Pooling And Servicing Agreement - SAKS INC - 4-30-1999

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Pooling And Servicing Agreement - SAKS INC - 4-30-1999 Powered By Docstoc
					EXHIBIT 10.50 SFA FINANCE COMPANY SELLER SAKS & COMPANY SERVICER AND BANKERS TRUST COMPANY TRUSTEE

AMENDMENT NO. 1 DATED AS OF DECEMBER 17, 1998 TO THE SERIES 1998-1 SUPPLEMENT DATED AS OF AUGUST 31, 1998 TO THE POOLING AND SERVICING AGREEMENT DATED AS OF APRIL 25, 1996

THIS AMENDMENT NO. 1 ("Amendment") dated as of December 17, 1998, to the Series 1998-1 Supplement dated as of August 31, 1998 (the "Series Supplement") to the Pooling and Servicing Agreement dated as of April 25, 1996 (as amended or supplemented, the "Pooling and Servicing Agreement"), is by and among SFA Finance Company, as Seller (the "Seller"), Saks & Company, as Servicer (the "Servicer"), and Bankers Trust Company, as trustee (the "Trustee"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Pooling and Servicing Agreement or the Series Supplement. WITNESSETH WHEREAS, the parties hereto are authorized by Section 13.1(b) of the Pooling and Servicing Agreement to enter into this Amendment. NOW, THEREFORE, in consideration of the mutual promises contained herein, in the Pooling and Servicing Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE SERIES SUPPLEMENT 1.1 Section 5.2B of the Series Supplement shall be deleted in its entirety and replaced by the following provision: "Section 5.2B Monthly Certificateholders' Statement. On each Determination Date the Paying Agent shall forward to each Series 1998-1 Certificateholder and each Rating Agency a statement substantially in the form of Exhibit A hereto." SECTION 2. REPRESENTATIONS AND WARRANTIES Each of the Seller and the Servicer represents and warrants that: (a) Its execution, delivery and performance of this Amendment are within its corporate powers, have been duly authorized by all necessary corporate action and do not require any consent or approval which has not been obtained. (b) This Amendment and the Series Supplement as amended hereby are legal, valid and binding obligations of it, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. 2

SECTION 3. CONDITIONS PRECEDENT This Amendment shall become effective as of its date, provided that all of the following conditions are met: (a) This Amendment shall have been executed and delivered by the parties hereto; (b) The Servicer shall have provided an Officer's Certificate to the Trustee to the effect that (i) this Amendment will not materially and adversely affect the interests of any Certificateholder, (ii) the Servicer provided at least ten Business Days' prior written notice to each Rating Agency of this Amendment and received written confirmation from each Rating Agency to the effect that the rating of any Series rated by such Rating Agency will not be reduced or withdrawn as a result of this Amendment, and (iii) all of the conditions precedent to the effectiveness of this Amendment have been satisfied; and (c) The Seller and Servicer shall have provided Opinions of Counsel to the Trustee to the effect that (i) this Amendment shall not cause the Trust to be characterized for Federal income tax purposes as an association taxable as a corporation, or otherwise have any material adverse impact on the Federal income taxation of any outstanding Series of Investor Certificates or any Certificate Owner, and (ii) this Amendment complies with all the requirements of the Pooling and Servicing Agreement. SECTION 4. MISCELLANEOUS (a) Applicability of the Series Supplement In all respects not inconsistent with the terms and provisions of this Amendment, the provisions of the Series Supplement are hereby ratified, approved and confirmed. (b) Headings The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. (c) Counterparts This Amendment may be executed in counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one and the same instrument. (d) Governing Law THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND OBLIGATIONS, RIGHTS AND 3

REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. (e) The Trustee The Trustee shall not be responsible in any manner whatsoever for or in respect of the sufficiency of this Amendment or for or in respect of the recitals contained herein, all of which recitals are made solely by the Seller and the Servicer. [Signatures on next page] 4

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. SFA FINANCE COMPANY, as Seller By: _____________________________ Name: James S. Scully Title: Vice President and Treasurer SAKS & COMPANY, as Servicer By: _____________________________ Name: James S. Scully Title: Vice President and Treasurer BANKERS TRUST COMPANY, as Trustee By: _____________________________ Name: Title: 5

EXHIBIT A MONTHLY SERVICER'S CERTIFICATE A-1

EXHIBIT 10.52 SAKS INCORPORATED AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED EFFECTIVE 1/30/98) 1. Purpose. The purpose of the Saks Incorporated Amended and Restated Employee Stock Purchase Plan is to provide a method whereby employees of Saks Incorporated and its subsidiaries have an opportunity to purchase shares of Common Stock of the Corporation. The Plan is intended to qualify as an Employee Stock Purchase Plan under Section 423 of the Internal Revenue Code of 1986, as amended, and all provisions of the Plan shall be construed in a manner to effect that intent. 2. Definitions. As used in this Plan, the following words shall have the following meanings: (a) "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference to a section of the Code shall include that section and any comparable section of any future legislation that amends, supplements, or supersedes that section. (b) "Common Stock" shall mean the common stock of the Corporation. (c) "Compensation Committee" shall mean the Compensation Committee of the Board of Directors, to which the administrative duties and responsibilities under the Plan are delegated. (d) "Corporation" shall mean Saks Incorporated, a Tennessee corporation. (e) "Employee" shall mean any individual who is employed by the Corporation or a subsidiary on a full-time or part-time basis and who is regularly scheduled to work more than 20 hours per week. (f) "Offering" shall mean any opportunity to purchase Common Stock granted to Participants, the terms and conditions of which have been established by the Compensation Committee pursuant to the Plan. (g) "Offering Commencement Date" shall mean the date on which any Offering commences. (h) "Offering Termination Date" shall mean the date on which any Offering ends. (i) "Option" shall mean any opportunity to purchase Common Stock granted to a Participant pursuant to an Offering. (j) "Participant" shall mean each Employee who becomes a participant as provided in Section 5.

(k) "Plan" shall mean the Saks Incorporated Amended and Restated employee stock Employee Stock Purchase Plan. (l) "Subsidiary" shall mean McRae's, Inc., McRae's of Alabama, Inc., and any present or future corporation which: (i) would be a "subsidiary corporation" of the Company as that term is defined in Section 424 of the Code, and (ii) is designated as a participant in the Plan by the Board of Directors. 3. Administrative. (a) Appointment. The Plan shall be administered by the Compensation Committee. The Compensation Committee may, from time to time, delegate nondiscretionary administrative responsibilities under the Plan to Employees who shall continue to be eligible to participate in accordance with Section 4(a). (b) Powers. The Compensation Committee shall determine: (i) the time or times when Options shall be granted; (ii) the number of shares subject to the Offering; and (iii) the limitations, restrictions, and conditions applicable to any Options. (c) Interpretations. Subject to the express provisions of the Plan, the Compensation Committee may interpret the Plan, prescribe, amend, and rescind rules and regulations relating to it, determine the terms and conditions of the Options, and make all other determinations it deems necessary or advisable for the administration of the Plan. (d) Determinations. The determinations of the Compensation Committee on all matters regarding the Plan shall be conclusive. No member of the Compensation Committee shall be liable for any action taken or determination made in good faith. 4. Eligibility. (a) Initial Eligibility. Each Employee as defined in Section 2(e) who shall have completed twelve (12) months of employment and is employed by the Corporation or a Subsidiary on the date his or her participation in the Plan is to become effective shall be eligible to participate in Offerings under the Plan that commence on or after such twelve (12) month period has concluded. (b) Restrictions on Participation. Notwithstanding any provisions of the Plan to the contrary, no Employee shall be granted an Option under the Plan: (i) if, immediately after the grant, such Employee would own stock, and/or hold outstanding Options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Corporation (for

