VALUE CITY DEPARTMENT STORES INC /OH, DEFR14A, 1997-11-05

VALUE CITY DEPARTMENT STORES INC /OH
DEFR14A, 1997-11-05
VARIETY STORES

Previous: ADDVANTAGE MEDIA GROUP INC /OK, 10QSB, 1997-11-05

Next: LIUSKI INTERNATIONAL INC /DE, 10-Q, 1997-11-05

<PAGE> 1

================================================================================

SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

(AMENDMENT NO. 1)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

Value City Department Stores, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies: .......

(2) Aggregate number of securities to which transaction applies: ..........

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............

(4) Proposed maximum aggregate value of transaction: ......................

(5) Total fee paid: .......................................................

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: ...............................................

(2) Form, Schedule or Registration Statement No.: .........................

(3) Filing Party: .........................................................

(4) Date Filed: ...........................................................

================================================================================
<PAGE> 2
VALUE CITY DEPARTMENT STORES, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
DECEMBER 2, 1997
AND
PROXY STATEMENT

================================================================================

IMPORTANT

Please mark, sign and date your proxy and promptly return it in the
enclosed envelope. No postage is necessary if mailed in the United
States.

================================================================================
<PAGE> 3
VALUE CITY DEPARTMENT STORES, INC.
3241 Westerville Road
Columbus, Ohio 43224
614-471-4722

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 2, 1997

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

November 3, 1997

To the Shareholders of
Value City Department Stores, Inc.:

NOTICE IS HEREBY GIVEN that the Seventh Annual Meeting of Shareholders
of Value City Department Stores, Inc., an Ohio corporation (the "Company"),
will be held at the Hyatt on Capitol Square, 75 East State Street, Columbus,
Ohio, on Tuesday, the second day of December 1997, at 10:00 a.m., local time,
for the following purposes:

1. To elect ten directors, each for a term of one year and until
their successors are duly elected and qualified.

2. To approve an amendment increasing the number of common shares
available for issuance under the Company's 1991 Stock Option Plan from
2,500,000 shares to 3,000,000 shares.

3. To transact such other business as may properly come before the
meeting or any adjournment thereof.

Whether or not you plan to attend the meeting, please date, sign and
mail the enclosed proxy in the envelope provided. If you attend the meeting,
you may vote in person, and your proxy will not be used.

By Order of the Board of Directors

Robert M. Wysinski
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
<PAGE> 4
VALUE CITY DEPARTMENT STORES, INC.

November 3, 1997

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

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 2, 1997

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

INTRODUCTION

This Proxy Statement is furnished to the shareholders of Value City
Department Stores, Inc., an Ohio corporation (the "Company"), in connection
with the solicitation by the Board of Directors of the Company of proxies to be
used at the Seventh Annual Meeting of Shareholders to be held on December 2,
1997, at 10:00 a.m., local time, at the Hyatt on Capitol Square, 75 East State
Street, Columbus, Ohio, and at any adjournment thereof. It is being mailed to
the shareholders on or about November 3, 1997.

All shares represented by properly executed proxies received by the
Company prior to the meeting will be voted in accordance with the shareholder's
directions or, in the absence of instructions to the contrary, will be voted
FOR each of the proposals herein. A proxy may be revoked, without affecting
any vote previously taken, by written notice mailed to the Company (attention
Robert M. Wysinski, Secretary) or delivered in person at the meeting, by filing
a duly executed, later dated proxy, or by attending the meeting and voting in
person.

Shareholders of record at the close of business on October 27, 1997,
are entitled to notice of and to vote at the Annual Meeting and any adjournment
or adjournments thereof. At October 27, 1997, the Company had outstanding
31,892,045 Common Shares, net of Treasury shares, without par value, entitled
to vote at the Annual Meeting. Each Common Share entitles the holder thereof
to one vote upon each matter to be voted upon by shareholders at the Annual
Meeting.

The presence, in person or by proxy, of a majority of the outstanding
Common Shares of the Company is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum. Broker non-votes occur when brokers, who hold their customers' shares
in street name, sign and submit proxies for such shares and vote such shares on
some matters, but not others. Typically, this would occur when brokers have
not received any instructions from their customers, in which case the brokers,
as the holders of record, are permitted to vote on "routine" matters, which
typically include the election of directors, but not on non-routine matters.

The election of each director nominee requires the favorable vote of
a plurality of all votes cast by the holders of Common Shares at a meeting at
which a quorum is present. Proxies that are marked "Withhold Authority" and
broker non-votes will not be counted toward such nominee's achievement of a
plurality and thus will have no effect. Each other matter to be submitted to
the shareholders for approval or ratification at the Annual Meeting requires
the affirmative vote of the holders of a majority of the Common Shares voting
on the

3
<PAGE> 5
matter. For purposes of determining the number of Common Shares voting on the
matter, abstentions will be counted and will have the effect of a negative
vote; broker non-votes will not be counted and thus will have no effect.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

OWNERSHIP OF COMMON SHARES

The following table sets forth, as of October 27, 1997, certain
information with regard to the beneficial ownership of the Company's Common
Shares by each holder of 5% of such shares, each director individually and all
officers and directors as a group.

<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Outstanding Shares (2)
- ---------------- ------------------------ ----------------------
<S> <C> <C>
Ari Deshe (5)(6)(8) 25,000 *
Jon P. Diamond (3)(5)(6) 25,700 *
Martin Doolan 75,000 *
Richard Gurian 13,300 *
Dr. Norman Lamm 15,300 *
Geraldine Schottenstein (5)(6)(7) 43,000 *
Jay L. Schottenstein (5)(6)(7) 160,618 *
Saul Schottenstein (5)(6) 64,000 *
Robert L. Shook 23,000 *
Robert M. Wysinski (4) 44,287 *
All directors and officers as a group
(23 persons)(4)(5)(6) 697,655 2.19%
Schottenstein Stores Corporation (6) 20,290,834 63.62%
</TABLE>

- --------------
* Represents less than 1% of outstanding Common Shares, net of Treasury Shares.

(1) Except as otherwise noted, the persons named in this table have sole
power to vote and dispose of the shares listed and includes the following
number of Common Shares as to which the named person has the right to
acquire beneficial ownership upon the exercise of stock options within 60
days of October 27, 1997: Mr. Deshe, 12,000; Mr. Diamond, 22,000; Mr.
Gurian, 13,000; Dr. Lamm, 13,000; Mrs. Schottenstein, 13,000; Mr. J.
Schottenstein, 124,000; Mr. S. Schottenstein, 44,000; Mr. Shook, 13,000;
Mr. Wysinski, 23,700 and all directors and officers as a group, 393,300.
(2) The percent is based upon the 31,892,045 Common Shares outstanding,
net of Treasury Shares at October 27, 1997.
(3) Includes 2,000 shares held by Mr. Diamond's wife.
(4) Includes 75,000 shares for Mr. Doolan, 20,587 shares for Mr. Wysinski and
180,137 shares for all directors and executive officers as a group, which
are owned subject to a risk of forfeiture on termination of employment
with vesting over a period of years pursuant to the terms of Restricted
Stock Agreements with the Company.
(5) Does not include the 20,290,834 Common Shares owned by Schottenstein
Stores Corporation ("SSC") of 1800 Moler Road, Columbus, Ohio 43207. Jay
L. Schottenstein is the Chairman and Chief Executive Officer of SSC. Jay
L. Schottenstein, Saul Schottenstein, Geraldine Schottenstein, Ari Deshe
and Jon P. Diamond are members of the Board of Directors of SSC. See
"Ownership of SSC," below.
(6) Does not include 359,445 Common Shares owned by El-An Foundation,
111,035 shares owned by the Jay and Jeanie Schottenstein Foundation,
61,150 shares held by the Ann and Ari Deshe Foundation and 36,665 shares
held by the Lorie Schottenstein Foundation, all being private charitable
foundations, and 1,312,500 Common Shares owned by GB Stores, a
Pennsylvania limited partnership. Combined, the shares owned by the
foundations and GB Stores represent 6.1% of the Company's outstanding
Common Shares. SSC owns a 96% limited partnership interest in GB Stores
and its corporate general partner is an affiliate of SSC. The sole
members, trustees and officers of the El-An Foundation are Saul and Jay
Schottenstein. The sole trustees and officers of the Jay and Jeanie
Schottenstein foundation are Saul, Geraldine and Jay Schottenstein. The
remaining foundations' trustees and officers consist of at least one of
the following persons: Geraldine Schottenstein, Jay Schottenstein, Jon
Diamond and/or Ari Deshe; in conjunction with other Schottenstein family
members.
(7) Includes 30,000 shares as to which Geraldine Schottenstein
and Jay L. Schottenstein share voting and investment power as trustees of
a trust which owns the shares. Geraldine Schottenstein is also a
beneficiary of the trust.
(8) Includes 10,000 shares held by Mr. Deshe's
minor children.

4
<PAGE> 6
OWNERSHIP OF SSC

The following table indicates the shares of SSC common stock beneficially
owned by each nominee for election to the Board of Directors of the Company and
by all directors and officers of the Company as a group, as of October 27,
1997:

<TABLE>
<CAPTION>
SHARES OF SSC PERCENT
COMMON STOCK OF CLASS
------------ --------
<S> <C> <C>
Jay L. Schottenstein (1) 299.38139 78.4%

Geraldine Schottenstein (2) 27.41707 7.2%

Jon P. Diamond (3) 27.41707 7.2%

Ari Deshe (4) 27.41707 7.2%

Directors and officers as a group 381.6326 100.0%
</TABLE>
- -------------------
(1) Represents sole voting and investment power over 299.38139 shares
held in irrevocable trusts for family members as to which Jay L.
Schottenstein is trustee and as to which shares Mr. Schottenstein
may be deemed to be the beneficial owner.
(2) Represents sole voting and investment power over 27.41707 shares
held by Geraldine Schottenstein as trustee of an irrevocable trust
for family members as to which shares Geraldine Schottenstein may
be deemed to be the beneficial owner.
(3) Represents sole voting and investment power over 27.41707 shares
held by Susan Schottenstein Diamond, the wife of Jon Diamond, as
trustee of an irrevocable trust for family members, as to which
shares Mr. Diamond may be deemed to be the beneficial owner.
(4) Represents sole voting and investment power over 27.41707 shares
held by Ann Schottenstein Deshe, the wife of Ari Deshe, as trustee
of an irrevocable trust for family members, as to which shares Mr.
Deshe may be deemed to be the beneficial owner.

