ELDER BEERMAN STORES CORP, 424B4, 1998-07-31

ELDER BEERMAN STORES CORP
424B4, 1998-07-31
DEPARTMENT STORES

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<PAGE> 1

Filed Pursuant To Rule 424(b)(4)
Registration No. 333-57447
PROSPECTUS

2,800,000 SHARES

THE ELDER-BEERMAN STORES CORP.

ELDER-BEERMAN LOGO

COMMON SHARES
------------------
All of the 2,800,000 shares of common stock, no par value (the "Common
Shares"), offered hereby (the "Offering") are being offered by The Elder-Beerman
Stores Corp. ("Elder-Beerman" or the "Company"). The Common Shares offered
hereby will be traded on the Nasdaq National Market under the symbol "EBSC." On
July 30, 1998, the last reported sale price of the Common Shares on the Nasdaq
National Market was $22.25 per share. See "Price Range of Common Shares."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
THE PUBLIC COMMISSIONS(1) THE COMPANY(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $22.00 $1.43 $20.57
- --------------------------------------------------------------------------------------------------------------------
Total(3).................................... $61,600,000 $4,004,000 $57,596,000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(2) Before deducting expenses, estimated at $1,000,000, payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
420,000 additional Common Shares solely to cover over-allotments, if any. If
such option is exercised in full, the Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $70,840,000,
$4,604,600, and $66,235,400, respectively.
------------------

The Common Shares are offered by the Underwriters subject to receipt and
acceptance of the shares by them. The Underwriters reserve the right to reject
any order, in whole or in part. It is expected that delivery of the Common
Shares will be made against payment therefor at the offices of McDonald &
Company Securities, Inc. or through the facilities of The Depository Trust
Company, on or about August 5, 1998.
MCDONALD & COMPANY
SECURITIES, INC.

WARBURG DILLON READ LLC
JOHNSON RICE & COMPANY L.L.C.

The date of this Prospectus is July 31, 1998
<PAGE> 2

[Picture of the main entrance of an Elder-Beerman department store with
pictures of customers wearing branded merchandise and in-store merchandise
presentations superimposed in the forefront. Map of Elder-Beerman store
locations.]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
SHARES OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Investors
should consider carefully the information set forth in "Risk Factors" before
making any decision to invest in the Common Shares. Unless otherwise indicated,
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised. References herein to fiscal years of the Company,
unless otherwise indicated, are to the Company's 52- or 53-week fiscal year
(which ends on the Saturday nearest to January 31 in the following calendar
year). For example, "Fiscal 1997" refers to the Company's fiscal year ended
January 31, 1998. References in this Prospectus to the "Company" or
"Elder-Beerman" refer to The Elder-Beerman Stores Corp., its subsidiaries and
predecessor entities, unless the context otherwise requires.

THE COMPANY

The Company operates the tenth largest chain of independent department
stores in the United States, based on Fiscal 1997 sales volume. Founded in
Dayton, Ohio in 1883, Elder-Beerman currently operates 48 department stores in
small to mid-sized markets in seven midwestern states. The Company's strategy is
to provide its customers with a broad selection of the same high quality,
brand-name merchandise available to consumers in larger markets. In keeping with
this strategy, Elder-Beerman department stores feature a wide variety of
moderate to better branded merchandise, including women's ready-to-wear, men's
and children's apparel, accessories, shoes and cosmetics, home furnishings, and
other consumer goods. Elder-Beerman's branded merchandise includes apparel and
accessories from Liz Claiborne, Tommy Hilfiger, Ralph Lauren, Calvin Klein, and
Nautica, cosmetics from Estee Lauder, Clinique, and Lancome, footwear from Nike
and Nine West, and home furnishings from Fieldcrest, Croscill, Lenox, and
Calphalon. Branded merchandise accounted for more than 90% of the Company's
merchandise during Fiscal 1997. The Company also offers qualified customers the
convenience of a private label credit card program. In addition to its
department stores, Elder-Beerman operates 61 specialty shoe stores under the
El-Bee and Shoebilee! names and two furniture stores. The specialty shoe stores
accounted for $31.4 million, or 5.4%, of the Company's Fiscal 1997 sales volume.

In October 1995, the adverse effects of a high-volume merchandising
strategy implemented in the early 1990s prompted the Company and its
subsidiaries to file voluntary petitions for relief under chapter 11 of the
United States Bankruptcy Code, as amended (the "Bankruptcy Code"). The Company
emerged from bankruptcy on December 30, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."
Elder-Beerman believes that a number of actions taken while in chapter 11 to
reorganize the Company and streamline its operations, together with its existing
competitive strengths, provide a platform for future growth. During its
reorganization, the Company made a number of important changes to its management
team. The 15 current members of senior management have an average of 22 years of
retailing experience. In addition, during this period, Elder-Beerman reduced the
number of its vendors by approximately 40% and refined its merchandising
practices to provide additional authority to buyers and store managers. The
Company also rationalized its real estate portfolio by closing several
unprofitable or underperforming department, furniture and shoe stores and
liquidating its women's specialty store chain. These enhancements to
Elder-Beerman's operations have enabled it to better capitalize on its
competitive strengths, including its focus on branded merchandise, solid
portfolio of store locations, flexible store formats, and tailored product
assortments. The Company's actions contributed to a 3.7% increase in comparable
department store sales during Fiscal 1997 and a 10.6% increase during the first
quarter of Fiscal 1998.

The Company's department stores range in size from 39,000 square feet to
217,000 square feet. Its current department store portfolio includes 37 mall
stores, six stores located in strip shopping centers and five free-standing
stores. The Company emphasizes an attractive in-store presentation and broad
selection of brand name merchandise in convenient, well-maintained locations.
The Company's regional focus permits merchandising decisions to be made with
input from local store managers, which enables the Company to tailor product
assortments to meet consumer demands in particular markets. A portion of the
Company's merchandise in each store consists of tailored product assortments. To
maintain an appropriate flow of fresh merchandise, the Company has implemented
procedures designed to promote timely merchandise receipts and markdowns at each

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of its department stores. Elder-Beerman also emphasizes a high degree of
customer service, and operates training programs designed to make its store
managers and sales associates more responsive to customer needs. The Company's
emphasis on providing branded merchandise, tailored product assortments and
customer service in underserved retail markets has contributed to its strong
market position in its existing markets.

COMPETITIVE STRENGTHS

The Company believes that its solid portfolio of profitable store
locations, its experienced management team, and its other competitive strengths
provide a platform for profitable expansion. These competitive strengths include
a focus on branded merchandise, flexible department store formats, tailored
product assortments, strong vendor relationships, a proprietary credit card
program, targeted marketing programs, and an emphasis on customer service.

FOCUS ON BRANDED MERCHANDISE

The Company offers a broad selection of moderate to better branded
merchandise, including women's ready-to-wear, men's and children's apparel,
accessories, shoes and cosmetics, home furnishings, and other consumer goods.
The Company's merchandise mix consists of approximately 92% branded goods and 8%
private label. Elder-Beerman's branded merchandise includes apparel and
accessories from Liz Claiborne, Tommy Hilfiger, Ralph Lauren, Calvin Klein, and
Nautica, cosmetics from Estee Lauder, Clinique, and Lancome, footwear from Nike
and Nine West, and home furnishings from Fieldcrest, Croscill, Lenox, and
Calphalon. Smaller midwestern cities, such as those in which Elder-Beerman
operates retail stores, tend to be underserved with branded merchandise, leaving
the Company as a principal retailer of branded merchandise in these smaller
markets. Elder-Beerman's emphasis on branded products allows it to position its
merchandise as complementary to that offered by mass merchants (such as Sears,
Roebuck & Co. and J.C. Penney Company, Inc.) and discount stores (such as Kohl's
Corporation and Kmart Corporation) in these smaller markets.

FLEXIBLE DEPARTMENT STORE FORMATS

The Company's department stores range in size from 39,000 square feet to
217,000 square feet, and its current store portfolio includes 37 mall stores,
six stores located in strip shopping centers and five free-standing stores.
Elder-Beerman believes that the flexibility of its store formats is an important
competitive advantage in seeking potential new store locations. The Company's
ability to operate profitably in three different store formats helps to reduce
constraints on growth resulting from relatively low levels of new mall
construction or mall anchor availability.

TAILORED PRODUCT ASSORTMENTS

The Company strives to maintain a consistent in-store presentation. The
vast majority of the merchandise in each store consists of core assortments and
the balance of the merchandise is tailored to characteristics of the particular
local market. Merchandising decisions are made with input from local store
managers, which enables the Company to tailor product assortments to meet
consumer demands in particular markets. The Company does not make buying
decisions using a committee or team format, which allows buyers and divisional
merchandise managers to identify new designs and manufacturers and respond
quickly to new fashion trends.

STRONG VENDOR RELATIONSHIPS

The Company's merchandise managers have significant industry experience and
strong relationships with key vendors. During the past two years, the Company
has reduced its vendor base by approximately 40% and has increased its volume of
business with its remaining key vendors, especially the nationally recognized
branded suppliers. The proliferation of media combined with the significant
national marketing efforts of these vendors has created significant demand for
branded merchandise in smaller markets. However, the financial and other
limitations of many local retailers has left large national brands with limited
access to those markets. Furthermore, these vendors desire to preserve their
brand image and generally do not sell to national discounters. As a result, the
Company is able to carry branded merchandise frequently not carried by local
competitors.

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PROPRIETARY CREDIT CARD PROGRAM

Elder-Beerman aggressively promotes its proprietary credit card and, as a
result, proprietary credit sales constitute a significant (approximately 44% of
net sales in Fiscal 1997) portion of the Company's sales. The Company considers
its credit card program to be a critical component of its business strategy
because it: (a) enhances customer loyalty; (b) allows the Company to identify
and regularly contact its best customers; and (c) creates a comprehensive data
warehouse for targeted marketing.

TARGETED MARKETING PROGRAMS

The Company has realigned its advertising strategy from an emphasis on
general mass media (i.e., television, radio, and print) to one that increasingly
focuses on direct marketing. The Company leverages its data warehousing
capabilities to extract customer buying and demographic information. The
information generated through proprietary and third party credit data assists
the Company in creating direct mail and telemarketing advertising and sales
promotion programs that are designed to appeal to the specific needs of its
customers. This targeted marketing approach has improved the effectiveness of
advertising efforts, as evidenced by an increase in comparable store sales for
Fiscal 1997 without a corresponding increase in advertising expenditures.

EMPHASIS ON CUSTOMER SERVICE

Elder-Beerman has a strong tradition of providing quality customer service.
The Company is working to enhance customer service by: (a) making increased use
of technology and improved controls to eliminate nonselling activities from
stores; (b) using training and recruiting practices to further instill a culture
of customer helpfulness and responsiveness; (c) developing tools and training
programs to enhance associates' selling skills and awareness; and (d)
implementing selling productivity measurement and compensation systems directed
at encouraging selling activities and results.

GROWTH STRATEGY

The Company's objectives are (a) to build upon its position as a leading
retailer of branded merchandise and increase its presence in its existing
markets and (b) to selectively enter other small to mid-sized midwestern and
contiguous markets that offer opportunities for profitable growth. Key elements
of the Company's growth strategy include:

NEW STORES AND ACQUISITIONS

The Company believes that significant opportunities exist to increase sales
and net income by developing new stores and by pursuing opportunistic
acquisitions in existing and new markets located within or contiguous to its
current trading area. By increasing the number of stores, the Company believes
it will be able to improve overall profitability by leveraging its distribution,
advertising, and corporate expenses.

Develop New Stores. The Company seeks to open new stores in existing
markets where it believes it can enhance its current market share and in new
small to mid-sized markets where its emphasis on branded products will permit it
to achieve a leading market share position. The Company currently has identified
approximately 30 markets that meet its development criteria and intends to
further assess these areas to determine where the most attractive real estate
opportunities exist. Although it is anticipated that many of these stores will
be located in regional malls, the Company's ability to operate profitably in
other formats permits it to capitalize on attractive non-mall locations. This
allows Elder-Beerman to avoid constraints placed on growth by the relatively low
level of new mall construction or mall anchor tenant availability.

Pursue Opportunistic Acquisitions. Elder-Beerman believes that its leading
position in its existing markets, its improved financial condition, and its
experienced management team position it to capitalize on opportunistic
acquisitions. The Company believes that the ongoing consolidation among
department store operators may create significant acquisition opportunities in
small and mid-sized markets. As with its internal store development efforts, the
Company intends to focus on acquisition candidates with attractive real estate
locations in markets within or contiguous to its current trading area. In
keeping with this strategy, Elder-Beerman recently acquired a

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McAlpin's department store in Dayton, Ohio from Mercantile Stores Company, Inc.
("Mercantile") and a Lazarus store in Erie, Pennsylvania from Federated
Department Stores, Inc. ("Federated"). Both of these stores are being converted
to Elder-Beerman department stores and are expected to reopen in the summer of
1998. In addition, on July 27, 1998, the Company acquired Stone & Thomas, which
operates department stores in West Virginia, Virginia, Ohio, and Kentucky. As a
result of this acquisition, Stone & Thomas, the name of which has been changed
to Elder-Beerman West Virginia, Inc., has become a wholly-owned subsidiary of
the Company. See "-- Recent Developments" and "Use of Proceeds."

INCREASING STORE SALES PRODUCTIVITY

The Company believes that a number of opportunities exist to increase sales
productivity in its existing stores. These include: (a) store expansions and
remodelings; (b) modifications to employee training and compensation programs to
more greatly emphasize and reward selling activities; (c) increased use of
direct mail and other targeted marketing initiatives to the Company's charge
customers; and (d) the installation of high capacity fixtures in stores where
space constraints otherwise prevent store expansion. Elder-Beerman also has
redesigned the layout of its prototype store to improve merchandise adjacencies
and enhance the prominence and in-store presentation of departments offering
higher-margin merchandise.

The Company is an Ohio corporation with its principal executive offices
located at 3155 El-Bee Road, Dayton, Ohio 45439, and its telephone number is
(937) 296-2700.

RECENT DEVELOPMENTS

On July 27, 1998, the Company acquired Stone & Thomas, a West
Virginia-based retailer that operates 21 department stores in West Virginia,
Virginia, Ohio, and Kentucky (the "Acquisition"). The Company believes that the
Acquisition will facilitate its entry into adjacent markets by providing it with
a number of attractive store locations in small and mid-sized cities within
these states. The cash purchase price for the Acquisition was approximately
$21.0 million, plus the assumption of Stone & Thomas indebtedness. See "Use of
Proceeds." During the fiscal year ended January 31, 1998, Stone & Thomas had
revenues of $121.5 million and a net loss of $8.4 million. The Company expects
to achieve cost savings by selling the stores described below and by closing two
stores (which had combined retail sales in fiscal year 1997 of approximately
$2.0 million), one distribution center, and Stone & Thomas' corporate offices in
Charleston and Wheeling, West Virginia. The Company, however, anticipates a
one-time charge in connection with the Acquisition. Although the Company has not
definitively determined the amount of such charge, the Company anticipates that
it will not be less than $8.0 million. See "Risk Factors -- Risks Associated
with the Stone & Thomas Acquisition" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The Company has entered into definitive agreements with Belk, Inc. for the
disposition of three Stone & Thomas stores in Charlottesville, Virginia, and
Bluefield and Beckley, West Virginia, and Peebles Inc. for the disposition of
five Stone & Thomas stores in Staunton, Virginia and New Martinsville,
Lewisburg, Summersville and Elkins, West Virginia. These eight stores, which are
located primarily in Stone & Thomas' smaller markets, had aggregate retail sales
in fiscal year 1997 of approximately $32.0 million. The Company anticipates that
these sales, which are subject to standard terms and conditions, will be
completed by the end of September 1998. The Company also anticipates that
substantially all the Stone & Thomas stores other than those to be closed or
sold to third parties will be converted into Elder-Beerman department stores by
year end.

INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

Certain sections in this Prospectus, including "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contain 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

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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, as amended (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. See
"Risk Factors" for a discussion of factors that could cause or contribute to
such material differences.

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, interest rates, and the condition of the capital
markets. 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.

THE OFFERING

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<S> <C>
Common Shares offered by the Company....................... 2,800,000 shares
Common Shares to be outstanding after the Offering......... 15,478,021 shares (1)
Nasdaq National Market symbol.............................. EBSC
Use of Proceeds............................................ Repayment of debt incurred in connection
with the Acquisition and general corporate
purposes including new store development
and potential acquisitions. See "Use of
Proceeds."
</TABLE>

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(1) Excludes 922,277 Common Shares issuable upon exercise of outstanding stock
options at a weighted average exercise price of $12.45 per share. See
"Management -- Equity and Performance Incentive Plan." Also excludes 624,522
Common Shares issuable upon the exercise of outstanding warrants. See
"Description of Capital Stock -- Warrants" and "Management -- Equity and
Performance Incentive Plan."

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SUMMARY CONSOLIDATED FINANCIAL DATA

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<CAPTION>
FISCAL YEAR ENDED PRO FORMA 13 WEEKS ENDED PRO FORMA
---------------------------------------------------- --------- ------------------- ---------
JAN 29, JAN 28, FEB 3, FEB 1, JAN 31, JAN 31, MAY 3, MAY 2, MAY 2,
1994 1995 1996(1) 1997 1998 1998(2) 1997 1998 1998(2)
-------- -------- -------- -------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND DEPARTMENT STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

STATEMENT OF OPERATIONS DATA
Net sales............ $620,041 $631,100 $590,018 $569,557 $581,372 $702,836 $119,821 $126,724 $148,146
Gross profit (3)..... 193,549 164,315 132,896 159,490 157,830 183,210 33,144 34,897 39,016
Interest expense..... 8,891 9,898 9,557 6,467 7,084 8,728 1,468 2,804 3,160
Income/(loss) before
reorganization
items and income
tax expense
(benefit).......... 23,194 (4,590) (33,631) 11,579 11,931 3,449 94 (710) (3,727)
Reorganization
items.............. 19,711 23,648 27,542 27,542 3,363
Income/(loss) from
continuing
operations (4)
(5)................ 15,244 (2,064) (51,010) (12,429) (8,199) (16,681) (3,269) (436) (3,453)
Net income/(loss)
(6)................ 15,865 (13,355) (63,286) (12,429) (28,952) (37,434) (3,269) (436) (3,453)
Basic and diluted
loss per common
share (7).......... (0.03) (0.23)
Weighted average
number of common
shares
outstanding........ 12,497 15,297
DEPARTMENT STORE
DATA
Stores open at end of
period............. 54 53 53 52 50 71 52 50 71
Comparable store
sales
increase/(decrease)
(8)................ 0.6% (3.8%) (8.4%) (1.2%) 3.7% 3.8% 10.6%
Average sales per
square foot (9).... N/A N/A N/A $ 116 $ 121
</TABLE>

<TABLE>
<CAPTION>
MAY 2, 1998
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(10)
--------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Working capital............................................. $ 229,639 $ 290,027
Total assets................................................ 377,165 464,366
Long-term obligations, less current portion................. 153,059 170,356
Shareholders' equity........................................ 145,272 201,868
</TABLE>

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(1) Fiscal 1995 included 53 weeks as compared to 52 weeks for each of the other
fiscal years shown.

(2) Pro forma statement of operations and department store data give effect to
the Acquisition as if it had occurred at the beginning of the periods
presented, but do not give effect to the pending disposition of eight Stone
& Thomas stores and the closure of two additional Stone & Thomas stores. See
"-- Recent Developments" and "Pro Forma Condensed Consolidated Financial
Data."

(3) Represents net sales less cost of merchandise sold, occupancy, and buying
expenses.

(4) The Company adopted formal plans to dispose of its Margo's LaMode, Inc.
women's specialty subsidiary during Fiscal 1994 and completed the disposal
in January 1996. The financial information for Margo's is included in
discontinued operations.

(5) The financial information for The Bee-Gee Shoe Corp. is included as part of
continuing operations for all periods except for the initial reserve related
to the disposal of discontinued operations that was recorded in Fiscal 1994
and the subsequent reversal recorded in Fiscal 1996.

(6) Net loss for Fiscal 1997 includes the impact of a $28.1 million
extraordinary loss and a $7.4 million gain from discontinued operations
related to the discharge of prepetition liabilities associated with the
Company's chapter 11 cases. Net loss for Fiscal 1995, Fiscal 1994, and
Fiscal 1993 includes discontinued operations expense of $12.3 million, $11.3
million, and $0.6 million, respectively.

(7) No historical earnings per share data are presented as the Company does not
consider such information meaningful. Upon consummation of the Offering,
15,478,021 million Common Shares will be outstanding. Pro forma earnings per
Common Share gives effect to these Common Shares as if outstanding on
February 1, 1998.

(8) Comparable store sales data includes only those department stores that
operated during the applicable full fiscal year and has been adjusted for
elimination of complete product lines.

(9) Department store average sales per square foot data is not available for
years prior to Fiscal 1996.

(10) Adjusted to give effect to the Acquisition as if it had occurred on May 2,
1998 and for the sale of 2,800,000 Common Shares at the public offering
price of $22.00 per share and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds."

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RISK FACTORS

Prospective investors should consider carefully the following risk factors,
together with the other information contained in this Prospectus, in evaluating
an investment in the Common Shares offered hereby. The following factors and
other information set forth in this Prospectus contain certain forward-looking
statements involving risks and uncertainties. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth in this section and
elsewhere in this Prospectus.

EXPANSION

A component of the Company's business strategy includes constructing new
stores and remodeling or expanding existing stores. The Company's success in
achieving future growth through expanding existing stores or opening new stores
will be dependent upon the Company's ability to identify, finance, obtain, and
construct or refurbish suitable store sites and, where applicable, hire
appropriate store personnel. In addition, the success of the Company's growth
strategy is also dependent, in part, upon management's ability to negotiate
acceptable lease terms and open new stores in a timely manner. At this time,
Elder-Beerman has no definitive arrangements with real estate developers or
contractors to build or to lease additional department stores.