purposes of this paragraph, the rules of Section 423 of the Code shall apply in determining stock ownership of any Employee); or (ii) which permits the Employee's right to purchase stock under all employee stock purchase plans, within the meaning of Section 423 of the Code, to accrue at a rate that exceeds $25,000 in fair market value of the stock (determined at the time such Options are granted) for each year in which such Options are outstanding. 5. Commencement of Participation. (a) Participation. An eligible Employee may become a Participant by completing an authorization for payroll deductions on the form provided by the Corporation and delivering it to an authorized representative of the Corporation. Payroll deductions for a Participant shall commence on the applicable Offering Commencement Date and shall end on the applicable Offering Termination Date unless sooner terminated by the Participant. All such Participant contributions shall be credited to the Participant's account. (b) Participant Elections. Each Participant is required to sign a written participation form (hereinafter referred to as the "Participation Agreement") for each Offering. The terms of the Participation Agreement shall provide that the Participant elects to have payroll deductions credited to the Participant's account, subject to the limitations hereinafter described, that will in no event exceed Two Thousand Four Hundred and 00/100 Dollars ($2,400.00) during the initial Offering. The Compensation Committee retains the right to adjust this amount for subsequent offerings. Elections to participate hereunder shall be made no later than ten (10) days prior to an Offering Commencement Date. Contributions may be increased or decreased for subsequent Offerings. 6. Stock Options. (a) Number of Option Shares. On the initial Offering Commencement Date, each Participant shall be granted an Option to Purchase the number of shares of Common Stock equal to the number determined by dividing Two Thousand Four Hundred and 00/100 Dollars ($2,400.00) by 85% of the fair market value of the Common Stock. The Compensation Committee retains the discretion to adjust this amount for subsequent offerings. (b) Option Price. The price to purchase Common Stock subject to the Option shall be an amount not less than the lower of: 3

(i) 85% of the closing bid price per share of the Common Stock as listed on the New York Stock Exchange on the last business day preceding grant of such Option; or (ii) 85% of the closing bid price per share of the Common Stock as listed on the New York Stock Exchange on the first business day preceding exercise thereof. (c) Maximum Shares Issuable Under the Plan. The maximum number of shares of Common Stock issuable under Plan pursuant to Options to buy shares of Common Stock is 700,000, subject to adjustments pursuant to Section 9. Shares of Common Stock issued pursuant to the Plan may be either authorized but unissued shares or shares held in the treasury of the Corporation. In the event that any Option under the Plan expires unexercised or is terminated without being exercised, in whole or in part, for any reason, the number of shares theretofore subject to such Option or the unexercised or terminated portion thereof, shall be added to the remaining number of shares of Common Stock available for grant as an Option under the Plan upon such terms and conditions as the Compensation Committee shall determine, which terms may be more or less favorable than those applicable to such former Option. 7. Exercise of Option. (a) Automatic Exercise. Unless a Participant gives written notice of withdrawal to the Corporation, the Participant's Option for the purchase of Common Stock with payroll deductions made during any Offering will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering, for the purchase of the number of full shares of Common Stock that the accumulated payroll deductions credited to his or her account at that time will purchase at the applicable Option price (but not in excess of the number of shares for which Options have been granted to the Employee), and any excess in his account at that time will be returned to him. An Option may be exercised only by a Participant during his or her lifetime or by a designated beneficiary within ninety (90) days of the date of death. (b) Withdrawal From Account. A Participant who is not subject to Section 16 of the Securities Exchange Act may withdraw from the Plan, in whole but not in part, at any time prior to the Offering Termination Date applicable to any Offering by delivering written notice to the Corporation's authorized representative indicating such Participant's intent to withdraw. A Participant subject to Section 16 of the Securities Exchange Act may not voluntarily withdraw during an Offering. Upon withdrawal by a Participant, the Corporation will promptly refund the entire balance of a Participant's deductions accumulated during the year. A Participant who withdraws from the Plan may reenter for a subsequent Offering by filing a new authorization at least ten (10) days prior to an Offering Commencement Date. 4

(c) Fractional Shares. Fractional shares will be issued under the Plan to the extent it is practicable. (d) Delivery of Stock. As soon as practicable after the Offering Termination Date of each Offering, the Corporation will purchase the shares issued upon exercise of the Option and place those shares in an account in the name of the Participant. 8. Transferability. No Option may be transferred, assigned, pledged or hypothecated (other than to the laws of descent and distribution), and no Option shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option or levy of attachment or similar process upon the Option not specifically permitted herein shall be null and void and without effect. 9. Adjustment Provisions. The aggregate number of shares of Common Stock with respect to which Options may be granted, the aggregate number of shares of Common Stock subject to each outstanding Option, and the Option price per share of each such Option, may all be appropriately adjusted as the Compensation Committee may determination for any increase or decrease in the number of shares of issued Common Stock resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split, stock distribution, combination of shares, or the payment of a share dividend or other increase in the number of such shares outstanding effected without receipt of consideration by the Corporation. Adjustments under this Section 9 shall be made in the sole discretion of the Compensation Committee, and its decision shall be binding and conclusive. 10. Dissolution, Merger and Consolidation. Upon the dissolution or liquidation of the Corporation, or upon a merger or consolidation of the Corporation in which the Corporation is not the surviving corporation, each Option granted hereunder shall expire as of the effective date of such transaction; provided, however, that the Compensation Committee shall give at least thirty (30) days prior written notice of such event to each Participant during which time he or she shall have a right to exercise his or her wholly or partially unexercised Option and, subject to prior expiration pursuant to Section 12(a) or (b), each Option shall be exercisable after receipt of such written notice and prior to the effective date of such transaction. 11. Effective Date and Conditions Subsequent to Effective Date. The Plan shall become effective on the date of the approval of the Plan by the majority of the shareholders of the Corporation, and the Plan shall be null and void and of no effect if such condition is not fulfilled, and in such event each Option granted hereunder shall, notwithstanding any of the preceding provisions of the Plan, be null and void and of no effect. 12. Termination of Employment. Notwithstanding anything contained herein to the contrary, each Option shall expire on the earlier of: 5

(a) the expiration of ninety (90) days commencing with the death of the Participant; (b) the expiration of ninety (90) days commencing with the date that the employment of the Participant with the Corporation terminates for any reason; or (c) the Offering Termination Date. Upon expiration of any Option prior to the applicable Offering Termination Date, any payroll deductions credited to the Participant under the Plan shall be promptly returned to the Participant or his designated beneficiary in the event of his death, without interest. 13. Miscellaneous. (a) Legal and Other Requirements. The obligations of the Corporation to sell and deliver Common Stock under the Plan shall be subject to all applicable laws, regulations, rules and approvals, if deemed necessary or appropriate by the Corporation. Certificates for shares of Common Stock issued hereunder may contain a legend as the Compensation Committee deems appropriate. (b) No Obligation to Exercise Options. The granting of an Option shall impose no obligation upon a Participant to exercise such Option. (c) Termination and Amendment of Plan. The Compensation Committee, without further action on the part of the shareholders of the Corporation, may from time to time alter, amend or suspend the Plan or any Option granted hereunder or may at any time terminate the Plan, except that, unless approved by the shareholders in accordance with Section 11 hereof, it may not: (i) change the total number of shares of Common Stock authorized to be issued under the Plan; or (ii) change the class of employees eligible to be granted Options under the Plan. No action taken by the Compensation Committee under this Section may materially and adversely affect any outstanding Option without the consent of the holder thereof. (d) Application of Funds. The proceeds received by the Corporation from the sale of Common Stock Pursuant to Options will be used for general corporate purposes. (e) Right to Terminate Employment. Nothing in the Plan or any agreement entered into pursuant to the Plan shall confer upon any Employee or Participant the right to continue in the employment of the Corporation or affect any right which the Corporation may have to terminate the employment of such Employee or Participant. 6

(f) Rights as a Shareholder. No Participant shall have any rights or privileges as a shareholder in Common Stock covered by an Option until such Option has been exercised. (g) Leaves of Absence and Disability. A Participant shall continue to be treated as an Employee for all purposes of the Plan during the first ninety (90) days of any leave of absence, whether such leave is with or without pay. Upon expiration of such ninety (90) day period, unless a Participant has resumed employment, his employment for purposes of the Plan shall be deemed to terminate on such date. During the first ninety (90) days of a leave of absence the Participant shall continue to have all rights otherwise provided pursuant to the Plan and the additional right to supplement the payroll deductions (if any) made during such period with out-of-pocket payments to the extent necessary to continue his Plan election in effect for the applicable Offering. (h) Fair Market Value. Whenever the fair market value of Common Stock is to be determined under the Plan as of a given date, such fair market value shall be determined as the closing bid price per share as listed on the New York Stock Exchange on the last business day preceding the valuation. (i) Notices. Every direction, revocation, or notice authorized or required by the Plan shall be deemed delivered to the Corporation: (A) on the date it is personally delivered to the Secretary of the Corporation at its principal executive offices; or (B) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Secretary at such offices; and shall be deemed delivered to a Participant: (1) on the date it is personally delivered to him or her, or (2) three (3) business days after it is sent by registered or certified mail, postage prepaid, addressed to him or her at the last address shown for him or her on the records of the Corporation. (j) Applicable Law. All questions pertaining to the validity, construction and administration of the Plan granted hereunder shall be determined in conformity with the laws of the State of Tennessee. (k) Limitations on Sale of Stock Purchased Under the Plan. The Plan is intended to provide Common Stock for long-term investment. The Corporation does not, however, intend to restrict or influence any Employee in the conduct of his or her own affairs. An Employee may, therefore, sell stock purchased under the Plan at any time he or she chooses; provided, however, that because of certain federal income tax requirements each Employee will agree by entering the Plan to give the Corporation prompt notice of any such stock disposed of within two (2) years after the date of grant of the applicable Option showing the number of such shares disposed of, and an appropriate legend requiring such notice shall be placed on the certificate of 7

Common Stock issued hereunder. The Employee assumes the risk of any market fluctuations in price of such stock. Officers and directors should note that, pursuant to federal securities laws, certain restrictions apply to the number of shares they may sell, the manner of sale, and the timing of sales with respect to the resale of shares acquired under the Plan; therefore, officers and directors must consult with the office of the Senior Vice President of Investor Relations prior to any such sales. IN WITNESS WHEREOF, the Corporation has adopted the foregoing instrument as of January 30, 1998. SAKS INCORPORATED Signature Printed Name, Title ATTEST: Signature Printed Name, Title 8

EXHIBIT 10.53 SAKS INCORPORATED AMENDED AND RESTATED 1994 LONG-TERM INCENTIVE PLAN 1. PURPOSE The purpose of the Saks Incorporated Amended and Restated 1994 Long-Term Incentive Plan (the "Plan") is to further the earnings of Saks Incorporated, a Tennessee corporation, and its subsidiaries (collectively, the "Company") by assisting the Company in attracting, retaining and motivating management employees and directors of high caliber and potential. The Plan provides for the award of long-term incentives to those officers, other key executives and directors who make substantial contributions to the Company by their loyalty, industry and invention. 2. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") selected by the Board of Directors of the Company (the "Board of Directors") consisting solely of two or more members who are "outside directors" as described in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Except to the extent permitted under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act") (or any successor rule of similar import), each Committee member shall be ineligible to receive, and shall not have been, during the one-year period prior to appointment thereto, granted or awarded stock options, stock appreciation rights, performance units, or restricted stock pursuant to this Plan or any other similar plan of the Company or any affiliate of the Company. Without limiting the foregoing, the Committee shall have full and final authority in its discretion to interpret the provisions of the Plan and to decide all questions of fact arising in its application. Subject to the provisions hereof, the Committee shall have full and final authority in its discretion to determine the employees and directors to whom awards shall be made under the Plan; to determine the type of awards to be made and the amount, size and terms and conditions of each such award; to determine the time when awards shall be granted; to determine the provisions of each agreement evidencing an award; and to make all other determinations necessary or advisable for the administration of the plan. 3. STOCK SUBJECT TO THE PLAN The Company may grant awards under the Plan with respect to not more than a total of 10,822,000 shares of $.10 par value common stock of the Company (the "Shares") (subject, however, to adjustment as provided in paragraph 20, below). Such shares may be authorized and unissued Shares or treasury Shares. Except as otherwise provided herein, any Shares subject to an option or right which for any reason is surrendered before exercise or expires or is terminated unexercised as to such Shares shall again be available for the granting of awards under the Plan. Similarly, if any Shares granted pursuant to restricted stock awards are forfeited, such forfeited Shares shall again be available for the granting of awards under the Plan.

4. ELIGIBILITY TO RECEIVE AWARDS Persons eligible to receive awards under the Plan shall be limited to those officers, other key employees and directors of the Company who are in positions in which their decisions, actions and counsel have a significant impact upon the profitability and success of the Company (but excluding members of the Committee, except as provided in paragraphs 6(h) and 8(e)). 5. FORM OF AWARDS Awards may be made from time to time by the Committee in the form of stock options to purchase Shares, stock appreciation rights, performance units, restricted stock, or any combination of the above. Stock options may be options which are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422(b) of the Code, or options which are not intended to so qualify ("Nonqualified Stock Options"). 6. STOCK OPTIONS Stock options for the purchase of Shares shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time; provided that the maximum number of options which may be granted to any one grantee during any twelve-month period is 1,000,000 (as adjusted pursuant to paragraph 20, below). Such agreement shall contain the terms and conditions applicable to the options, including in substance the following terms and conditions: (a) Type of Option. Each option agreement shall identify the options represented thereby as Incentive Stock Options or Nonqualified Stock Options, as the case may be, and shall set forth the number of Shares subject to the options. (b) Option Price. The option exercise price to be paid by the optionee to the Company for each Share purchased upon the exercise of an option shall be determined by the Committee, but shall in no event be less than the fair market value of a Share on the date of grant. The option exercise price shall not be changed after the option is granted. (c) Exercise Term. Each option agreement shall state the period or periods of time within which the option may be exercised, in whole or in part, as determined by the Committee and subject to such terms and conditions as are prescribed for such purpose by the Committee, provided that no option shall be exercisable after ten years from the date of grant thereof. The Committee, in its discretion, may provide in the option agreement circumstances under which the option shall become immediately exercisable, in whole or in part, and, notwithstanding the foregoing, may accelerate the exercisability of any option, in whole or in part, at any time. 2

(d) Payment for Shares. The purchase price of the Shares with respect to which an option is exercised shall be payable in full at the time of exercise in cash, shares at fair market value, or a combination thereof, as the Committee may determine and subject to such terms and conditions as may be prescribed by the Committee for such purpose. If the purchase price is paid by tendering Shares, the Committee in its discretion may grant the optionee a new stock option for the number of Shares used to pay the purchase price. (e) Rights Upon Termination. In the event of Termination (as defined below) of an optionee's status as an employee or director of the Company for any cause other than Retirement (as defined below), death or Disability, (as defined below), the optionee shall have the right to exercise the option during its term within a period of three months after such Termination to the extent that the option was exercisable at the time of Termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. As used herein, "Termination" means, (i) in the case of an employee, the cessation of the grantee's employment by the Company for any reason, and (ii) in the case of a director, the cessation of the grantee's service as a director of the Company; and "Terminates" has the corresponding meaning. As used herein, "Retirement" means retirement from active employment (in the case of an employee), or active service (in the case of a director) with the Company on or after age 65, or such earlier age with the express written consent for purposes of the Plan of the Company at or before the time of such retirement, and "Retires" has the corresponding meaning. As used herein, "Disability" means a condition that, in the judgment of the Committee, has rendered a grantee completely and presumably permanently unable to perform any and every duty of his regular occupation, and "Disabled" has the corresponding meaning. In the event that an optionee Retires, dies or becomes Disabled prior to the expiration of his option and without having fully exercised his option, the optionee or his Beneficiary (as defined below) shall have the right to exercise the option during its term within a period of (i) one year after Termination due to Retirement, death or Disability, or (ii) one year after death if death occurs either within one year after Termination due to Retirement or Disability or within three months after Termination for other reasons, to the extent that the option was exercisable at the time of death or Termination, or within such other period, and subject to such terms and conditions, as may be specified by the committee. (As used herein, "Beneficiary" means the person or persons designated in writing by the grantee as his beneficiary with respect to an award under the Plan; or, in the absence of an effective designation or if the designated person or persons predecease the grantee, the grantee's Beneficiary shall be the person or persons who acquire by bequest or inheritance the grantee's rights in respect of an award.) In order to be effective, a grantee's designation of a Beneficiary must be on file with the Committee before the grantee's death, but any such designation may be revoked and a new designation substituted therefor at any time before the grantee's death. (f) Nontransferability. Options granted under the Plan shall not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered, other than by will or by the laws of descent and distribution. During the lifetime of the optionee the option is exercisable only by the optionee. 3

(g) Incentive Stock Options. In the case of an Incentive Stock Option, each option shall be subject to such other terms conditions and provisions as the Committee determines necessary or desirable in order to qualify such option as an incentive stock option within the meaning of Section 422(b) of the Code (or any amendment or substitute or successor thereto or regulation thereunder), including in substance, without limitation, the following: (i) The purchase Price of stock subject to an Incentive Stock Option shall not be less than 100 percent of the fair market value of such stock on the date the option is granted, as determined by the Committee. (ii) The aggregate fair market value (determined as of the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by an optionee in any calendar year under all plans of the Company and its subsidiary corporations (which term, as used hereinafter, shall have the meaning ascribed thereto in Section 424(f) of the Code or successor provision of similar import) shall not exceed $100,000. (iii) No Incentive Stock Option shall be granted to any employee if at the time the option is granted the individual owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of a subsidiary corporation of the Company, unless at the time such option is granted the option price is at least 110 percent of the fair market value (as determined by the Committee) of the stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date of grant. (iv) Directors who are not employees of the Company shall not be eligible to receive Incentive Stock Options. (v) In the event of Termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Nonqualified Stock Option. (h) Automatic Grant of Options to Nonemployee Directors. Notwithstanding any other provision of the Plan, the grant of options hereunder to directors who are not also employees of the Company ("Nonemployee Directors") shall be subject to the following terms and conditions: (i) Immediately following each annual meeting of the shareholders of the Company ("Annual Meeting"), each Nonemployee Director of the Company who is then incumbent shall be granted a Nonqualified Stock Option to purchase 3,000 Shares (as adjusted pursuant to paragraph 20, below). 4

(ii) If a person is elected or appointed as a Nonemployee Director of the Company other than at an Annual Meeting, such person shall thereupon be granted a Nonqualified Stock Option to purchase 3,000 shares (as adjusted pursuant to paragraph 20, below). (iii) The purchase price of stock subject to an option granted to Nonemployee Directors under this paragraph 6 (h) shall be equal to 100 percent of the fair market value of such stock on the date the option is granted, as determined by the Committee. (iv) Except as provided in paragraph 18, each option granted to Nonemployee Directors under this paragraph 6 (h) shall be exercisable to the extent of (a) 20% of the Shares covered thereby on or after the date which is six months after the date of grant; (b) an additional 20% of the Shares covered thereby on or after the first anniversary of the date of grant; (c) an additional 20% of the Shares covered thereby on or after the second anniversary of the date of grant; (d) an additional 20% of the Shares covered thereby on or after the third anniversary of the date of grant; and (e) exercisable to the extent of the remaining 20% of the Shares covered thereby on or after the fourth anniversary of the date of grant; provided, however, that no portion of the option shall be exercisable any earlier than the date the Plan is approved by the shareholders of the Company. (v) Unless otherwise provided in the Plan, all provisions with respect to the terms of Nonqualified Stock Options hereunder shall be applicable to options granted to Nonemployee Directors under this paragraph 6(h). (vi) The automatic grants described in this paragraph 6(h) and the restricted stock awards under paragraph 8(e) shall constitute the only awards under the Plan permitted to be made to Nonemployee Directors. 7. STOCK APPRECIATION RIGHTS Stock appreciation rights (SARs) shall be evidenced by written SAR agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time; provided that the maximum number of SARs which may be granted to any one grantee during any twelve-month period is 125,000 (as adjusted pursuant to paragraph 20, below). Such SAR agreements shall contain the terms and conditions applicable to the SARs, including in substance the following terms and conditions: (a) Award. SARs may be granted in connection with a previously or contemporaneously granted stock option, or independently of a stock option. SARs shall entitle the grantee, subject to such terms and conditions as may be determined by the Committee, to receive upon exercise thereof all or a portion of the excess of (i) the fair market value at the time of exercise, as determined by the Committee, of a specified number of Shares with respect to which the SAR is exercised, over (ii) a specified price which shall not be less than 100 percent of the fair market value of the Shares at the time the SAR is granted, or, if the SAR is granted in connection with a previously issued stock 5

option, not less than 100 percent of the fair market value of the Shares at the time such option was granted. Upon exercise of a SAR, the number of Shares reserved for issuance hereunder shall be reduced by the number of Shares covered by the SAR. Shares covered by a SAR shall not be used more than once to calculate the amount to be received pursuant to the exercise of the SAR. (b) SARs Related to Stock Options. If a SAR is granted in relation to a stock option, (i) the SAR shall be exercisable only at such times, and by such persons, as the related option is exercisable; (ii) the grantee's right to exercise the related option shall be canceled if and to the extent that the Shares subject to the option are used to calculate the amount to be received upon the exercise of the related SAR; (iii) the grantee's right to exercise the related SAR shall be canceled if and to the extent that the Shares subject to the SAR are purchased upon the exercise of the related option; and (iv) the SAR shall not be transferable other than by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the grantee only by him. (c) Term. Each SAR agreement shall state the period or periods of time within which the SAR may be exercised, in whole or in part, as determined by the Committee and subject to such terms and conditions as are prescribed for such purpose by the Committee, provided that no SAR shall be exercisable earlier than six months after the date of grant or later than ten years after the date of grant. The Committee may, in its discretion, provide in the SAR agreement circumstances under which the SARs shall become immediately exercisable, in whole or in part, and may, notwithstanding the foregoing, accelerate the exercisability of any SAR, in whole or in part, at any time. (d) Termination. SARs shall be exercisable only during the grantee's tenure as an employee or director of the Company, except that, in the discretion of the Committee, a SAR may be made exercisable for up to three months after the grantee is Terminated for any reason other than Retirement, death or Disability, and for up to one year after the grantee is Terminated because of Retirement, death or Disability. (e) Payment. Upon exercise of a SAR, payment shall be made in cash, in shares at fair market value on the date of exercise, or in a combination thereof, as the Committee may determine at the time of exercise. (f) Other Terms. SARs shall be granted in such manner and such form, and subject to such additional terms and conditions, as the Committee in its sole discretion deems necessary or desirable, including without limitation: (i) if granted in connection with an Incentive Stock Option, in order to satisfy any requirements set forth under Section 422 of the Code; or, (ii) in order to avoid any insider-trading liability in connection with a SAR under Section 16 (b) of the 1934 Act. 6

8. RESTRICTED STOCK AWARDS Restricted stock awards under the Plan shall consist of Shares free of any purchase price or for such purchase price as may be established by the Committee restricted against transfer, subject to forfeiture, and subject to such other terms and conditions (including attainment of performance objectives) as may be determined by the Committee. Restricted stock shall be evidenced by written restricted stock agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time, which agreement shall contain the terms and conditions applicable to such awards, including in substance the following terms and conditions: (a) Restriction Period. Restrictions shall be imposed for such period or periods as may be determined by the Committee. Except as provided in paragraph 18, restriction periods shall not expire until at least three years after the date of grant unless restrictions on the Shares lapse on the basis of achieving performance targets. The Committee, in its discretion, may provide in the agreement circumstances under which the restricted stock shall become immediately transferable and nonforfeitable, or under which the restricted stock shall be forfeited. (b) Restrictions Upon Transfer. Restricted stock and the right to vote such shares and to receive dividends thereon, may not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered, except as herein provided, during the restriction period applicable to such Shares. Notwithstanding the foregoing, and except as otherwise provided in the Plan, the grantee shall have all of the other rights of a shareholder, including, but not limited to, the right to receive dividends and the right to vote such Shares. (c) Certificates. A certificate or certificates representing the number of restricted Shares granted shall be registered in the name of the grantee. The Committee, in its sole discretion, shall determine when the certificate or certificates shall be delivered to the grantee (or, in the event of the grantee's death, to his Beneficiary), may provide for the holding of such certificate or certificates in escrow or in custody by the Company or its designee pending their delivery to the grantee or Beneficiary, and may provide for any appropriate legend to be borne by the certificate or certificates. (d) Lapse of Restrictions. The restricted stock agreement shall specify the terms and conditions upon which any restriction upon restricted stock awarded under the Plan shall expire, lapse, or be removed, as determined by the Committee. Upon the expiration, lapse, or removal of such restrictions, Shares free of the restrictive legend shall be issued to the grantee or his legal representative. (e) Automatic Award of Restricted Stock to Nonemployee Directors. Notwithstanding any other provision of the Plan, awards of restricted stock hereunder to Nonemployee Directors shall be subject to the following terms and conditions: (i) Until the 2003 Annual Meeting, if a person is elected or appointed as a Nonemployee Director of the Company other than at an Annual Meeting, such person shall 7

thereupon be awarded 2,000 Shares of restricted stock (as adjusted pursuant to paragraph 20, below). (ii) The shares of restricted stock awarded pursuant to this paragraph 8(e) shall have a restriction period of ten years. The restrictions shall lapse with respect to 10 percent of the Shares awarded hereunder on the anniversary date of the award during each of the ten consecutive calendar years following the date on which the award is made, but only if the grantee has been a director of the Company continuously from the grant date of the restricted stock award to such anniversary date; provided, however, that all restrictions shall lapse, and the grantee of such restricted Shares shall be entitled to the delivery of a stock certificate or certificates evidencing the restricted Shares, upon (a) the date of the grantee's death or Disability while serving as a director, or (b) the date on which the Board Directors determines that the holder will not be nominated for election as a director by reason of Retirement. Upon any other Termination, all shares still subject to the restrictions hereof shall be returned to or canceled by the Company and shall be deemed to have been forfeited by the grantee. (iii) No Shares awarded under this paragraph 8(e) may be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered unless, until and then only to the extent that the restrictions shall have lapsed in accordance with paragraph 8(e) (iii) hereof. (iv) Stock certificates evidencing restricted Shares awarded under this paragraph 8(e) shall be issued in the sole name of the grantee (but shall be held by the Company until the restrictions shall have lapsed in accordance herewith) and shall bear a legend which, in part, shall provide that such Shares (a) are subject to the terms and restrictions of the Plan, (b) are subject to forfeiture or cancellation under the terms of the Plan, and (c) shall not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered except pursuant to the provisions of the Plan. (v) Unless otherwise provided in the Plan, all provisions with respect to the terms of restricted stock awards hereunder shall be applicable to restricted stock awarded to Nonemployee Directors under this paragraph 8(e). (vi) The restricted stock awards under this paragraph 8(e) and the automatic grants described in paragraph 6(h) shall constitute the only awards under the Plan permitted to be made to Nonemployee Directors. 9. PERFORMANCE UNITS Performance unit awards under the Plan shall entitle grantees to future payments based upon the achievements of preestablished long-term performance objectives and shall be evidenced by written performance unit agreements in such form not inconsistent with this Plan as the Committee 8

shall approve from time to time. Such agreements shall contain the terms and conditions applicable to the performance unit awards, including in substance the following terms and conditions: (a) Performance Period. The Committee shall establish with respect to each unit award a performance period of not fewer than two years. (b) Unit Value. The Committee shall establish with respect to each unit award value for each unit which shall not thereafter change, or which may vary thereafter pursuant to criteria specified by the Committee. (c) Performance Targets. The Committee shall establish with respect to each unit award maximum and minimum performance targets to be achieved during the applicable performance period. Achievement of maximum targets shall entitle grantees to payment with respect to the full value of a unit award. Grantees shall be entitled to payment with respect to a portion of a unit award according to the level of achievement of targets as specified by the Committee for performance which achieves or exceeds the minimum target but fails to achieve the maximum target. (d) Performance Measures. Performance targets established by the Committee shall relate to corporate, subsidiary, division, or unit performance and may be established in terms of growth in gross revenue, earnings per share, ratios of earnings to equity or assets, or such other measures or standards as may be determined by the Committee in its discretion. Multiple targets may be used and may have the same or different weighing, and they may relate to absolute performance or relative performance measured against other companies or businesses. (e) Adjustments. At any time prior to the payment of a unit award, the Committee may adjust previously established performance targets or other terms and conditions, including the Company's or other corporations' financial performance for Plan purposes, to reflect major unforeseen events such as changes in laws, regulations or accounting practices, mergers, acquisitions or divestitures or other extraordinary unusual or non-recurring items or events. (f) Payment of Unit Awards. Following the conclusion of each performance period, the Committee shall determine the extent to which performance targets have been attained and any other terms and conditions satisfied for such period. The Committee shall determine what, if any, payment is due on the unit award and whether such payment shall be made in cash, Shares, or a combination thereof. Payment shall be made in a lump sum or installments, as determined by the Committee, commencing as promptly as practicable following the end of the performance period unless deferred subject to such terms and conditions and in such form as may be prescribed by the Committee. (g) Termination. In the event that a grantee is Terminated as an employee or director by the Company prior to the end of the performance period by reason of death, Disability, or Retirement with the consent of the Company, any unit award, to the extent earned under the applicable performance targets, shall be payable at the end of the performance period according to the portion of the performance period during which the grantee was employed by or served as a director of the 9

Company, provided that the Committee shall have the power to provide for an appropriate settlement of a unit award before the end of the performance period. Upon any other Termination, participation shall terminate forthwith and all outstanding unit awards shall be canceled. 10. LOANS AND SUPPLEMENTAL CASH The Committee, in its sole discretion to further the purpose of the Plan, may provide for supplemental cash payments or loans to individuals in connection with all or any part of an award under the Plan. Supplemental cash payments shall be subject to such terms and conditions as shall be prescribed by the Committee at the time of grant, provided that in no event shall the amount of payment exceed: (a) In the case of an option, the excess fair market value of a Share on the date of exercise over the option price multiplied by the number of Shares for which such option is exercised, or (b) In the case of a SAR, performance unit, or restricted stock award, the value of the Shares and other consideration issued in payment of such award. Any loan shall be evidenced by a written loan agreement or other instrument in such form and containing such terms and conditions (including, without limitation, provisions for interest, payment schedules, collateral, forgiveness or acceleration) as the Committee may prescribe from time to time. 11. GENERAL RESTRICTIONS Each award under the Plan shall be subject to the requirement that if at any time the Company shall determine that (i) the listing, registration or qualification of the Shares subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any regulatory body, or (iii) an agreement by the recipient of an award with respect to the disposition of Shares, or (iv) the satisfaction of withholding tax or other withholding liabilities is necessary or desirable as a condition of or in connection with the granting of such award or the issuance or purchase of Shares thereunder, such award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval, agreement, or withholding shall have been effected or obtained free of any conditions not acceptable to the Company. Any such restriction affecting an award shall not extend the time within which the award may be exercised; and neither the Company nor its directors or officers nor the Committee shall have any obligation or liability to the grantee or to a Beneficiary with respect to any Shares with respect to which an award shall lapse or with respect to which the grant, issuance or purchase of Shares shall not be effected, because of any such restriction. 10

12. SINGLE OR MULTIPLE AGREEMENTS Multiple awards, multiple forms of awards, or combinations thereof may be evidenced by a single agreement or multiple agreements, as determined by the Committee. 13. RIGHTS OF THE SHAREHOLDER The recipient of any award under the Plan, shall have no rights as a shareholder with respect thereto unless and until certificates for Shares are issued to him, and the issuance of Shares shall confer no retroactive right to dividends. 14. RIGHTS TO TERMINATE Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any person the right to continue in the employment of the Company or to serve as a director, or affect any right which the Company may have to terminate the employment or directorship of such person. 15. WITHHOLDING (a) Prior to the issuance or transfer of Shares under the Plan, the recipient shall remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements. The recipient may satisfy the withholding requirement in whole or in part by electing to have the Company withhold Shares having a value equal to the minimum amount required to be withheld. No additional amount may be withheld. The value of the Shares to be withheld shall be the fair market value, as determined by the Committee, of the stock on the date that the amount of tax to be withheld is determined (the "Tax Date"). Such election must be made prior to the Tax Date, must comply with all applicable securities law and other legal requirements, as interpreted by the Committee, and may not be made unless approved by the Committee, in its discretion. (b) Whenever payments to a grantee in respect of an award under the Plan are to be made in cash, such payments shall be net of the amount necessary to satisfy any federal, state or local withholding tax requirements. 16. NON-ASSIGNABILITY No award under the Plan shall be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered, other than by will or by the laws of descent and distribution, or by such other means as the Committee may approve. Except as otherwise provided herein, during the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. 11

17. NON-UNIFORM DETERMINATIONS The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 18. CHANGE IN CONTROL PROVISIONS (a) In the event of (1) a Change in Control (as defined) or (2) a Potential Change in Control (as defined), but only if and to the extent so determined by the Board of Directors at or after grant (subject to any right of approval expressly reserved by the Board of Directors at the time of such determination), the following acceleration and valuation provisions shall apply: (i) Any SARs outstanding for at least six months and any stock options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested. (ii) Any restrictions and deferral limitations applicable to any restricted stock, performance units or other stockbased awards, in each case to the extent not already vested under the Plan, shall lapse and such shares, performance units or other stock-based awards shall be deemed fully vested. (iii) The value of all outstanding stock options, SARs, restricted stock, performance units and other stock-based awards, in each case to the extent vested, shall, unless otherwise determined by the Committee in its sole discretion at or after grant but prior to any Change in Control, be cashed out on the basis of the Change in Control Price (as defined) as of the date such Change in Control or such Potential Change in Control is determined to have occurred or such other date as the Committee may determine prior to the Change in Control. (b) As used herein, the term "Change in Control" means the happening of any of the following: (i) Any person or entity, including a "group" as defined in Section 13(d)(3) of the 1934 Act, other than the Company, a subsidiary of the Company, or any employee benefit plan of the Company or its subsidiaries, becomes the beneficial owner of the Company's securities having 25 percent or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election for directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business), or (ii) As the result of, or in connection with, any cash tender or exchange offer, merger 12

or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of directors of the Company or such other corporation or entity after such transaction, are held in the aggregate by holders of the Company's securities entitled to vote generally in the election of directors of the Company immediately prior to such transactions; or (iii) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's shareholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period. (c) As used herein, the term "Potential Change in Control" means the happening of any of the following: (i) The approval by shareholders of an agreement by the Company, the consummation of which would result in a Change in Control of the Company; or (ii) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company, a wholly-owned subsidiary thereof or any employee benefit plan of the Company or its subsidiaries, including any trustee of such plan acting as such trustee) of securities of the Company representing 5 percent or more of the combined voting power of the Company's outstanding securities and the adoption by the Board of Directors of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan. (d) As used herein, the term "Change in Control Price" means the highest price per share paid in any transaction reported on the New York Stock Exchange, or paid or offered in any bona fide transaction related to a Potential or actual Change in Control of the Company at any time during the 60 day period immediately preceding the occurrence of the Change in Control (or, where applicable, the occurrence of the Potential Change in Control event), in each case determined by the Committee except that, in the case of Incentive Stock Options and SARs relating to Incentive Stock Options, such price shall be based only on transactions reported for the date on which the optionee exercises such SARs or, where applicable, the date on which a cash out occurs under Section 18(a)(iii). 19. NON-COMPETITION PROVISION Unless the award agreement relating to a stock option, SAR, restricted stock or performance unit specifies otherwise, a grantee shall forfeit all unexercised, unearned and/or unpaid awards, including, but not by way of limitation, awards earned but not yet paid, all unpaid dividends and 13

dividend equivalents, and all interest, if any, accrued on the foregoing if, (i) in the opinion of the Committee, the grantee without the written consent of the Company, engages directly or indirectly in any manner or capacity as principal, agent, partner, officer, director, employee or otherwise, in any business or activity competitive with the business conducted by the Company or any of its subsidiaries; or (ii) the grantee performs any act or engages in any activity which in the opinion of the Chief Executive Officer of the Company is inimical to the best interests of the Company. 20. ADJUSTMENTS In the event of any change in the outstanding common stock of the Company, by reason of a stock dividend or distribution, recapitalization, merger, consolidation, reorganization, split-up, combination, exchange of Shares or the like, the Board of Directors, in its discretion, may adjust proportionately the number of Shares which may be issued under the Plan, the number of Shares subject to outstanding awards, and the option exercise price of each outstanding option, and may make such other changes in outstanding options, SARs, performance units and restricted stock awards, as it deems equitable in its absolute discretion to prevent dilution or enlargement of the rights of grantees, provided that any fractional Shares resulting from such adjustments shall be eliminated. 21. AMENDMENT The Board of Directors may terminate, amend, modify or suspend the Plan at any time, except that the Board shall not, without the authorization of the holders of a majority of Company's voting securities, increase the maximum number of Shares which may be issued under the Plan (other than increases pursuant to paragraph 20 hereof), extend the last date on which awards may be granted under the Plan, extend the date on which the Plan expires, change the class of persons eligible to receive awards, or change the minimum option price. In no event, however, shall the provisions of paragraphs 6(h) and 8(e) be amended more often than once every six months, other than to comport with changes in the Code, the Employment Retirement Income Security Act of 1974, as amended, or the rules thereunder. No termination, modification, amendment or suspension of the Plan shall adversely affect the rights of any grantee or Beneficiary under an award previously granted, unless the grantee or Beneficiary shall consent; but it shall be conclusively presumed that any adjustment pursuant to paragraph 20 hereof does not adversely affect any such right. 22. EFFECT ON OTHER PLANS Participation in this Plan shall not affect a grantee's eligibility to participate in any other benefit or incentive plan of the Company. Any awards made pursuant to this Plan shall not be used in determining the benefits provided under any other plan of the Company unless specifically provided therein. 14

23. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan shall become effective when adopted by the Board of Directors, provided that the Plan is approved by the holders of a majority of the Company's voting securities on the date of its adoption by the Board or before the first anniversary of that date. Unless it is sooner terminated in accordance with paragraph 21 hereof, the Plan shall remain in effect until all awards under the Plan have been satisfied by the issuance of Shares or payment of cash or have expired or otherwise terminated, but no award shall be granted more than ten years after the earlier of the date the Plan is adopted by the Board of Directors or is approved by the holders of the Company's voting securities. 24. UNFUNDED PLAN The Plan shall be unfunded, except to the extent otherwise provided in accordance with Section 8 hereof. Neither the Company nor any affiliate shall be required to segregate any assets that may be represented by stock options, SARs, or performance units, and neither the Company nor any affiliate shall be deemed to be a trustee of any amounts to be paid under any stock option, SAR or performance unit. Any liability of the Company or any affiliate to pay any grantee or Beneficiary with respect to an option, SAR or performance unit shall be based solely upon any contractual obligations created pursuant to the provisions of the Plan; no such obligations will be deemed to be secured by a pledge or encumbrance on any property of the Company or an affiliate. 25. GOVERNING LAW The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Tennessee except to the extent that such laws may be superseded by any federal law. Adopted by the Board of Directors of Saks Incorporated on the seventh day of April 1999.
By /s/ R. BRAD MARTIN ----------------------------------------------R. Brad Martin, Chairman of the Board of Directors and Chief Executive Officer

15

EXHIBIT 10.54 SAKS INCORPORATED AMENDED AND RESTATED 1997 STOCK-BASED INCENTIVE PLAN 1. Purpose. The purpose of the SAKS INCORPORATED AMENDED AND RESTATED 1997 STOCK-BASED INCENTIVE PLAN (the "Plan") is to further the earnings of SAKS INCORPORATED, a Tennessee corporation, and its affiliated companies (collectively, the "Company") by assisting the Company in attracting, retaining and motivating employees and directors of high caliber and potential. The Plan provides for the award of stock-based incentives to certain employees and directors who make substantial contributions to the Company by their loyalty, industry and invention. 2. Administration. The Plan shall be administered by a committee (the "Committee") selected by the Board of Directors of the Company (the "Board of Directors") consisting solely of two or more non-employee directors. The Committee shall have full and final authority in its discretion to interpret the provisions of the Plan and to decide all questions of fact arising in its application. Subject to the provisions hereof, the Committee shall have full and final authority in its discretion to determine the employees and directors to whom awards shall be made under the Plan; to determine the type of awards to be made and the amount, size and terms and conditions of each such award; to determine the time when awards shall be granted; to determine the provisions of each agreement evidencing an award; and to make all other determinations necessary or advisable for the administration of the plan. 3. Stock Subject to the Plan. The Company may grant awards under the Plan with respect to not more than a total of 2,300,000 shares of $.10 par value common stock of the Company (the "Shares") (subject, however, to adjustment as provided in paragraph 21, below). Such shares may be authorized and unissued Shares or treasury Shares and may be purchased on the open market or otherwise. Except as otherwise provided herein, any Shares subject to an option or right which for any reason is surrendered before exercise, or expires or is terminated unexercised as to such Shares, shall again be available for the granting of awards under the Plan. Similarly, if any Shares granted pursuant to restricted stock awards are forfeited, such forfeited Shares shall again be available for the granting of awards under the Plan. 4. Eligibility to Receive Awards. All employees and directors of the Company are eligible to receive awards under the Plan. 5. Form of Awards. Awards may be made from time to time by the Committee in the form of stock options to purchase

Shares, stock appreciation rights, performance units, restricted stock, bonus shares or any combination of the above. Stock options granted under the Plan are nonqualified stock options, which are not intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code. 6. Stock Options. Stock options for the purchase of Shares shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time; provided that the maximum number of options which may be granted to any one grantee during any twelve-month period is 125,000 (as adjusted pursuant to paragraph 21, below). Such agreement shall contain the terms and conditions applicable to the options, including in substance the following terms and conditions: (a) Number of Option. Each option agreement shall set forth the number of Shares subject to the options. (b) Option Price. The option exercise price to be paid by the optionee to the Company for each Share purchased upon the exercise of an option shall be determined by the Committee, but shall in no event be less than the fair market value of a Share on the date the option is granted. (c) Exercise Term. Each option agreement shall state the period or periods of time within which the option may be exercised, in whole or in part, as determined by the Committee, and subject to such terms and conditions as are prescribed for such purpose by the Committee, provided that no option shall be exercisable after ten years from the date of grant thereof. The Committee, in its discretion, may provide in the option agreement circumstances under which the option shall become immediately exercisable, in whole or in part, and, notwithstanding the foregoing, may accelerate the exercisability of any option, in whole or in part, at any time. (d) Payment for Shares. The purchase price of the Shares with respect to which an option is exercised shall be payable in full at the time of exercise in cash, shares at fair market value, or a combination thereof, as the Committee may determine and subject to such terms and conditions as may be prescribed by the Committee for such purpose. If the purchase price is paid by tendering Shares, the Committee in its discretion may grant the optionee a new stock option for the number of Shares used to pay the purchase price. (e) Rights Upon Termination. In the event of Termination (as defined below) of an optionee's status as an employee or director of the Company for any cause other than Retirement (as defined below), death or Disability, (as defined below), the optionee shall have the right to exercise the option during its term within a period of three months after such Termination to the extent that the option was exercisable at the time of Termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. (As used herein, "Termination" 2

means the cessation of the grantee's employment or service by the Company for any reason, and "Terminates" has the corresponding meaning. As used herein, "Retirement" means retirement from active employment or service with the Company on or after age 65, or such earlier age with the express written consent for purposes of the Plan of the Company at or before the time of such retirement, and "Retires" has the corresponding meaning. As used herein, "Disability" means a condition that, in the judgment of the Committee, has rendered a grantee completely and presumably permanently unable to perform any and every duty of his regular occupation, and "Disabled" has the corresponding meaning.) In the event that an optionee Retires, dies or becomes Disabled prior to the expiration of his option and without having fully exercised his option, the optionee or his Beneficiary (as defined below) shall have the right to exercise the option during its term within a period of (i) one year after Termination due to Retirement, death or Disability, or (ii) one year after death if death occurs either within one year after Termination due to Retirement or Disability or within three months after Termination for other reasons, to the extent that the option was exercisable at the time of death or Termination, or within such other period, and subject to such terms and conditions, as may be specified by the Committee. (As used herein, "Beneficiary" means the person or persons designated in writing by the grantee as his beneficiary with respect to an award under the Plan; or, in the absence of an effective designation or if the designated person or persons predeceases the grantee, the grantee's Beneficiary shall be the person or persons who acquire by bequest or inheritance the grantee's rights in respect of an award). In order to be effective, a grantee's designation of a Beneficiary must be on file with the Committee before the grantee's death, but any such designation may be revoked and a new designation substituted therefor at any time before the grantee's death. (f) Transferability. Except as provided in paragraph 12, options granted under the Plan shall not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered, other than by will or by the laws of descent and distribution until such options become vested. 7. Stock Appreciation Rights. Stock appreciation rights ("SARs") shall be evidenced by written SAR agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time; provided that the maximum number of SARs which may be granted to any one grantee during any twelve-month period is 125,000, (as adjusted pursuant to paragraph 21, below). Such SAR agreements shall contain the terms and conditions applicable to the SARs, including in substance the following terms and conditions: (a) Award. SARs may be granted in connection with a previously or contemporaneously granted stock option, or independently of a stock option. SARs shall entitle the grantee, subject to such terms and conditions as may be determined by the Committee, to receive upon exercise portion of the excess of (i) the fair market value at the time of exercise, as determined by the Committee, of a specified number of Shares with respect to which the SAR is exercised, over (ii) a specified price which shall not be less than 100% of the fair market value of the Shares at the time 3

the SAR is granted, or, if the SAR is granted in connection with a previously issued stock option, not less than 100% of the fair market value of the Shares at the time such option was granted. Upon exercise of an SAR, the number of Shares reserved for issuance hereunder shall be reduced by the number of Shares covered by the SAR. Shares covered by an SAR shall not be used more than once to calculate the amount to be received pursuant to the exercise of the SAR. (b) SARs Related to Stock Options. If an SAR is granted in relation to a stock option, (i) the SAR shall be exercisable only at such times, and by such persons as the related option is exercisable; (ii) the grantee's right to exercise the related option shall be canceled if and to the extent that the Shares subject to the option are used to calculate the amount to be received upon the exercise of the related SAR; (iii) the grantee's right to exercise the related SAR shall be canceled if and to the extent that the Shares subject to the SAR are purchased upon the exercise of the related option; and (iv) the SAR shall not be transferable other than by will or by the laws of descent and distribution until the SAR vests, at which time the vested portion of the SAR will become transferable as provided in paragraph 12, below. (c) Term. Each SAR agreement shall state the period or periods of time within which the SAR may be exercised, in whole or in part, as determined by the Committee and subject to such terms and conditions as are prescribed for such purpose by the Committee, provided that no SAR shall be exercisable earlier than six months after the date of grant or later than ten years after the date of grant. The Committee may, in its discretion, provide in the SAR agreement circumstances under which the SARs shall become immediately exercisable, in whole or in part, and may, notwithstanding the foregoing, accelerate the exercisability of any SAR, in whole or in, Part, at any time. (d) Termination. SARs shall be exercisable only during the grantee's tenure as an employee or director of the Company, except that, in the discretion of the Committee, an SAR may be made exercisable for up to three months after the grantee is Terminated for any reason other than Retirement, death or Disability, and for up to one year after the grantee is Terminated because of Retirement, death or Disability. (e) Payment. Upon exercise of an SAR, payment shall be made in cash, in Shares valued at fair market value on the date of exercise, or in a combination thereof, as the Committee may determine at the time of exercise. (f) Other Terms. SARs shall be granted in such manner and such form, and subject to such additional terms and conditions, as the Committee in its sole discretion deems necessary or desirable, including without limitation, in order to avoid any insider-trading liability in connection with an SAR under Section 16(b) of the 1934 Act. 8. