<PAGE>   1
                                                                   Exhibit 10(t)


                              AMENDED AND RESTATED
                  EMPLOYMENT AGREEMENT FOR FREDERICK J. MERSHAD

                  THIS AGREEMENT, dated as of the 30th day of December, 1997,
between The Elder-Beerman Stores Corp., an Ohio corporation (the "Employer"),
and Frederick J. Mershad (the "Executive").

                                R E C I T A L S :

                  1. On October 17, 1995, Employer and its subsidiaries
(collectively, the "Debtors") filed voluntarily petitions for relief under
chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.ss. 101-1330 (the "Bankruptcy
Code"). The Debtors continue to manage and operate their businesses as debtors
in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
Employer's chapter 11 case is pending in the United States Bankruptcy Court for
the Southern District of Ohio, Western Division (the "Bankruptcy Court"). On
December 16, 1997, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Third Amended Joint Plan of Reorganization of The
Elder-Beerman Stores Corp. and Its Subsidiaries, dated November 17, 1997, as
subsequently modified (the "Plan").

                  2. Employer and Executive have previously entered into an
Employment Agreement dated January 3, 1997.

                  3. Employer and Executive want to enter into this Amended and
Restated Employment Agreement, subject to the terms and conditions set forth
below. Employer is entering into this Amended and Restated Employment Agreement
pursuant to authority provided under the Plan and the Confirmation Order.

                  NOW THEREFORE, in consideration of the foregoing and the
mutual covenants herein and for good and valuable consideration, the receipt of
which is hereby acknowledged, it is agreed as follows:





<PAGE>   2



                                    ARTICLE I
                                    ---------

                                   DEFINITIONS
                                   -----------

         The following terms shall have the respective meanings set forth below,
unless the context clearly otherwise requires:

         1.1 "AFFILIATE" means, with respect to a particular Entity, an Entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Entity, and an Entity shall
be "unaffiliated" with another Entity if such Entities are not Affiliates with
respect to one another.

         1.2 "CAUSE" means (a) an intentional act of fraud, embezzlement, theft
or any other material violation of law in connection with Executive's duties or
in the course of his employment with Employer involving material harm to
Employer; (b) intentional wrongful damage to material assets of Employer; or (c)
intentional wrongful engagement in any activity that would constitute a material
breach of Sections 3.1 through 3.4 hereof. No act or omission by Executive shall
be deemed "intentional" if it was due to negligence and shall be deemed
"intentional" only if done, or omitted to be done, by Executive not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of Employer and its subsidiaries. Failure to meet
performance standards or objectives of Employer shall not constitute "Cause" for
purposes hereof. To terminate the employment of Executive for Cause, Employer
must deliver to Executive a Notice of Termination given within 90 days after the
Board of Directors both (i) has knowledge of conduct or an event allegedly
constituting Cause and (ii) has reason to believe that such conduct or event
could be grounds for Cause. For purposes of this Agreement a "Notice of
Termination" shall mean a copy of a resolution duly adopted by the affirmative
vote of not less than a simple majority of the membership of the Board of
Directors, excluding Executive, at a meeting called for the purpose of
determining



                                        2


<PAGE>   3



that Executive has engaged in conduct that constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to be heard
before the Board of Directors prior to such vote).

         1.3 "CHANGE OF OWNERSHIP" means any one of the following events: (a)
the sale to any purchaser unaffiliated with Employer of all or substantially all
of the assets of Employer; (b) the sale, distribution, or accumulation of more
than 50% of the outstanding voting stock of Employer to/by any acquiror or group
of affiliated acquirors that are unaffiliated with Employer; (c) individuals
who, on the completion of Employer's chapter 11 reorganization under the
Bankruptcy Code, constitute the Board of Directors (the "Incumbent Directors")
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to such completion whose election
or nomination for election was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by a specific vote or by approval
of the proxy statement of Employer in which such person is named as a nominee
for director, without objection to such nomination) shall be an Incumbent
Director; PROVIDED, HOWEVER, that no individual elected or nominated as a
director of Employer initially as a result of an actual or threatened election
contest with respect to directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the Board shall
be deemed to be an Incumbent Director; or (d) the merger or consolidation of
Employer with another Entity unaffiliated with Employer if, immediately after
such merger or consolidation, less than a majority of the combined voting power
of the then outstanding securities of such Entity are held, directly or
indirectly, in the aggregate by the holders immediately prior to such
transaction of the then outstanding securities of Employer entitled to vote
generally in the election of directors.



                                        3


<PAGE>   4



         In no event shall "Change of Ownership" be construed to include any
change of control of Employer or any subsidiary of Employer that occurs solely
as a result of any exchange or distribution of equity securities of Employer or
any such subsidiary upon consummation of a plan of reorganization for Employer
or any such subsidiary in its chapter 11 case pending as of the date of this
Agreement.

         1.4 "CODE" means the Internal Revenue Code of 1986, as amended.

         1.5 "COMPETING BUSINESS" means any of the following companies: (a)
Mercantile Stores Co., Inc.; Proffitt's, Inc.; or Carson Pirie Scott & Co.,
including each of their respective Affiliates; (b) Lazarus, Inc.; (c) Lazarus
PA, Inc.; or (d) Rich's Department Stores, Inc.

         1.6 "EFFECTIVE DATE" means the first date on which (a) the Bankruptcy
Court has entered an order approving this Agreement and (b) such order is not
subject to any stay.

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

                                   ARTICLE II
                                   ----------

                                   EMPLOYMENT
                                   ----------

         2.1 EFFECTIVENESS. Notwithstanding any other provision of the
Agreement, the Agreement shall not be effective until the Effective Date (as
such term is defined in the Plan).

         2.2 TERM. Employer shall employ Executive, and Executive shall serve
Employer pursuant to the terms of this Agreement, starting on the Effective
Date. The term of this Agreement shall extend initially until the third
anniversary of the Effective Date; provided, however, that commencing on
December 30, 1998 and each December 30 thereafter, the term of this Agreement
shall be automatically extended for a period of one year unless Employer or
Executive shall have given written notice of termination to the other not less
than 180 days prior to such December 30 (commencing December 30, 1998). Upon
termination of this Agreement pursuant to any such notice, Executive's



                                        4


<PAGE>   5



employment with Employer shall terminate, and Employer's only obligation to
Employer will be payment of the amounts described in Section 2.7(c)(ii).

         2.3 DUTIES. Executive will serve as and perform the duties of Chairman
and Chief Executive Officer of Employer and serve as a member of the Board of
Directors of Employer in accordance with the terms of this Agreement. The duties
of Executive shall be those commensurate with his office and shall include those
responsibilities reasonably assigned to Executive by the Board of Directors of
Employer, with responsibility for reporting to the Board of Directors and the
designated committees thereof. Although it is understood that the right to elect
directors of Employer is by law vested in the shareholders and directors of
Employer, it is nevertheless mutually contemplated, subject to such rights, that
Executive shall be a member of the Board of Directors of Employer.

         2.4 COMPENSATION. In consideration of Executive's services hereunder,
Employer shall pay Executive cash compensation consisting of an annual "Base
Salary" and "Incentive Compensation." Effective as of the Effective Date,
Executive's Base Salary shall be $500,000 per year. Executive's Base Salary
shall be subject to review at the discretion of the Board of Directors from time
to time taking into account changes in Executive's responsibilities, increases
in the cost of living, performance by Executive, increases in salary to other
executives of Employer, and other pertinent factors. In addition to his Base
Salary, the Executive shall be entitled, commencing with the fiscal year
commencing February 2, 1997, to Incentive Compensation of up to 50% of
Executive's Base Salary, to be earned as determined by the Board of Directors;
PROVIDED, HOWEVER, that for the 1997 fiscal year Executive shall be guaranteed
Incentive Compensation of at least $175,000 and a nonguaranteed portion of up to
an additional $75,000. In each fiscal year thereafter, Executive shall
participate in the Employer's Equity and Performance Incentive Plan (the
"Incentive Plan") and Executive's



                                        5


<PAGE>   6



Incentive Compensation thereunder shall consist of an incentive bonus up to 50%
of Executive's Base Salary, to be earned as determined by the Board of Directors
under the Incentive Plan.

         2.5 PAYMENT SCHEDULE. The Compensation specified in Section 2.4 hereof
shall be payable as current salary and bonus in accordance with Employer's
payroll and bonus procedures for other executives. Base Salary shall be paid in
installments not less frequently than monthly, and at the same rate for any
fraction of a month unexpired at the end of the term. Bonuses shall be paid
annually in a lump sum not later than April 15 or, if such day is not a business
day on which Employer's executive offices are open, the first business day
thereafter.

         2.6 EXPENSES. Executive shall be allowed reasonable traveling expenses
and other reasonable expenses in carrying out his duties under this Agreement
and shall be furnished office space, assistance and accommodations suitable to
the character of his position with Employer and adequate for the performance of
his duties hereunder.

         2.7 TERMINATION OF EMPLOYMENT.

                  (a) TERMINATION FOLLOWING A CHANGE OF OWNERSHIP. If (i) before
the second anniversary of a Change of Ownership Employer notifies Executive that
Executive is being terminated, and such termination is without Cause; (ii)
before the second anniversary of a Change of Ownership Executive terminates his
employment for any reason, or without reason; or (iii) Executive's employment
with Employer is terminated in connection with but prior to a Change of
Ownership and termination occurs following the commencement of any discussion
with any third party that ultimately results in a Change of Ownership, Executive
shall be entitled (except as otherwise provided in paragraphs (b), (c) and (d)
of this Section 2.7, and subject to Section 5.1) to receive a lump sum payment
as severance compensation equal to the greater of (A) 2.99 times his "base
amount" as such term is defined in Section 280G of the Code, or (B) 2 times his
most recent



                                        6


<PAGE>   7



Base Salary and Bonus. Employer shall make such payment not later than 45 days
after the date of termination. If any payment made to the Executive pursuant to
this Section 2.7(a) or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisability of any of the
foregoing (a "Payment") is determined to be subject to the excise tax imposed by
Section 4999 of the Code (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control" of Employer, within
the meaning of Section 280G of the Code (or any successor provision thereto) or
to any similar tax imposed by state or local law, or to any interest or
penalties with respect to such tax (such tax or taxes, together with any such
interest and penalties, being hereafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an additional payment or
payments (collectively, a "280G Gross-Up Payment"). The 280G Gross-Up Payment
shall be in an amount such that, after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any excise tax imposed upon the 280G Gross-Up Payment, Executive
retains a portion of the 280G Gross-Up Payment equal to the Excise Tax imposed
upon the Payment.

                  (b) DISABILITY. Executive shall not be in breach of this
Agreement if he shall fail to perform his duties hereof because of physical or
mental disability. If Executive fails to render services to Employer because of
Executive's physical or mental disability for a continuous period of 12 months,
the Board of Directors or its delegate may terminate Executive's employment
prior to the end of the then current term. If there is any dispute between the
parties as to Executive's physical or mental disability at any time, such
question shall be settled by the opinion of an impartial reputable physician
agreed upon for that purpose by the parties or their representatives. Failing
agreement



                                        7


<PAGE>   8



upon an impartial physician for purposes of the preceding sentence, the question
of Executive's physical or mental disability shall be resolved within 10 days of
a written request therefor by either party to the other, by a physician
designated by the then Executive Vice President of the Ohio Academy of Family
Physicians. The written opinion of the physician as to the matter in dispute
shall be final and binding on the parties. If Executive's employment is
terminated pursuant to this Section 2.7(b), Employer shall pay to Executive or
his personal representative, in a lump sum, an amount equal to his Base Salary
for the lesser of one year or the then remaining term of this Agreement.

                  (c)      OTHER TERMINATIONS BY EMPLOYER.

                           (i) CAUSE. Employer may terminate the employment of
         Executive for Cause at any time upon notice given pursuant to Section
         5.6. Upon such termination, this Agreement and all of Employer's
         obligations under this Agreement shall terminate, except that Employer
         shall remain obligated to pay to Executive any unpaid Base Salary
         through the effective date of such termination and any vacation accrued
         but unused as of Executive's last day worked.

                           (ii) NOT FOR CAUSE. Employer may terminate the
         employment of Executive at any time for any reason. However, if such
         termination of employment does not occur pursuant to Section 2.2 or
         under the circumstances described in paragraphs (a), (b) or (c)(i) of
         this Section 2.7, Employer shall remain obligated to Executive for (A)
         payment of Executive's unpaid Base Salary (as described in Section 2.4)
         through the then-remaining term of this Agreement pursuant to Section
         2.2, (B) any Incentive Compensation (as described in Section 2.4)
         earned on or before Executive's last day worked and (C) payment for any
         vacation accrued but unused as of Executive's last day worked.



                                        8


<PAGE>   9



                  (d) DEATH. If Executive dies while rendering services under
this Agreement, there shall be payable to his estate an amount equal to his Base
Salary for the lesser of one year or the then remaining term of this Agreement.
Such amount shall be paid to Executive's estate in a single lump sum.

         2.8 MITIGATION; OFFSET. Executive shall not be required to mitigate the
amount of any payment or benefit provided for in the Agreement by seeking other
employment or otherwise. However, any amount payable pursuant to this Agreement
following the termination of Executive's employment shall reduce any amount
payable by Employer to or with respect to Executive pursuant to any other
severance pay or other similar plan, program or arrangement of Employer,
including, without limitation, the Employer's Master Severance Plan for Key
Employees.

                                   ARTICLE III
                                   -----------

                        CERTAIN OBLIGATIONS OF EXECUTIVE
                        --------------------------------

         3.1 NO PARTICIPATION IN OTHER BUSINESSES. Executive shall not, without
the consent of the Board of Directors, become actively associated with or
engaged in any business other than that of Employer or a division or Affiliate
of Employer, and he shall do nothing inconsistent with his duties to Employer.

         3.2 TRADE SECRETS AND CONFIDENTIAL INFORMATION.

                  (a) UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. Executive
will keep in strict confidence, and will not, directly or indirectly, at any
time during or after his employment with Employer, disclose, furnish,
disseminate, make available or, except in the course of performing his duties of
employment under this Agreement, use any trade secrets or confidential business
and technical information of Employer or its customers, vendors or property
owners or managers, without limitation as to when or how Executive may have
acquired such information. Such confidential



                                        9


<PAGE>   10



information will include, without limitation, Employer's unique selling methods
and trade techniques; management, training, marketing and selling manuals;
promotional materials; training courses and other training and instructional
materials; any personnel information; material nonpublic financial information;
any corporate organizational information; lease terms; vendor, owner, manager
and product information; customer lists; other customer information; and other
trade information. Executive specifically acknowledges that all such
confidential information including, without limitation, customer lists, other
customer information and other trade information, whether reduced to writing,
maintained on any form of electronic media, or maintained in the mind or memory
of Executive and whether compiled by Employer and/or Executive, derives
independent economic value from not being readily known to or ascertainable by
proper means by others who can obtain economic value from its disclosure or use,
that reasonable efforts have been made by Employer to maintain the secrecy of
such information, that such information is the sole property of Employer and
that any retention and use of such information by Executive during his
employment with Employer (except in the course of performing his duties and
obligations under this Agreement) or after the termination of his employment
will constitute a misappropriation of Employer's trade secrets.