5
<PAGE> 7

PROPOSAL ONE: ELECTION OF DIRECTORS

The members of the Board of Directors (the "Board") of the Company are
elected at the Annual Meeting. The number of members of the Board has been
fixed at ten by action of the Board pursuant to the Code of Regulations
(By-laws) of the Company. Board members serve until the annual meeting
following their election or until their successors are duly elected and
qualified.

NOMINEES FOR ELECTION AS DIRECTORS

The enclosed proxy, if returned duly executed and not revoked, will be
voted as specified thereon, or if no instructions are given, will be voted FOR
the nominees listed below. In the event that any nominee should become
unavailable, the Board of Directors may decrease the number of directors,
pursuant to the Code of Regulations, or may designate a substitute nominee, in
which event the proxy will be voted for such substitute nominee. The Board has
no reason to believe that any nominee will be unavailable or, if re-elected,
unable to serve. Each of the nominees became a director of the Company at the
time it was organized in April 1991, except for Geraldine Schottenstein, who
became a director in April 1992, Robert M. Wysinski, who was elected in
December 1993, Martin P. Doolan and Ari Deshe who were appointed in 1997.

The following table sets forth certain information with respect to
each nominee.

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
Jay L. Schottenstein 43 Chairman of the Company, American Eagle
Outfitters, Inc. and SSC since March 1992 and
Chief Executive Officer of the Company from
April 1991 to July 1997. Mr. Schottenstein
served as Vice Chairman of SSC from 1986 until
March 1992, and a director of SSC since 1982.
He served SSC as President of the Furniture
Division from 1985 through June 1993 and in
various other executive capacities since
1976.(1)

Saul Schottenstein 75 Vice Chairman of the Company since April
1991. Mr. Schottenstein has served as
President of SSC since 1984, a director of
SSC since 1982 and served SSC and its
predecessors in various executive capacities
since 1946. (1)

Geraldine Schottenstein 64 Director of the Company and SSC since April
1992. She has served as a volunteer and
board member for a variety of charitable and
community organizations for more than the
past five years.

Ari Deshe 47 Chairman and Chief Executive Officer since
1996 and President and Chief Executive
Officer from 1993 to 1996 of Safe Auto
Insurance Company, a property and casualty
insurance company. Prior to that, Mr. Deshe
served as President of Safe Auto Insurance
Agency from 1992 to 1993 and President of
Employee Benefit Systems, Inc. from 1982 to
1992.(1)

Jon P. Diamond 40 President and Chief Operating Officer since
1996 and Executive Vice President and Chief
Operating Officer from 1993 to 1996 of Safe
Auto Insurance Company.(1)

Martin P. Doolan 57 President and Chief Executive Officer of the
Company since July 1997. Mr. Doolan founded
Multitech Enterprises in 1982, a firm which
specializes in providing CEO management for
companies with under performing earnings, and
served as its Chairman and Chief Executive
Officer. Mr. Doolan has over 25 years
experience as a corporate turnaround
executive and has provided

</TABLE>

6
<PAGE> 8
<TABLE>
<S> <C> <C>
extensive CEO management and advisory services
to several venture invested firms including
those owned by First Chicago Venture Capital,
Madison Dearborn Partners, Clayton Dubilier &
Rice, Weston Presidio Capital, RFE Investment
Partners, Security Pacific Venture Capital,
Bank One Venture Partners and others.

Robert M. Wysinski 49 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of the
Company since April 1991 and served as Vice
President of SSC from June 1987 until June
1991, and as Treasurer of SSC from June 1986
until June 1991. Prior to that time, he
served as Assistant Secretary and Assistant
Treasurer and in a variety of positions in
the finance area since joining SSC in 1973.

Richard Gurian 78 Managing Director of Natural Forms Limited
since 1995 and President of Richard Gurian
Consultants, Inc., formerly Venture Horizons,
Inc., since 1980. Prior to 1980, Mr. Gurian
served as Board member and Senior Vice
President - General Merchandise Manager at
Lazarus.

Dr. Norman Lamm 69 President of Yeshiva University, New York,
New York, since 1976.

Robert L. Shook 59 Author of business-related books since 1978.
</TABLE>
---------------------
(1) SSC is a controlling shareholder of the Company. For information
with respect to the beneficial ownership of the voting stock of SSC
by nominees for election to the Board of the Company and beneficial
ownership of Common Shares of the Company by such persons and
officers of the Company, see "Security Ownership of Certain
Beneficial Owners and Management." Geraldine Schottenstein is the
mother of Jay L. Schottenstein, the sister-in-law of Saul
Schottenstein and the mother-in-law of Ari Deshe and Jon P.
Diamond.

Jay L. Schottenstein and Saul Schottenstein are directors of
American Eagle Outfitters, Inc., which is a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934.

INFORMATION CONCERNING BOARD OF DIRECTORS

During the fiscal year ended August 2, 1997, the Board met five
times and acted by unanimous written consent two times.

The Board has standing Audit and Stock Option Committees.

The members of the Audit Committee are Richard Gurian, Dr. Norman Lamm
and Robert L. Shook. Its function is to recommend to the Board a firm of
accountants to serve as the Company's auditors and to review with the
independent auditors and the appropriate corporate officers matters relating to
corporate financial reporting and accounting procedures and policies, adequacy
of financial, accounting and operating controls, and the scope of the audit.
The Audit Committee met six times in fiscal 1997. Dr. Lamm participated in all
but two of the meetings.

The members of the Stock Option Committee are Richard Gurian, Dr. Norman
Lamm and Robert L. Shook. Its function is to recommend to the Board the number
and terms of any stock options to be granted under the Company's stock option
plan. The committee met three times in fiscal 1997. All three members
participated in all the meetings.

7
<PAGE> 9

Directors who are not employees are paid $2,000 for each Board and
Committee meeting attended, with a minimum annual compensation of $8,000, and
are automatically granted options each quarter to purchase 1,000 Common Shares
of the Company pursuant to the Non-employee Director Stock Option Plan.
Directors who are also employees of the Company do not receive additional
compensation for serving as directors.

OFFICERS AND KEY EMPLOYEES

The following persons are officers of the Company. Except as otherwise
indicated, each was elected to the position indicated with the Company in April
1991. For information regarding officers who are also directors, see "Election
of Directors." The officers of the Company are elected annually by the Board
and serve at the pleasure of the Board.

Michael J. Tanner, age 50, joined the Company in July of 1997 as Chief
Operating Officer. Mr. Tanner formerly served as President and Chief Operating
Officer at C.R. Anthony Company, a specialty name-brand apparel retailer from
1994 to 1997 and as their General Merchandise Manager from 1990 to 1994. He
began his career with Gold Circle Discount Stores, a Federated Department Store
division, where he held a number of executive positions including Vice
President of Marketing.

James E. Feldt, age 43, joined the Company in July of 1997 as Executive
Vice President and General Merchandise Manager. Mr. Feldt is a 24-year
retailing veteran with Hills Department Stores who served as Executive Vice
President and General Merchandise Manager from 1995 to 1997. He also served as
Vice President of Fashion Hardlines from 1993 to 1995, Vice President of Men's
and Children's apparel from 1990 to 1993 as well as holding various other
positions throughout his tenure with Hills.

Louis Virag, age 51, joined the Company in July of 1997 as Senior Vice
President, Men's and Women's Merchandising. Previously, he was Senior Vice
President at Bon Marche, a Federated division based in Seattle, from 1993 to
1997. He previously held a similar position with Ross Stores and has also
served as an executive with Macy's and Abraham & Strauss.

Garry L. Thibodeau, age 56, Vice President - Operations. Mr. Thibodeau
was appointed Vice President - Operations of the Value City Department Stores
Division of SSC (the "Division") in June 1987, having served as Regional
Manager since joining the Division in 1985. Mr. Thibodeau served as Regional
Merchandise Manager and District Manager of Marshalls, Inc. from 1980 until
1985.

Robert Tavenner, age 54, Vice President - Loss Prevention. Mr. Tavenner
became Vice President - Loss Prevention of the Division in November 1989. He
served as Director of Loss Prevention of the Division since joining SSC in
November 1988. Prior to joining SSC, Mr. Tavenner served as Vice President of
Loss Prevention and Internal Audit for Gold Circle Stores, Inc., a division of
Federated Stores, Inc., since 1978.

Denis G. Fredrick, age 53, Vice President - Management Information
Systems. Mr. Fredrick became Vice President - Management Information Systems
of the Division in December 1989. Prior to that time, Mr. Fredrick served as
Director of Management Information Systems of the Division since joining SSC in
December 1988. Prior to joining SSC, Mr. Fredrick served as Vice President -
Management Information Systems of Talbots, Inc., a women's specialty retailer
and catalog chain.

Richard L. Walters, age 45, Vice President - Controller, Chief Accounting
Officer, Assistant Treasurer and Assistant Secretary. Mr. Walters became Vice
President of the Company in April 1992, Assistant Secretary of the Company in
June 1991, Assistant Treasurer of the Division in August 1990 and Controller of
the Division in June 1986. Prior to that time, Mr. Walters served as
Accounting Manager for the Division since September 1985 and in a variety of
other accounting positions since joining SSC in 1979.

8
<PAGE> 10

Daniel P. Reilly, age 52, Vice President - Distribution and
Transportation Services. Mr. Reilly joined the Company in April 1995 as Vice
President of Distribution and Transportation Services. Prior to joining the
Company, Mr. Reilly served as Vice President of Distribution and Transportation
Services for Consolidated Stores Inc., an off-price retailer, from September
1989 to April 1995. Mr. Reilly served as a General Manager of Distribution for
Marshalls, Inc. since 1976.

Richard J. Giordano, age 54, Vice President - Distribution Apparel. Mr.
Giordano became Vice President - Distribution Apparel of the Company in
November 1994. Prior to joining the Company, Mr. Giordano served as Director
of Distribution Services for Marshalls, Inc. from 1975 to 1994.

Mark Heitin, age 45, joined the Company in April of 1996 as Vice
President - Merchandise Planning and Allocation. Previously he was Vice
President of Merchandise Planning for American Eagle Outfitters for
approximately two years. Prior to that time he held various merchandising
positions during an 18 year tenure with Marshalls, Inc., including Vice
President of Planning & Allocation.

Myrna Reiss, age 47, joined the Company in August 1996 as Vice President
- - Advertising. Prior to that, Ms. Reiss served as Vice President Creative and
Visual Advertising for Filene's Basement, an off-price retailer. Her tenure
there was from 1985 to 1996. Ms. Reiss' experience preceding that includes
various positions in Advertising at divisions of Allied, Macy's and Federated
Department Stores.

Lynn E. Lambrecht, age 39, joined the Company in August 1997 as Vice
President - Human Resources. Prior to that Ms. Lambrecht served as Vice
President of Human Resources at Kohls from 1992 to 1997 and previously was with
the May Company in a Senior Human Resource position.

Joseph J. Garbarino, age 52, joined the Company in October 1997 as
Senior Vice President-Marketing and Advertising. Mr. Garbarino was formerly
Senior Vice President of Marketing for Belk Stores from 1992 to 1997 and was
previously with the R. H. Macy's Corporation as Senior Vice President of
Marketing/Advertising.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who are beneficial owners of more
than ten percent of the Company's Common Stock ("reporting persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Reporting persons are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms filed by them. Based on its review of the copies of Section 16(a) forms
received by it, the Company believes that, during fiscal year 1997, all filing
requirements applicable to reporting persons were complied with.

9
<PAGE> 11
EXECUTIVE OFFICER COMPENSATION

The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer(s), to each of the Company's four most
highly compensated executive officers serving at the end of the current fiscal
year and two additional individuals who would have been one of the four highest
compensated, but were no longer serving at the end of the fiscal year.

SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
ANNUAL COMPENSATION ------------------------
--------------------- RESTRICTED
NAME AND FISCAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS AWARDS(2) SARS(#)(3) COMPENSATION(4)
- ------------------ ------ ------ ----- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jay L. Schottenstein(5) 1997 $250,000 None None 50,000 ---
Chairman and former Chief 1996 $250,000 None None None ---
Executive Officer 1995 $250,000 None None 150,000 ---

Martin P. Doolan(8) 1997 $50,000 None 75,000 325,000 $2,230
President and 1996 N/A N/A N/A N/A N/A
Chief Executive Officer 1995 N/A N/A N/A N/A N/A

George A. Iacono(6) 1997 $342,222 $562,500 None 10,000 $10,216
Former President and 1996 $350,000 $300,000 None None $10,216
General Merchandise Manager 1995 $350,000 $327,000 None 39,000 $11,833

Saul Schottenstein 1997 $250,000 None None None ---
Vice Chairman 1996 $250,000 None None None ---
1995 $250,000 None None 45,000 ---

Robert M. Wysinski 1997 $240,000 $95,000 None 37,500 $7,996
Senior Vice President, 1996 $226,667 $85,000 None None $7,996
Chief Financial Officer, 1995 $226,667 $49,588 None 32,000 $9,058
Treasurer and Secretary

Daniel P. Reilly 1997 $205,000 $64,580 None 5,000 $3,750
Vice President-Distribution 1996 $208,333 None None None $500
and Transportation Services 1995 $50,000 $100,000 None 25,000 ---

Garry L. Thibodeau 1997 $160,000 $72,500 None 5,000 $10,967
Vice President-Operations 1996 $162,761 $50,000 None None $11,085
1995 $150,989 $72,500 None 17,000 $11,843

Donald R. Andrus(7) 1997 $510,000 $275,000 None 17,500 $88,849
Former Senior Vice President 1996 $393,750 $50,000 None None $70,516
and Chief Operating Officer 1995 N/A N/A N/A N/A N/A
</TABLE>
- -------------------
(1) Includes amounts deferred by the executive officer pursuant to SSC's
Associates Profit Sharing and 401(k) Plan (the "401(k) Plan"), which
was adopted effective as of August 1, 1989, and in which associates of
the Company are eligible to participate. The 401(k) Plan is a
prototype defined contribution plan that qualifies for favorable tax
treatment under Sections 401(a) and 401(k) of the Internal Revenue Code
of 1986, as amended. The 401(k) Plan permits eligible associates of
the Company to contribute a percentage of their pre-tax wages to the
plan and the Company will match the contributions up to a maximum of 3%
of covered wages. The Company also may contribute up to an additional
1.5% of covered wages as a profit sharing contribution.
(2) The number and value (in thousands of dollars) of aggregate restricted
stock holdings of each of the named executives on August 2, 1997 was:
Mr. Jay Schottenstein, None; Mr. Doolan, 75,000 shares ($614); Mr.
Iacono, None; Mr. Saul Schottenstein, None; Mr. Wysinski, 20,587
shares ($169); Mr. Reilly, None; Mr. Thibodeau, 16,313 shares ($134);
and Mr. Andrus, None. The value of the restricted stock is determined
by multiplying the total shares held by each named executive by the
closing price on the New York Stock Exchange on August 2, 1997
($8.1875).
(3) The number of options granted in fiscal 1995 includes options granted
in prior years which were repriced during fiscal 1995.
(4) Represents amounts contributed by the Company to the 401(k) Plan,
including both matching contributions and any profit-sharing
contributions, and the value of Company paid life insurance. The
amount of 401(k) Plan contributions for fiscal 1997 was: Mr. Jay
Schottenstein, None; Mr. Doolan, None; Mr. Iacono, $3,750; Mr. Saul
Schottenstein, None; Mr. Wysinski, $3,750;

10
<PAGE> 12
Mr. Reilly, $3,750; Mr. Thibodeau, $3,750; and, Mr. Andrus, $1,500.
The balance for Mr. Iacono, Mr. Wysinski and Mr. Thibodeau represents
the value of Company paid life insurance. The balance of the amounts
shown for Mr. Andrus were $33,321 for relocation reimbursement,
$37,394 for tax reimbursements and the balance represents auto
allowances. The amounts shown for Mr. Doolan are $1,250 for auto
allowances and $980 for tax reimbursements.
(5) Jay L. Schottenstein is also Chairman of SSC and American Eagle
Outfitters, Inc. He does not devote his full business time to the
business of the Company.
(6) George A. Iacono resigned from the Company on May 13, 1997. At that
time, Mr. Iacono entered into an agreement with the Company to provide
consulting and project services for a period through September 30,
1998 in exchange for an annual fee of $300,000.
(7) Mr. Andrus vacated his position in July 1997, prior to the end of the
fiscal year. Mr. Andrus joined the Company on September 18, 1995 and
entered into an employment agreement with the Company for a term
ending on September 18, 1997. The agreement provided for an annual
salary of $450,000, annual auto allowance of $16,000 and annual stock
options for 10,000 shares at the completion of each year of
employment. Minimum guaranteed bonuses were $160,000 in the first year
and $125,000 in the second year. The Company fulfilled all financial
obligations to Mr. Andrus for the term of his contract at the time he
vacated his position.
(8) Mr. Doolan has entered into an employment agreement with the Company
effective July 1, 1997, for a term ending June 30, 1999. The agreement
provides for an annual salary of $600,000, a signing bonus of $350,000
and a bonus of up to 100% of salary based upon Board approved,
predetermined, performance measures set annually.

11
<PAGE> 13
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR TABLE

The following table provides certain information on option grants
during fiscal year 1997 by the Company to the Chief Executive Officer and each
of the Company's other executive officers included in the above compensation
table. No options were exercised by any of such individuals during the 1997
fiscal year.

<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual
% of Total Rates of Stock Price
Options/SARs Exercise Appreciation
Options Granted to or Base for Option Term (2)
SARs Employees in Price Expiration ------------------
Name Granted (#) Fiscal Year ($/Sh) Date (1) 5% 10%
- --------- -------------- ---------------- ----------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Jay L. Schottenstein 50,000 4.9% $14.06 12/4/06 $112,749 $241,215

Martin P. Doolan 325,000 31.6% $8.82 7/7/07 $459,737 $983,559

George A Iacono 10,000 1.0% $14.06 (3) $4,288 $8,717

Saul Schottenstein None N/A N/A N/A N/A N/A

Robert M. Wysinski 7,500 0.7% $14.06 12/4/06 $16,912 $36,182
30,000 2.9% $8.82 7/7/07 $42,437 $90,790

Daniel P. Reilly 5,000 0.5% $14.06 12/4/06 $11,275 $24,121

Garry L. Thibodeau 5,000 0.5% $14.06 12/4/06 $11,275 $24,121

Donald R. Andrus 10,000 1.0% $8.94 (4) N/A N/A
7,500 0.7% $14.06 (4) N/A N/A
</TABLE>

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

(1) All options are exercisable 20% per year, beginning on the first
anniversary of the original grant date, on a cumulative basis and expire
ten years from the original grant date.

(2) Represents the potential realizable value of each grant of options assuming
that the market price of the Common Shares appreciates in value from the
date of grant to the end of the option term at either a 5% or 10%
annualized rate, based on the difference between the assumed per share
value and the per share option exercise price, multiplied by the total
number of option shares.

(3) Due to Mr. Iacono's termination of employment with the Company, these
options will have an early expiration date of 12/30/98.

(4) Due to Mr. Andrus's termination of employment with the Company, 15,500 of
the options granted during the year were cancelled as of year end and the
remaining 2,000 will expire as of 10/18/97.

12
<PAGE> 14
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

None of the executive officers named in the Summary Compensation Table
exercised options during the 1997 fiscal year. The following table provides
certain information on the number and value of stock options held by the
executive officers named in the Summary Compensation Table at August 2, 1997.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES VALUE AT FISCAL YEAR END (#) FISCAL YEAR END ($) (1)
ACQUIRED ON REALIZED ----------------------------- ---------------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------ ---------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay L. Schottenstein --- --- 96,000 104,000 $12,240 $6,885
Martin P. Doolan --- --- -- 325,000 -- --
George A. Iacono --- --- 25,200 23,800 $3,213 $1,759
Saul Schottenstein --- --- 39,000 6,000 $4,972 $765
Robert M. Wysinski --- --- 20,800 48,700 $2,652 $1,428
Daniel P. Reilly --- --- 10,000 20,000 $1,275 $1,912
Garry L. Thibodeau --- --- 20,800 16,200 $2,652 $1,428
Donald R. Andrus --- --- -- 2,000 -- --
</TABLE>
- ------------------
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year
end of $8.19. An option is in-the-money if the fair market value of the
underlying shares exceeds the exercise price of the option.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Jay L. Schottenstein and Saul Schottenstein each of whom is an
executive officer of the Company, are also members of the Company's
Board of Directors. Former President, George A. Iacono, also served
on the Company's Board of Directors until his resignation on May 15,
1997. As stated, the Company's Chairman, Jay L. Schottenstein, with
the input of its former President, George A. Iacono and current
President, Martin P. Doolan, determined the annual salary and bonus
compensation of the officers of the Company, other than the
Chairman's, and such determination was not formally considered and
ratified by the Board of Directors. Jay L. Schottenstein is also
Chairman and Chief Executive Officer of SSC. For information
regarding the relationships between the Company and SSC, see
"Relationship with SSC and Its Affiliates" below.

The Stock Option Committee administers and grants options
under the Company's 1991 Stock Option Plan. The Stock Option
Committee consists of Messrs. Gurian, Lamm and Shook. None of the
members of the Committee are present or former officers of the Company
or are themselves or have affiliates that are parties to agreements
with the Company.

13
<PAGE> 15
The following Board of Directors' Compensation Report and
Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into
any of the Company's filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to
the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.

COMPENSATION REPORT OF THE BOARD OF DIRECTORS

General. The Board of Directors has delegated to the Chairman of
the Board the authority to establish the annual compensation of the
officers of the Company, other than the Chairman's compensation, as
permitted under Ohio law. The Company does not have a Compensation
Committee. The individuals listed below were members of the Board of
Directors at the time of the delegation of authority to the Chairman. The
key components of the Company's executive officer compensation include
both short-term compensation consisting of an annual base salary and
annual bonuses and long-term equity based compensation consisting of
grants of restricted stock and stock option awards. The full board of
Directors has made the only grants of restricted stock by the Company. The
Stock Option Committee of the Board of Directors grants options under the
Company's 1991 Stock Option Plan, as amended.

Chief Executive Officer's Compensation. The annual base salary for
Jay L. Schottenstein, Chairman of the Company was fixed by action of the
Board of Directors at the time he was appointed Chairman during fiscal
1992. The Chairman does not receive an annual bonus. The Board of
Directors did not consider or take any action to change the Chairman's
annual base salary during fiscal 1997. Mr. Schottenstein also served as
Chief Executive Officer of the Company until July, 1997, when Martin P.
Doolan was appointed President and Chief Executive Officer. Mr. Doolan's
compensation as Chief Executive officer is fixed pursuant to the terms of
his employment agreement, which was negotiated by the Chairman, with input
from a number of the directors.

Executive Officers' Compensation. The remaining executive
officers' base salaries and bonuses for fiscal 1997 were determined by the
Chairman after consultation with the President and discussion with each
individual officer. The determination of salaries and bonuses was based
primarily on subjective factors, such as the Chairman's perception of
individual performance, the individual's contribution to the overall
performance of the Company and the anticipated value of the individual's
contribution to the Company's future performance. The determination was
not based on specific objective criteria. No specific weight was given to
any of the factors considered.

Stock Awards. The Company's 1991 Stock Option Plan was adopted
at the time the Company went public in 1991 for the purpose of providing
long-term incentives to key employees and motivating key employees to
improve performance of the Company's stock. Stock options granted under
the Company's 1991 Stock Option Plan, as amended are determined, and the
1991 Stock Option Plan is administered, by the Stock Option Committee,
none of whose members are officers or employees of the Company and none
of whom are eligible to receive stock options under the 1991 Stock Option
Plan. In determining the size of a stock option award, the Stock Option
Committee considers the total number of shares subject to previously
granted stock options held by the individual and, based principally on
the recommendation of the senior executive officers, the anticipated value
of an individual's contribution to the Company's future performance. The
options granted during fiscal year 1997 to Jay Schottenstein were based on
the Committee's evaluation of his past performance and taking into
consideration that he has not had an increase in his base salary and does
not receive a bonus. Mr. Doolan's options were granted by the Committee
pursuant to the terms of his employment agreement. Other options were
granted to employees as a long-term incentive designed to encourage them
to remain with the Company.

<TABLE>
<S> <C> <C>
Jay L. Schottenstein Saul Schottenstein Geraldine Schottenstein
Robert M. Wysinski Jon P. Diamond Robert L. Shook*
Richard Gurian* Martin P. Doolan Dr. Norman Lamm*
</TABLE>

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

*Members of the Stock Option Committee.

14
<PAGE> 16
PERFORMANCE GRAPH

The following graph shows the percentage change in the cumulative
total return performance to holders of the Company's Common Shares with that of
the Standard & Poor's General Merchandise Chains Index and the Russell 2000
Index, both of which are published indexes. This comparison includes the
period beginning July 27, 1991 through August 2, 1997. The Standard & Poor's
General Merchandise Chains Index is published weekly in the Standard & Poor's
Statistical Service and the index value preceding each fiscal year end has been
selected for purposes of this comparison. The Russell 2000 Index is a
capitalization weighted index of domestic equity securities traded on the New
York and American Stock Exchanges and the NASDAQ which excludes the 1,000
largest capitalization equity securities of the 3,000 such equity securities.
The Company's Common Shares are traded on the New York Stock Exchange. The
comparison of the cumulative total returns for each investment assumes that
$100 was invested on July 27, 1991 and that all dividends were reinvested. The
Company's performance has been adjusted for a 2 for 1 stock split effective
December 2, 1991.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG VALUE CITY DEPARTMENT STORES, INC., THE RUSSELL 2000 INDEX
AND THE S & P RETAIL (GENERAL MERCHANDISE) INDEX

Value City S & P Retail
Department Stores, Inc. Russell 2000 (General Merchandise)
----------------------- ------------ ---------------------
7/25/92...... $100 $100 $100
7/31/93...... 114 124 103
7/30/94...... 96 129 102
7/29/95...... 59 161 114
8/03/96...... 70 173 110
8/02/97...... 57 230 177

- -------------
* $100 INVESTED ON 7/25/92 IN STOCK OR ON 7/31/92
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.

15
<PAGE> 17
RELATIONSHIP WITH SSC AND ITS AFFILIATES

Prior to the completion of its initial public offering on June
18, 1991, the Company was operated as the Department Store Division of
SSC. On that date, SSC transferred substantially all of the net assets
of the Division to the Company in exchange for 22,500,000 Common
Shares of the Company. At October 27, 1997, SSC owned 63.6% of the
Company's outstanding Common Shares. So long as SSC owns more than 50%
of the Company's voting shares, it will continue to have the power
acting alone to approve any action requiring a vote of the majority of
the voting shares of the Company and to elect all of the Company's
directors. For information with respect to the beneficial ownership of
the voting stock of SSC by nominees for election to the Board of the
Company and beneficial ownership of Common Shares of the Company by
such persons and officers of the Company, see "Security Ownership of
Certain Beneficial Owners and Management."

REAL ESTATE LEASES AND SUBLEASES

Through August 2, 1997 the Company leased or subleased from
SSC or affiliates of SSC 32 store locations and all of its warehouse
and office facilities. Generally, the agreements require the Company
to pay for insurance, taxes, common area maintenance and other costs
associated with the properties on a "triple net" basis for
freestanding locations, and on a pro rata share basis for locations
that are part of a larger parcel.

SSC leases to the Company 14 store locations and two
warehouse/office locations and a fixture shop under the terms of two
Master Lease Agreements. The Master Store Lease, as amended, provides
for certain base rentals which approximate $2.96 per square foot and
the Master Warehouse Lease, as amended, provides for specified rent
which approximates $2.06 per square foot. Beginning in fiscal 1997, the
Master Store Lease also provides for the payment of percentage rent by
the Company equal to the greater of 2% of gross total sales for all 14
stores or minimum rent of $2.96 per square foot. For fiscal 1997, the
Company recorded expense to SSC, including contingent rent, of
$5,325.455 pursuant to the Master Store Lease and $1,450,190 pursuant
to the Master Warehouse Lease. On August 12, 1997, the leases for eight
of the store locations, the two warehouse/office locations and the
fixture shop were renegotiated and became new unrelated party leases
pursuant to a sale-leaseback transaction between SSC and a third party.
In September 1997, one of the store leases was replaced with a new
lease that collateralizes a non recourse mortgage between SSC and a
third party. All of the new leases eliminate percentage rent and
provide for increased fixed rents for an initial 20 year term.

SSC subleases to the Company three store locations that are
owned by affiliates of SSC under a Master Sublease. The Master
Sublease provides for an annual base rent of the greater of 2% of
gross sales or minimum rent of $2.15 per square foot. For fiscal 1997
the Company recorded expense to SSC, including contingent rent, of
$1,104,972 pursuant to the Master Sublease. One of these leases became
a new unrelated party lease pursuant to the August 12, 1997
transaction described above under similar terms.

Both Master Leases have a term of five years which began in
June 1996, and are renewable thereafter, by individual location, at
the option of the Company, for four additional renewal terms of five
years each. The Master Sublease provides for a five-year term which
began in June 1996 and is renewable for generally at least four
additional renewal terms of five years each, by individual locations,
at the option of the Company. Each renewal term in the aforementioned
leases and subleases will be on the same terms as the initial term,
except for rent. The Master store lease and Master Sublease provide
for an increase in minimum percentage rent of $0.50 per square foot in
each succeeding five-year renewal term. In no event, commencing fiscal
1997, shall total rent be less than 2% of total sales. The Master
Warehouse Lease provides for an additional $0.30 per square foot for
each succeeding five-year renewal term.

16
<PAGE> 18
The Company also leases or subleases six warehouse facilities
and a trailer yard from SSC or affiliates of SSC. The warehouse
facilities consist of approximately 1,257,900 square feet for rents of
$1.50 to $4.03 per square foot with lease control ranging from 2001
through 2012. Generally, the lease renewal terms are at the same terms
and conditions as the original term except rent which increases by
$0.25 to $0.50 per square foot for the renewal terms. Two of the
leases for warehouse facilities became new unrelated party leases
pursuant to the August 12, 1997 transaction described above under
similar terms. In September 1997, two of the warehouse leases were
replaced with new leases that collateralize a non recourse mortgage
between SSC and a third party. All of the new warehouse facility
leases eliminate step rent increases and provide for increased fixed
rents for an initial 20 year term. The Company also leases, from an
affiliate of SSC, a trailer yard of approximately 19 acres with lease
control through April 2009 having rents that range from $25,000 to
$30,000 per year during the period of lease control. During fiscal
1997, the Company recorded expenses in the aggregate to SSC and
affiliates of SSC of $4,394,267 pursuant to these leases and
assignments.

Additionally, the Company leases 13 store locations from SSC
or affiliates of SSC. Generally, the leases provide for percentage
rent equal to 2% of total sales in excess of a specified sales level
or base rent with base rents ranging from $4.25 to $7.00 per square
foot for the initial term and provide lease control ranging from 2001
through 2037. Generally, the renewal terms are at the same terms and
conditions as the original term except rent which may increase for the
renewal terms. During fiscal 1997, the Company recorded expenses in
the aggregate to SSC and affiliates of SSC of $7,316,000 pursuant to
these leases. In September 1997, one of these leases was terminated
pursuant to its terms at no cost. Four of these leases became new
unrelated party leases pursuant to the August 12, 1997 transaction
described above under similar terms. In September 1997, two of the
leases were replaced with new leases that collateralize a non recourse
mortgage between SSC and a third party. The new leases eliminate
percentage rent and provide for increased fixed rents for an initial
20 year term.

In addition to the foregoing, SSC subleases one store location
to the Company under an agreement that provides for the payment of
additional rent to SSC in order for SSC to recover the costs of the
initial acquisition of the leasehold interest. The sublease has an
initial term expiring in fiscal 2000 and provides for rent in the
amount of 2% of total sales, with a minimum rent equal to $2.00 per
square foot and provides five additional five-year renewal terms.
During fiscal 1997, the Company recorded expenses in the aggregate to
SSC of $239,745 pursuant to this sublease.

The Company also subleases from SSC a lease previously
assigned to the Company by SSC to enable SSC to recover the costs of
remodeling the demised premises. The sublease expires December
31, 2007 and provides for percentage rent equal to 2% of total sales
in excess of a minimum base rent of $4.50 per square foot with three
additional renewal terms of five years each. During fiscal 1997, the
Company recorded expenses to SSC of $439,951 for this sublease.

SSC operates a chain of furniture stores, three of which
operate in separate space subleased from the Company at three of its
store locations. Each of these furniture store subleases (the
"Furniture Subleases") are for a term concurrent with the respective
lease between the Company and a third party landlord. Each Furniture
Sublease provides for the payment by SSC of base rent and other charges
in amounts at least equal to its pro rata share based on square footage
and its pro rata share of any percentage rent based on its gross sales.
For fiscal 1997, SSC paid to the Company an aggregate of $1,166,913
pursuant to these Furniture Subleases. In conjunction with the August
12, 1997 transaction described above, the Company assumed sublessor
interests in two additional subleases to furniture stores operated by
SSC with aggregate annual subrentals of $345,000.

LICENSE AGREEMENTS WITH AFFILIATES

The Company operates as licensee the apparel, housewares and
domestic departments in two department stores operated by The Valley
Fair Corporation ("Valley Fair") in New Jersey. SSC

17
<PAGE> 19
controls Valley Fair by virtue of certain common officers and directors
and its combined ownership with affiliates of substantially all of the
outstanding stock of Valley Fair. The Company pays Valley Fair a
license fee of 7.3% of the net sales of the departments for occupancy
and 3.7% of net sales for advertising, against an annual aggregate
minimum of $733,000 for both stores. The Company uses employees of
Valley Fair to operate the departments and reimburses Valley Fair for
all costs associated with such employees. The aggregate license fees,
including advertising, paid by the Company to Valley Fair during fiscal
1997 were $2,607,615.

Valley Fair's wholly owned subsidiary, L.F. Widmann, Inc.
("Widmann"), entered into a license agreement to operate the health
and beauty aids departments in the Company's stores. Widmann paid
annual license fees to the Company based on 5.0% of net sales.
Widmann was required to reimburse the Company 2% of its sales for
advertising and 2.9% of its sales for administrative expenses. The
license fees paid by Widmann to the Company during fiscal 1997 were
$1,840,870. In July 1997, the Company entered into agreements to form
a 50/50 joint venture with Mazel Stores, Inc. to create VCM, Ltd.
("VCM") to operate the Company's health and beauty aids and toys and
sporting goods departments as licensed departments. An asset and stock
purchase agreement along with an operating agreement were signed on
July 14, 1997 pursuant to which VCM would purchase 100% of the issued
and outstanding capital stock of Widmann and purchase the assets of
the Company related to its owned toys and sporting goods departments.
These transactions were completed in August 1997. VCM will pay annual
license fees to the Company based on 5% and 11% of net sales and will
reimburse the Company 2% and 4% of its sales for advertising and 2.9%
and 1% of its sales for administrative expenses for the health and
beauty aids and the toys and sporting goods departments, respectively.
The Company will also provide certain personnel, administrative and
service functions for which it will receive a monthly fee from VCM to
cover the related costs. The license and operating agreements are for
a term of ten years ending on the last day of fiscal 2007 and contain
certain provisions whereby either business partner can initiate
renegotiations of terms if certain minimum requirements are not met.

SSC owns 50% of the stock of Shonac Corporation ("Shonac"),
and the remaining 50% is owned by certain members of the management of
Shonac and their families. The Company has license agreements with
Shonac for the operation of the shoe departments in all of the
Company's stores. The agreements expire in the year 2004. Under the
terms of the agreements as amended, Shonac pays a license fee to the
Company in an amount approximating 11% of its net sales in the
Company's stores. Shonac is required to reimburse the Company 0.9% of
its sales for administrative expenses. Shonac is also required to
reimburse the Company 10% of the Company's aggregate costs for
advertising expenses. The aggregate license fees paid by Shonac to
the Company for fiscal 1997 were $15,843,905.

MERCHANDISE TRANSACTIONS WITH AFFILIATES

The Company from time to time purchases merchandise from
affiliates of SSC. Some of such affiliates manufacture, import and
wholesale apparel as their principal business. The members of the
Company's merchandising staff use these sources and make their
purchasing decisions in the same manner as with unaffiliated sources.
Any merchandise purchased from such sources is on terms at least as
favorable to the Company as could be obtained in an arm's-length
transaction with an unaffiliated third party, and in certain
instances, the Company is given terms preferential to those available
to unaffiliated customers. Total purchases by the Company from SSC
and affiliates for fiscal 1997 were $4,476,595, representing 0.64% of
the Company's total purchases during the fiscal year.

Certain affiliates of SSC from time to time purchase
merchandise from the Company, in some instances on a regular basis.
Such purchases are generally made from merchandise in the Company's
warehouse inventory at prices equal to the Company's cost plus a
handling fee of up to 11.0%.

18
<PAGE> 20
SERVICES AGREEMENTS

The Company shares with SSC and its affiliates certain
incidental support personnel and services for the purpose of achieving
economies of scale and cost savings. These shared services include
certain architectural, legal, advertising, buying and administrative
services. The Company and SSC have entered into a Corporate Services
Agreement that sets forth the terms for payment of the costs of these
shared services. The Company believes that it is able to obtain such
services at a cost which is equal to or below the cost of providing
such services by itself or obtaining such services from unaffiliated
third parties. For fiscal 1997, the Company paid SSC or its
affiliates $1,179,156 for such services and the Company was reimbursed
$155,792 by SSC and its affiliates for such services. The Corporate
Services Agreement also provides for participation by the Company in
the self-insurance program maintained by SSC on the same basis as
previous participation by the Division. Under that program, the
Company is self-insured for purposes of personal injury and property
damage, motor vehicle and Ohio workers' compensation claims up to
various specified amounts, and for casualty losses up to $100,000.
Claims and losses in excess of the specified amounts are covered by
stop-loss or excess liability policies maintained by SSC, which
include the Company as a named insured. SSC maintains reserves and
pays claims for self-insured amounts under the program and will
continue to do so with respect to the Company's participation in the
program. SSC charges its affiliates, divisions and the Company
premiums based, among other factors, on loss experience and its actual
payroll and related costs for administering the program. For fiscal
1997, the Company paid SSC $8,053,888 for participation in the
program.

REPORT TO BE PRESENTED AT THE MEETING

There will be presented at the meeting the Company's Annual
Report to Shareholders for the fiscal year ended August 2, 1997,
containing financial statements for such year and the signed opinion
of Deloitte & Touche LLP, independent public accountants, with respect
to such financial statements. It is anticipated that representatives
of Deloitte & Touche LLP, will be present at the Annual Meeting to
respond to appropriate questions and to make a statement if such
representatives so desire. The Annual Report is not to be regarded as
proxy soliciting material and Management does not intend to ask,
suggest or solicit any action from the shareholders with respect to
such report.

19
<PAGE> 21
PROPOSAL TWO: APPROVAL OF INCREASE IN SHARES AVAILABLE FOR ISSUANCE
UNDER THE COMPANY'S 1991 STOCK OPTION PLAN

The Board of Directors has approved amendments to the
Company's 1991 Stock Option Plan (the " 1991 Plan"), subject to
approval of the amendments by the shareholders at the Annual Meeting
to increase the number of Common Shares available for issuance under
the 1991 Plan from 2,500,000 shares to 3,000,000 shares. To date,
options for 2,346,070 shares have been granted pursuant to the 1991
Plan, net of forfeitures, leaving options for only 153,930 shares
available for issuance.

The purposes of the 1991 Plan are to promote the growth and
profitability of the Company by increasing the opportunity for key
employees to personally participate as equity owners in the financial
success of the Company and to assist the Company in attracting and
retaining highly qualified employees. The Board believes that, in
order to accomplish these purposes, the 1991 Plan should be amended to
increase the number of shares available for issuance. The affirmative
vote of the holders of a majority of the Common Shares of the Company
present and entitled to vote at the meeting is required to approve the
amendments to the 1991 Plan. The persons appointed as proxies will
vote FOR approval, unless otherwise directed. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENTS
TO THE COMPANY'S 1991 STOCK OPTION PLAN.