Opportunistic acquisitions of individual locations or other department
store businesses also are a component of the Company's strategy. Elder-Beerman
may face significant competition for acquisition candidates, which may limit the
number of acquisition opportunities and lead to higher acquisition prices. There
can be no assurance that the Company will be able to identify, acquire,
successfully integrate, or profitably manage additional acquisitions without
substantial costs, delays, or other financial or operational difficulties.
Acquisitions involve a number of special risks, including adverse short-term
effects on the Company's results of operations, potentially dilutive issuances
of equity securities, the incurrence of debt and contingent liabilities,
diversion of management's attention from the remainder of its business, the
failure to retain key personnel of the acquired business, increased expenses for
accounting and computer systems (including reprogramming of such computer
systems to effectively handle transactions in the year 2000 and beyond), and
risks associated with unanticipated events or liabilities, some or all of which
could have a material adverse effect on the business, operating results, and
financial condition of the Company. In certain cases, the Company may be
required to file applications and obtain clearances under applicable federal
antitrust laws or receive the approval of a target company's stockholders before
consummation of an acquisition. These requirements may restrict or delay the
Company's acquisitions and may increase the cost of completing such
transactions.

The timing, size, and success of the Company's acquisition efforts and the
associated capital commitments cannot be readily predicted. The Company intends
to use cash, debt or Common Shares to finance future acquisitions. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. The availability of debt or equity financing is subject to, among
other things, the Company's financial condition and results of operations and
general market and economic conditions. In addition, if the Company's Common
Shares do not maintain a sufficient market value, or if potential acquisition
candidates are otherwise unwilling to accept Common Shares as consideration,
Elder-Beerman may be required to use more of its cash resources, if available,
to finance its acquisition activities. The failure of the Company's Common
Shares to maintain a sufficient market value also may adversely affect its
ability to engage in future equity financings. There can be no assurance that
the Company will be able to obtain the additional financing that it may need to
implement its expansion strategy on terms that it finds acceptable.

RISKS ASSOCIATED WITH THE STONE & THOMAS ACQUISITION

On July 27, 1998, the Company consummated the Acquisition. Stone & Thomas
has recognized significant losses during recent periods. Management of Stone &
Thomas has disclosed in a note to its consolidated financial statements for the
fiscal year ended January 31, 1998, the existence of a material uncertainty
regarding Stone & Thomas' ability to continue as a going concern. See Note 9 of
Notes to Stone & Thomas' Consolidated Financial Statements.

9
<PAGE> 10

In order to profitably operate the Stone & Thomas stores, the Company
intends to take a number of actions designed to reduce operating costs including
closing two stores (which had combined retail sales in fiscal year 1997 of
approximately $2.0 million), one distribution center, and Stone & Thomas'
corporate offices in Charleston and Wheeling, West Virginia. In addition, the
Company has entered into definitive agreements to sell eight Stone & Thomas
stores in Virginia and West Virginia. These eight stores, which are located
primarily in Stone & Thomas' smaller markets, had aggregate retail sales in
fiscal year 1997 of approximately $32.0 million. The Company anticipates that
these sales, which are subject to standard terms and conditions, will be
completed by the end of September 1998.

There can be no assurance as to the Company's ability to achieve cost
savings or realize disposition proceeds as a result of these actions or as to
the timing or amount of any such savings or proceeds. In addition, there can be
no assurance that the Company will be able to operate profitably the stores
acquired from Stone & Thomas, or even that their operations will not result in
significant losses during future periods. The Company anticipates that a
one-time charge will be recognized as a result of the Acquisition. Although the
Company has not yet definitively determined the amount of such charge, the
Company anticipates that it will not be less than $8.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

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 family shoe stores operated by The Bee-Gee
Shoe Corp. ("Bee-Gee") are in competition not only with other department stores
and 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,
manufacturer outlets, and catalog retailers. Some of the retailers with which
Elder-Beerman competes have substantially greater financial resources than the
Company and may have other competitive advantages over the Company. The
Elder-Beerman department stores and Bee-Gee shoe stores compete on the basis of
quality, depth, and breadth of merchandise, prices for comparable quality
merchandise, customer service, store location, and store environment.

REGIONAL CONCENTRATION OF OPERATIONS

The Company's department stores are concentrated in small and mid-sized
markets in seven midwestern states. A majority of the Company's department
stores are located in Ohio, Michigan, and Indiana. The retail business is
dependent on levels of consumer spending, which may be adversely affected by an
economic downturn or a decline in consumer confidence. As a result of the
Company's focus on smaller markets and the concentration of its operations
within the midwestern region, the Company may be more vulnerable to changes in
economic conditions within this region than its competitors with more diverse
geographic operations. An economic downturn in Ohio, Michigan or Indiana, or
adverse economic conditions affecting localities within those states in which
the Company conducts operations, could have a material adverse effect on the
business, operating results, and financial condition of the Company.

SEASONALITY

The department store business is seasonal, with a significant portion 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 business, operating results, and
financial condition of the Company.

10
<PAGE> 11

RESTRICTIVE COVENANTS

Elder-Beerman's credit facilities impose certain operating and financial
restrictions on the Company. Such restrictions limit, among other things, the
Company's ability to incur additional indebtedness, grant additional liens, make
dividend and other restricted payments, issue securities, sell assets, enter
into certain mergers and consolidations and make capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Failure by the Company to comply
with such covenants may result in an event of default, which, if not cured or
waived, could have a material adverse effect on the business, operating results,
and financial condition of the Company.

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends to a large extent on its executive
management team, including the Company's Chairman and Chief Executive Officer,
Frederick J. Mershad, and the Company's President, Chief Operating Officer, and
Chief Financial Officer, John A. Muskovich. The loss of the services of any key
member of its senior management team could have a material adverse effect on the
business, operating results, and financial condition of the Company. There can
be no assurance that Elder-Beerman will be able to retain its executive officers
and key personnel or attract additional qualified members to its management team
in the future.

RECENT INSOLVENCY AND REORGANIZATION; RECENT LOSSES

The Company sought protection under chapter 11 of the Bankruptcy Code in
October 1995. The Company incurred net losses of $13.4 million, $63.3 million,
$12.4 million, and $29.0 million during the four fiscal years ended January 28,
1995, February 3, 1996, February 1, 1997, and January 31, 1998, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Former senior management of the Company has been replaced since the
commencement of its reorganization in October 1995, and the Company's current
senior management has concentrated on formulating and refining Elder-Beerman's
business strategy. Since December 30, 1997, the Company has no meaningful
financial performance history. There can be no assurance that Elder-Beerman will
attain profitability or achieve continued growth in operating performance.

AVAILABILITY OF PERSONNEL

Elder-Beerman's department store and shoe store businesses are labor
intensive. The Company employs a large number of hourly employees and incurs
substantial expenses for recruiting and training new personnel. The current low
unemployment rate in certain geographic areas in which Elder-Beerman operates
has contracted the labor pool available to the Company in those areas. The
Company has historically experienced a high level of turnover, and there can be
no assurance that the Company will be able to successfully attract and retain
labor at current rates. A change in labor market conditions that either further
reduces the availability of hourly employees or that increases significantly the
cost of such labor could have a material adverse effect on the business,
operating results, and financial condition of the Company.

CONSUMER CREDIT RISKS

Sales under Elder-Beerman's private label credit card program represent a
significant portion of the Company's business, accounting for approximately 44%
of the Company's net sales for Fiscal 1997. The Company's private label credit
card program is also a significant source of income. See Note 4 of Notes to the
Company's Consolidated Financial Statements. There can be no assurance that
sales will continue to be generated by credit card holders or that new credit
card accounts will continue to be established at the rate historically
experienced by the Company. Any decline in the generation of receivables or any
adverse changes in laws regulating the granting or servicing of credit
(including late fees and the finance charge applied to outstanding balances)
could have a material adverse effect on the business, operating results and
financial condition of the Company.

11
<PAGE> 12

The Company's wholly owned subsidiary, The El-Bee Chargit Corp.
("Chargit"), purchases substantially all of the receivables generated under
Elder-Beerman's private label credit card program at a 3.0% discount and, under
a credit facility with a commercial lender, pledges the receivables as
collateral against borrowings of up to $125.0 million. Under the pledged
receivables credit facility, the Company is typically permitted to borrow 86.9%
of the principal balance of eligible pledged receivables. The Company is
required to replace receivables that become delinquent or to pay down the loan
secured by the pledged receivables to maintain required loan to value ratios.
Thus, the Company bears the risk of delinquencies and defaults of its credit
card customers. General economic conditions, as well as other conditions beyond
the Company's control, may have an impact on customers' ability to repay credit
card debt. As of May 2, 1998, approximately 5.0% or $6.5 million principal
amount of the Company's consumer credit card receivables were 90 days past due
compared to 5.2% or $7.2 million principal amount as of May 3, 1997. Moreover,
in Fiscal 1997 the Company experienced $8.3 million in charge-offs related to
its credit card program, as compared to $6.1 million in Fiscal 1996. There can
be no assurance that the rate of charge-offs on the Company's accounts
receivable portfolio will not increase, or that finance charge revenue and late
fee income will be adequate to offset charge-offs. If the rate of delinquencies
and charge-offs increase, the Company could also incur substantial costs and
delays in servicing and collecting its receivables. The Company is subject to
consumer credit risks and risks associated with forecasting adequate reserves
for uncollected or uncollectible receivables. Deterioration in the quality of
the Company's accounts receivable portfolio could have a material adverse effect
on the business, operating results and financial condition of the Company.

EFFECT OF YEAR 2000 ON MANAGEMENT INFORMATION AND CONTROL SYSTEMS

Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. Moreover, these
programs often are highly dependent upon historical or dynamic financial and
other data that, based on the programs' inability to distinguish between the
year 2000 and other century-end years, could be misreported or misinterpreted
and cause significant resulting errors. If not corrected, many computer
applications could fail when processing year 2000 data.

Elder-Beerman's operations are highly dependent on computerized
recordkeeping, financial reporting, and other systems, including inventory
management, point-of-sale, and internal accounting systems. In addition, many of
the Company's vendors and other third parties with which the Company conducts
business also utilize computer systems that may be adversely affected by year
2000-related programming errors. Although the Company is evaluating its computer
systems and is endeavoring to identify and correct any year 2000-related
problems, there can be no assurance that all such problems will, in fact, be
identified and corrected by the Company or third parties. In addition, the
Company's business may be adversely affected if the Company and/or other
organizations with which the Company does business are unsuccessful in
completing in a timely manner the conversion to applications that can process
year 2000 dates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."

DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS

The Company currently anticipates that, after the completion of the
Offering, all of its earnings will be retained for development and expansion of
the Company's business. The Company does not anticipate paying any cash
dividends on the Common Shares in the foreseeable future. The Company's credit
facilities contain covenants that restrict the payment of cash dividends. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Shares in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Shares. Upon
consummation of the Offering, the Company will have 15,478,021 Common Shares
outstanding. The Common Shares sold in the Offering are freely saleable in the
public market, unless acquired by affiliates of Elder-Beerman. In addition, all
of the 12,678,021 Common Shares outstanding as of June 12, 1998 (including
12
<PAGE> 13

1,685,208 Common Shares scheduled to be distributed on July 31, 1998 from an
escrow account to certain creditors in connection with the Company's
reorganization under chapter 11 of the Bankruptcy Code), other than shares held
by affiliates of the Company or persons deemed to be "underwriters" within the
meaning of Section 1145(b) of the Bankruptcy Code, are freely tradeable without
restriction under the Securities Act. Immediately upon completion of the
Offering, directors and executive officers of the Company will own 206,527
Common Shares and will beneficially own an additional 613,777 shares, which will
be issuable upon exercise of options. Such persons are subject to contractual
restrictions that prohibit them from offering, selling, transferring, pledging,
contracting to do the same, or otherwise disposing of such shares for a period
of 180 days after the date of this Prospectus without the consent of McDonald &
Company Securities, Inc. After this 180-day period expires, 206,527 shares will
be eligible for resale in the public market subject to certain restrictions
under Rule 144 promulgated under the Securities Act. Prior to the commencement
of the Offering, the Company filed Form S-8 registration statements under the
Securities Act registering up to 3,375,000 shares issuable upon exercise of
stock options granted or to be granted under its incentive and stock purchase
plans. Subject to certain restrictions under Rule 144, these shares will be
freely saleable in the public market immediately following exercise of such
options. See "Description of Capital Stock" and "Management -- Equity and
Performance Incentive Plan."

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Amended Articles of Incorporation (the
"Articles of Incorporation") and the Amended Code of Regulations (the "Code of
Regulations") and of the Ohio General Corporation Law (the "OGCL"), together or
separately, could discourage potential acquisition proposals, delay or prevent a
change in control of the Company, and limit the price that certain investors
might be willing to pay in the future for the Common Shares, including
provisions that (a) require certain supermajority votes and (b) establish
certain advance notice procedures for nomination of candidates for election as
directors and for shareholder proposals to be considered at shareholders'
meetings. The Board of Directors of the Company will also have authority to
issue one or more series of preferred stock without further shareholder approval
and upon terms as the Board of Directors may determine. Issuance of preferred
stock could adversely affect holders of the Common Shares in the event of
liquidation of the Company or delay, defer, or prevent an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest, or
otherwise. Additionally, Section 1701.831 of the OGCL contains provisions that
require shareholder approval of any proposed "control share acquisition" of any
Ohio corporation; and Chapter 1704 of the OGCL contains provisions that restrict
certain business combinations and other transactions between an Ohio corporation
and interested shareholders. Furthermore, under a Rights Agreement (the "Rights
Agreement") entered into as of December 30, 1997 (the "Effective Date"), the
effective date of the Company's amended joint plan of reorganization (the
"Plan"), each outstanding Common Share presently has one right attached that
trades with the Common Shares. Generally, the rights become exercisable and
trade separately after a third party acquires 20% or more of the
then-outstanding Common Shares or commences a tender offer for a specified
percentage of the then-outstanding 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 then-outstanding Common Shares) to purchase Common Shares at an exercise
price of 50% of the then-current market value of the Common Shares. 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.
See "Description of Capital Stock -- Ohio Law and Certain Charter Provisions"
and "-- Share Purchase Rights Agreement."

DILUTION

Purchasers of the Common Shares offered hereby will incur immediate and
substantial dilution in the amount of $9.10 per share. See "Dilution."

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to Elder-Beerman from the sale of 2,800,000 Common Shares
offered hereby are $56.6 million ($65.2 million if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. On July 27, 1998, the Company consummated the Acquisition.
Approximately $21.0 million of the net proceeds from the Offering will be used
to repay indebtedness incurred under the Company's Revolving Credit Facility (as
defined below) in connection with the Acquisition. The balance of the net
proceeds will be used to expand and remodel existing stores, open new stores,
fund working capital and fund general corporate purposes, and also may be used
to fund acquisitions. Pending their specific application, the Company intends to
use the balance of the net proceeds to temporarily reduce indebtedness under its
$150.0 million revolving credit facility (the "Revolving Credit Facility"),
which had $82.2 million outstanding as of July 27, 1998 (including the $21.0
million referred to above), bears interest, at the Company's option, at either a
base rate plus 37.5 basis points or LIBOR plus 137.5 basis points through
January 1999, and terminates on December 30, 2000. The indebtedness incurred
under the Revolving Credit Facility, other than in connection with the
Acquisition, was used to fund the Company's obligations under the Plan and for
general corporate purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

DIVIDEND POLICY

The Company anticipates that all future earnings will be retained to
finance the Company's operations and for the growth and development of its
business. Accordingly, Elder-Beerman does not currently anticipate paying cash
dividends on its Common Shares. The payment of any future dividends will be
subject to the discretion of the Board of Directors and will depend on the
Company's results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law, and other factors that the Board of
Directors deem relevant. The credit facilities contain covenants that restrict
the payment of cash dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

PRICE RANGE OF COMMON SHARES

The Common Shares have been traded on Nasdaq National Market ("Nasdaq")
under the symbol "EBSC" since February 17, 1998. The following table sets forth,
for the periods indicated, the range of high and low closing prices for the
Common Shares as reported on Nasdaq:

<TABLE>
<CAPTION>
PRICE RANGE
--------------
FISCAL 1998 HIGH LOW
----------- ----- ---
<S> <C> <C>
First Quarter (from February 17, 1998)..................... 27 1/4 15 1/4
Second Quarter (through July 30, 1998)..................... 29 1/4 21 13/16
</TABLE>

On July 30, 1998, the closing price of the Common Shares, as reported on
Nasdaq, was $22.25. As of June 12, 1998, there were 2,150 record holders of the
Common Shares.

14
<PAGE> 15

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of May 2, 1998, as well as the capitalization as adjusted to reflect (a) the
Acquisition and (b) the sale by the Company of 2,800,000 Common Shares offered
hereby and the application of the net proceeds therefrom. See "Use of Proceeds."
This table should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
MAY 2, 1998
-----------------------
AS
ACTUAL ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term obligations.................... $ 1,105 $ 1,120
======== ========
Long-term obligations, less current portion................. 153,059 170,356
Shareholders' equity:
Common Shares, no par value, 12,671,777 shares issued and
outstanding on May 2, 1998; 15,471,777 shares issued
and outstanding as adjusted (1)........................ 201,031 257,627
Unearned compensation -- restricted stock, net.............. (2,708) (2,708)
Deficit..................................................... (53,051) (53,051)
-------- --------
Total shareholders' equity........................ 145,272 201,868
-------- --------
Total capitalization.............................. $298,331 $372,224
======== ========
</TABLE>

- ---------------

(1) Excludes 922,277 Common Shares issuable upon exercise of stock options
outstanding as of July 30, 1998 at a weighted average exercise price of
$12.45 per share. See "Management -- Equity and Performance Incentive Plan."
Also excludes 624,522 Common Shares issuable upon the exercise of
outstanding warrants. See "Description of Capital Stock -- Warrants" and
"Management -- Equity and Performance Incentive Plan."

15
<PAGE> 16

DILUTION

The net tangible book value of the Company at May 2, 1998 was $143.1
million, or $11.29 per share. Net tangible book value is determined by dividing
the net tangible book value (tangible assets less liabilities) of the Company by
the number of Common Shares outstanding on that date. Without taking into
account any other changes in net tangible book value of the Company after May 2,
1998, other than to give effect to the sale of the 2,800,000 Common Shares
offered hereby (at the public offering price of $22.00 per share) and the
application of the net proceeds therefrom as described under "Use of Proceeds,"
the pro forma net tangible book value of the Company at May 2, 1998 would have
been approximately $199.7 million or $12.90 per share. This represents an
immediate increase in the net tangible book value of $1.61 per share to existing
shareholders and an immediate dilution of $9.10 per share to new investors. The
following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Public offering price per share............................. $ 22.00
Net tangible book value per share at May 2, 1998.......... $11.29
Pro forma net tangible book value per share............... 12.90
------
Increase per share attributable to existing shareholders.... 1.61
------
Pro forma net tangible book value per share after the
Offering.................................................. 12.90
-------
Net tangible book value dilution per share to new
investors................................................. $ 9.10
=======
</TABLE>

As of July 30, 1998, the Company had outstanding stock options exercisable
for 922,277 Common Shares at a weighted average exercise price of $12.45 per
share and outstanding warrants exercisable for 249,809 Common Shares and 374,713
Common Shares at an exercise price of $12.80 per share and $14.80 per share,
respectively. If these options or warrants are exercised, further dilution to
new investors will occur. Elder-Beerman may also issue additional shares to
effect future potential business acquisitions or upon exercise of future stock
option grants or equity awards, which could also result in additional dilution
to then existing shareholders. See "Management -- Equity and Performance
Incentive Plan" and "Description of Capital Stock -- Warrants."

16
<PAGE> 17

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

The accompanying unaudited pro forma condensed consolidated statements of
operations for Fiscal 1997 and the 13 weeks ended May 2, 1998 give effect to the
Acquisition and, as described in the Notes to Pro Forma Condensed Consolidated
Financial Data, certain effects of the Offering as if they had occurred at the
beginning of each of the periods presented. Pro forma condensed consolidated
balance sheet data give effect to the Acquisition and, as described in the Notes
to Pro Forma Condensed Consolidated Financial Data, certain effects of the
Offering as if they had occurred as of May 2, 1998. The unaudited pro forma
condensed consolidated financial data do not give effect to the pending
disposition of eight Stone & Thomas stores and closure of two additional Stone &
Thomas stores, which together had aggregate retail sales in fiscal year 1997 of
approximately $34.0 million. See "Prospectus Summary -- Recent Developments."
The unaudited pro forma condensed consolidated financial data are presented for
illustrative purposes only and do not purport to present the results of
operations or financial condition of the Company had the Acquisition occurred on
the dates indicated, nor are they necessarily indicative of the Company's future
results of operations or financial condition.

The unaudited pro forma condensed consolidated financial data and
accompanying notes should be read in conjunction with the Company's Consolidated
Financial Statements and notes thereto and the Consolidated Financial Statements
of Stone & Thomas and the notes thereto included elsewhere in this Prospectus.
The pro forma adjustments relating to the Acquisition represent the Company's
preliminary determinations of purchase accounting adjustments based on available
information and certain assumptions that the Company considers reasonable under
the circumstances.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF MAY 2, 1998

<TABLE>
<CAPTION>
ELDER- STONE &
BEERMAN THOMAS ADJUSTMENTS PRO FORMA
------- ------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................... $ 6,413 $35,596(1) $ 42,009
Customer accounts receivable................. 126,762 $ 878 127,640
Merchandise inventories...................... 154,772 32,914 (1,400)(2) 186,286
Deferred tax asset........................... 2,579 193 2,772
Other current assets......................... 8,945 2,682 11,627
-------- ------- ------- --------
Total current assets................. 299,471 36,667 34,196 370,334
Property, fixtures and equipment, less
accumulated depreciation and amortization.... 62,589 6,269 6,411(3) 75,269
Other assets................................... 15,105 3,658 18,763
-------- ------- ------- --------
Total assets......................... $377,165 $46,594 $40,607 $464,366
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations..... $ 1,105 $ 15 $ 1,120
Accounts payable............................. 42,658 6,958 49,616
Other accrued liabilities.................... 26,069 3,502 29,571
-------- ------- --------
Total current liabilities............ 69,832 10,475 80,307
-------- ------- --------
Long-term obligations -- less current
portion...................................... 153,059 17,297 170,356
Other long-term/deferred liabilities........... 9,002 2,833 11,835
Total shareholders' equity..................... 145,272 15,989 $40,607(4) 201,868
-------- ------- ------- --------
Total liabilities and shareholders'
equity............................. $377,165 $46,594 $40,607 $464,366
======== ======= ======= ========
</TABLE>

17
<PAGE> 18

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

13 WEEKS ENDED MAY 2, 1998

<TABLE>
<CAPTION>
ELDER-BEERMAN STONE & THOMAS ADJUSTMENTS PRO FORMA
------------- -------------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net sales............................ $ 126,724 $21,422 $ 148,146
Financing............................ 6,498 6,498
----------- ------- -----------
Total revenues....................... 133,222 21,422 154,644
----------- ------- -----------
Costs and expenses:
Cost of merchandise sold, occupancy
and buying expenses............... 91,827 17,233 70(5) 109,130
Selling, general and administrative
expenses.......................... 37,724 6,718 44,442
Provision for doubtful accounts...... 1,577 1,577
Interest expense..................... 2,804 356 3,160
Other expense........................ 62 62
----------- ------- ----------- -----------
Total costs and expenses............. 133,932 24,369 70 158,371
----------- ------- ----------- -----------
Loss before income tax benefit....... (710) (2,947) (70) (3,727)
Income tax benefit..................... (274) (274)
----------- ------- ----------- -----------
Net loss............................. $ (436) $(2,947) $ (70) $ (3,453)
=========== ======= =========== ===========
Basic and diluted net loss per common
share................................ (0.03) (0.23)
=========== ===========
Weighted average number of common
shares outstanding................... 12,496,996 2,800,000(6) 15,296,996
</TABLE>

18
<PAGE> 19

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FISCAL YEAR ENDED JANUARY 31, 1998

<TABLE>
<CAPTION>
ELDER-BEERMAN STONE & THOMAS ADJUSTMENTS PRO FORMA
------------- -------------- ------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net sales........................... $ 581,372 $121,464 $ 702,836
Financing........................... 26,574 26,574
---------- -------- ----------
Total revenues...................... 607,946 121,464 729,410
---------- -------- ----------
Cost and expenses:
Cost of merchandise sold, occupancy
and (200)(2)
buying expenses.................. 423,542 96,004 280 (5) 519,626
Selling, general and administrative
expenses......................... 151,293 32,053 183,346
Key employees retention bonus plan
expense.......................... 4,000 4,000
Hiring and recruiting expenses for
new executives................... 2,121 2,121
Provision for doubtful accounts..... 8,636 285 8,921
Interest expense.................... 7,084 1,644 8,728
Other income........................ (661) (120) (781)
---------- -------- ------------- ----------
Total costs and expenses............ 596,015 129,866 80 725,961
---------- -------- ------------- ----------
Income (loss) before reorganization
items and income tax benefit..... 11,931 (8,402) (80) 3,449
Reorganization items.................. (27,542) (27,542)
---------- -------- ------------- ----------
Loss before income tax benefit,
discontinued operations and
extraordinary item............... (15,611) (8,402) (80) (24,093)
Income tax benefit.................... (7,412) (7,412)
---------- -------- ------------- ----------
Loss from continuing operations..... (8,199) (8,402) (80) (16,681)
Discontinued operations............... 7,378 7,378
---------- -------- ------------- ----------
Loss before extraordinary item...... (821) (8,402) (80) (9,303)
Extraordinary item.................... (28,131) (28,131)
---------- -------- ------------- ----------
Net loss............................ $ (28,952) $ (8,402) $ (80) $ (37,434)
========== ======== ============= ==========
Basic and diluted loss per common
share:
Loss from continuing operations..... $ (6.58) $ (4.12)
Discontinued operations............. 5.92 1.82
Extraordinary item.................. (22.58) (6.95)
---------- ----------
Net loss............................ $ (23.24) $ (9.25)
========== ==========
Weighted average number of common
shares outstanding.................. 1,245,760 2,800,000 (6) 4,045,760
</TABLE>

19
<PAGE> 20

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) Represents the estimated net proceeds from the Offering at an offering price
of $22.00 per share, less a purchase price of $21,000 for Stone & Thomas.

(2) An estimated purchase accounting adjustment to conform Stone & Thomas'
inventory valuation method to that used by Elder-Beerman, with regard to the
capitalization of procurement costs.

(3) An estimated purchase accounting adjustment to record fair value of Stone &
Thomas' fixed assets.

(4) Represents the amount of net equity generated by the Offering of $56,596,
less the elimination of Stone & Thomas' equity of $15,989 as a result of the
Acquisition.

(5) To reflect adjustments to depreciation and amortization expense based on a
preliminary purchase accounting allocation related to property, fixtures,
and equipment.

(6) Weighted average number of Common Shares outstanding has been adjusted to
give effect to the issuance of the 2,800,000 Common Shares in the Offering
as if it had occurred at the beginning of each of the periods presented.

20
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table presents selected consolidated financial data of the
Company as of and for the periods and the dates indicated. The selected
statement of operations and balance sheet information, at or for each of the
full fiscal years presented below, was derived from the audited Consolidated
Financial Statements. The Consolidated Financial Statements at January 31, 1998
and February 1, 1997 and for each fiscal year in the three-year period ended
January 31, 1998 and the auditors' report of Deloitte & Touche LLP, independent
auditors, thereon are included elsewhere in this Prospectus. The selected
results of operations data for the 13 weeks ended May 2, 1998 and May 3, 1997
and the balance sheet data at May 2, 1998 are derived from the unaudited
financial statements of the Company and, in the opinion of the Company's
management, reflect all adjustments necessary for a fair presentation of its
financial condition and results of operations. All such adjustments are of a
normal recurring nature. The results of operations for an interim period are not
necessarily indicative of results that may be expected for a full year or any
other interim period. The selected consolidated financial information below
should be read in conjunction with the audited Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------
JAN 29, 1994 JAN 28, 1995 FEB 3, 1996(1) FEB 1, 1997 JAN 31, 1998
------------ ------------ --------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AND DEPARTMENT STORE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales......................... $620,041 $631,100 $590,018 $569,557 $581,372
Gross profit (2).................. 193,549 164,315 132,896 159,490 157,830
Interest expense.................. 8,891 9,898 9,557 6,467 7,084
Income/(loss) before
reorganization items and income
tax expense (benefit)........... 23,194 (4,590) (33,631) 11,579 11,931
Reorganization items.............. 19,711 23,648 27,542
Income/(loss) from continuing
operations (3) (4).............. 15,244 (2,064) (51,010) (12,429) (8,199)
Net income/(loss)(5).............. 15,865 (13,355) (63,286) (12,429) (28,952)
Basic and diluted earnings (loss)
per common share................ $ 120.48 $(115.10) $(510.22) $(100.20) $ (23.24)
Weighted average number of common
shares outstanding.............. 124 124 124 124 1,246

DEPARTMENT STORE DATA
Stores open at end of period...... 54 53 53 52 50
Comparable store sales
increase/(decrease) (6)......... 0.6% (3.8%) (8.4%) (1.2%) 3.7%
Average sales per square foot
(7)............................. N/A N/A N/A $ 116 $ 121

BALANCE SHEET DATA
Working capital................... $131,918 $124,733 $183,382 $182,840 $214,059
Total assets...................... 285,996 267,822 367,069 368,609 371,365
Long-term obligations, less
current portion................. 108,010 109,487 3,100 5,669 142,024
Liabilities subject to
compromise...................... 229,409 231,675
Shareholders' equity.............. 92,621 81,853 18,567 6,138 145,511

<CAPTION>
13 WEEKS ENDED
---------------------------
MAY 3, 1997 MAY 2, 1998
------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AND DEPARTMENT STORE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales......................... $119,821 $126,724
Gross profit (2).................. 33,144 34,897
Interest expense.................. 1,468 2,804
Income/(loss) before
reorganization items and income
tax expense (benefit)........... 94 (710)
Reorganization items.............. 3,363
Income/(loss) from continuing
operations (3) (4).............. (3,269) (436)
Net income/(loss)(5).............. (3,269) (436)
Basic and diluted earnings (loss)
per common share................ $ (26.36) $ (0.03)
Weighted average number of common
shares outstanding.............. 124 12,497
DEPARTMENT STORE DATA
Stores open at end of period...... 52 50
Comparable store sales
increase/(decrease) (6)......... 3.8% 10.6%
Average sales per square foot
(7).............................
BALANCE SHEET DATA
Working capital................... $229,639
Total assets...................... 377,165
Long-term obligations, less
current portion................. 153,059
Liabilities subject to
compromise......................
Shareholders' equity.............. 145,272
</TABLE>

- ---------------

(1) Fiscal 1995 included 53 weeks as compared to 52 weeks for each of the other
fiscal years shown.

(2) Represents net sales less cost of merchandise sold, occupancy, and buying
expenses.

(3) The Company adopted formal plans to dispose of its Margo's LaMode, Inc.
women's specialty subsidiary during Fiscal 1994 and completed the disposal
in January 1996. The financial information for Margo's is included in
discontinued operations.

(4) The financial information for The Bee-Gee Shoe Corp. 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 1996.

(5) Net loss for Fiscal 1997 includes the impact of a $28.1 million
extraordinary loss and a $7.4 million gain from discontinued operations
related to the discharge of prepetition liabilities associated with the
Company's chapter 11 cases. Net loss for Fiscal 1995, Fiscal 1994, and
Fiscal 1993 includes discontinued operations expense of $12.3 million, $11.3
million, and $0.6 million, respectively.

(6) Comparable store sales data include only those department stores that
operated during the applicable full fiscal year and has been adjusted for
elimination of complete product lines.

(7) Department store average sales per square foot data are not available for
years prior to Fiscal 1996.

21
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains certain forward-looking statements that are based
on the beliefs of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. Elder-Beerman's
future performance, results or achievements could differ materially from those
expressed in, or implied by, any such forward-looking statements. See "Risk
Factors" for a discussion of factors that could cause or contribute to such
material differences.

The discussion and analysis that follows is based upon and should be read
in conjunction with the Company's audited Consolidated Financial Statements and
the Notes thereto included elsewhere in this Prospectus.

GENERAL

During 1992 and through 1994, the Company undertook a new, high volume
merchandising strategy. In 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 1995 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 holiday selling season.

On October 17, 1995 (the "Petition Date"), Elder-Beerman and its
subsidiaries, Chargit, Bee-Gee, Margo's LaMode, Inc. ("Margo's"), McCook
Wholesale Corp., E-B Community Redevelopment Corp. and EBA, Inc. (collectively,
the "Old Elder-Beerman Companies") filed voluntary petitions for relief (the
"Reorganization Cases") under 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
subsequently amended and ultimately confirmed by an order of the Bankruptcy
Court on December 16, 1997. The Plan became effective on December 30, 1997. A
total of $229.9 million in general unsecured claims was discharged under the
Plan in exchange for cash payments of $79.7 million and the issuance of
approximately 12.3 million Common Shares and warrants to purchase an additional
624,522 Common Shares. See Note 1 of Notes to the Company's Consolidated
Financial Statements. All prepetition ownership interests in the Company were
extinguished. As of the Effective Date, the reorganization value of the
Company's assets exceeded its total liabilities. Accordingly, pursuant to AICPA
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
under the Bankruptcy Code, "fresh start" accounting was not adopted.

Elder-Beerman believes that a number of actions taken during the
Reorganization Cases to reorganize the Company and streamline its operations,
together with its existing competitive strengths, provide a platform for
22
<PAGE> 23

future growth. During the Reorganization Cases, the Company made a number of
important changes in its management team; the 15 current members of senior
management have an average of 22 years of retailing experience. The Company
reduced the number of its vendors by approximately 40% and refined its
merchandising practices to provide additional authority to buyers and store
managers to make merchandising decisions. The Company also rationalized its real
estate portfolio by closing several unprofitable or underperforming department,
furniture and shoe stores and liquidating its Margo's women's specialty store
chain. The Company's actions contributed to a 3.7% increase in comparable
department store sales during Fiscal 1997 and a 10.6% increase during the first
quarter of Fiscal 1998.

Certain departments in Elder-Beerman's department stores are leased to
independent third parties for a percentage of net sales. 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.

One new department store is scheduled to open during each of the second and
third quarters of 1998. Pre-opening expenses associated with these stores will
be charged to operations during these periods. Expenses associated with these
openings and other store openings and closings during future periods may result
in fluctuations in the Company's quarterly results of operations.

RESULTS OF OPERATIONS

The following table sets forth the Company's results of operations
expressed as a percentage of total revenue:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
--------------------------------------- ---------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1996 1997 1998 1997 1998
----------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.................................. 96.9% 95.4% 95.6% 94.7% 95.1%
Financing.................................. 3.1 4.6 4.4 5.3 4.9
----- ----- ----- ----- -----
Total revenue...................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost and expenses:
Cost of merchandise sold, occupancy and
buying expenses......................... 75.1 68.7 69.7 68.5 68.9
Selling, general and administrative
expenses................................ 27.9 26.3 24.9 29.1 27.8
Key employees retention bonus plan
expense................................. 0.0 0.8 0.7 0.4 0.4
Hiring and recruiting expenses for new
executives.............................. 0.0 0.2 0.3 0.1 0.1
Provision for doubtful accounts............ 1.0 1.1 1.4 0.8 1.2
Interest expense........................... 1.6 1.1 1.2 1.2 2.1
Other income............................... 0.0 (0.2) (0.1) (0.2) 0.0
----- ----- ----- ----- -----
Total costs and expenses........... 105.6 98.0 98.1 99.9 100.5
----- ----- ----- ----- -----
Income (loss) before reorganization items
and income tax expense (benefit)........ (5.6) 2.0 1.9 0.1 (0.5)
Reorganization items......................... (3.2) (4.0) (4.5) (2.7) 0.0
----- ----- ----- ----- -----
Loss before income tax expense
(benefit), discontinued
operations and extraordinary
item............................. (8.8) (2.0) (2.6) (2.6) (0.5)
Income tax expense (benefit)................. (0.4) 0.1 (1.2) 0.0 (0.2)
----- ----- ----- ----- -----
Loss from continuing operations.... (8.4) (2.1) (1.4) (2.6) (0.3)
Discontinued operations...................... (2.0) 0.0 1.2 0.0 0.0
Loss before extraordinary item..... (10.4) (2.1) (0.2) (2.6) (0.3)
Extraordinary item........................... 0.0 0.0 (4.6) 0.0 0.0
----- ----- ----- ----- -----
Net loss........................... (10.4)% (2.1)% (4.8)% (2.6)% (0.3)%
===== ===== ===== ===== =====
</TABLE>

23
<PAGE> 24

THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 3,
1997

Net Sales. Net sales for the 13-week period ended May 2, 1998 ("First
Quarter 1998") increased by 5.8% to $126.7 million from $119.8 million for the
13-week period ended May 3, 1997 ("First Quarter 1997"). The increase was due to
a 10.6% comparable store sales increase for the Elder-Beerman department stores
and a 2.5% comparable store sales increase for the Bee-Gee shoe stores. Better
and moderate women's sportswear, men's clothing and men's sportswear, furniture,
and domestics led the sales increase for the department stores. 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. Financing revenue from the Company's private label
credit card operated by Chargit for First Quarter 1998 decreased by 3.5% to $6.5
million from $6.7 million for First Quarter 1997. Outstanding net customer
accounts receivable decreased 5.1% from May 3, 1997 to May 2, 1998. The decline
in finance charges due to the reduction in outstanding customer accounts
receivable was partially offset by an increase in late fees charged.

Cost of Merchandise Sold, Occupancy, and Buying Expenses. Cost of
merchandise sold, occupancy, and buying expenses increased to $91.8 million, or
72.5% of net sales, for First Quarter 1998 from $86.7 million, or 72.3% of net
sales, for First Quarter 1997. This increase was primarily due to an increase in
the buying staff payroll as a result of being more fully staffed and an increase
in depreciation due to capital expenditures in 1997.

Selling, General, and Administrative Expenses. Although selling, general,
and administrative (including key employee performance bonus plan expense), and
hiring and recruiting expenses for new executives increased by $0.2 million to
$37.7 million for First Quarter 1998 from $37.5 million for First Quarter 1997,
this represented a decrease of 1.5% as a percentage of net sales to 29.8% for
First Quarter 1998 from 31.3% for First Quarter 1997. This was due to the
leverage of several semi-fixed costs, most notably service and operations,
utilities, and advertising costs.

Provision for Doubtful Accounts. Provision for doubtful accounts increased
to $1.6 million, or 1.2% of net sales, for First Quarter 1998 from $1.1 million
or 0.9% for First Quarter 1997. The increase was primarily due to the level of
delinquent accounts and receivable charge-offs in previous months.

Interest Expense, Net. Interest expense increased to $2.8 million, or 2.2%
of net sales, for First Quarter 1998 from $1.5 million, or 1.2% of net sales,
for First Quarter 1997. The increase was due to the required financing to
support the payment of the bankruptcy obligations under the Plan.

Other Income. There was no other income for First Quarter 1998 compared to
other income of $0.2 million, or 0.2% of net sales, for First Quarter 1997. The
income for First Quarter 1997 was realized from a swap mark-to-market adjustment
on the unhedged portion of swap agreements in place at that time. With the
emergence from bankruptcy protection, these 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 $115.0 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 Costs. Reorganization costs were zero for First Quarter 1998
compared to $3.4 million, or 2.8% of net sales, for First Quarter 1997. The
costs for First Quarter 1997 were due to the Company's emergence from bankruptcy
protection in December 1997.

Income Tax Expense. An income tax benefit of $0.3 million was recorded in
First Quarter 1998 at the estimated statutory rate for federal and state income
taxes of 38.6%. An income tax benefit was not recorded in First Quarter 1997
because the Company remained under bankruptcy protection.

FISCAL 1997 COMPARED TO FISCAL 1996

Net Sales. Net sales for Fiscal 1997 increased by 2.1% to $581.4 million
from $569.6 million for Fiscal 1996. The increase was due to a 3.7% comparative
store sales increase for the Elder-Beerman department stores, offset partially
by a 2.5% comparative stores sales decline for the Bee-Gee shoe stores. The
Company closed the outlet section of the downtown Dayton, Ohio department store,
the Fairborn, Ohio furniture store, and the outlet

24
<PAGE> 25

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 its Northtowne Mall department
store located in Toledo, Ohio and its department store in Carbondale, Illinois
in November 1997 and liquidated its unprofitable electronics product line in
December 1997.

Financing Revenue. Financing revenue from the Company's private label
credit card program for Fiscal 1997 decreased by 3.2% to $26.6 million from
$27.5 million for Fiscal 1996. The decline was 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 Merchandise Sold, Occupancy, and Buying Expenses. Cost of
merchandise sold, occupancy, and buying expenses increased to $423.5 million, or
72.9% of net sales, for Fiscal 1997 from $410.1 million, or 72.0% of net sales,
for Fiscal 1996. This increase was due to $8.6 million in excess markdowns in
cost of merchandise due to store closings in Fiscal 1997. This increase in costs
was partially offset by an increase in the initial rate of mark-up coupled with
a decrease in the markdown rate. In Fiscal 1997, the LIFO inventory valuation
adjustment reduced cost of merchandise sold by $1.4 million compared to a
decrease in cost of merchandise sold of $1.9 million in Fiscal 1996.

Selling, General, and Administrative Expenses. Selling, general,
administrative (including key employee performance bonus plan expense), and
hiring and recruiting expenses for new executives decreased by 3.6% to $157.4
million, or 27.1% of net sales, for Fiscal 1997 from $163.3 million, or 28.7% of
net sales, for Fiscal 1996. This improvement was 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 was primarily attributable to a reduction
in store payroll as the Company implemented several technology driven programs
to eliminate store nonselling workload, such as automating the price change,
transfer and return to vendor processes as well as reengineering the store cash
office and gift wrap functions. In addition, $4.0 million was incurred under the
key employee retention bonus program for Fiscal 1997 compared to $5.0 million
for Fiscal 1996. The decline was due to an increase in the profit threshold 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. Provision for doubtful accounts increased
by 29.3% to $8.6 million, or 1.5% of net sales, for Fiscal 1997 compared to $6.7
million, or 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, Net. Interest expense increased by 9.5% to $7.1 million,
or 1.2% of net sales, for Fiscal 1997 from $6.5 million, or 1.1% of net sales,
for Fiscal 1996. Interest expense increased due to the additional borrowings to
support working capital requirements and capital expenditures.

Other Income. Other income decreased by 40.2% to $0.7 million, or 0.1% of
net sales, for Fiscal 1997 from $1.1 million, or 0.2% of net sales, for Fiscal
1996. Elder-Beerman had certain interest rate swap agreements 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.

Reorganization Costs. Reorganization expense increased by 16.5% to $27.5
million, or 4.7% of net sales, for Fiscal 1997 from $23.6 million, or 4.2% of
net sales, 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 $2.3 million expense recorded for an adjustment to estimated allowed
claims and a one time $2.1 million expense recorded for reorganization bonuses.
In Fiscal 1996, the Company recognized a one time expense of $7.4 million for
equipment lease settlements that did not occur in Fiscal 1997. There was also a
reduction in financing cost expense of $2.4 million.

25
<PAGE> 26

Income Tax Expense. In Fiscal 1997 a state income tax expense provision was
made for approximately $0.5 million. The 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 resulted in a
net income tax benefit being recorded in Fiscal 1997.

Discontinued Operations. The discontinued operations gain of $7.4 million
recorded in 1997 was for the extinguishment of debt for Margo's. In December
1995, the Bankruptcy Court approved the disposal of Margo's. The gain recorded
represents the difference between the amount of cash Margo's creditors received
as part of the plan of reorganization and the liabilities subject to settlement
recorded by Margo's.

Extraordinary Item. In Fiscal 1997 an extraordinary loss of $28.1 million
was recorded in connection with the extinguishment of the Company's prepetition
liabilities. The loss was based on the excess of the fair value of the stock and
cash distributed to the general unsecured creditors over the carrying amount of
the liabilities extinguished.

FISCAL 1996 COMPARED TO FISCAL 1995

Net Sales. Net sales for Fiscal 1996 decreased 3.5% to $569.6 million from
$590.0 million for Fiscal 1995. Fiscal 1995 contained 53 weeks and 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, Bee-Gee closed 11 El-Bee
Shoe outlet stores in Fiscal 1996.

Financing Revenue. Financing revenue for Fiscal 1996 increased by 45.1% 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 the
Reorganization Cases the securitization facility was canceled. In Fiscal 1995,
gross financing revenue was reduced by $5.9 million of securitization expense.

Cost of Merchandise Sold, Occupancy, and Buying Expenses. Cost of
merchandise sold, occupancy, and buying expenses decreased from $457.1 million,
or 77.5% of net sales, in Fiscal 1995 to $410.1 million, or 72.0% of net sales,
in Fiscal 1996. This improvement was attributable to a significant increase in
the initial rate of mark-up coupled with a significant decrease in the markdown
rate for Fiscal 1996 compared to Fiscal 1995. In Fiscal 1995, increased
markdowns were taken to clear excess inventories. In Fiscal 1996, the LIFO
inventory valuation adjustment reduced cost of merchandise sold by $1.9 million
compared to an increase in cost of merchandise sold of $0.8 million in Fiscal
1995.

Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses (including key employee performance bonus plan expense)
and hiring and recruiting expenses for new executives, decreased by 3.9% 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, Elder-Beerman 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. Provision for doubtful accounts increased
by 13.6% 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 was primarily the
result of an increase in customer personal bankruptcy filings.

Interest Expense, Net. Interest expense decreased by 32.3% 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 financing agreement 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.

26
<PAGE> 27

Other Income. Other income for Fiscal 1996 related to income recorded for a
market value adjustment in interest rate swaps.

Reorganization Costs. Reorganization expense increased by 20.0% to $23.6
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 included 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 Expense. Income tax expense for Fiscal 1996 was $0.4 million,
compared to a benefit of $2.3 million in Fiscal 1995. The tax provision for
Fiscal 1996 was for state and local taxes only, no federal tax benefit was
recorded due to a valuation allowance. Fiscal 1995's tax benefit included 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.

Discontinued Operations. Loss from discontinued operations for Fiscal 1996
was zero compared to a loss of $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 1996. The Margo's disposal was completed in January 1996 (i.e., Fiscal
1995).

SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company's business, like that of most retailers, is highly seasonal,
with a high proportion of sales and operating income realized during the latter
half of each fiscal year, which includes the holiday season. 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. Selling, general, and administrative expenses are typically higher as a
percentage of net sales during the first half of each fiscal year. 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 business, operating results and financial condition of the
Company.

Because of the seasonality of the Company's business, results for any
quarter are not necessarily indicative of the results that may be achieved for a
full fiscal year. In addition, quarterly results of operations depend upon the
timing and amount of revenues and costs associated with the opening, closing,
and remodeling of existing stores.

LIQUIDITY AND CAPITAL RESOURCES

Prior to the filing of the Reorganization Cases on the Petition Date, the
Company's primary sources of funds were cash flows from operations and
borrowings under various debt agreements, and during the Reorganization Cases
were cash flows from operations and the DIP financing agreement. Since the
Effective Date, the Company's principal sources of funds have been cash flows
from operations and borrowings under its three-year Revolving Credit Facility
and its accounts receivable securitization facility (the "Receivables
Securitization Facility" and, together with the Revolving Credit Facility, the
"Credit Facilities"). The Company's primary ongoing cash requirements are to
fund debt service, make capital expenditures, and finance working capital.

The Revolving Credit Facility, with Citicorp USA, Inc. as the Agent and
Citibank N.A. as the Issuer (collectively, "Citicorp"), was amended and restated
on July 27, 1998 to provide for revolving credit loans of up to $150.0 million
for seasonal working capital purposes (including a $40.0 million letter of
credit subfacility). The borrowing base used in determining the aggregate
availability for loans and other extensions of credit under the 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

27
<PAGE> 28

arranger under the Revolving Credit Facility deems appropriate. As of May 2,
1998, the Company's outstanding balance under the Revolving Credit Facility was
$33.2 million.

The Receivables Securitization Facility with Citicorp North America, Inc.,
as agent, is a three-year variable rate loan agreement, in which Chargit's
customer accounts receivable are pledged as collateral. The Receivables
Securitization Facility is a revolving arrangement whereby Elder-Beerman can
borrow up to $125.0 million. The borrowings under the Receivables 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 May 2, 1998, the Company's outstanding balance under
the Receivables Securitization Facility was $112.1 million. On December 30,
1997, as a requirement of the Receivables Securitization Facility, the Company
entered into an interest rate swap agreement with a notional amount of $115.0
million, expiring on September 28, 2001, to reduce the impact of interest rate
changes on future interest expense. This agreement has been matched to the
Receivables Securitization Facility to reduce the impact of interest rate
changes on cash flows.

Under the terms of the Receivables Securitization Facility, the Company is
typically permitted to borrow 86.9% of the principal amount of eligible pledged
receivables. The Company is required to replace receivables that become
delinquent or to pay down the loan secured by the pledged receivables to remain
in compliance with required loan to value ratios. Thus, the Company bears the
risk of delinquencies and defaults of its credit card customers, and general
economic conditions, as well as other conditions beyond the Company's control,
have an impact on customers' ability to repay credit card debt. As of May 2,
1998, approximately 5.0% or $6.5 million principal amount of the Company's
consumer credit card receivables were 90 days past due compared to 5.2% or $7.2
million principal amount as of May 3, 1997. In Fiscal 1997, the Company
experienced $8.3 million in charge-offs related to its credit card program as
compared to $6.1 million in Fiscal 1996. See Note 4 of Notes to the Company's
Consolidated Financial Statements.

The Credit Facilities contain a number of covenants, including, among
others, covenants restricting the Company with respect to the incurrence of
additional indebtedness, capital expenditures, the ability to declare, pay or
make dividends, distributions or other restricted payments, the creation of
liens, the making of certain investments and loans, the consummation of certain
transactions such as sales of substantial assets, mergers or consolidations and
other transactions. The Company is also required to comply with certain
financial tests and maintain certain financial ratios. Management believes that
the Company will be able to comply with the covenants contained in the Credit
Facilities and does not believe that compliance with these covenants will
interfere with its business or the implementation of its growth strategy. The
Credit Facilities require the consent of the Company's lenders for the
Acquisition and the Offering, both of which consents have been obtained.

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 expects to
make capital expenditures in Fiscal 1998 of $18.1 million. In addition, the
Company expects to make approximately $12.4 million in additional capital
expenditures related to remodeling and maintenance of certain Stone & Thomas
stores over a three-year period.

The Company had working capital of $183.4 million, $182.8 million, and
$214.1 million at the end of Fiscal 1995, Fiscal 1996, and Fiscal 1997,
respectively, and $229.6 million at May 2, 1998. The increase in working capital
in Fiscal 1997 was principally attributable to an increase in inventories,
partially offset by increased payable levels consistent with higher inventory
and a decrease in liabilities of discontinued operations. The Company's business
follows a seasonal pattern and working capital fluctuates with seasonal
variations. Historically, the Company's working capital is at its lowest levels
from February through July and then increases rapidly through November when it
reaches its highest level.

Net cash provided by operating activities amounted to $57.1 million in
Fiscal 1995. Net cash used in operating activities amounted to $10.3 million and
$53.4 million in Fiscal 1996 and Fiscal 1997, respectively. Net operating
outflows in Fiscal 1997 primarily resulted from an increase in working capital
over prior year levels and payments to general unsecured creditors. Net cash
used in operating activities was $8.6 million in First Quarter 1998, compared to
$6.8 million in First Quarter 1997, primarily as a result of increased inventory
levels offset, in part, by decreased accounts receivable.

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<PAGE> 29

Net cash used in investing activities amounted to $123.4 million, $3.0
million, and $21.0 million in Fiscal 1995, Fiscal 1996, and Fiscal 1997,
respectively. The net cash outflow in Fiscal 1997 reflects capital expenditures,
which included $4.7 million related to data processing and the remaining $16.3
million related to store maintenance, remodeling, and expansions. Net cash
outflow in Fiscal 1995 primarily resulted from the acquisition of securitized
receivables in the amount of $115.0 million and capital expenditures resulting
from adding new stores in Green Bay, Wisconsin and Muskegon, Michigan. Net cash
used in investing activities was $2.5 million in First Quarter 1998 as compared
to $2.2 million in First Quarter 1997, primarily as a result of increased
capital expenditures.

Net cash provided by financing activities amounted to $74.4 million, $5.7,
million and $73.8 million in Fiscal 1995, Fiscal 1996, and Fiscal 1997,
respectively. The net cash inflow in Fiscal 1997 was primarily attributable to
proceeds from borrowings under the asset securitization agreement partially
offset by payments made to pay off the DIP facility. Net cash inflow in Fiscal
1996 consisted of borrowings against the DIP facility partially offset by
payments on long-term obligations and debt acquisition costs. Net cash inflow in
Fiscal 1995 consisted primarily of borrowings under the DIP facility in addition
to borrowings from revolving lines of credit partially offset by debt
acquisition costs. Financing activities provided net cash of $11.0 million in
First Quarter 1998 and First Quarter 1997. During First Quarter 1998, borrowings
under the Company's Revolving Credit Facility of $22.3 million were partially
offset by $10.9 million of repayments under the Receivables Securities Facility
and $0.3 million of repayments of other long-term obligations.

On July 27, 1998, the Company consummated the Acquisition. The purchase
price for the Acquisition was approximately $21.0 million, plus the assumption
of Stone & Thomas indebtedness. The Company financed the Acquisition through
borrowings under its Revolving Credit Facility. The Company also anticipates
that a one-time charge will be recognized in connection with the Acquisition.
Although the Company has not definitively determined the amount of such charge,
the Company anticipates that it will not be less than $8.0 million.

During recent periods, Stone & Thomas has recognized significant losses. In
order to profitably operate the Stone & Thomas stores subsequent to the
Acquisition, the Company intends to take a number of actions designed to reduce
operating costs. These include the closure of two stores (which had combined
retail sales in fiscal year 1997 of approximately $2.0 million), one
distribution center, and Stone & Thomas' corporate offices in Charleston and
Wheeling, West Virginia. In addition, the Company has entered into definitive
agreements with Belk, Inc. for the disposition of three Stone & Thomas stores in
Charlottesville, Virginia and Bluefield and Beckley, West Virginia and Peebles
Inc. for the disposition of five Stone & Thomas stores in Staunton, Virginia and
New Martinsville, Lewisburg, Summersville and Elkins, West Virginia. These eight
stores, which are located primarily in Stone & Thomas' smaller markets, had
aggregate retail sales in fiscal year 1997 of approximately $32.0 million. The
Company anticipates that these sales, which are subject to standard terms and
conditions, will be completed by the end of September 1998.

The Company believes that the net proceeds from the Offering and
anticipated cash generated from operations and anticipated future permitted
borrowings under existing or proposed credit facilities will be sufficient to
meet the Company's working capital, capital expenditures, and debt service
requirements for the foreseeable future. The Company may, in the future, require
additional credit facilities, mortgage or lease financings or issuances of other
corporate debt or equity securities in connection with acquisitions or
otherwise. Any debt incurred or issued by the Company may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
management deems prudent. There can be no assurance that sufficient funds will
be available from operations or under existing, proposed, or future revolving
credit or other borrowing arrangements to meet the Company's cash needs,
including, without limitation, its debt service obligations. As noted above, the
Company's Revolving Credit Facility includes customary conditions to funding,
eligibility requirements for collateral, and certain financial and other
affirmative and negative covenants. In addition, the Company's future operating
performance and ability to meet its financial obligations will be subject to
future economic conditions and to financial, business, and other factors, many
of which will be beyond the Company's control.

29
<PAGE> 30

YEAR 2000 COMPLIANCE

Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. Moreover, these
programs often are highly dependent upon historical or dynamic financial and
other data that, based on the programs' inability to distinguish between the
year 2000 and other century-end years, could be misreported or misinterpreted
and cause significant resulting errors. In fact, if not corrected, many computer
applications could fail when processing year 2000 data.

Elder-Beerman's operations are highly dependent on computerized
recordkeeping, financial reporting, and other systems, including inventory
management, point-of-sale, and internal accounting systems. The Company has
assessed its systems and equipment with respect to Year 2000 and has developed a
project plan. Many of the Year 2000 issues have been addressed. The remaining
Year 2000 issues will be addressed either with scheduled systems upgrades or
through the Company's internal systems development staff. The incremental costs
will be charged to expense as incurred and are not expected to have a material
impact on the financial position or the results of operations of the Company.
The Company does not know the Year 2000 status of its vendors or of other third
parties with which it does business. The Company could be adversely impacted if
Year 2000 modifications are not properly completed by the Company or its
vendors, banks or any other entity with which the Company conducts business.

INFLATION

Elder-Beerman does not believe inflation had a material effect on the
financial statements for the periods presented. However, there can be no
assurance that the Company's business will not be affected by inflationary
adjustments in the future.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income," issued in June 1997 and effective for fiscal years
beginning after December 15, 1997, establishes standards for reporting and
display of the total net income and the components of all other nonowner changes
in equity, or comprehensive income (loss) in the statement of operations, in a
separate statement of comprehensive income (loss) or within the statement of
changes of shareholders' equity. The Company has had no significant items of
other comprehensive income.

Financial Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," issued in June 1997 and
effective for fiscal years beginning after December 15, 1997, will change the
way companies report selected segment information in annual financial statements
and also requires those companies to report selected segment information in
interim financial statements. The Company has evaluated the impact of the
application of the new rules on the Company's consolidated financial statements
and does not expect the new rules to change its current financial reporting.

30
<PAGE> 31

BUSINESS

GENERAL

The Company operates the tenth largest chain of independent department
stores in the United States, based on Fiscal 1997 sales volume. Founded in
Dayton, Ohio in 1883, Elder-Beerman currently operates 48 department stores in
small to mid-sized markets in seven midwestern states. The Company's strategy is
to provide its customers with a broad selection of the same high quality,
brand-name merchandise available to consumers in larger markets. In keeping with
this strategy, Elder-Beerman department stores feature a wide variety of
moderate to better branded merchandise, including women's ready-to-wear, men's
and children's apparel, accessories, shoes and cosmetics, home furnishings, and
other consumer goods. Elder-Beerman's branded merchandise includes apparel and
accessories from Liz Claiborne, Tommy Hilfiger, Ralph Lauren, Calvin Klein, and
Nautica, cosmetics from Estee Lauder, Clinique, and Lancome, footwear from Nike
and Nine West, and home furnishings from Fieldcrest, Croscill, Lenox, and
Calphalon. Branded merchandise accounted for more than 90% of the Company's
merchandise during Fiscal 1997. The Company also offers qualified customers the
convenience of a private label credit card program. In addition to its
department stores, Elder-Beerman operates 61 specialty shoe stores under the
El-Bee and Shoebilee! names, and two furniture stores. The specialty shoe stores
accounted for $31.4 million, or 5.4%, of the Company's Fiscal 1997 sales volume.

In October 1995, the adverse effects of a high-volume merchandising
strategy implemented in the early 1990s prompted the Company and its
subsidiaries to file voluntary petitions for relief under chapter 11 of the
Bankruptcy Code. The Company emerged from bankruptcy on December 30, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General." Elder-Beerman believes that a number of actions taken
while in chapter 11 to reorganize the Company and streamline its operations,
together with its existing competitive strengths, provide a platform for future
growth. During its reorganization, the Company made a number of important
changes to its management team. The 15 current members of senior management have
an average of 22 years of retailing experience. In addition, during this period,
Elder-Beerman reduced the number of its vendors by approximately 40% and refined
its merchandising practices to provide additional authority to buyers and store
managers. The Company also rationalized its real estate portfolio by closing
several unprofitable or underperforming department, furniture and shoe stores
and liquidating its women's specialty store chain. These enhancements to
Elder-Beerman's operations have enabled it to better capitalize on its
competitive strengths, including its focus on branded merchandise, solid
portfolio of store locations, flexible store formats, and tailored product
assortments. The Company's actions contributed to a 3.7% increase in comparable
department store sales during Fiscal 1997 and a 10.6% increase during the first
quarter of Fiscal 1998.

The Company's department stores range in size from 39,000 square feet to
217,000 square feet. Its current store portfolio includes 37 mall stores, six
stores located in strip shopping centers and five free-standing stores. The
Company emphasizes an attractive in-store presentation and broad selection of
brand name merchandise in convenient, well-maintained locations. The Company's
regional focus permits merchandising decisions to be made with input from local
store managers, which enables the Company to tailor product assortments to meet
consumer demands in particular markets. A portion of the Company's merchandise
in each store consists of tailored product assortments. To maintain an
appropriate flow of fresh merchandise, the Company has implemented procedures
designed to promote timely merchandise receipts and markdowns at each of its
department stores. Elder-Beerman also emphasizes a high degree of customer
service, and operates training programs designed to make its store managers and
sales associates more responsive to customer needs. The Company's emphasis on
providing branded merchandise, tailored product assortments and customer service
in underserved retail markets has contributed to its strong market position in
its existing markets.

COMPETITIVE STRENGTHS

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<PAGE> 32

FOCUS ON BRANDED MERCHANDISE

FLEXIBLE DEPARTMENT STORE FORMATS

The Company's department stores range in size from 39,000 square feet to
217,000 square feet, and its current store portfolio includes 37 mall stores,
six stores located in strip shopping centers and five free-standing stores. The
Company's prototype store, which generally has the most favorable unit
economics, averages 75,000 square feet in size. Elder-Beerman believes that the
flexibility of its store formats is an important competitive advantage in
seeking potential new store locations. In targeting locations for new store
development, the Company seeks both new locations in existing markets where it
believes it can enhance its current market share, as well as new small to
mid-sized markets where its emphasis on branded products will permit it to
achieve a leading market share position. The Company's ability to operate
profitably in three different store formats helps to reduce constraints on
growth resulting from relatively low levels of new mall construction or mall
anchor availability.

TAILORED PRODUCT ASSORTMENTS

STRONG VENDOR RELATIONSHIPS

PROPRIETARY CREDIT CARD PROGRAM

32
<PAGE> 33

TARGETED MARKETING PROGRAMS

The Company has realigned its advertising strategy from an emphasis on
general mass media (i.e., television, radio, and print) to one which
increasingly focuses on direct marketing. The information generated through
proprietary and third party credit data assists the Company in creating direct
mail and telemarketing advertising and sales promotion programs that are
designed to appeal to the specific needs of its customers. This targeted
marketing approach has improved the effectiveness of advertising efforts, as
evidenced by an increase in comparable store sales for Fiscal 1997 without a
corresponding increase in advertising expenditures.

EMPHASIS ON CUSTOMER SERVICE

BEE-GEE SHOE STORES

Bee-Gee operates two distinct discount footwear formats that are
differentiated by varying degrees of fashion, value, and convenience. The 48
El-Bee Shoe stores average approximately 3,000 square feet and offer primarily
close-out and special purchase budget footwear styles for women, men, and
children in a self-service, open-box rack format. The 13 Shoebilee! family
footwear stores average approximately 5,000 square feet and 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 value-priced and presented in a self-select caseline format. 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.

MERCHANDISING AND MARKETING

The Company emphasizes "signature" areas critical to its image in its niche
market as a primary destination for fashion apparel and gifts. These "signature"
areas include men's and women's collections, and cosmetics. In addition, through
continued efforts to develop a partnership with its most significant vendors,
the Company (a) has automated replenishment of basic stock to increase sales and
reduce basic inventories and (b) is using technology and focused merchandising
and distribution to reduce material handling costs and increase speed in moving
stock from the vendor to the selling floor.

The following table sets forth the Company's department store percentages
of net sales by major merchandise category for each of the periods presented.

<TABLE>
<CAPTION>
13 WEEKS ENDED
MERCHANDISE FISCAL FISCAL FISCAL ---------------------------
CATEGORY 1995 1996 1997 MAY 3, 1997 MAY 2, 1998
----------- ------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Women's Ready-to-Wear........................ 32.1% 33.2% 34.0% 36.5% 36.2%
Accessories, Shoes and Cosmetics............. 21.4 21.6 21.7 22.5 22.0
Men's and Children's......................... 24.9 25.1 24.3 21.7 22.3
Home Store................................... 21.6 20.1 20.0 19.3 19.5
----- ----- ----- ----- -----
Total Retail....................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>

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 moderate to better branded
merchandise, a strong quality/value relationship, and outstanding customer
service. See "-- Competitive Strengths -- Targeted Marketing Programs."
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.

33
<PAGE> 34

PURCHASING

During Fiscal 1997, the Company purchased merchandise from approximately
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.
("Frederick Atkins"), a national association of major retailers that provides
its members with group purchasing opportunities. The Company employs three
general merchandise managers, 13 divisional merchandise managers, and 62 buyers.
Management believes it has good relationships with its suppliers. The Company
believes that alternative sources of supply are available for each category of
merchandise it purchases.

REMODELING PROGRAM

Elder-Beerman's ongoing remodeling program is designed to enhance store
appearances and increase comparable store sales. Remodelings are designed to
match departmental size and location with volume opportunities, to recapture
non-selling space where appropriate, and to reconfigure aisle patterns,
adjacencies and lighting to enhance selling potential. Remodels often are
complemented with improvements in departmental signage, visual displays,
high-capacity fixtures, and other techniques to maximize merchandise exposure to
customer traffic and strengthen visual impact. Elder-Beerman has redesigned the
layout of its prototype store to improve merchandise adjacencies and enhance the
prominence and in-store presentation of departments offering higher-margin
merchandise.

PRIVATE LABEL CREDIT CARD PROGRAM

Elder-Beerman operates a private label credit card program through its
wholly-owned subsidiary, Chargit. During Fiscal 1997, the Company issued
approximately 132,300 Elder-Beerman credit cards for newly opened accounts and
had approximately 450,000 Elder-Beerman active credit card accounts during
Fiscal 1997. See Note 4 of Notes to the Company's Consolidated Financial
Statements. 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 business strategy.
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.

WAREHOUSING/DISTRIBUTION

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. The Company also has access to a
currently unutilized 100,000 square foot distribution center in Moraine, Ohio.
The Company believes that the Moraine facility and excess capacity at the
Fairborn facility provide sufficient excess capacity to support its growth
strategy. 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.

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<PAGE> 35

INFORMATION SYSTEMS

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.

Elder-Beerman 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 ready" merchandise receipts; (d) eliminate paperwork through automatic
invoice processing; and (e) improve merchandise analysis and decision making.

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 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, manufacturer outlets, and catalog retailers. Some
of the retailers with which Elder-Beerman competes have substantially greater
financial resources than the Company and may have other competitive advantages
over the Company. The Elder-Beerman department stores and Bee-Gee Shoe Stores
compete on the basis of quality, depth and breadth of merchandise, prices for
comparable quality merchandise, customer service, store location and
environment.