                  (b) POST-TERMINATION. Executive agrees that, upon termination
of Executive's employment with Employer, for any reason, Executive will return
to Employer, in good condition, all property of Employer, including without
limitation, the originals and all copies of all management, training, marketing
and selling manuals; promotional materials; other training and instructional
materials; financial information; vendor, owner, manager and product
information; customer lists; other customer information; and all other selling,
service and trade information and equipment. If such items are not returned,
Employer will have the right to charge Executive for all reasonable



                                       10


<PAGE>   11



damages, costs, attorneys' fees and other expenses incurred in searching for,
taking, removing and/or recovering such property.

         3.3 NONCOMPETITION. It is recognized by Executive and Employer that
Executive's duties under this Agreement will entail the receipt of trade secrets
and confidential information, which include not only information concerning
Employer's current operations, procedures, suppliers and other contacts, but
also its short-range and long-range plans, and that such trade secrets and
confidential information may have been developed by Employer and its Affiliates
at substantial cost and constitute valuable and unique property of Employer.
Accordingly, Executive acknowledges that the foregoing makes it reasonably
necessary for the protection of Employer's business interests that Executive not
compete with Employer or any of its Affiliates during the term of this Agreement
and for a reasonable and limited period thereafter. Therefore, during the term
of this Agreement and for one year after termination of the Agreement, Executive
shall not have any investment in a Competing Business other than a de minimis
investment and shall not render personal services to any such Competing Business
in any manner, including, without limitation, as owner, partner, director,
trustee, officer, employee, consultant or advisor thereof; PROVIDED, HOWEVER,
that this Section 3.3 shall not apply if Employer terminates Executive other
than for Cause. For purposes of the preceding sentence, a de minimis investment
is ownership of less than 1% of the outstanding stock or debt of any Competing
Business.

         Notwithstanding Section 2.7 above, if Executive shall breach the
covenants contained in this Section 3.3 or in Section 3.2, Employer shall have
no further obligations to Executive pursuant to this Agreement and may recover
from Executive all such damages as it may be entitled to at law or in equity. In
addition, Executive acknowledges that any such breach is likely to result in
immediate and irreparable harm to Employer for which money damages are likely to
be inadequate.



                                       11


<PAGE>   12



Accordingly, Executive consents to injunctive and other appropriate equitable
relief that Employer may seek to protect Employer's rights under this Agreement.
Such relief may include, without limitation, an injunction to prevent Executive
from disclosing any trade secrets or confidential information concerning
Employer to any Entity, to prevent any Entity from receiving from Executive or
using any such trade secrets or confidential information and/or to prevent any
Entity from retaining or seeking to retain any other employees of Employer.

         3.4 CONFLICTS OF INTEREST. Executive shall not engage in any activity
that would violate any Conflict of Interest or Business Ethics Statement of
Employer that Executive may sign from time to time.

                                   ARTICLE IV
                                   ----------

                                 OTHER BENEFITS
                                 --------------

         4.1 EMPLOYEE BENEFITS.

                  (a) Executive and Executive's family, as applicable, shall be
eligible for participation in and shall receive all benefits under the savings
and retirement programs, welfare benefit plans, fringe benefit programs and
perquisites that Employer provides to senior executives of Employer in effect
from time to time.

                  (b) Subject to Section 5.1, upon termination under Section
2.7(a) hereof:


                           (i) The benefits described in Section 4.1(a) will
         continue until the Executive obtains new employment providing 
         substantially similar benefits, but in any event no later than 3 years 
         after the date of termination; PROVIDED, HOWEVER, that after such 
         3-year period, if Executive has not obtained new employment, Executive 
         will be offered the opportunity to continue health benefits similar to 
         those that would be provided to him under COBRA upon a termination of 
         employment without reference to the length of time COBRA



                                       12


<PAGE>   13



         rights would be in force. During the period of continued coverage
         pursuant to this Section 4.1(b)(i), Executive will be required to pay
         the same cost of coverage, co-pays, deductibles and other similar
         payments paid by active senior executives of the Company having elected
         the same type of coverage. Executive will cease to be eligible for
         continued health and life insurance benefits provided by Employer if he
         (A) waives such coverage or (B) fails to pay any amount required for
         such coverage.

