due to negligence and shall be deemed "intentional" only if done, or omitted to be done, by Executive not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interests of Employer and its subsidiaries. Failure to meet performance standards or objectives of Employer shall not constitute "Cause" for purposes hereof. To terminate the employment of Executive for Cause, Employer must deliver to Executive a Notice of Termination given within 90 days after the Board of Directors both (i) has knowledge of conduct or an event


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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: (i) the sale to any purchaser unaffiliated with Employer of all or substantially all of the assets of Employer; (ii) 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; (iii) 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 (iv) the merger or consolidation of Employer with another Entity unaffiliated with Employer if, immediately after such merger or consolidation, less than a majority of the combined voting power of the then outstanding securities of such Entity are held, directly or indirectly, in the aggregate by


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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: (i) Mercantile Stores Co., Inc.; Proffitt's, Inc.; or Carson Pirie Scott & Co., including each of their respective Affiliates; (ii) Lazarus, Inc.; (iii) Lazarus PA, Inc.; or (iv) Rich's Department Stores, Inc.


1.6 "ENTITY" shall have the meaning provided in section 101(16) of the Bankruptcy Code.


1.7 "GOOD REASON" means (i) the assignment to Executive of any duties materially inconsistent with Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated in Article II, or any other action by Employer that results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an action not taken in bad faith and which is remedied by Employer within 10 days after receipt of written notice thereof given by Executive, provided that repeated instances of such action shall be evidence of the bad faith of Employer; (ii) a reduction in the Executive's annual Base Salary of at least 10%; (iii) the relocation of Employer's principal executive offices to a location more than 75 miles from the current location of such offices; (iv) any material failure by Employer to comply with any of the provisions of this Agreement, other than a failure not occurring in bad faith and that is remedied by Employer within 10 days after receipt of written notice thereof given


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by Executive, provided that repeated failures shall be evidence of the bad faith of Employer; or (v) removal of Executive as Senior Vice President, General Counsel and Secretary, other than for Cause.


ARTICLE II
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EMPLOYMENT
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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 extend initially until the third anniversary of the Effective Date. The term of this Agreement shall be automatically extended on the third anniversary of the Effective Date and each anniversary of the Effective Date thereafter for a period of one year unless Employer or Executive shall have given written notice of termination to the other not less than 120 days prior to such anniversary of the Effective Date. Upon termination of this Agreement pursuant to any such notice, Executive's employment with Employer shall terminate, and Employer's only obligation to Executive 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 Senior Vice President, General Counsel and Secretary 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 or President of the Employer, with responsibility for reporting to the Chairman or President of the Employer.


2.4 COMPENSATION. In consideration of Executive's services hereunder, Employer shall pay Executive a one-time cash signing bonus of $25,000.00, payable at the option of the Executive after the Effective Date, and cash compensation consisting of an annual "Base Salary" and "Bonus." As of the Effective Date, Executive's Base Salary shall be $175,000.00 per year, and his 1997 fiscal


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year Bonus shall consist of an incentive bonus that includes pro rata share, based on the percentage of days served during fiscal 1997, of up to 30% of Executive's Base Salary, to be earned as determined by the Board of Directors. In each fiscal year thereafter, Executive shall participate in the Employer's Equity and Performance Incentive Plan and Executive's Bonus thereunder shall consist of an incentive bonus of up to 35% of his Base Salary, to be earned as determined by the Board of Directors pursuant to the provisions of such plan. During fiscal year 1998, one-half of Executive's Bonus will be guaranteed by the Employer and the remaining Bonus will be incentive based. For purposes of the preceding sentences, the "year" for which the Bonus is payable to Executive shall be the Employer's fiscal year beginning in February 1997 and each subsequent fiscal year of the Employer. Executive's Base Salary shall be subject to review at the discretion of the Board of Director ...