DESCRIPTION OF THE 1991 PLAN

The 1991 Plan provides for the issuance of options to purchase
up to 2,500,000 Common Shares of the Company, subject to adjustment
for stock splits and other changes in the Company's capitalization.
The Common Shares issued pursuant to the options may be either
treasury shares or authorized and unissued shares. At October 27,
1997, the closing reported sale price of the Common Shares on the New
York Stock Exchange was $8.0625 per share.

Options granted under the 1991 Plan either meet the
requirements of Section 422A of the Internal Revenue Code of 1986, as
amended ("Incentive Options") or do not meet such requirements
("Nonqualified Options"). Certain key employees of the Company and
SSC and certain other persons who provide services to the Company or
SSC are eligible to receive options under the 1991 Plan. Members of
the Board who are not officers or employees of the Company are not
eligible to receive options under the 1991 Plan. The approximate
number of persons technically eligible to participate in the 1991 Plan
is 1,000. Options are granted to persons selected by the Stock Option
Committee of the Company's Board of Directors (the "Committee")
consisting of directors who are not eligible to receive options under
the 1991 Plan. The Committee determines the number of shares subject
to option, the exercise price, the exercise period of such option and
whether the option is intended to be a Nonqualified Option or an
Incentive Option. The Committee has the discretion under the 1991
Plan to make cash grants to optionholders that are intended to offset
a portion of the taxes payable upon exercise of Nonqualified Options
or on certain dispositions of shares acquired under Incentive Options.

The aggregate fair market value of the Common Shares with
respect to which Incentive Options are exercisable for the first time
by an optionholder during any calendar year may not exceed $100,000.
The exercise price of an Incentive Option may not be less than the
fair market value of the Common Shares on the date of grant; the
exercise period may not extend beyond ten years from the date of
grant. In the event an Incentive Option is granted to an individual
who is deemed to own more than 10% of the total combined voting power
of all classes of stock of the Company or SSC, then the option price
per share must be equal to or greater than 110% of the fair market
value per share at the time the option is granted and the exercise
period may not extend beyond five years from the date of grant. None
of such restrictions apply to the grant of Nonqualified Options, which
may have an exercise price less than the fair market value of the
underlying Common Shares on the date of grant and may be exercisable
for an indeterminate period of time in each case as determined by the
Committee. All of the options under the 1991 Plan terminate on or up
to one year after termination of the optionholder's employment with
the

20
<PAGE> 22
Company or SSC, as the case may be, and none of the Incentive Options
are transferable by the holder except by will or the laws of descent
and distribution. As amended, Nonqualified Options under the 1991
Plan are transferable by optionholders either (i) if transferred
without consideration to immediate family members, or entities they
control, or (ii) if such transfer is approved by the Committee.

The exercise price for both Nonqualified Options and Incentive
Options must be paid either in cash, with previously acquired Common
Shares of the Company, the optionholder's promissory note or any
combination of the foregoing, provided, however, use of consideration
other than cash requires the consent of the Committee.

The Board may terminate, amend or modify the 1991 Plan at any
time, provided, however, that no such action may adversely affect any
option previously granted, without the consent of the optionholder.
In addition, without shareholder approval, no such action of the Board
may (a) increase the number of shares for which options may be
granted, other than as a result of changes in capitalization, (b)
materially modify eligibility requirements for participation in the
1991 Plan, (c) materially increase the benefits accruing to
optionholders, or (d) make certain specified other changes to the 1991
Plan affecting the ability to grant Incentive Options or meet the
requirements of SEC Rule 16b-3. The Plan terminates on June 3, 2001.
Any stock option outstanding at the termination date of the 1991 Plan
will remain outstanding until it has either been exercised or expires
by its terms.

FEDERAL INCOME TAX CONSEQUENCES

With respect to all Nonqualified Options, in general, for
federal income tax purposes under present law:

(i) The grant of the option, by itself, will not result in
income to the optionholder.

(ii) Except as provided in (v) below, the exercise of the
option (in whole or in part, according to its terms) will result in
income to the optionholder at that time in an amount equal to the
excess (if any) of the fair market value of the stock on the date of
exercise over the option price.

(iii) The tax basis of the stock acquired upon exercise of
the option, which will be used to determine the amount of any gain or
loss on a future taxable disposition of such stock, will be the fair
market value of the shares on the date of exercise.

(iv) No deduction will be allowable to the Company upon the
grant of such an option, but upon exercise of such an option a
deduction will be allowable to the Company at that time in an amount
equal to the amount of income realized by the optionholder exercising
the option if the Company deducts and withholds appropriate federal
withholding tax.

With respect to all Incentive Options, in general, for federal
income tax purposes under present law:

21
<PAGE> 23
(i) Neither the grant nor the exercise of an option, by
itself, will result in income to the optionholder except that, under
Section 56 of the Internal Revenue Code of 1986, as amended (the
"Code"), the excess of the fair market value of the stock at the time
of exercise over the option price is an adjustment in computing the
amount of alternative minimum taxable income which may, under certain
circumstances, result in an alternative minimum tax liability to the
optionholder under Section 55 of the Code.

(ii) If the shares acquired upon exercise of an option are
disposed of in a taxable transaction after the expiration of two years
from the date the option was granted for such shares and after the
expiration of one year from the date on which such shares are
transferred to the optionholder, long-term capital gain or loss will
be realized by the optionholder in an amount equal to the difference
between the option price and the amount realized by the optionholder.

(iii) If the shares acquired upon exercise of an option are
disposed of within the two year period from the date of grant or
within the one year period after transfer of the shares to the
optionholder:

(a) Ordinary income will be realized by the optionholder at
the time of such disposition in the amount of the excess, if any,
of the fair market value of the shares at the time of such exercise
over the option price, but not in an amount exceeding the excess,
if any, of the amount realized by the optionholder over the option
price.

(b) Short term or long term capital gain will be realized
by the optionholder at the time of any such taxable disposition in
an amount equal to the excess, if any, of the amount realized over
the fair market value of the shares at the time of such exercise.

(c) Short term or long term capital loss will be realized
by the optionholder at the time of any such taxable disposition in
an amount equal to the excess, if any, of the option price over the
amount realized.

(iv) No deduction will be allowed to the Company with respect
to options granted or shares transferred upon exercise thereof, except
that if a disposition is made by the optionholder within the two year
period or the one year period referred to above, the Company will be
entitled to a deduction in the taxable year in which the disposition
occurred in an amount equal to the amount of ordinary income realized
by the optionholder making the disposition.

(v) With respect to the exercise of an option and the payment
of the option price by the delivery of Common Shares, to the extent
that the number of shares received does not exceed the number of
shares surrendered, no taxable income will be realized by the
optionholder at that time, the tax basis of the shares received will
be the same as the tax basis of the shares surrendered and the holding
period (except for the one year period referred to above) of the
optionholder in the shares received will include his holding period in
the shares surrendered. To the extent that the number of shares
received exceeds the number of shares surrendered, no taxable income
will be realized by the optionholder at that time, such excess shares
will be considered incentive stock option stock with a zero basis and
the holding period of the optionholder in such shares will begin on
the date such shares are transferred to the optionholder. If the
shares surrendered were acquired as the result of the exercise of an
incentive stock option and the surrender takes place within two years
from the date the option relating to the surrendered shares was
granted or within one year from such exercise, the surrender will
result in the realization of ordinary income by the optionholder at
that time in the amount of the excess, if any, of the fair market
value of the shares surrendered over the option price of such shares.
If any of the shares received are disposed of within one year after
the shares are transferred to the optionholder, the optionholder will
be treated as first disposing of the shares with a zero basis.

22
<PAGE> 24
OTHER INFORMATION WITH RESPECT TO OPTIONS

As of the date of this Proxy Statement, the Committee has not
taken any action or developed any plan to award options for the
additional shares to be available under the amendments to the 1991
Plan. From a historical stand point, the number of shares subject to
options granted to executive officers of the Company named above under
"Executive Compensation" is listed in the "Aggregated Option Exercises
and Fiscal Year-end Option Value Table" set forth above. The number of
Common Shares subject to options granted under the 1991 Plan to all
executive officers and directors as a group is 1,084,000 and the number
of Common Shares subject to options granted to all other recipients is
1,262,070. All options granted under the 1991 Plan have been granted
at exercise prices equal to the fair market value of the Common Shares
on the date of grant and are exercisable 20% per year, beginning on the
first anniversary of the date of grant, on a cumulative basis, and
remain exercisable for 10 years from the date of grant. Directors who
are not employees of the Company are not eligible to receive options
under the 1991 Plan.

23
<PAGE> 25
COST OF SOLICITATION OF PROXIES

The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal
interview.

SHAREHOLDER PROPOSALS

Each year the Board of Directors submits its nominations for
election of directors at the Annual Meeting of Shareholders. Other proposals
may be submitted by the Board of Directors or the shareholders for inclusion in
the Proxy Statement for action at the Annual Meeting. Any proposal submitted
by a shareholder for inclusion in the Proxy Statement for the Annual Meeting of
Shareholders to be held in 1998 must be received by the Company (addressed to
the attention of the Secretary) on or before July 4, 1998. To be submitted at
the meeting, any such proposal must be a proper subject for shareholder action
under the laws of the State of Ohio, and must otherwise conform to applicable
requirements of the Proxy Rules of the Securities and Exchange Commission.

OTHER MATTERS

The only business which the management intends to present at the
meeting consists of the matters set forth in this statement. The management
knows of no other matters to be brought before the meeting by any other person
or group. If any other matter should properly come before the meeting, the
proxy enclosed confers upon the persons designated herein authority to vote
thereon in their discretion.

THE COMPANY'S 1997 ANNUAL REPORT, INCLUDING FINANCIAL STATEMENTS,
WAS FURNISHED TO SHAREHOLDERS PRIOR TO OR CONCURRENTLY WITH THE MAILING OF THIS
PROXY STATEMENT. EXTRA COPIES OF THE ANNUAL REPORT, AND COPIES OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION,
ARE AVAILABLE UPON REQUEST, DIRECTED TO ROBERT M. WYSINSKI, SENIOR VICE
PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY OF THE COMPANY, AT
3241 WESTERVILLE ROAD, COLUMBUS, OHIO 43224.

24
<PAGE> 26

DETACH CARD
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
VALUE CITY DEPARTMENT STORES, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
3241 Westerville Road -- Columbus, Ohio 43224 DECEMBER 2, 1997
</TABLE>

The undersigned hereby appoints Michael J. Tanner and Richard L. Walters, or
either of them, my attorneys and proxies, with full power of substitution, to
vote at the annual meeting of shareholders of Value City Department Stores, Inc.
to be held on December 2, 1997, and at any adjournment thereof, with all of the
powers I would have if personally present, for the following purposes:

1. ELECTION OF DIRECTORS.

<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary). to vote for all nominees listed below.
</TABLE>

(INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only certain
individual nominees. To withhold authority to vote for any
individual nominee, strike a line through the nominee's name
below and check "FOR").

Ari Deshe Jon P. Diamond Martin P. Doolan Richard Gurian Dr. Norman Lamm

Geraldine H. Schottenstein Jay L. Schottenstein Saul Schottenstein
Robert L. Shook Robert M. Wysinski

2. To approve the amendment to the Company's 1991 Stock Option Plan described in
the accompanying Proxy Statement.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENT THEREOF.

(Continued on Other Side)
<PAGE> 27

DETACH CARD
- --------------------------------------------------------------------------------

(Continued from Other Side)

THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS AND, WHEN
EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
ABOVE PROPOSALS.

The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
of Shareholders, dated November 3, 1997, the Proxy Statement, and the Annual
Report to Shareholders of the Company for the fiscal year ended August 2, 1997.
Any proxy heretofore given to vote said shares is hereby revoked.

Dated: , 1997

----------------------------------
Signature

Signature(s) shall agree with the
name(s) printed on this proxy.

If signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title as such.

PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

<PAGE> 1
FIFTH AMENDED AND RESTATED
VALUE CITY DEPARTMENT STORES, INC.
1991 STOCK OPTION PLAN

1. PURPOSE. This plan (the "Plan") is intended as an incentive and to
encourage stock ownership by certain key employees of and other key persons who
render services to VALUE CITY DEPARTMENT STORES, INC., an Ohio corporation (the
"Company") and any current or future subsidiaries or parent by the granting of
stock options (the "Options") as provided herein. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate employees of
training, experience and ability. The Options granted under the Plan may be
either incentive stock options ("ISOs") which meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options
which do not meet such requirements ("Non-statutory Options").

2. EFFECTIVE DATE. The Plan shall become effective on June 4, 1991 (the
"Effective Date").

3. ADMINISTRATION.

(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board") unless the Board shall designate a committee (the
"Committee") of not less than three members of the Board. If any class of equity
securities of the Company is registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), all members of the Committee
shall be "Non-Employee Directors" as defined in Rule 16b-3(b)(3)(i) under the
1934 Act and "outside directors" as defined in Section 162(m) of the Code and
the regulations promulgated thereunder. The Board may remove or add members of
the Committee. If the Board does not appoint a Committee, any reference in the
Plan or in any stock option agreements under the Plan shall mean the Board.

(b) Subject to the provisions of the Plan, the Committee is
authorized to establish, amend and rescind such rules and regulations as it may
deem appropriate for its conduct and for the proper administration of the Plan,
to make all determinations under and interpretations of, and to take such
actions in connection with, the Plan or the Options granted thereunder as it may
deem necessary or advisable. All actions taken by the Committee under the Plan
shall be final and binding on all persons. No member of the Committee shall be
liable for any action taken or determination made relating to the Plan, except
for willful misconduct.

(c) Each member of the Committee shall be indemnified by the
Company against costs, expenses and liabilities (other than amounts paid in
settlements to which the Company does not consent, which consent shall not be
unreasonably withheld) reasonably incurred by such member in connection with any
action to which he may be a party by reason of service as a member of the
Committee, except in relation to matters as to which he shall be adjudged in
such action to be personally guilty of negligence or willful misconduct in the
performance of his duties. The foregoing right to indemnification shall be in
addition to such other rights as the Committee member may enjoy as a matter of
law, by reason of insurance coverage of any kind, or otherwise.

4. ELIGIBILITY.

(a) Options and/or Tax Offset Payments may be granted to such
key employees of (or, in the case of Non-statutory Options only, to others who
render services to) the Company or its subsidiaries or parent as the Committee
shall select from time to time (the "Optionees"); provided, however, that no
member of the Board of Directors who is not an officer or employee of the
Company shall be eligible to receive any Option hereunder. The term "key
employees" shall include those executive, administrative, operational and
managerial employees who are determined by the Committee to be eligible for
Options under the Plan. The terms "subsidiary" and "parent" as used in the Plan
shall have the respective meanings set forth in sections 424(f) and (e) of the
Code. More than one option may be granted to one individual.

(b) No ISO may be granted to an individual who, at the time an
ISO is granted, is considered under Section 422(b)(6) of the Code as owning
stock possessing more than 10 percent of the total combined voting

<PAGE> 2

power of all classes of stock of the Company or of its parent or any subsidiary
corporation; provided, however, this restriction shall not apply if at the time
such ISO is granted the option price per Share of such ISO shall be at least
110% of the fair market value of such Share, and such ISO by its terms is not
exercisable after the expiration of five years from the date it is granted. This
subparagraph 4(b) has no application to Options granted under the Plan as
Non-statutory Options.

(c) The aggregate fair market value (determined as of the date
the ISO is granted) of Shares with respect to which ISOs are exercisable for the
first time by any Optionee during any calendar year under the Plan or any other
ISO plan of the Company or a parent or subsidiary of the Company may not exceed
$100,000. This subparagraph 4(c) has no application to Options granted under the
Plan as Non-statutory Options.

5. STOCK SUBJECT TO PLAN. The stock subject to Options under the Plan
shall be Common Shares without par value of the Company ("Shares"), either
authorized and unissued Shares, Shares purchased on the open market or in a
private transaction, or Shares held as treasury stock. The aggregate number of
Shares for which Options may be granted under the Plan shall not exceed
3,000,000, subject to adjustment in accordance with the terms of paragraph 13
hereof. The unpurchased Shares subject to terminated or expired Options may
again be offered under the Plan. The Committee, in its sole discretion, may
permit the exercise of any Option as to full Shares or fractional Shares.
Proceeds from the sale of Shares under Options shall constitute general funds of
the Company.

6. TERMS AND CONDITIONS OF OPTIONS.

(a) At the time of grant, the Committee shall determine
whether the Options granted are to be ISOs or Non-statutory Options and shall
enter into stock option agreements with the recipients accordingly. All Options
and/or Tax Offset Payments granted shall be authorized by the Committee and,
within a reasonable time after the date of grant, shall be evidenced by stock
option agreements in writing ("Stock Option Agreements"), in the form attached
hereto as Exhibit A, or in such other form and containing such terms and
conditions not inconsistent with the provisions of this Plan as the Committee
shall from time to time determine. Any action under paragraph 13 may be
reflected in an amendment to or restatement of such Stock Option Agreements.

(b) The Committee may grant Options and/or Tax Offset Payments
having terms and provisions which vary from those specified in the Plan if such
Options are granted in substitution for, or in connection with the assumption
of, existing options granted by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to which the Company is a
party.

7. PRICE. The option price per Share (the "Option Price") of each
Option granted under the Plan shall be determined by the Committee; provided,
however, the Option Price of each ISO granted under the Plan shall not be less
than the fair market value (determined without regard to any restrictions other
than a restriction which, by its terms, will never lapse) of a Share on the date
of grant of such Option. In the event that the Shares are publicly traded, the
term "fair market value" shall mean (a) the average of the highest and lowest
sale prices quoted in the NASDAQ National Market System, if the shares are so
quoted, (b) the mean between the bid and asked prices as reported by NASDAQ, if
the Shares are not quoted in the National Market System, or (c) if the Shares
are listed on a securities exchange, the mean between the high and low prices at
which the Shares are quoted or traded on such exchange, in each case on the date
the Option is granted or, if there be no quotation or sale on that date, the
next previous date on which the Shares were quoted or traded. An Option shall be
considered granted on the date the Committee acts to grant the Option or such
later date as the Committee shall specify.

8. OPTION PERIOD. Each Stock Option Agreement shall set forth the
period during which it may be exercised, which period shall not exceed 10 years
from the date any ISO is granted (the "Option Period").

9. NON-TRANSFERABILITY OF OPTIONS. An Option shall not be transferable
by the Optionee otherwise than by will or the laws of descent and distribution
and may be exercised, during the lifetime of the Optionee, only

<PAGE> 3

by the Optionee or by the Optionee's guardian or legal representative.
Notwithstanding the foregoing, an Optionee may transfer a Non-statutory Option
either (a) to members of his or her immediate family (as defined in Rule 16a-1
promulgated under the 1934 Act), to one or more trusts for the benefit of such
family members, or to partnerships in which such family members are the only
partners, provided that the Optionee does not receive any consideration for the
transfer, or (b) if such transfer is approved by the Committee. Any
Non-statutory Options held by such transferees are subject to the same terms and
conditions that applied to such Non-statutory Options immediately prior to
transfer.

10. TAX OFFSET PAYMENTS. The Committee has the authority and discretion
under the Plan to make cash grants to Optionees which are intended to offset a
portion of the taxes which may become payable upon exercise of Options by the
Optionee, accruing on exercise of a Non-statutory Option and/or on certain
dispositions of Shares acquired under ISOs ("Tax Offset Payments"). Such Tax
Offset Payments shall be in an amount determined by multiplying a percentage
established by the Committee times the difference between the fair market value
of a Share on the date of exercise as determined by the Committee in accordance
with paragraph 7 and the Option Price (or, if the Tax Offset Payment is being
made on account of the disposition of Shares acquired under an ISO, the
difference between the fair market value of a Share on the date of disposition,
if less than the fair market value on the date of exercise, and the Option
Price), and times the number of Shares as to which the Option is being exercised
or the number of Shares acquired under an ISO of which an Optionee is disposing.
The percentage shall be established, from time to time, by the Committee at that
rate which the Committee, in its sole discretion, determines to be appropriate
and in the best interest of the Company to assist Optionees in the payment of
federal income taxes incurred on exercise of a Non-statutory Option. The
dispositions of Shares acquired under ISOs for which a Tax Offset Payment shall
accrue shall be determined by the Committee in its sole discretion. The Company
shall have the right to withhold and pay over to any governmental entities
(federal, state or local) all amounts under a Tax Offset Payment for payment of
any income or other taxes incurred on exercise.

11. EXERCISE OF OPTIONS.

(a) Options granted hereunder will be exercisable upon the
terms and conditions and in accordance with the vesting percentages determined
by the Committee at its sole discretion. Notwithstanding the foregoing or the
terms and conditions of any Stock Option Agreement to the contrary, (i) in the
event of the Optionee's termination of employment as a result of disability or
death as specified in subparagraph 12(b), the Options shall be immediately
exercisable in full for the period specified in subparagraph 12(b); (ii) in the
event of Optionee's termination of employment as specified in subparagraph
12(a), the Options shall be immediately exercisable to the extent and for the
period specified in subparagraph 12(a); and (iii) in the event of a liquidation
or merger as specified in subparagraph 13(b), the Options shall be exercisable
for the 30-day period after written notice thereof as specified in subparagraph
13(b).

(b) An Option shall be exercisable only upon delivery of a
written notice to the Committee, any member of the Committee, the Company's
Treasurer, or any other officer of the Company designated by the Committee to
accept such notices on its behalf, specifying the number of Shares for which it
is exercised.

(c) Within five business days following the date of exercise
of an Option, the Optionee or other person exercising the Option shall make full
payment of the Option Price (i) in cash; (ii) with the consent of the Committee,
by tendering previously acquired Shares (valued at their fair market value, as
determined by the Committee, as of such date of tender); (iii) with the consent
of the Committee, with a full recourse promissory note of the Optionee for the
portion of the Option Price in excess of the par value of Shares subject to the
Option, under terms and conditions determined by the Committee, provided, that
such promissory note, in the case of exercise of an ISO, shall provide for
interest at no less than the "applicable federal rate" as determined pursuant to
the Code; (iv) with the consent of the Committee, any combination of (i), (ii),
or (iii); or (v) with the consent of the Committee, if the Shares subject to the
Option have been registered under the 1933 Act and there is a regular public
market for the Shares, by delivering to the Company on the date of exercise of
the Option written notice of exercise together with:

<PAGE> 4

(A) written instructions to forward a copy of such
notice of exercise to a broker or dealer, as defined in
Section 3(a)(4) and 3(a)(5) of the 1934 Act ("Broker"),
designated in such notice and to deliver to the specified
account maintained with the Broker by the person exercising
the Option a certificate for the Shares purchased upon the
exercise of the Option, and

(B) a copy of irrevocable instructions to the Broker
to deliver promptly to the Company a sum equal to the purchase
price of the Shares purchased upon exercise of the Option.

(d) If Tax Offset Payments sufficient to allow for withholding
of taxes are not being made at the time of exercise of an Option, the Optionee
or other person exercising such Option shall pay to the Company an amount equal
to the withholding amount required to be made less any amount withheld by the
Company under paragraph 18.

12. TERMINATION OF EMPLOYMENT OR OTHER SERVICES.

(a) Upon termination of employment or service with the
Company, any parent or subsidiary of the Company, or any successor corporation
to either the Company or any parent or subsidiary of the Company, other than (i)
by reason of death or disability, or (ii) for cause by reason of the Optionee's
dishonesty or disloyalty, the Optionee shall have 30 days after the date of
termination (but not later than the expiration date of the Stock Option
Agreement) to exercise all Options held by him to the extent the same were
exercisable on the date of termination; provided, however, if such date of
termination is after the Optionee has attained age 60 or 30 years of employment
or service, such Option shall then be exercisable to the extent of 100% of the
Shares subject thereto.

(b) Upon termination of such employment or service by reason
of death or disability, all Options previously granted to such Optionee may be
exercised by the Optionee, the Optionee's personal representative, or the person
or persons to whom his rights under the Option pass by will or the laws of
descent or distribution at any time during the period ending one year after date
of death or termination of employment by reason of disability (but not later
than the expiration date of the Stock Option Agreement). Such Options shall then
be exercisable to the extent of 100% of the Shares subject thereto.

(c) Upon termination of such employment or service for cause
by reason of the Optionee's dishonesty or disloyalty, all Options held by him
shall terminate on the date of termination.

(d) "Disability," as used herein, shall mean a physical or
mental condition resulting from bodily injury, disease, or mental disorder which
renders the Optionee incapable of continuing the Optionee's usual and customary
employment with the Company.

13. REORGANIZATIONS.

(a) In the event of a stock split, stock dividend, combination
or exchange of shares, exchange for other securities, reclassification,
reorganization, redesignation or other change in the Company's capitalization,
the aggregate number of Shares for which Options may be granted under this Plan,
the number of Shares subject to outstanding Options and the Option Price of the
Shares subject to outstanding Options shall be proportionately adjusted or
substituted to reflect the same. The Committee shall make such other adjustments
to the Options, the provisions of the Plan and the Stock Option Agreements as
may be appropriate and equitable, which adjustments may provide for the
elimination of fractional Shares.

(b) If the Company shall liquidate or dissolve, or shall be a
party to a merger or consolidation in which the Company shall not be the
surviving corporation, other than a merger or consolidation involving only a
change in state of incorporation or an internal reorganization not involving a
substantial change in underlying ownership, the Company shall give written
notice thereof to all holders of Options granted under the Plan at least 30 days
prior to the effective date of such liquidation, dissolution, merger or
consolidation, and the

<PAGE> 5

holders shall have the right within such 30-day period to exercise their Options
in full regardless of restrictions on exercise contained in the Stock Option
Agreements; provided, however, that in no event shall such Options be exercised
after the specific expiration date set forth therein. To the extent such Options
shall not have been exercised on or prior to the effective date of such
liquidation, dissolution, merger or consolidation, they shall terminate on that
date.

14. SALE OF OPTION SHARES. The Optionee or other person exercising the
Option shall not sell or otherwise dispose of the Shares subject to Option
unless at least six months have elapsed from the date of grant.

15. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of a stock certificate to the Optionee for such Shares.

16. NO CONTRACT OF EMPLOYMENT. Nothing in the Plan or in any Option or
Stock Option Agreement shall confer on any Optionee any right to continue in the
service of the Company or any parent or subsidiary of the Company or interfere
with the right of the Company to terminate such Optionee's employment or other
services at any time. The establishment of the Plan shall in no way, now or
hereafter, reduce, enlarge or modify the employment relationship between the
Company or any parent or subsidiary of the Company and the Optionee. Options
granted under the Plan shall not be affected by any change of duties or position
as long as the Optionee continues to be employed by the Company or any parent or
subsidiary of the Company.

17. AGREEMENTS AND REPRESENTATIONS OF OPTIONEES. As a condition to the
exercise of an Option, the Committee may in its sole determination require the
Optionee to represent in writing that the Shares being purchased are being
purchased only for investment and without any present intent at the time of the
acquisition of such Shares to sell or otherwise dispose of the same.

18. WITHHOLDING TAXES. The Company shall have the right to withhold
from any salary, wages, or other compensation for services payable by the
Company to or with respect to an Optionee, amounts sufficient to satisfy any
federal, state or local withholding tax liability attributable to such
Optionee's (or any beneficiary's or personal representative's) receipt or
disposition of Shares purchased under any Option or to take any such other
action as it deems necessary to enable it to satisfy any such tax withholding
obligations.

19. EXCHANGES. The Committee may permit the voluntary surrender of all
or a portion of any Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Option for the same or a different number
of Shares as the Option surrendered, or may require such voluntary surrender as
a condition precedent to a grant of a new Option to such Optionee. Subject to
the provisions of the Plan, such new Option shall be exercisable at the same
price, during such period and on such other terms and conditions as are
specified by the Committee at the time the new Option is granted. Upon
surrender, the Options surrendered shall be cancelled and the Shares previously
subject to them shall be available for the grant of other Options. The Committee
may also grant Tax Offset Payments to any Optionee surrendering such Option for
a new Option.

20. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to sell and
deliver the Shares under such Options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. Options issued under this
Plan shall not be exercisable prior to (i) the date upon which the Company shall
have registered the Shares for which Options may be issued hereunder under the
1933 Act, and (ii) the completion of any registration or qualification of such
shares under state law, or any ruling or regulation of any government body which
the Company shall, in its sole discretion, determine to be necessary or
advisable in connection therewith, or alternatively, unless the Company shall
have received an opinion from counsel to the Company stating that the exercise
of such Options may be effected without registering the shares subject to such
Options under the 1933 Act, or under state or other law.

21. ASSUMPTION. The Plan may be assumed by the successors and assigns
of the Company.

<PAGE> 6

22. EXPENSES. All expenses and costs in connection with administration
of the Plan shall be borne by the Company.

23. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board may
terminate, amend or modify the Plan at any time; provided, however, that no such
action of the Board without approval of the Shareholders, may (a) materially
increase the number of Shares for which Options may be granted under the Plan,
except as provided in paragraph 13; (b) increase the maximum Option Period; (c)
materially modify the requirements as to eligibility for participation in the
Plan; (d) materially increase the benefits accruing to Optionees; (e) permit the
granting of ISOs to anyone other than an employee of the Company or a parent or
subsidiary of the Company; (f) increase the minimum ISO Option Price; or (g)
increase the maximum ISOs that can be exercised per Optionee as set forth in
subparagraph 4(c). No amendment, modification or termination of the Plan shall
in any manner adversely affect any Option previously granted to an Optionee
under the Plan without the consent of the Optionee or the transferee of such
Option.

24. TERM OF PLAN. The Plan shall become effective on the date of its
adoption by the Board, subject to the approval of the Plan by the holders of a
majority of the shares of stock of the Company entitled to vote within twelve
months of the Effective Date, and all Options granted prior to such approval
shall be subject to such approval. The Plan shall terminate on the tenth
anniversary of the Effective Date, or such earlier date as may be determined by
the Board. Termination of the Plan, however, shall not affect the rights of
Optionees under Options previously granted to them, and all unexpired Options
shall continue in force and operation after termination of the Plan except as
they may lapse or be terminated by their own terms and conditions.

25. LIMITATION OF LIABILITY. The liability of the Company under this
Plan or in connection with any exercise of an Option is limited to the
obligations expressly set forth in the Plan and in any Stock Option Agreements,
and no term or provision of this Plan or of any Stock Option Agreements shall be
construed to impose any further or additional duties, obligations or costs on
the Company not expressly set forth in the Plan or the Stock Option Agreements.