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 61 stores
(48 El-Bee Shoe outlets and 13 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 by state the number of Elder-Beerman
department store locations and Bee-Gee shoe store locations, operating as of May
2, 1998, the end of Elder-Beerman's and Bee-Gee's most recently completed fiscal
year:

<TABLE>
<CAPTION>
DEPARTMENT SHOE
STATE STORES STORES
- --------------------- ---------- ------
<S> <C> <C>
Ohio................. 29(a) 40
Indiana.............. 9 9
Michigan............. 6 2
Illinois............. 2 5
Wisconsin............ 2 --
Kentucky............. 1 --
West Virginia........ 1 1
Pennsylvania......... --(b) 3
Virginia............. -- 1
-- --
50(a) 61(c)
</TABLE>

- ---------------

(a) Includes two furniture stores.
(b) One department store is planned to open in Pennsylvania this summer.
(c) Includes 48 El-Bee shoe stores and 13 Shoebilee! shoe stores.

35
<PAGE> 36

Substantially all of the Company's stores are leased properties. The
typical department store lease has an initial term of between 15 and 20 years,
with two to six renewal periods of five years each, exercisable at the Company's
option. Substantially all of the Company's leases provide for a minimum annual
rent that is fixed or adjusts to set levels during the lease term, including
renewals. Most of the leases provide for additional rent based on a percentage
of sales to be paid when designated sales levels are achieved.

Eleven department store leases are scheduled to expire over the next five
years. All of these leases contain renewal options. The Company has determined
not to exercise a renewal option associated with one department store lease
scheduled to expire in April 1999. The Company is currently evaluating various
alternatives with respect to this store, including the renegotiation of its
lease on more favorable terms or closing the store.

ASSOCIATES

On May 2, 1998, the Company had approximately 7,500 regular and part-time
associates, approximately 7,100 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.

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 business, operating results or financial condition of the
Company.

In addition, as a result of the Reorganization Cases, Elder-Beerman remains
subject to the jurisdiction of the Bankruptcy Court for matters relating to the
consummation of the Plan.

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<PAGE> 37

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information regarding those persons
currently serving as the executive officers and directors of Elder-Beerman.
Certain biographical information regarding each of the Company's current
directors and executive officers is described below the table.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
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........................... 37 Senior Vice President, General Counsel,
and Secretary
Stewart M. Kasen.......................... 59 Director
Steven C. Mason........................... 62 Director
Thomas J. Noonan, Jr...................... 58 Director
Bernard Olsoff............................ 69 Director
Laura H. Pomerantz........................ 51 Director
Jack A. Staph............................. 52 Director
John J. Wiesner........................... 60 Director
</TABLE>

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"), a regional
department store retailer, 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., a discount retailer, from
September 1995 to February 1996; President of the Federated Claims Services
Group with Federated from February 1992 to August 1995; Vice President of
Benefits of Federated from 1994 to 1995; and Vice President, Corporate
Controller of Federated from 1988 to 1992.

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., a regional retailer,
from September 1995 to January 1997 and also served as Senior Vice President of
Stores for the Lazarus Division of Federated from November 1989 to August 1995.

Steven D. Lipton has served as Senior Vice President, Controller of
Elder-Beerman since March 1996. Prior to this time, Mr. Lipton served as
Operating Vice President of Payroll for Federated Financial & Credit Services, a
wholly-owned subsidiary of Federated, 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, an accounting firm, from May 1988 to October 1993.

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<PAGE> 38

Scott J. Davido 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 serves as Chairman of the Board of Directors,
President and Chief Executive Officer of Factory Card Outlet Corp., a retail
party goods company, and has served in this capacity since May 1998. Mr. Kasen
has served as Chairman of the Board of Directors for Factory Card Outlet Corp.
since April 1997. Prior to this time, 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 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 of the Bankruptcy Code
again on September 24, 1996. Mr. Kasen also currently serves 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 of Herman's
Sporting Goods, Inc., a sporting goods retailer that filed for protection under
chapter 11 of the 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 in 1997. Prior to this time, Mr.
Olsoff served as President, Chief Executive Officer, and Chief Operating Officer
of Frederick Atkins, a national retailers association, from 1995 to April 1997,
and President and Chief Operating Officer from 1983 to 1995. Mr. Olsoff is also
currently a Director of The Leslie Fay Companies, Inc. ("Leslie Fay").

Laura H. Pomerantz has served as a Director of Elder-Beerman since January
1998. Mrs. Pomerantz currently serves as President of LHP Consulting &
Management, a real estate consulting firm, and has served in this capacity since
1995. Through LHP Consulting & Management, Mrs. Pomerantz is also associated
with Newmark Real Estate Co., Inc., a commercial real estate company, as Senior
Managing Director and has served in this capacity since August 1996. Prior
thereto, Mrs. Pomerantz served as Senior Managing Director of S.L. Green Real
Estate Company, a commercial real estate company, from August 1995 to July 1996,
and was affiliated with Koeppel Tenor Real Estate Services, Inc., a commercial
real estate company, from March 1995 through July 1995. Prior to this time, Mrs.
Pomerantz served as Executive Vice President and a Director of Leslie Fay, 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., a retail pharmacy
company, 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

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<PAGE> 39

the Board of Directors, President, and Chief Executive Officer of C.R. Anthony,
a regional apparel retailer, from April 1987 to June 1997. Mr. Wiesner is also
currently a Director of Stage Stores, Inc. and Lamonts Apparel, Inc.

The Board of Directors is presently composed of nine directors. The
directors are divided into three classes. Mr. Noonan, Mr. Olsoff, and Ms.
Pomerantz comprise Class I, which class will stand for election at the annual
meeting of shareholders to be held in 1999. Mr. Kasen, Mr. Muskovich, and Mr.
Wiesner comprise Class II, which class will stand for election at the annual
meeting of shareholders to be held in 2000. Mr. Mason, Mr. Mershad, and Mr.
Staph comprise Class III, which class will stand for election at the annual
meeting of shareholders to be held in 2001. Executive officers of Elder-Beerman
are appointed and serve at the discretion of the Board of Directors.

CERTAIN TRANSACTIONS

Bernard Olsoff, a director of Elder-Beerman since December 1997, served
from 1983 to 1995 as President and Chief Operating Officer, and from 1995 to
1997 as President and Chief Executive Officer of Frederick Atkins. In Fiscal
1997, Fiscal 1996, and Fiscal 1995, the Company purchased approximately 8% (for
approximately $28.0 million), 9.0% (for approximately $30.0 million), and 14.0%
(for approximately $50.0 million), respectively, of its merchandise through
Frederick Atkins. During the Reorganization Cases, Frederick Atkins was also a
creditor of the Company holding approximately $3.2 million in claims, which
claims were paid upon the Company's emergence from bankruptcy.

COMPENSATION OF EXECUTIVE OFFICERS

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
<PAGE> 40

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid or payable by
Elder-Beerman 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 (the "Named Executive Officers").

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) ($) (#) ($) ($)
- ------------------------------ ---- ---------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frederick J. Mershad 1997 503,344 500,000(1) 51,251(2) 683,703 194,000 -- --
Chairman of the Board and 1996 19,231 633,632(3) -- -- -- -- --
Chief Executive Officer 1995 -- -- -- -- -- -- --
John A. Muskovich 1997 267,335 598,750(4) -- 505,325(5) 126,000 -- --
President, Chief Operating 1996 183,974 67,908 -- -- -- -- --
Officer
and Chief Financial Officer 1995 -- -- -- -- -- -- --
James M. Zamberlan 1997 139,944 41,313 -- 20,386(6) 61,000 -- --
Executive Vice President, 1996 -- -- -- -- -- -- --
Stores 1995 -- -- -- -- -- -- --
Steven D. Lipton 1997 132,897 19,763 -- 24,699(7) 21,000 -- --
Senior Vice President, 1996 103,143 45,820 -- -- -- -- --
Controller 1995 -- -- -- -- -- -- --
Perry J. Schiller 1997 118,489 27,600 -- 8,625(8) 15,000 -- --
Senior Vice President 1996 113,846 34,500 -- -- -- -- --
and Treasurer 1995 93,365 5,750 -- -- -- -- --
Max Gutmann (9) 1997 687,071(10) 800,000(11) -- -- -- -- --
Chairman of the Board 1996 368,846 160,000 -- -- -- -- --
1995 107,308 -- -- -- -- -- --
Herbert O. Glaser (12) 1997 517,159(13) 670,000(14) -- -- -- -- --
Vice Chairman 1996 309,030 134,000 -- -- -- -- --
1995 135,000 -- -- -- -- -- --
</TABLE>

- ---------------

(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 67.1% in stock (at $14.52 per
share).

(5) Includes 3,357 deferred shares and 839 restricted shares awarded to 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 to 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 to 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 67.1% 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 67.1% in stock (at $14.52 per share).

40
<PAGE> 41

FISCAL 1997 OPTION GRANTS

The following table sets forth information concerning individual grants of
stock options to each of the Named Executive Officers during Fiscal 1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
---------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATE
SECURITIES OPTIONS EXERCISE OF STOCK PRICE
UNDERLYING GRANTED TO OR APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH)(2) DATE 0%($) 5%($) 10%($)
---- ----------- ------------ ---------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Steven 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
</TABLE>

- ---------------

(1) One-fifth of the options vest on each of December 30, 1998, 1999, 2000,
2001, and 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 of Common Shares to creditors under the
Plan.

FISCAL 1997 AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES

The following table sets forth information concerning the exercise of stock
options by each of the Named Executive Officers during Fiscal 1997 and fiscal
year end value of unexercised options.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR-
SHARES VALUE YEAR-END(#)(1)(2) END ($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frederick J. Mershad................ 0 0 0 194,000 0 0
John A. Muskovich................... 0 0 0 126,000 0 0
James M. Zamberlan.................. 0 0 0 61,000 0 0
Steven D. Lipton.................... 0 0 0 21,000 0 0
Perry J. Schiller................... 0 0 0 15,000 0 0
Max Gutmann......................... 0 0 0 0 0 0
Herbert O. Glaser................... 0 0 0 0 0 0
</TABLE>

- ---------------

(1) One-fifth of the options vest on each of December 30, 1998, 1999, 2000,
2001, and 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 of Common Shares to creditors under the
Plan.

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

41
<PAGE> 42

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
either 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 him for the most recent fiscal year. If such executive:
(a) is terminated within two years of a change of control without cause, (b)
voluntarily terminates within two years of a change of control, or (c) is
terminated in connection with but prior to a change of 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 for three years following his termination, or until 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 Elder-Beerman 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 of 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, or until he or she obtains new
employment providing substantially similar benefits.

EQUITY AND PERFORMANCE INCENTIVE PLAN

The Company's Equity and Performance Incentive Plan (the "Equity and
Performance Incentive Plan") includes both annual and long-term (i.e., three or
more years) incentives for key employees in the form of bonuses and Common
Shares. The Equity and Performance Incentive Plan allows key employees entitled
to receive an annual incentive bonus to defer voluntarily up to 50% of their
annual incentive bonus and instead receive Deferred Shares (as hereinafter
defined). These Deferred Shares are 100% vested at all times and may be
exercised on the earliest of: (a) the third anniversary of the date awarded, (b)
the date the employee's employment is terminated for reasons other than death,
(c) the employee's death, or (d) an unforeseeable financial emergency of the
employee. To provide key employees with the incentive to defer, the Equity and
Performance Incentive
42
<PAGE> 43

Plan also grants Restricted Shares (as described below) equal in value to 25% of
the amount deferred. These Restricted Shares will become 100% vested on the
third anniversary of the date of grant if such employee remains in the
continuous employ of the Company.

The Equity and Performance Incentive Plan also permits equity-related
grants as long-term incentives that are intended to motivate and reward certain
employees for the achievement of long-term corporate goals and to balance annual
goals with strategic plans. These long-term incentives also offer capital
accumulation potential for employees and align employees' interests with
shareholder interests. Only certain senior executives, as determined by the
Board of Directors, are eligible to receive grants under the long-term incentive
portion of the Equity and Performance Incentive Plan. The shares awarded as
long-term incentives may not exceed the equivalent of 2,250,000 shares plus any
shares relating to awards that expire or are forfeited or canceled (the
"Long-Term Incentive Reserve"). The Equity and Performance Plan has an evergreen
provision that provides that, in any acquisition, merger, or secondary offering,
the Long-Term Incentive Reserve shall remain constant.

The Equity and Performance Incentive Plan permits grants in a variety of
forms. First, the Board of Directors may authorize the granting of stock options
("Option Rights") to designated employees and non-employee directors. Option
Rights provide the right to purchase Common Shares at a predetermined price per
share (which, in the case of non-qualified stock options, may not be less than
75% of the fair market value on the date of grant and, in the case of incentive
stock options as described in Section 422 of the Internal Revenue Code, may not
be less than fair market value on the date of grant). The grant may also provide
for the automatic grant of additional Option Rights, known as Reload Option
Rights, to an employee or non-employee director upon the exercise of Option
Rights using Common Shares or other defined consideration as payment. Options
granted to non-employee directors become exercisable one-third on each of the
first three anniversaries of the date of grant for so long as the individual
remains a non-employee director. Options granted to employees become exercisable
20% on each of the first five anniversaries of the date of grant for so long as
the employee remains in the continuous employ of the Company. No Option Rights
may be exercised more than ten years from the date of grant. All Option Rights
provide for the earlier exercisability of the Option Rights in the event of
retirement, death, or disability of the employee or non-employee director or a
change of control of the Company. Any grant of Option Rights may specify
performance goals that must be achieved as a condition to exercise such rights.

Second, the Board of Directors may authorize the granting of appreciation
rights ("Appreciation Rights") to designated employees. Appreciation Rights
represent the right to receive from the Company an amount, determined by the
Board of Directors and expressed as a percentage not exceeding 100%, of the
difference between the base price established for such rights and the market
value of the Common Shares on the date the rights are exercised. Appreciation
Rights can be tandem (i.e., granted with Option Rights to provide an alternative
to exercise of the Option Rights) or free-standing. Appreciation Rights may only
be exercised at a time when the related Option Right, if applicable, is
exercisable and the spread is positive, and requires that any related Option
Right be surrendered for cancellation. A grant of Appreciation Rights may
specify that the amount payable on exercise of an Appreciation Right may not
exceed a maximum specified by the Board of Directors on the date of grant, may
specify the period of employment that is necessary before such Appreciation
Rights become exercisable, may provide for the exercise of the Appreciation
Rights only in the event of retirement, death, or disability of the employee or
a change in control of the Company and is evidenced by an agreement executed on
behalf of the Company and accepted by the employee describing such Appreciation
Rights and other terms and provisions. Such grant may also include that payment
may be made by one or more methods of payment and may specify performance goals
that must be achieved as a condition to exercise such rights.

Third, the Board of Directors may authorize the granting of restricted
shares ("Restricted Shares") to designated employees and non-employee directors.
Restricted Shares constitute an immediate transfer of ownership to the recipient
in consideration of the performance of services. The recipient has dividend and
voting rights on such shares. Restricted Shares are subject to a "substantial
risk of forfeiture" within the meaning of Section 83 of the Internal Revenue
Code. To enforce these forfeiture provisions, the transferability of Restricted
Shares is prohibited or restricted in the manner prescribed by the Board of
Directors on the date of grant for the period during which such forfeiture
provisions are to continue. Any grant of Restricted Shares (a) may specify
performance goals which, if achieved, will result in termination or early
termination of the restrictions applicable to such shares, (b) may require that
any or all dividends or other distributions paid thereon during the period of
43
<PAGE> 44

such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be subject to the same restrictions as the
underlying award, and (c) is evidenced by an agreement executed on behalf of the
Company and accepted by the employee.

Fourth, the Board of Directors may authorize the granting of deferred
shares ("Deferred Shares") to designated employees. Deferred Shares constitute
an agreement to issue shares to the recipient in the future in consideration of
the performance of services, but subject to the fulfillment of such conditions
as the Board of Directors may specify. The Board of Directors must fix a
deferral period of at least one year at the time of grant, and may provide for
the earlier termination of the deferral period in the event of retirement,
hardship, death, or disability of the employee or a change in control of the
Company. During the deferral period, the employee has no right to transfer any
rights under his or her award and has no ownership or voting rights in the
Deferred Shares, but the Board of Directors may, at or after the grant date,
authorize the payment of dividend equivalents on such shares on either a
current, deferred, or contingent basis, either in cash or in additional Common
Shares. Each grant of Deferred Shares is evidenced by an agreement executed on
behalf of the Company and accepted by the employee.

Finally, the Board of Directors may authorize the granting of performance
shares ("Performance Shares") and performance units ("Performance Units") to
designated employees upon achievement of specified performance objectives. A
Performance Share is the equivalent of one Common Share and a Performance Unit
is denominated in dollars. The employee is given one or more performance goals
to meet within a specified period, not less than one year (the "Performance
Period"). The specified Performance Period may be subject to earlier termination
in the event of retirement, death, or disability of the employee or a change in
control of the Company. A minimum level of acceptable achievement also is
established. If, by the end of the Performance Period, the employee has achieved
the specified performance goals, the employee will be deemed to have fully
earned the Performance Shares or Performance Units. If the designated employee
has not achieved the performance goals, but has attained or exceeded the
predetermined minimum level of acceptable achievement, the employee will be
deemed to have partly earned the Performance Shares or Performance Units in
accordance with a predetermined formula. To the extent earned, the Performance
Shares or Performance Units will be paid to the employee at the time and in the
manner determined by the Board of Directors as set forth in each grant. The
Board of Directors 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. Each grant of Performance Shares or Performance Units is
evidenced by an agreement executed on behalf of the Company and accepted by the
employee.

The Equity and Performance Incentive Plan is administered by the Board of
Directors, which may from time to time delegate all or any part of its authority
under the Equity and Performance Incentive Plan to an agent or a committee or
subcommittee of the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors 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. Previously, decisions concerning compensation of executive
officers of the Company were made by the Company's Chief Executive Officer.

DIRECTOR COMPENSATION

Each director of Elder-Beerman who is not an employee of Elder-Beerman or
any of its subsidiaries receive an annual base retainer fee of $15,000. Each
director may choose to take such retainer as cash, in the form of a discounted
stock option, or as a combination of the two. Nonemployee 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 Common Shares. Members of the Board of Directors who are
also employees of any of Elder-Beerman or any of its subsidiaries receive no
additional compensation for service on the Board of Directors.

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<PAGE> 45

BOARD COMMITTEES

Elder-Beerman's Board of Directors has established an Audit and Finance
Committee, a Compensation Committee, a Nominating and Corporate Governance
Committee, and an Executive Committee. The Audit and Finance Committee
recommends the firm to be appointed as independent accountants to audit
financial statements and to perform services related to the audit; reviews the
scope and results of the audit with the independent accountants; reviews with
management and the independent accountants Elder-Beerman's year-end operating
results; considers the adequacy of the internal accounting procedures; addresses
such other matters with respect to accounting, auditing, and financial reporting
practices and procedures of the Company as may be brought to its attention; and
reviews the Company's financing plans. The Audit and Finance Committee consists
of Mr. Noonan, Mr. Kasen, and Mr. Olsoff. The Compensation Committee, which
consists of Mr. Olsoff, Mr. Staph, and Mr. Wiesner, reviews and approves the
compensation arrangements for all executive officers and administers and takes
such other action as may be required in connection with certain compensation,
retirement and incentive plans of Elder-Beerman. The Nominating and Corporate
Governance Committee, which consists of Mr. Mason, Ms. Pomerantz, and Mr.
Mershad, is responsible for exercising all powers of the Board of Directors to
select, evaluate, and nominate candidates for election to the Board; evaluate
the Board's overall performance and its individual members; and ensure effective
operations of the Board of Directors and overall corporate governance of
Elder-Beerman. The Executive Committee, which consists of Mr. Mershad, Mr.
Muskovich, Mr. Mason, and Mr. Staph, has all the powers of the Board of
Directors in the management and control of the business of Elder-Beerman during
intervals between meetings of the Board of Directors.

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<PAGE> 46

PRINCIPAL SHAREHOLDERS

The Common Shares are the Company's only outstanding class of voting
securities. The following table sets forth information regarding the beneficial
ownership of Common Shares as of June 15, 1998 by: (a) each person who owns
beneficially more than 5% of Common Shares to the extent known to management;
(b) each named 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.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) OF CLASS
- --------------------------------------- --------------------------- --------
<S> <C> <C>
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 4,300 *
Steven D. Lipton 340 *
Steven C. Mason 1,300 *
Frederick J. Mershad 105,969 *
John A. Muskovich 77,181 *
Thomas J. Noonan, Jr. 1,300 *
Bernard Olsoff 1,300 *
Laura H. Pomerantz 1,300 *
Perry J. Schiller 213 *
Jack A. Staph 1,700 *
John J. Wiesner 1,300 *
James M. Zamberlan 10,281 *
Max Gutmann 91,308(5) *
Herbert O. Glaser 45,343(6) *
All directors and executive officers as 206,527 1.63%
a group (13 persons)
</TABLE>

* 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 Common Shares, 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 20, 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. Effective
December 30, 1997, Mr. Gutmann was replaced by Mr. Mershad as Chairman of
the Board of Directors.
(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. Effective
August 1997, Mr. Glaser was no longer employed by the Company.

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<PAGE> 47

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 25,000,000 Common
Shares and 5,000,000 shares of preferred stock, no par value (the "Preferred
Stock"). The following summary description of the capital stock of the Company
is qualified in its entirety by reference to the Articles of Incorporation and
Code of Regulations, a copy of each of which is an exhibit to the Registration
Statement of which this Prospectus forms a part.

COMMON SHARES

As of June 12, 1998, there were 12,678,021 Common Shares outstanding
(including 1,685,208 Common Shares scheduled to be distributed on July 31, 1998
from an escrow account to certain creditors in connection with the Company's
reorganization under chapter 11 of the Bankruptcy Code). There will be
15,478,021 Common Shares outstanding after giving effect to the sale of Common
Shares offered hereby assuming no exercise of outstanding options or warrants.
In addition, as of July 30, 1998, there were 922,277 Common Shares issuable upon
exercise of outstanding stock options and 624,522 Common Shares issuable upon
exercise of outstanding warrants. All outstanding shares are, and the Common
Shares offered hereby will be, duly authorized, validly issued, fully paid, and
nonassessable immediately following the closing of the Offering. The Common
Shares are traded on Nasdaq under the symbol "EBSC."