                           (ii) Executive will be reimbursed by Employer for
         reasonable expenses incurred for outplacement counseling (A) which are
         pre-approved by Employer's Senior Vice President - Human Resources, (B)
         which do not exceed 15% of Executive's Base Salary and (C) which are
         incurred by Executive within 6 months following such termination. 

         4.2 RELOCATION. Executive shall relocate to a residence within 25 
miles of downtown Dayton, Ohio. Employer shall, within 60 days of receipt of
appropriate documentation, reimburse Executive for reasonable costs for
temporary, furnished housing in the Dayton area for up to six months from the
Effective Date. Employer shall, within 60 days of receipt of appropriate
documentation, reimburse Executive reasonable moving costs from Executive's
temporary housing in Dayton, Ohio to Executive's permanent Dayton residence.
Executive shall be entitled to all payments and reimbursements to which
executives are entitled under Employer's applicable relocation policy for
transferred employees. If the reimbursement payable pursuant to this Section is
taxable to Executive, then the Executive shall be entitled to receive an
additional payment (a "Gross-up Payment"). The Gross-up Payment shall be in an
amount such that, after payment by the Executive of all taxes incurred as a
result of the reimbursement (including any interest or penalties imposed with
respect to such taxes), including any tax imposed on the Gross-up Payment, the
Executive retains a



                                       13


<PAGE>   14



portion of the Gross-up Payment equal to the taxes, penalties and interest
imposed on the reimbursement amount.

         4.3 VACATION AND SICK LEAVE. Executive shall be entitled to vacation
and sick leave each year, in accordance with Employer's policies in effect from
time to time, provided, however, that Executive shall be entitled to a minimum
of four weeks vacation per year.

                                    ARTICLE V
                                    ---------

                                  MISCELLANEOUS
                                  -------------

         5.1 LEGAL FEES AND EXPENSES.

                  (a) It is the intent of Employer that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to Executive that Employer has
failed to comply with any of its obligations under this Agreement or in the
event that Employer or any other person takes or threatens to take any action to
declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
the benefits provided or intended to be provided to the Executive hereunder,
Employer irrevocably authorizes the Executive from time to time to retain
counsel of Executive's choice, at the expense of Employer as hereafter provided,
to advise and represent the Executive in connection with any such
interpretation, enforcement or defense, including without limitation the
initiation or defense of any litigation or other legal action, whether by or
against Employer or any Director, officer, stockholder or other person
affiliated with Employer, in any jurisdiction. Notwithstanding any existing or
prior attorney-client relationship between Employer and such counsel, Employer
irrevocably consents to



                                       14


<PAGE>   15



the Executive's entering into an attorney-client relationship with such counsel,
and in that connection Employer and the Executive agree that a confidential
relationship shall exist between the Executive and such counsel. Without respect
to whether the Executive prevails, in whole or in part, in connection with any
of the foregoing, Employer will pay and be solely financially responsible for
any and all attorneys' and related fees and expenses incurred by the Executive
in connection with any of the foregoing.

                  (b) Without limiting the generality or effect of Section 5.1,
in order to ensure the benefits intended to be provided to the Executive under
Section 5.1(a), Employer will promptly use its best efforts following written
notice to Employer by the Executive to secure an irrevocable standby letter of
credit (the "Letter of Credit"), issued by Citibank or another bank having
combined capital and surplus in excess of $500 million (the "Bank") for the
benefit of the Executive and providing that the fees and expenses of counsel
selected from time to time by the Executive pursuant to this Section 5.1 shall
be paid, or reimbursed to the Executive if paid by the Executive, on a regular,
periodic basis upon presentation by the Executive to the Bank of a statement or
statements prepared by such counsel in accordance with its customary practices.
Employer shall pay all amounts and take all action necessary to maintain the
Letter of Credit.

         5.2 RELEASE. Payment of the amount described in Section 2.7(a) and the
benefits described in Section 4.1(b) to Executive is conditioned upon Executive
executing and delivering a release satisfactory to Employer releasing Employer
from any and all claims, demands, damages, actions and/or causes of action
whatsoever, which Executive may have had on account of the termination of his
employment, including, but not limited to claims of discrimination, including on
the basis of sex, race, age, national origin, religion, or handicapped status
(with all applicable periods during which Executive may revoke the release or
any provision thereof having expired), and any and all claims,



                                       15


<PAGE>   16



demands and causes of action for retirement (other than under the retirement
plans maintained by Employer that are qualified under Section 401(a) of the Code
or under any "welfare benefit plan" of Employer (as the term "welfare benefit
plan" is defined in Section 3(1) of the Employee Retirement Income Security Act
of 1974, as amended)), severance or other termination pay. Such release will
not, however, apply to the ongoing obligations of Employer arising under this
Agreement, or rights of indemnification Executive may have under Employer's
policies or by contract or by statute.

         5.3 SUCCESSORS AND BINDING AGREEMENT.

                  (a) Employer will require any successor to all or
substantially all of the businesses or assets of Employer (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise), by
agreement in form and substance reasonably satisfactory to Executive, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent Employer would be required to perform if no such succession had taken
place. This Agreement will be binding upon and inure to the benefit of Employer
and any successor to Employer, including without limitation any persons
acquiring directly or indirectly all or substantially all of the businesses or
assets of Employer whether by purchase, merger, consolidation, reorganization or
otherwise (and such successor will thereafter be deemed "Employer" for the
purposes of this Agreement).

                  (b) This Agreement will inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.

                  (c) This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereof except as expressly
provided in Sections 5.3(a) and (b). Without limiting the generality or effect
of the foregoing, Executive's right to receive payments hereof will not be



                                       16


<PAGE>   17



assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, if Executive attempts any assignment or
transfer contrary to this Section 5.3, Employer will have no liability to pay
any amount Executive attempts to assign, transfer or delegate.

         5.4 GOVERNING LAW. This Agreement has been executed on behalf of
Employer by an officer of Employer located in the City of Moraine, Ohio. This
Agreement and all questions arising in connection with it shall be governed by
the internal substantive laws of the State of Ohio, without giving effect to
principles of conflict of laws. Employer and Executive each consent to the
jurisdiction of, and agree that any controversy between them arising out of this
Agreement shall be brought in, the United States District Court for the Southern
District of Ohio, Western Division; the Court of Common Pleas for Montgomery
County, Ohio; or such other court venued within Montgomery County, Ohio as may
have subject matter jurisdiction over the controversy; PROVIDED, HOWEVER, that
until consummation of a plan of reorganization for Employer, any such
controversy shall be brought in the Bankruptcy Court.

         5.5 SEVERABILITY. If any portion of this Agreement is held to be
invalid or unenforceable, such holding shall not affect any other portion of
this Agreement.

         5.6 ENTIRE AGREEMENT. This Agreement comprises the entire agreement
between the parties hereto and, as of the date hereof, supersedes any prior
agreements between the parties. This Agreement may not be modified, renewed or
extended except by a written instrument referring to this Agreement and executed
by the parties hereto.

         5.7 NOTICES. Any notice or consent required or permitted to be given
under this Agreement shall be in writing and shall be effective: (a) when given
by personal delivery; (b) one business day after being sent by overnight
delivery service; or (c) 5 business days after being



                                       17


<PAGE>   18


sent by certified U.S. mail, return receipt requested, to the Secretary of
Employer at its principal place of business in the City of Moraine or to
Executive at his last known address as shown on the records of Employer.

         5.8 WITHHOLDING TAXES. Employer may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.

                                 THE ELDER-BEERMAN STORES CORP.

                                 By: /s/ John A. Muskovich
                                     ------------------------------------------
                                         John A. Muskovich
                                         President and Chief Operating Officer

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



                                       18