Subject to such rights of the holders of any class or series of Preferred
Stock as may be fixed by the Board of Directors or by law when and if any class
or series is created and issued, the holders of Common Shares are entitled to
one vote for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferential rights that may be applicable to any
Preferred Stock, holders of Common Shares are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. However, the Company does not presently anticipate that
dividends will be paid on Common Shares in the foreseeable future. See "Risk
Factors -- Dividend Policy," "Dividend Policy," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." In the event of a liquidation, dissolution, or winding up of
the Company, holders of Common Shares will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any Preferred Stock. Holders of Common Shares have no preemptive, subscription,
redemption, or conversions rights. Subject to the terms and conditions set forth
in the Rights Agreement, each Common Share issued is accompanied by a Right (as
defined below). See "-- Share Purchase Rights Agreement" below.

OHIO LAW AND CERTAIN CHARTER PROVISIONS

In addition to the provisions relating to the Board of Directors described
above, the Articles of Incorporation and Code of Regulations provide, in
general, that: (a) shareholder action can be taken at an annual or special
meeting of shareholders; (b) except as directed below, special meetings of
shareholders may be called for any proper purpose or purposes, including the
election of directors, by (i) the Chairman of the Board, (ii) the President,
(iii) a majority of the Board of Directors, (iv) any person or persons holding
at least 50% of all shares outstanding and entitled to vote at such meeting, or
(v) holders of shares that are entitled to call a special meeting of the
shareholders by virtue of any Preferred Stock Designation for the purposes
provided in the terms of such Preferred Stock Designation; (c) written notice of
every meeting of the shareholders stating the time, place, and purposes for
which the meeting is called must be given by or at the direction of the
President, a Vice President, the Secretary, or an Assistant Secretary to each
shareholder of record; (d) the Board of Directors may postpone, for up to thirty
days, any previously scheduled annual or special meeting of shareholders; and
(e) the members of the Board of Directors shall be classified with respect to
the time for which they severally hold office into three classes, as nearly
equal in size as possible. The Code of Regulations also requires that
shareholders desiring to bring any business before any annual meeting of
shareholders deliver written notice thereof to the Secretary of the Company not
less than 60, nor more than 90 calendar days, prior to the meeting of
shareholders; provided, however, that if the date of the annual meeting is not
publicly announced by Elder-Beerman more than 105 calendar days prior to the
meeting, notice by the shareholder to be timely must be delivered to the
Secretary of the Company not later than the close of business on the tenth day
following the day on which such announcement
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<PAGE> 48

of the date of the annual meeting was so communicated. The Code of Regulations
further require that the notice by the shareholder set forth a description in
reasonable detail of the business to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting and certain
information concerning the shareholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is made, including their
names and addresses, the class and number of shares of stock that are owned
beneficially and of record by each of them, and any material interest of either
of them in the business proposed to be brought before the annual meeting. Upon
the written request of the holders of not less than 50% of Elder-Beerman's
voting stock to the Chairman, the President, or the Secretary, such officer is
required to call a annual meeting of shareholders for the purposes specified in
such written request and fix a record date for the determination of shareholders
entitled to notice of and vote at such annual meeting (which record date may not
be later than 60 days after the date of receipt of notice of such meeting).

Under applicable provisions of Ohio law, shareholder approval is required
to adopt amendments to a company's articles of incorporation, except that a
company's board of directors may adopt certain amendments relating to unissued
or treasury shares, changes in the number of authorized shares necessitated by a
conversion, option program, redemption, or provisions that were, at one time,
necessary for a merger or consolidation. Under Ohio law, an Ohio corporation's
code of regulations may be amended only by action of its shareholders. The
Articles of Incorporation and Code of Regulations provide that the provisions
relating to the time and place of shareholder meetings, who may call a special
meeting of shareholders, the order of business at shareholder meetings, the
number, nomination, classification election, and term of directors on the Board
of Directors, allowing directors to fill vacancies on the Board of Directors,
the removal of directors by shareholders, the elimination of cumulative voting
in the election of directors, allowing the corporation to reacquire capital
stock of the corporation, and forbidding preemptive rights with respect to
unissued shares and treasury stock may not be amended, altered, superseded, or
repealed in any respect without the affirmative vote of the holders of at least
72% of the voting stock of Elder-Beerman, voting together as a single class;
provided, however, that these provisions 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 the Articles of Incorporation or Code of
Regulations.

In addition to the matters discussed above, the OGCL contains certain
provisions that may have the effect of delaying, deterring, or preventing a
change in control of Elder-Beerman. All information set forth below regarding
the OGCL is necessarily general in nature and reference should be made to the
OGCL for more specific, detailed information.

Section 1701.831 of the OGCL (the "Control Share Act") regarding
shareholder review of control share acquisitions applies to the Company. Under
the Control Share Act, any "control share acquisition" of an Ohio corporation
having fifty or more shareholders (an "Ohio Public Company") shall be made only
with the prior authorization of the shareholders of the Ohio Public Company in
accordance with the provisions of the Control Share Act. A "control share
acquisition" is defined as the acquisition, directly or indirectly, by any
person of shares of an Ohio Public Company that, when added to all other shares
of the corporation in respect of which such person may exercise or direct the
exercise of voting power, would entitle such person, immediately after such
acquisition, directly or indirectly, alone or with others, to exercise or direct
the exercise of the voting power of the corporation in the election of directors
within any of the following ranges of voting power: (a) one fifth or more, but
less than one third; (b) one third or more, but less than a majority; or (c) a
majority or more.

The Control Share Act requires that the acquiring person deliver an
"acquiring person's statement" to the Ohio Public Company. The Ohio Public
Company must then hold a special meeting of its shareholders to vote upon the
proposed acquisition within 50 days after receipt of such acquiring person's
statement, unless the acquiring person agrees to a later date. The Control Share
Act further specifies that the shareholders of the Ohio Public Company must
approve the proposed control share acquisition by certain percentages at a
special meeting of shareholders at which a quorum is present. In order to comply
with the Control Share Act, the acquiring person may only acquire the stock of
the Ohio Public Company upon the affirmative vote of: (a) a majority of the
voting power of the Ohio Public Company that is represented in person or by
proxy at the special meeting and (b) a majority of the voting power of the Ohio
Public Company that is represented in person or by proxy at the special meeting,
excluding those shares of the corporation deemed to be "interested shares."
"Interested shares" are defined to mean shares in respect of which the voting
power is controlled by any of the following persons: (i) an
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<PAGE> 49

acquiring person; (ii) any officer of the Ohio Public Company; and (iii) any
employee who is also a director of the Ohio Public Company. "Interested shares"
also includes shares of the Ohio Public Company that are acquired, directly or
indirectly, by any person after the date of the first public disclosure of the
proposed acquisition and prior to the date of the special meeting, if either (A)
the aggregate consideration paid by such person, and any person acting in
concert with him, for such shares of the Ohio Public Company exceeds $250,000 or
(B) the number of shares acquired by such person, and any person acting in
concert with him, exceeds one-half of one percent of the outstanding shares of
the Ohio Public Company.

Elder-Beerman is also subject to Chapter 1704 of the OGCL, which generally
prohibits a wide range of business combinations and other transactions
(including mergers, consolidations, asset sales, loans, disproportionate
distributions of property, and disproportionate issuances or transfers of shares
or rights to acquire shares) between an Ohio Public Company and a person that
owns, alone or with other related parties, shares representing at least 10% of
the voting power of the Ohio Public Company (an "Interested Shareholder"). Such
prohibitions continue for a period of three years after such person becomes an
Interested Shareholder, unless, prior to the date that the Interested
Shareholder became such, the board of directors approved either the transaction
or the acquisition of the Ohio Public Company's shares that resulted in the
person becoming an Interested Shareholder. Following the three-year moratorium
period, the Ohio Public Company may engage in covered transactions with an
Interested Shareholder only if, among other things, (a) the transaction receives
the approval of the holders of two-thirds of all the voting shares or the
approval of the holders of a majority of the voting shares held by persons other
than an Interested Shareholder or (b) the remaining shareholders receive an
amount for their shares equal to the higher of the highest amount paid in the
past by the Interested Shareholder for the Ohio Public Company's shares or the
amount that would be due the shareholders if the Ohio Public Company were to
dissolve.

Under Ohio's Control Bid Statute, no person may make a control bid for the
Common Shares of Elder-Beerman pursuant to a tender offer or a request or
invitation for tenders until such person has filed with the Ohio Division of
Securities (the "Division") and Elder-Beerman a control bid information
statement. A "control bid" is defined by Section 1707.01 of the OGCL as the
purchase or offer to purchase any equity security of an issuer located in Ohio,
which has more than 10% of its record equity security holders who are residents
of Ohio, from a resident of Ohio where, after such purchase, the offeror would
own, directly or indirectly, more than 10% of any class of the issued and
outstanding equity securities of such issuer. Within three calendar days of the
filing of the control bid information statement, the Division may summarily
suspend the continuation of the control bid if the Division determines that the
information given in the information statement does not provide full disclosure
to offerees of all material information relating to the control bid. A hearing
will be scheduled within ten days of any such suspension. In addition, no
offeror may make a control bid that is not made to all holders residing in Ohio,
or that is not made to such holders on the same terms as the control bid made to
holders residing outside of the state of Ohio. Further, no offeror may acquire
from any resident of Ohio any equity security within two years following the
last acquisition of any security of the same class pursuant to a control bid by
such offeror unless the resident is afforded, at the time of the later
acquisition, a reasonable opportunity to dispose of the security to the offeror
upon substantially the same terms of those provided in the earlier control bid.

For the purpose of preventing manipulative practices by a person who makes
a proposal, or publicly discloses the intention or possibility of making a
proposal, to acquire control of Elder-Beerman, Section 1707.043 of the OGCL
states that any profit realized, directly or indirectly, from the disposition of
any equity securities of Elder-Beerman by a person who, within 18 months before
the disposition, directly or indirectly, alone or in concert with others, made a
proposal, or publicly disclosed the intention or possibility of making a
proposal, to acquire control of Elder-Beerman, inures to Elder-Beerman and is
recoverable by Elder-Beerman by an action brought within two years after the
date of the disposition of such securities.

Finally, the OGCL provides for the right of Elder-Beerman's Board of
Directors to consider the interests of various constituencies, including
employees, customers, suppliers, and creditors of Elder-Beerman, as well as the
communities in which Elder-Beerman is located, in addition to the interest of
Elder-Beerman and its shareholders, in discharging its duties in determining
what is in the best interests of the Company.

The foregoing provisions of the Articles of Incorporation; the provisions
of the Code of Regulations relating to advance notice of shareholder
nominations; and the provisions of the Share Purchase Rights Agreement

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<PAGE> 50

described under "-- Share Purchase Rights Agreement," together with applicable
state law, may discourage or make more difficult the acquisition of control of
Elder-Beerman by means of a tender offer, open market purchase, proxy fight, or
otherwise. These provisions are intended to discourage, or may have the effect
of discouraging, certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of
Elder-Beerman first to negotiate with Elder-Beerman. The management of the
Company believes that the foregoing measures, many of which are substantially
similar to the takeover-related measures in effect for many other publicly-held
companies, provide benefits, by enhancing Elder-Beerman's potential ability to
negotiate with the proponent of an unsolicited proposal to acquire or
restructure Elder-Beerman, which outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms. In addition, management of the Company
believes that such takeover-related measures aid in protecting shareholders from
takeover bids that the directors of such companies have determined to be
inadequate. While there necessarily can be no assurance in this regard, the
management of the Company also believes that the foregoing measures are not
likely to have a material impact on market prices for Common Shares in
circumstances other than those described above in light of, among other factors,
the existence of generally comparable measures in effect for other publicly-held
companies and management's belief that market prices will be influenced most
significantly by Elder-Beerman's actual results of operations, general market
and economic conditions, and other traditional determinants of stock market
prices rather than takeover-related measures and other corporate governance
provisions. Nevertheless, such collective anti-takeover effects could prevent
shareholders from realizing a premium for the sale of their shares in an
acquisition of the Company.

PREFERRED STOCK

As of the Effective Date, Elder-Beerman was authorized to issue 5,000,000
shares of Preferred Stock. The Board of Directors has the authority to issue
Preferred Stock from time to time in one or more classes or series and to fix
the price, rights, preferences, privileges, and restrictions thereof, including
dividend rights, dividend rates, conversion rights, terms or redemption,
redemption prices, liquidation preferences, and the number of shares
constituting a class or series or the designation of such class or series,
without any further vote or action by Elder-Beerman's shareholders. The
Preferred Stock may be issued in distinctly designated classes, may be
convertible into Common Shares and may rank prior to the Common Shares as to
dividend rights, liquidation preferences, or both. Also the express terms of
shares of a different series of any particular class of Preferred Stock shall be
identical except for such variations as may be permitted by law. Without
limiting the foregoing, the Company is authorized to issue three initial classes
of Preferred Stock that will be designated Class A Preferred Stock, Class B
Preferred Stock, and Class C Preferred Stock. Each holder of Class A Preferred
Stock is entitled to 100 votes per share and, except as otherwise required by
law, shall vote together with the Common Shares as a single class on all matters
properly submitted to a vote at a meeting of the shareholders. Each holder of
Class B Preferred Stock is entitled to one vote per share and, except as
otherwise required by law, shall vote together with the Common Shares as a
single class on all matters properly submitted to a vote at a meeting of
shareholders. Holders of Class C Preferred Stock have no voting rights.

WARRANTS

In connection with the Plan, the Company issued two warrants, a Series A
Warrant and a Series B Warrant (collectively, the "Warrants"), to former
shareholders of the Company. Upon exercise, the Warrants allow the holders to
acquire: (a) in the case of the Series A Warrant, 249,809 Common Shares at an
exercise price of $12.80 per share; and (b) in the case of the Series B Warrant,
374,713 Common Shares at an exercise price of $14.80 per share. The Warrants
will expire on the fifth anniversary of the Effective Date.

SHARE PURCHASE RIGHTS AGREEMENT

As of the Effective Date, Elder-Beerman entered into the Rights Agreement
with Norwest Bank Minnesota, N.A. (the "Rights Agent"), which agreement was
approved by the Bankruptcy Court upon confirmation of the Plan. Under the Rights
Agreement, the Board of Directors has declared a dividend on the Common Shares
of one right (a "Right") to purchase one one-hundredth of a share of Class A
Preferred Stock of Elder-Beerman at a

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<PAGE> 51

price per one one-hundredth of such Class A Preferred Stock, subject to
adjustment, of $60.00 (the "Purchase Price"). The Rights are evidenced by
certificates representing the Common Shares until the earlier (the "Distribution
Date") of: (a) the close of business on the first date (the "Share Acquisition
Date") of public announcement that a person (other than a person that has
maintained beneficial ownership of at least 20% of the outstanding Common Shares
since the Effective Date, Elder-Beerman, a subsidiary or employee benefit or
stock ownership plan of Elder-Beerman or any of its affiliates or associates),
together with its affiliates and associates, has acquired beneficial ownership
of 20% or more of the then-outstanding Common Shares (any such person or group
being hereinafter called an "Acquiring Person") or (b) the close of business on
the tenth business day (or such later date as may be specified by the Board of
Directors) following the commencement of a tender offer or exchange offer by any
person (other than Elder-Beerman, a subsidiary or employee benefit or stock
ownership plan of Elder-Beerman, or any of its affiliates or associates), the
consummation of which would result in beneficial ownership by such person of 20%
or more of the outstanding Common Shares.

Rights are exercisable to purchase Class A Preferred Stock 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 (b) above could precede the
occurrence of a Flip-in Event and thus result in the Rights being exercisable to
purchase Class A Preferred Stock. A Distribution Date resulting from any
occurrence described in clause (a) above 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 (a) any
person or group, together with its affiliates and associates, becomes an
Acquiring Person, (b) any Acquiring Person or any affiliate or associate thereof
merges into or combines with Elder-Beerman and Elder-Beerman is the surviving
corporation, (c) any Acquiring Person or any affiliate or associate thereof
effects certain other transactions with Elder-Beerman, or (d) during such time
as there is an Acquiring Person, Elder-Beerman 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
economically equivalent security or securities of the Elder-Beerman) 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, (a) Elder-Beerman merges with or into any person and
Elder-Beerman is not the surviving corporation, (b) any person merges with or
into Elder-Beerman and Elder-Beerman 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 (c) 50% or more of
Elder-Beerman's assets or earning power, including securities creating
obligations of Elder-Beerman, 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 later of the Share
Acquisition Date and the Distribution 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, as of the
Effective Date, has beneficial ownership of 20% or more of the then-outstanding
Common Shares, or that becomes the beneficial owner of 20% or more of

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<PAGE> 52

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 (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 or (b) 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.

Elder-Beerman will be able, at its option, to 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 date of
the first occurrence of a Flip-in Event or Flip-over Event. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.

The Company is able to amend the Rights Agreement 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 Class A Preferred Stock 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 Rights Agreement will expire on (a) the first anniversary of the
Effective Date or (b) 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. In accordance with
the foregoing, the Board of Directors (a) will have the right to reconsider any
of the terms of the Rights Agreement at any time and (b) may take such action
with respect to the Rights Agreement as the Board of Directors deems
appropriate.

The Rights are being registered under the Securities Act, together with the
Common Shares, pursuant to this Registration Statement. In the event that the
Rights become exercisable, the Company will register the Class A Preferred Stock
for which the Rights may be exercised, in accordance with applicable law.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares is Norwest Bank
Minnesota, N.A.

52
<PAGE> 53

UNDERWRITING

In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc., Warburg Dillon Read LLC, and Johnson Rice & Company
L.L.C. (the "Representatives"), have agreed, severally, subject to the terms and
conditions therein set forth, to purchase from the Company, and the Company has
agreed to sell to them, the number of Common Shares, totaling 2,800,000 shares,
set forth opposite their respective names below. The Underwriters are committed
to take and pay for all shares if any shares are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
McDonald & Company Securities, Inc...................... 897,750
Warburg Dillon Read LLC................................. 897,750
Johnson Rice & Company L.L.C. .......................... 199,500
Bear, Stearns & Co. Inc................................. 70,000
Donaldson, Lufkin & Jenrette Securities Corporation..... 70,000
A.G. Edwards & Sons, Inc................................ 70,000
Morgan Stanley & Co. Incorporated....................... 70,000
PaineWebber Incorporated................................ 70,000
Prudential Securities Incorporated...................... 70,000
Smith Barney Inc........................................ 70,000
Cleary Gull Reiland & McDevitt Inc...................... 35,000
Credit Research and Trading LLC......................... 35,000
Fahnestock & Co., Inc................................... 35,000
Legg Mason Wood Walker, Incorporated.................... 35,000
Morgan Keegan & Company, Inc............................ 35,000
NatCity Investments, Inc................................ 35,000
Parker/Hunter Incorporated.............................. 35,000
Roney & Co. L.L.C....................................... 35,000
The Seidler Companies Incorporated...................... 35,000
---------
Total......................................... 2,800,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Shares to the public at the public offering price
set forth on the cover page of this Prospectus. The Underwriters may allow to
certain selected dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a discount not exceeding $0.85 per share,
and the Underwriters may allow, and such selected dealers may re-allow, a
discount not exceeding $0.10 per share to other dealers who are members of the
NASD. After the Offering, the public offering price and the discount to dealers
may be changed by the Representatives.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 420,000 Common Shares at the public offering price, less the underwriting
discount, as set forth on the cover page of this Prospectus. The Underwriters
may exercise that option only to cover over-allotments in the sale of the Common
Shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same percentage of
the option shares as the number of shares to be purchased and offered by that
Underwriter in the table above bears to the total.

The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with the Offering, including
liabilities under the Securities Act.

The Company and the directors and executive officers of the Company have
agreed that they will not offer, sell, transfer or otherwise dispose of any
Common Shares, or any securities convertible into or exchangeable for Common
Shares, for a period of 180 days from the date of this Prospectus, without the
prior written consent of McDonald & Company Securities, Inc.

53
<PAGE> 54

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Shares offered by this Prospectus to any
accounts over which they exercise discretionary authority.

In connection with the Offering and in compliance with applicable law, the
Underwriters may overallot or effect transactions that stabilize, maintain, or
otherwise affect the market price of the Common Shares at levels above those
that might otherwise prevail in the open market, including by entering
stabilizing bids, effecting syndicate covering transactions or imposing penalty
bids. A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of a
security. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the Offering. A penalty bid means an
arrangement that permits McDonald & Company Securities, Inc., as managing
underwriter, to reclaim a selling concession from a syndicate member in
connection with the Offering when securities originally sold by the syndicate
member are purchased in stabilizing or syndicate covering transactions. These
transactions may be effected on Nasdaq or otherwise. The Underwriters are not
required to engage in any of these activities. Any such activities, if
commenced, may be discounted at any time.

In connection with the Offering, certain Underwriters and selling group
members (if any) who are qualified market makers on Nasdaq may engage in passive
market making transactions in the Common Shares on Nasdaq in accordance with
Rule 103 of Regulation M promulgated under the Securities Exchange Act of 1934,
as amended. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security. If all independent bids are lowered below the passive market
maker's bid, however, such bid may exceed the highest independent bid until
certain purchase limits are exceeded.

VALIDITY OF SHARES

The validity of the issuance of the Common Shares offered hereby will be
passed upon for Elder-Beerman by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
Certain legal matters related to the Offering will be passed upon for the
Underwriters by Calfee, Halter & Griswold LLP, Cleveland, Ohio.

EXPERTS

The 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 of the
Company included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report (which expresses an unqualified
opinion and includes an explanatory paragraph concerning the Company's plan of
reorganization) appearing in this Prospectus, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

The 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 of Stone
& Thomas included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report (which expresses an unqualified
opinion and includes an explanatory paragraph that expresses substantial doubt
as to Stone & Thomas' ability to continue as a going concern and an explanatory
paragraph relating to a letter of intent for the sale of Stone & Thomas'
outstanding stock) appearing in this Prospectus, and are included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.

AVAILABLE INFORMATION

Elder-Beerman is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices at Citicorp Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center,

54
<PAGE> 55

Suite 1300, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.

Elder-Beerman has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the Common Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to Elder-Beerman and the Common
Shares, reference is hereby made to such Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete,
although the material terms thereof are described in this Prospectus, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement. Each such statement is qualified by
such reference to such exhibits. The Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office upon payment of the fees prescribed by the Commission.

55
<PAGE> 56

THE ELDER-BEERMAN STORES CORP.

INDEX TO HISTORICAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE ELDER-BEERMAN STORES CORP.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of January 31, 1998 and
February 1, 1997.......................................... F-3
Consolidated Statements of Operations for the fiscal years
ended January 31, 1998, February 1, 1997, and February 3,
1996...................................................... F-5
Consolidated Statements of Shareholders' Equity for the
fiscal years ended January 31, 1998, February 1, 1997, and
February 3, 1996.......................................... F-6
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1998, February 1, 1997, and February 3,
1996...................................................... F-7
Notes to Consolidated Financial Statements.................. F-8
Condensed Consolidated Balance Sheets (unaudited) as of May
2, 1998 and as of January 31, 1998........................ F-21
Condensed Consolidated Statements of Operations (unaudited)
for the 13 weeks ended May 2, 1998 and May 3, 1997........ F-22
Condensed Consolidated Statements of Cash Flows (unaudited)
for the 13 weeks ended May 2, 1998 and May 3, 1997........ F-23
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-24

STONE & THOMAS
Independent Auditors' Report................................ F-25
Consolidated Balance Sheets as of May 2, 1998 (unaudited),
January 31, 1998, and February 1, 1997.................... F-26
Consolidated Statements of Operations for the 13 weeks ended
May 2, 1998 (unaudited) and May 3, 1997 (unaudited) and
for the fiscal years ended January 31, 1998, February 1,
1997, and February 3, 1996................................ F-28
Consolidated Statements of Stockholders' Equity for the 13
weeks ended May 2, 1998 (unaudited) and for the fiscal
years ended January 31, 1998, February 1, 1997, and
February 3, 1996.......................................... F-29
Consolidated Statements of Cash Flows for the 13 weeks ended
May 2, 1998 (unaudited) and May 3, 1997 (unaudited) and
for the fiscal years ended January 31, 1998, February 1,
1997, and February 3, 1996................................ F-30
Notes to Consolidated Financial Statements.................. F-31
</TABLE>

F-1
<PAGE> 57

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 1 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

F-2
<PAGE> 58

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
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
-------- --------
Total assets...................................... $371,365 $368,609
======== ========
</TABLE>

See notes to consolidated financial statements.
F-3
<PAGE> 59

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
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
-------- --------
Total liabilities and shareholders' equity...... $371,365 $368,609
======== ========
</TABLE>

See notes to consolidated financial statements.
F-4
<PAGE> 60

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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
========== ======== ========
</TABLE>

See notes to consolidated financial statements.
F-5
<PAGE> 61

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
UNEARNED
PREFERRED ADDITIONAL COMPENSATION -- RETAINED TOTAL
STOCK COMMON PAID-IN RESTRICTED EARNINGS SHAREHOLDERS'
SERIES B STOCK CAPITAL STOCK (DEFICIT) EQUITY
--------- -------- ---------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
=== ======== ======= ======= ======== ========
</TABLE>

See notes to consolidated financial statements.
F-6
<PAGE> 62

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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 securitization 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
</TABLE>

See notes to consolidated financial statements.
F-7
<PAGE> 63

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. 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:

<TABLE>
<S> <C>
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
=======
</TABLE>

The new common shares issued upon the effectiveness of the Joint Plan are
as follows:

<TABLE>
<S> <C>
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
==========
</TABLE>

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 9).

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

F-8
<PAGE> 64
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

extraordinary loss related to the discharge of these prepetition liabilities.
The extraordinary loss recorded by the Company is determined as follows:

<TABLE>
<S> <C>
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
=========
</TABLE>

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:

<TABLE>
<CAPTION>
FEBRUARY 1,
1997
-----------
<S> <C>
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
========
</TABLE>

2. 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 14).

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.

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.
F-9
<PAGE> 65
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

<TABLE>
<S> <C>
Buildings................................................... 25 to 50 years
Leasehold improvements...................................... 10 to 20 years
Furniture, fixtures and equipment........................... 3 to 10 years
</TABLE>

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.

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
rate 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.

F-10
<PAGE> 66
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reclassifications -- Certain amounts in the fiscal 1996 and 1995 financial
statements have been reclassified to conform with the fiscal 1997 presentation.

3. CUSTOMER ACCOUNTS RECEIVABLE

Customer accounts receivable, which represent finance subsidiary
receivables (Note 4), are classified as shown in the following table. Interest
is charged at an annual rate of 18% to 21%, depending on state law.

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
TYPE OF ACCOUNT 1998 1997
--------------- ----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>

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.

4. 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
3; purchase discounts are eliminated in consolidation.

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
BALANCE SHEETS 1998 1997
-------------- ----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>

F-11
<PAGE> 67
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
BALANCE SHEETS 1998 1997
-------------- ----------- -----------
<S> <C> <C>
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
======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
STATEMENTS OF OPERATIONS 1998 1997 1996
------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>

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 6). 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

F-12
<PAGE> 68
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$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.

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.

5. OTHER ASSETS

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
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
======= =======
</TABLE>

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.

6. 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.

F-13
<PAGE> 69
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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:

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
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 7).......................... 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
======== =======
</TABLE>

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.

7. 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.

F-14
<PAGE> 70
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Minimum annual rentals, for leases having initial or remaining
noncancelable lease terms in excess of one year at January 31, 1998, are as
follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- --------- -------
<S> <C> <C>
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
======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
RENT EXPENSE 1998 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
ASSETS HELD UNDER CAPITAL LEASES 1998 1997
-------------------------------- ----------- -----------
<S> <C> <C>
Buildings................................................... $11,033 $11,033
Equipment................................................... 235
Less accumulated depreciation and amortization.............. (9,997) (9,565)
------- -------
Net......................................................... $ 1,271 $ 1,468
======= =======
</TABLE>

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 6).

8. INCOME TAXES

Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal........................................ $ $ $(10,400)
State and local................................ 465 360 504
----------- -------- --------
465 360 (9,896)
----------- -------- --------
</TABLE>

F-15
<PAGE> 71
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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)
=========== ======== ========
</TABLE>

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:

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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)%
======= =========== ========
</TABLE>

Deferred income taxes consist of the following:

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
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
------- -------
</TABLE>

F-16
<PAGE> 72
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
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 $
======= =======
</TABLE>

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.

9. EMPLOYEE BENEFIT PLANS

A defined-contribution employee benefit plan (the "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.

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 1). 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.

10. 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.

11. 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

F-17
<PAGE> 73
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

result of the issuance of new common shares of the Company as of the Effective
Date (see Note 1), these entities' are no longer related parties at January 31,
1998. Balances with related parties at February 1, 1997 were as follows:

<TABLE>
<S> <C>
Customer accounts receivable................................ $368
Other current assets........................................ 60
Other long-term assets...................................... 460
Accounts payable and other liabilities...................... 536
Liabilities subject to compromise........................... 951
</TABLE>

12. 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.

13. 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:

<TABLE>
<S> <C>
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
</TABLE>

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.

F-18
<PAGE> 74
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 increased to the following pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998
-----------
<S> <C>
Net loss:
As reported............................................... $(28,952)
Pro forma................................................. (29,018)
Loss per common share:
As reported............................................... (23.24)
Pro forma................................................. (23.29)
</TABLE>

14. 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.

15. REORGANIZATION ITEMS

Reorganization costs consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>

F-19
<PAGE> 75
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

16. 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.

<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial instruments -- interest rate
swaps...................................... $ $ $(1,415) $(1,415)
Unrecognized financial
instruments -- interest rate swaps......... (1,548) (579) (844)
</TABLE>

17. 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.

F-20
<PAGE> 76

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
MAY 2, 1998 JANUARY 31, 1998
----------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 6,413 $ 6,497
Customer accounts receivable (less allowance for doubtful
accounts:
May 2, 1998 -- $3,883; January 31, 1998 -- $4,177)..... 126,762 136,705
Merchandise inventories................................... 154,772 137,507
Other current assets...................................... 11,524 12,646
-------- --------
Total current assets.............................. 299,471 293,355
Property, fixtures and equipment, less accumulated
depreciation and amortization............................. 62,589 63,256
Other assets................................................ 15,105 14,754
-------- --------
Total assets...................................... $377,165 $371,365
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 1,105 $ 1,105
Accounts payable.......................................... 42,658 49,005
Other accrued liabilities................................. 26,069 29,186
-------- --------
Total current liabilities......................... 69,832 79,296
Long-term obligations, less current portion................. 153,059 142,024
Deferred items.............................................. 9,002 4,534
-------- --------
Total liabilities................................. 231,893 225,854
Shareholders' equity:
Common stock, no par, 12,671,777 shares on May 2, 1998 and
12,583,789 shares on January 31, 1998 issued and
outstanding............................................ 201,031 199,351
Unearned compensation -- restricted stock, net............ (2,708) (1,225)
Deficit................................................... (53,051) (52,615)
-------- --------
Total shareholders' equity........................ 145,272 145,511
-------- --------
Total liabilities and shareholders' equity........ $377,165 $371,365
======== ========
</TABLE>

See notes to condensed financial statements.
F-21
<PAGE> 77

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------------
MAY 2, 1998 MAY 3, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 126,724 $ 119,821
Financing................................................. 6,498 6,734
----------- -----------
Total revenues.................................... 133,222 126,555
Costs and expenses:
Cost of merchandise sold, occupancy, and buying
expenses............................................... 91,827 86,677
Selling, general, administrative, and other expenses...... 37,724 37,480
Provision for doubtful accounts........................... 1,577 1,080
Interest expense.......................................... 2,804 1,468
Other income.............................................. (244)
----------- -----------
Total costs and expenses.......................... 133,932 126,461
Income (loss) before reorganization items and income tax
benefit................................................... (710) 94
Reorganization items........................................ (3,363)
----------- -----------
Loss before income tax benefit.............................. (710) (3,269)
Income tax benefit.......................................... 274
----------- -----------
Net loss.................................................... $ (436) $ (3,269)
=========== ===========
Basic and diluted net loss per common share................. $ (0.03) $ (26.36)
----------- -----------
Weighted average number of shares outstanding............... 12,496,996 124,036
=========== ===========
</TABLE>

See notes to condensed financial statements.
F-22
<PAGE> 78

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (436) $ (3,269)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 3,227 2,997
Changes in operating assets and liabilities, net....... (11,383) (6,521)
-------- --------
Net cash used in operating activities................ (8,592) (6,793)
Cash flows from investing activities
Capital expenditures, net................................. (2,492) (2,248)
-------- --------
Net cash used in investing activities................ (2,492) (2,248)
Cash flows from financing activities:
Net borrowings under debtor-in-possession agreement....... 11,097
Net payments under asset securitization agreement......... (10,937)
Net borrowings under revolving lines of credit............ 22,253
Payments on long-term obligations......................... (281) (114)
Other..................................................... (35)
-------- --------
Net cash provided by financing activities.............. 11,000 10,983
-------- --------
Increase (decrease) in cash and equivalents................. (84) 1,942
Cash and equivalents -- beginning of period................. 6,497 7,091
-------- --------
Cash and equivalents -- end of period....................... $ 6,413 $ 9,033
======== ========
Supplemental cash flow information
Interest paid............................................. $ 2,568 $ 1,736
</TABLE>

See notes to condensed financial statements.
F-23
<PAGE> 79

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
include accounts of The Elder-Beerman Stores Corp. and its wholly-owned
subsidiaries (the "Company"). All intercompany transactions and balances have
been eliminated in consolidation. In the opinion of management, all adjustments
(primarily consisting of normal recurring accruals) considered necessary for a
fair presentation for all periods presented have been made.

On December 30, 1997, the Company substantially consummated its Third
Amended Joint Plan of Reorganization, dated November 17, 1997, as amended (the
"Plan"), which was confirmed by an order of the United States Bankruptcy Court
for the Southern District of Ohio, Western Division (the "Bankruptcy Court")
entered on December 16, 1997. Accordingly, the condensed consolidated financial
statements as of and for the 13 weeks ended May 3, 1997, 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. The reorganization expense for the 13 weeks ended May 3, 1997
consists of professional fees and other bankruptcy related expenses.

Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company's business is seasonal in
nature and the results of operations for the interim periods are not necessarily
indicative of the results for the full fiscal year. It is suggested these
condensed consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended January 31, 1998.

2. PER SHARE AMOUNTS

Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding. Stock options, restricted shares,
and warrants outstanding represent potential common shares and are not included
in computing diluted earnings per share as the effect would by antidilutive.

3. STOCK-BASED COMPENSATION

During the first quarter of 1998, stock options and restricted shares were
granted to designated employees under the Company's Equity and Performance
Incentive Plan. A total of 15,000 stock options with an exercise price of $10.89
per share and 135,000 stock options with an exercise price of $21.00 per share
were granted. These options granted have a maximum term of ten years and vest
over a period of five years.

Also, during the first quarter of 1998, 80,000 shares of restricted stock
were awarded under the Company's Equity and Performance Incentive Plan. These
shares have a vesting period of three years. The fair value of the restricted
shares awarded is $1,680 and is being amortized over the three-year period.

Non-employee directors may take all or a portion of their annual base
retainer fee in the form of a discounted stock option. During the first quarter
of 1998, a total of 4,722 stock options, with an exercise price of $12.375, were
granted under this plan. These options become vested on January 31, 1999.

4. LEASES

During the first quarter of 1998, the Company entered into two operating
lease commitments for retail department store property and leasehold
improvements. These lease agreements have minimum lease payments in fiscal 1998
of $2,791 and $3,513 each year from fiscal 1999 through fiscal 2002.

5. COMPREHENSIVE INCOME

Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. Adoption of this
standard had no impact on the Company's financial position and results of
operations. Accordingly, comprehensive income was a loss of $436 for the 13
weeks ended May 2, 1998 and a loss of $3,469 for the 13 weeks ended May 3, 1997.

F-24
<PAGE> 80

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Stone & Thomas:

We have audited the accompanying consolidated balance sheets of Stone &
Thomas and subsidiaries (the "Company") as of January 31, 1998 and February 1,
1997 and the related consolidated statements of operations, stockholders'
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.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Stone & Thomas and subsidiaries
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.

The accompanying consolidated financial statements for the fiscal year
ended January 31, 1998 have been prepared assuming the Company will continue as
a going concern. As discussed in Note 9 to the consolidated financial
statements, the Company's recurring losses from operations and difficulty in
generating sufficient cash flow to meet its obligations and sustain its
operations raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
9. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

As discussed in Note 10 to the consolidated financial statements, on June
12, 1998 the Company entered into a letter of intent, subject to certain
conditions, with The Elder-Beerman Stores Corp., which provides for the purchase
of all of the Company's outstanding stock.

DELOITTE & TOUCHE LLP

May 21, 1998 (June 18, 1998 as to
Notes 3, 9 and 10)
Pittsburgh, Pennsylvania

F-25
<PAGE> 81

STONE & THOMAS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 2, JANUARY 31, FEBRUARY 1,
1998 1998 1997
------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable -- trade, net of allowance for
doubtful accounts of $418,000.................. $ 877,893 $ 684,008 $ 892,156
Income tax receivable............................. 33,487 33,487 1,368,000
Inventories....................................... 32,913,778 28,646,453 35,526,803
Prepaid expenses.................................. 899,400 1,016,604 972,006
Other current assets.............................. 1,749,701 1,906,113 2,546,405
Deferred income taxes............................. 192,820 192,820 1,012,432
----------- ----------- -----------
Total current assets...................... 36,667,079 32,479,485 42,317,802

Property, fixtures and equipment:
Land.............................................. 530,047 530,047 530,047
Buildings and leasehold improvements.............. 9,800,142 9,748,398 9,362,173
Furniture, fixtures and equipment................. 19,720,973 19,697,368 19,201,619
----------- ----------- -----------
30,051,162 29,975,813 29,093,839
Less accumulated depreciation..................... 23,782,085 23,535,433 22,445,738
----------- ----------- -----------
6,269,077 6,440,380 6,648,101
Construction in progress.......................... -- -- 89,471
----------- ----------- -----------
6,269,077 6,440,380 6,737,572
Other assets........................................ 1,890,200 2,029,441 1,855,441
Deferred income taxes............................... 1,768,277 1,768,277 948,665
----------- ----------- -----------
Total assets.............................. $46,594,633 $42,717,583 $51,859,480
=========== =========== ===========
</TABLE>

(Continued)

F-26
<PAGE> 82

STONE & THOMAS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 2, JANUARY 31, FEBRUARY 1,
1998 1998 1997
------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 6,957,711 $ 4,447,606 $ 2,346,046
Gift certificates................................. 831,766 1,054,105 876,514
Accrued salaries and wages........................ 1,572,119 1,631,328 1,815,035
Accrued taxes other than taxes on income.......... 665,160 875,170 877,292
Other current liabilities......................... 432,827 331,593 337,773
Current maturities of long-term debt.............. 15,286 44,912 117,402
Accrued restructuring charges..................... -- -- 150,000
----------- ----------- -----------
Total current liabilities................. 10,474,869 8,384,714 6,520,062
Long-term debt -- less current maturities........... 17,297,093 12,577,486 15,182,292
Deferred compensation............................... 1,684,550 1,666,875 1,536,244
Other long-term liabilities......................... 1,148,937 1,151,402 1,278,479
Commitments and contingencies....................... -- -- --
Stockholders' equity:
Preferred stock -- par value $100; 6,000 shares
authorized; 530 shares outstanding............. 53,000 53,000 53,000
Common stock -- no par value; 50,000 shares
authorized; 42,317 shares issued including
shares held in treasury........................ 1,819,229 1,819,229 1,819,229
Retained earnings................................. 16,234,116 19,182,038 27,587,035
Common stock in treasury -- 12,092 shares as of
May 2, 1998 and January 31, 1998, and 12,090
shares as of February 1, 1997.................. (2,117,161) (2,117,161) (2,116,861)
----------- ----------- -----------
Total stockholders' equity................ 15,989,184 18,937,106 27,342,403
----------- ----------- -----------
Total liabilities and stockholders'
equity............................... $46,594,633 $42,717,583 $51,859,480
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.
F-27
<PAGE> 83

STONE & THOMAS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
13 WEEKS ENDED ------------------------------------------
------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3,
MAY 2, 1998 MAY 3, 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales -- including leased
departments................ $21,422,237 $27,190,014 $121,464,086 $122,926,265 $128,597,780
----------- ----------- ------------ ------------ ------------
Cost of sales -- including
occupancy and buying
costs...................... 17,232,679 21,602,870 96,003,855 95,374,697 96,133,783
Selling, general and
administrative expenses.... 6,700,374 7,966,550 32,266,632 33,119,285 33,993,095
Related party expense........ 17,750 17,750 71,000 71,000 71,000
Restructuring charges........ -- -- -- 150,000 204,000
----------- ----------- ------------ ------------ ------------
(23,950,803) (29,587,170) (128,341,487) (128,714,982) (130,401,878)
----------- ----------- ------------ ------------ ------------
Operating loss............... (2,528,566) (2,397,156) (6,877,401) (5,788,717) (1,804,098)
----------- ----------- ------------ ------------ ------------
Other income (expense):
Gain on sale of marketable
securities.............. -- -- -- -- 1,604,000
Interest income............ 4,208 12,345 26,696 883,944 3,413,978
Interest expense........... (355,599) (379,793) (1,643,869) (1,612,724) (3,105,984)
Other -- net............... (67,303) 42,640 92,227 143,936 393,780
----------- ----------- ------------ ------------ ------------
(418,694) (324,808) (1,524,946) (584,844) 2,305,774
----------- ----------- ------------ ------------ ------------
(Loss) Earnings before income
taxes...................... (2,947,260) (2,721,964) (8,402,347) (6,373,561) 501,676
Income tax benefit........... -- -- -- 2,555,000 13,000
----------- ----------- ------------ ------------ ------------
Net (loss) earnings.......... $(2,947,260) $(2,721,964) $ (8,402,347) $ (3,818,561) $ 514,676
=========== =========== ============ ============ ============
</TABLE>

See notes to consolidated financial statements.
F-28
<PAGE> 84

STONE & THOMAS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
MARKETABLE
PREFERRED COMMON RETAINED EQUITY TREASURY
STOCK STOCK EARNINGS SECURITIES STOCK TOTAL
--------- ------ -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28, 1995.... $53,200 $1,819,229 $30,896,224 $ 1,317,306 $(2,116,861) $31,969,098
Net earnings............... -- -- 514,676 -- -- 514,676
Cash dividends paid........ -- -- (2,656) -- -- (2,656)
Purchase of preferred
shares.................. (100) -- -- -- -- (100)
Sale of marketable equity
securities.............. -- -- -- (1,317,306) -- (1,317,306)
------- ---------- ----------- ----------- ----------- -----------
Balance, February 3, 1996.... 53,100 1,819,229 31,408,244 -- (2,116,861) 31,163,712
Net loss................... -- -- (3,818,561) -- -- (3,818,561)
Cash dividends paid........ -- -- (2,648) -- -- (2,648)
Purchase of preferred
shares.................. (100) -- -- -- -- (100)
------- ---------- ----------- ----------- ----------- -----------
Balance, February 1, 1997.... 53,000 1,819,229 27,587,035 -- (2,116,861) 27,342,403
Net loss................... -- -- (8,402,347) -- -- (8,402,347)
Cash dividends paid........ -- -- (2,650) -- -- (2,650)
Purchase of treasury
stock................... -- -- -- -- (300) (300)
------- ---------- ----------- ----------- ----------- -----------
Balance, January 31, 1998.... 53,000 1,819,229 19,182,038 -- (2,117,161) 18,937,106
Net loss (unaudited)....... -- -- (2,947,260) -- -- (2,947,260)
Cash dividends paid
(unaudited)............. -- -- (662) -- -- (662)
------- ---------- ----------- ----------- ----------- -----------
Balance, May 2, 1998
(unaudited)................ $53,000 $1,819,229 $16,234,116 $ -- $(2,117,161) $15,989,184
======= ========== =========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.
F-29
<PAGE> 85

STONE & THOMAS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
13 WEEKS ENDED YEAR ENDED
------------------------- ---------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1998 1997 1996
------ ------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) earnings..................... $(2,947,260) $(2,721,964) $(8,402,347) $(3,818,561) $ 514,676
Adjustments to reconcile net (loss)
earnings to net cash (used in)
provided by operating activities:
Depreciation.......................... 271,958 278,198 1,158,838 1,226,498 1,241,127
Deferred income taxes................. -- -- -- (1,187,000) (467,000)
Gain on sale of marketable equity
securities.......................... -- -- -- -- (1,604,000)
Bad debt expense...................... -- -- 285,000 -- --
----------- ----------- ----------- ----------- -----------
(2,675,302) (2,443,766) (6,958,509) (3,779,063) (315,197)
Sale of accounts receivable........... -- -- -- 21,153,577 --
(Increase) decrease in accounts
receivable.......................... (193,885) (404,458) (76,852) 2,973,423 2,261,615
(Increase) decrease in inventories.... (4,267,325) (10,487,559) 6,880,350 (1,890,634) (4,405,768)
Decrease (increase) in prepaid
expenses and other current assets... 273,616.... 466,044 595,694 (1,247,463) 407,996
Increase (decrease) in income taxes
payable............................. 11,555 (511,425) -- (433,341) (723,579)
Decrease (increase) in income taxes
receivable.......................... -- -- 1,334,513 (1,368,000) --
Decrease (increase) in other assets... 139,241 (156,956) (174,000) (202,813) (213,051)
Increase (decrease) in accounts
payable and other current
liabilities......................... 2,258,268 9,954,925 3,430,800 (3,669,297) 137,103
(Decrease) increase in accrued
restructuring charges............... -- -- (150,000) 150,000 (99,607)
Increase in deferred compensation and
other long-term liabilities......... 15,210 51,868 3,554 95,854 637,846
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities............. (4,438,622) (3,531,327) 4,885,550 11,782,243 (2,312,642)
----------- ----------- ----------- ----------- -----------
Cash Flows From Investing Activities:
Acquisition of property, fixtures and
equipment............................. (100,655) (575,889) (861,646) (751,741) (725,322)
Proceeds from sale of marketable equity
securities............................ -- -- -- -- 1,699,000
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities............. (100,655) (575,889) (861,646) (751,741) 973,678
----------- ----------- ----------- ----------- -----------
Cash Flows From Financing Activities:
Net borrowings (repayments) of revolving
credit facility....................... 4,719,607 4,143,162 (2,537,360) 15,114,846 883,620
Repayments of long-term debt............ (29,626) (34,984) (139,936) (26,127,400) --
Book balance bank overdraft............. (150,042) -- (1,343,658) (15,200) 458,100
Cash dividends paid..................... (662) (662) (2,650) (2,648) (2,656)
Purchase of preferred stock............. -- -- -- (100) (100)
Purchase of treasury stock.............. -- (300) (300) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............. 4,539,277 4,107,216 (4,023,904) (11,030,502) 1,338,964
----------- ----------- ----------- ----------- -----------
Change in Cash............................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Cash, Beginning and End of Period......... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.
F-30
<PAGE> 86

STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Business Operations -- Stone & Thomas operates retail department stores
predominantly in West Virginia and in surrounding markets. The
consolidated financial statements include the accounts of Stone & Thomas
and its subsidiaries, S&T Financial Corporation and S&T Securities
Corporation (collectively the "Company"). All intercompany accounts and
transactions have been eliminated.

b. Fiscal Year -- The Company's fiscal year ends on the Saturday closest to
January 31, consists of 52 or 53 weeks and is presented in the
accompanying consolidated financial statements as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED WEEKS
- ----------- ---------------- -----
<S> <C> <C>
1997 January 31, 1998 52
1996 February 1, 1997 52
1995 February 3, 1996 53
</TABLE>

c. Use of Estimates in the Preparation of Financial Statements -- The
preparation of the 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 the disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of income and
expense during the reporting period. Actual results could differ from
those estimates.

d. Interim Financial Information -- The interim condensed consolidated
financial statements as of May 2, 1998 and for the thirteen weeks ended
May 2, 1998 and May 3, 1997, are unaudited. The interim condensed
consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments that, in the opinion of management,
are necessary to present fairly the financial position and results of
operations of the Company for the periods indicated. Results of
operations for interim periods which exclude the Christmas season may
not be indicative of the operating results that may be expected for the
full fiscal year. The interim condensed consolidated financial
statements do not include all footnotes which would be required for
complete financial statements prepared in accordance with generally
accepted accounting principles.

e. Cash -- The Company utilizes a cash management system under which a book
balance cash overdraft exists for the Company's primary disbursement
account. This overdraft represents uncleared checks in excess of cash
balances in bank accounts. The Company borrows funds as checks clear. As
of January 31, 1998 and February 1, 1997, cash overdrafts of $150,042
and $1,493,700, respectively, were included in accounts payable.

f. Accounts Receivable -- On May 13, 1996, the Company sold its proprietary
accounts receivable credit portfolio for the recorded book value,
recognizing no gain or loss (see Note 3). The balance in accounts
receivable subsequent to the sale consists mainly of bank card charges
and current proprietary accounts receivable amounts prior to collection.

g. Inventories -- Inventories are valued at the lower-of-cost (both
first-in, first-out ("FIFO") and last-in, first-out ("LIFO")) as
determined by the retail inventory method, or market. The Company used
the LIFO method of valuation for approximately 77% and 76% of its
merchandise inventories in 1997 and 1996, respectively. The carrying
value of inventories stated at LIFO cost is approximately $2,985,600 and
$2,025,100 below the FIFO cost at January 31, 1998 and February 1, 1997,
respectively. During fiscal 1997, LIFO inventory quantities were reduced
resulting in a partial liquidation of the LIFO bases, the effects of
which did not have a material impact on operations. There was a
$1,000,000 lower-of-cost or market reserve at February 1, 1997.

h. Property, Fixtures and Equipment -- Property, fixtures and equipment are
depreciated on the straight-line method over the estimated useful lives
of the related assets. Amortization of improvements to leased

F-31
<PAGE> 87
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

premises is provided for by the straight-line method over the shorter of
the life of the lease or the useful life of the improvement.

The Company reviews the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. Measurement of
any impairment would include a comparison of estimated future operating
cash flows anticipated to be generated during the remaining life of the
assets with their net carrying value. An impairment loss would be
recognized as the amount by which the carrying value of the assets
exceeds their estimated fair value. No such write downs due to
impairment have been recorded in fiscal years 1997, 1996, and 1995.

i. Revenue Recognition -- Sales are recognized on merchandise inventory
sold upon receipt by the customer and are recorded net of returns. Cash
received for gift certificates is deferred and revenue is recognized
upon redemption of the gift certificates.

j. Cost of Sales -- Cost of sales includes buying and occupancy costs of
$12,790,000, $12,744,200, and $12,017,000 in fiscal 1997, 1996, and
1995, respectively.

k. Other Long-Term Liabilities -- Other long-term liabilities consist
mainly of pension costs and deferred rent.

The Company's policy regarding pension costs is to fund annually the
minimum amount deductible for federal income tax purposes. Prior service
cost is included in net periodic pension cost over the future service
periods of the related active employees.

l. Deferred Compensation -- The Company has supplemental compensation
agreements with certain members of management. This program (see Note 6)
is funded by life insurance policies.

m. Pre-opening Expenses -- Pre-opening expenses for retail stores are
charged to operations as incurred.

n. Income Taxes -- The Company applies the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." Under the provisions of SFAS No. 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled.

o. Related Party Agreement -- The Company has a consulting agreement with a
former officer and current member of the Board of Directors. The
agreement allows for a monthly payment of $5,916 for life which is
charged to operations as incurred. The Company made payments of
approximately $71,000 for each of the fiscal years 1997, 1996, and 1995.

p. Impact of Recently Issued Accounting Standards -- In June 1997, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components. SFAS No. 130 also
requires that the cumulative balance of these items of other
comprehensive income be reported separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The Company has adopted SFAS No. 130 in the 13
weeks ended May 2, 1998 (unaudited) and the adoption did not have a
material impact on the Company's disclosures in its consolidated
financial statements.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way public companies report selected information about
operating segments in both quarterly and annual financial statements to
their shareholders. It also establishes standards for related
disclosures about products and services, geographic
F-32
<PAGE> 88
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

areas, and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. This statement is not required to be
applied to interim financial statements in the initial year of its
application. The Company has not yet determined the effects, if any,
that SFAS No. 131 will have on the disclosures in its consolidated
financial statements.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit
plans by standardizing the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis and
eliminates certain disclosures that are no longer considered useful. It
does not change the measurement or recognition of these plans. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company has not yet determined the effects that SFAS No. 132 will have
on the disclosures in its consolidated financial statements.

q. Reclassifications -- Certain reclassifications have been made to the
1995 and 1996 consolidated financial statements to conform to the
presentation of the 1997 consolidated financial statements.

2. OTHER ASSETS

Other assets include the following:

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Cash surrender value of life insurance policies........... $1,501,814 $1,327,814
Long-term investments..................................... 390,830 390,830
Notes receivable.......................................... 136,797 136,797
---------- ----------
$2,029,441 $1,855,441
========== ==========
</TABLE>

3. BORROWING ARRANGEMENTS

In September 1992, the Company refinanced its existing debt facilities by
consolidating substantially all of its debt under one agreement established with
a group of participating lenders (the "Credit Agreement"). The Credit Agreement
included a revolving credit facility and a letter of credit facility. The
revolving credit facility provided for borrowings based on and collateralized by
certain percentages of accounts receivable, inventory and marketable equity
securities (the "Borrowing Base").

In May 1996, the Company consummated a financing agreement with a lender
that provided the Company with a $22,000,000 (subsequently increased to
$26,000,000) revolving line of credit (the "Financing Agreement"), and the
Company used the proceeds received from the sale of its accounts receivable
portfolio and borrowings under the Financing Agreement of approximately
$9,804,000 to repay all outstanding borrowings under the Credit Agreement and
subsequently terminated that agreement. The Financing Agreement provides for
borrowings based on 55% (subsequently increased to 60%) of eligible inventory;
borrowings are collateralized by inventory. The Financing Agreement requires
that the Company maintain a minimum amount of tangible net worth and also limits
borrowings and restricts cash dividends and redemptions of the Company's stock.
The Financing Agreement terminates in 2001.

At January 31, 1998, the Company was in violation of the minimum net worth
covenant and the covenant requiring timely delivery of audited financial
statements. The violations were waived by the lender in June 1998.

F-33
<PAGE> 89
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On June 18, 1998, the Company obtained an amendment to the Financing
Agreement that eliminated the tangible net worth covenant, effective February 1,
1998, and provides for borrowings based upon 65% of eligible inventory,
effective March 5, 1998.

Amounts available under lines of credit at May 2, 1998, January 31, 1998
and February 1, 1997 were $1,126,004 (unaudited), $3,292,171 and $3,510,118,
respectively, after deducting a $1,000,000 letter of credit used primarily to
support the self-insured portion of workers' compensation.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MAY 2, JANUARY 31, FEBRUARY 1,
1998 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit under the Financing
Agreement with an interest rate equal to
the prime rate plus .5%, or London
Interbank Offering Rate ("LIBOR") plus
3%...................................... $17,297,093 $12,577,486 $15,114,846
Mortgage note collateralized by a deed of
trust on certain real property with
interest at 10.5% and principal payable
in 44 equal quarterly installments of
$15,050 and final payment due June
1998.................................... 15,286 30,514 87,826
Other..................................... -- 14,398 97,022
----------- ----------- -----------
17,312,379 12,622,398 15,299,694
Less current maturities................... 15,286 44,912 117,402
----------- ----------- -----------
$17,297,093 $12,577,486 $15,182,292
=========== =========== ===========
</TABLE>

The Company elected the prime rate option and the prime interest rate was
8.5% and 8.25% at January 31, 1998 and February 1, 1997, respectively.

The aggregate principal payments on long-term debt at January 31, 1998 are
as follows:

Interest paid was $1,644,000, $1,613,000 and $3,053,000 in fiscal 1997,
1996 and 1995, respectively.

4. LEASE COMMITMENTS

The Company has operating leases covering its retail store locations. Most
of the leases contain renewal options and escalation clauses. The leases require
minimum monthly rental payments and most provide for a pro-rata share of
operating expenses and additional rental payments based on a percentage of sales
in excess of specified levels.

Other operating leases cover transportation and data processing equipment
and certain store fixtures.

F-34
<PAGE> 90
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense for each of the fiscal years was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals.............................. $5,798,000 $5,271,000 $4,373,000
Common operating expense..................... 1,173,000 721,000 897,000
Contingent rentals........................... 302,000 376,000 413,000
---------- ---------- ----------
$7,273,000 $6,368,000 $5,683,000
========== ========== ==========
</TABLE>

Future minimum annual rental payments, including common operating expense,
for noncancelable operating leases in effect at January 31, 1998 are as follows:

<TABLE>
<S> <C>
1998...................................................... $ 6,508,575
1999...................................................... 6,326,918
2000...................................................... 5,965,126
2001...................................................... 5,783,952
2002...................................................... 5,708,966
Thereafter.................................................. 41,645,303
-----------
$71,938,840
===========
</TABLE>

5. INCOME TAXES

The income tax provision is summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Current income tax benefit (expense):
Federal..................................... $ -- $1,368,000 $(454,000)
State....................................... -- -- --
---------- ---------- ---------
-- 1,368,000 (454,000)
---------- ---------- ---------
Deferred income tax benefit:
Federal..................................... -- 712,000 409,000
State....................................... -- 475,000 58,000
---------- ---------- ---------
-- 1,187,000 467,000
---------- ---------- ---------
$ -- $2,555,000 $ 13,000
========== ========== =========
</TABLE>

Deferred income taxes included in the accompanying balance sheets consisted
of the following:

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Vacation pay........................................... $ 294,123 $ 302,487
Accounts receivable reserve............................ 167,200 167,200
Inventory lower-of-cost or market reserve.............. -- 400,000
Other.................................................. 65,497 142,745
----------- ----------
526,820 1,012,432
Valuation allowance...................................... (334,000) --
----------- ----------
Total current assets........................... 192,820 1,012,432
----------- ----------
</TABLE>

F-35
<PAGE> 91
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Non-current assets (liabilities):
Deferred compensation.................................. $ 666,750 $ 614,498
Pension liability...................................... 203,835 253,402
Depreciation........................................... (353,235) (481,286)
Net operating losses and AMT credit.................... 4,331,863 576,196
Other.................................................. (19,936) (14,145)
----------- ----------
4,829,277 948,665
Valuation allowance...................................... (3,061,000) --
----------- ----------
Total net non-current assets................... 1,768,277 948,665
----------- ----------
Total net deferred taxes....................... $ 1,961,097 $1,961,097
=========== ==========
</TABLE>

The Company's effective tax rate differed from the statutory federal tax
rate for the following reasons:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Percent of pre tax (loss) earnings:
Statutory federal tax rate.............................. (35.0)% (35.0)% 35.0%
State income taxes, net of federal effect............... 5.4 (5.1) --
Change in valuation allowance........................... 40.4 -- --
State net operating losses.............................. -- -- (37.6)
----- ----- -----
Effective tax rate........................................ 0.0% (40.1)% (2.6)%
===== ===== =====
</TABLE>

The Company received an income tax refund of approximately $1,330,000 in
fiscal 1997 and paid approximately $512,000 and $1,178,000 in income taxes
during fiscal 1996 and 1995, respectively.

At January 31, 1998, the Company had recorded a valuation allowance with
respect to the future tax benefits of the net operating losses ("NOL") reflected
as a deferred tax asset due to the uncertainty of their ultimate realization. At
January 31, 1998, the Company had approximately $9,600,000 of NOLs and
approximately $103,000 AMT tax credits for federal tax purposes and
approximately $17,500,000 of NOLs for state tax purposes. The NOLs have a
15-year carryforward period and begin expiring in fiscal 2011.

6. EMPLOYEE BENEFITS

The Company has a defined benefit pension plan that covers substantially
all full-time employees. The Company annually funds the actuarially determined
minimum funding requirements in accordance with the applicable ERISA guidelines.
Net periodic pension cost for the fiscal years included the following
components:

<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the
year......................................... $ 161,928 $163,764 $170,514
Interest cost on projected benefit
obligation................................... 415,311 407,538 405,932
Actual return on plan assets................... (1,037,578) (829,981) (858,287)
Net amortization and deferral.................. 500,165 333,932 424,288
----------- -------- --------
Net periodic pension cost...................... $ 39,826 $ 75,253 $142,447
=========== ======== ========
</TABLE>

F-36
<PAGE> 92
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Assumptions used in fiscal 1997, 1996 and 1995 to develop the net periodic
pension cost were:

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 8.5% 8.5%
Expected long-term rate of return on assets................. 8.5% 8.5% 8.5%
Rate of increase in future compensation..................... 3.0% 3.0% 3.0%
</TABLE>

Plan assets are comprised primarily of equity securities and fixed income
obligations. The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at:

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested.................................................. $5,737,266 $4,940,229
Non-vested.............................................. 76,005 74,619
---------- ----------
$5,813,271 $5,014,848
========== ==========
Fair value of plan assets................................. $6,094,283 $5,638,436
Projected benefit obligation.............................. 5,846,962 5,045,068
---------- ----------
Funded status............................................. 247,321 593,368
Unrecognized prior service cost........................... -- 2,529
Unrecognized transition liabilities....................... 1,004,106 337,228
Unrecognized net gain..................................... (1,760,993) (1,566,629)
---------- ----------
Accrued pension cost...................................... $ (509,566) $ (633,504)
========== ==========
</TABLE>

Under the terms of the supplemental compensation agreements with certain
employees, the Company is to provide monthly retirement benefits for a maximum
period of 15 years or until death, whichever comes first. The present value,
calculated using a 9% discount rate, of the estimated future payments required
under each of the agreements is being charged to operations over the remaining
service life of the employee.

7. RESTRUCTURING AND OTHER CHARGES

In January 1994, management adopted a plan to restructure certain aspects
of the Company's operations that included the closing of three marginally
profitable stores in West Virginia, the sale of certain corporate assets
(including the Corporate plane) and the reduction of corporate staff. As a
result of the restructuring, the Company charged $204,000 to operations for
fiscal year 1995.

During 1996, management, with approval from the Board of Directors, adopted
a plan to further reduce corporate staff. As a result, the Company charged
$150,000 to operations for the fiscal year 1997.

In fiscal 1997, management implemented a restructuring plan that included
downsizings of staff as well as store selling space. Certain slow-moving
departments were eliminated and the furniture department was discontinued. As a
result of these activities, the Company incurred $366,000 of expense.

F-37
<PAGE> 93
STONE & THOMAS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. VALUATION AND QUALIFYING ACCOUNTS

Activity in the Company's allowance accounts for the fiscal years 1995,
1996, and 1997 were as follows:

<TABLE>
<CAPTION>
BALANCE, CHARGED TO BALANCE,
BEGINNING COST DEDUCTIONS- END
OF AND CHARGE- OF
DESCRIPTION PERIOD EXPENSE OFFS PERIOD
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
53 weeks ended February 3,
1996...................... $ 418,000 $ -- $ -- $ 418,000
52 weeks ended February 1,
1997...................... 418,000 -- -- 418,000
52 weeks ended January 31,
1998...................... 418,000 285,000 (285,000) 418,000
Inventory lower-of-cost or
market:
53 weeks ended February 3,
1996...................... $ -- $ -- $ -- $ --
52 weeks ended February 1,
1997...................... -- 1,000,000 -- 1,000,000
52 weeks ended January 31,
1998...................... 1,000,000 -- (1,000,000) --
Deferred tax asset valuation
allowance:
53 weeks ended February 3,
1996...................... $ -- $ -- $ -- $ --
52 weeks ended February 1,
1997...................... -- -- -- --
52 weeks ended January 31,
1998...................... -- 3,395,000 -- 3,395,000
</TABLE>

9. GOING CONCERN

The Company incurred a net loss of $8,402,347 and $3,818,561 for the fiscal
years ended January 31, 1998 and February 1, 1997, respectively, which
management believes resulted principally from overstocking of merchandise that
increased carrying costs and created the need for additional markdowns,
operational inefficiencies due to conversion problems encountered in the
implementation of an information system, certain other charges (see Note 7) and
lost customer sales due to issues concerning customer credit and limits, which
arose from the sale of the receivables portfolio to an outside service provider
and its subsequent resale to a third-party. Management's projections for fiscal
1998 indicate a potential shortage of availability under the revolving credit
facility due to difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations. These conditions raise doubt regarding
the Company's ability to continue as a going concern. The Company has changed
merchandise management and since taken actions intended to control ordering,
processing and pricing of merchandise. Management is working with the new
service provider to mitigate customer relations problems and customer credit
issues. Management also developed a detailed plan for fiscal 1998 intended to
reduce advertising, payroll and other store and corporate expenses by
approximately $4,000,000.

On June 17, 1998, the Company requested an overadvance of $3,000,000 on the
revolving credit facility to fund current operations. The overadvance is to be
secured by The Elder-Beerman Stores Corp. (See Note 10).

10. LETTER OF INTENT

On June 12, 1998, the Company entered into a letter of intent with The
Elder-Beerman Stores Corp. Under the terms of the letter of intent, The
Elder-Beerman Stores Corp. will purchase all of the outstanding stock of the
Company for $21,000,000 in cash. Closing of the transaction is subject to
certain terms and conditions.

F-38
<PAGE> 94

- ------------------------------------------------------------
- ------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON SHARES
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 9
Use of Proceeds............................ 14
Dividend Policy............................ 14
Price Range of Common Shares............... 14
Capitalization............................. 15
Dilution................................... 16
Pro Forma Condensed Consolidated Financial
Data..................................... 17
Selected Consolidated Financial
Information.............................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 31
Management................................. 37
Principal Shareholders..................... 46
Description of Capital Stock............... 47
Underwriting............................... 53
Validity of Shares......................... 54
Experts.................................... 54
Available Information...................... 54
Index to Financial Statements.............. F-1
</TABLE>

- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------

2,800,000 SHARES

THE ELDER-BEERMAN STORES CORP.

[ELDER-BEERMAN LOGO]

COMMON SHARES

---------------------

PROSPECTUS

---------------------

MCDONALD & COMPANY
SECURITIES, INC.

WARBURG DILLON
READ LLC

JOHNSON RICE
& COMPANY L.L.C.
JULY 31, 1998

- ------------------------------------------------------------
- ------------------------------------------------------------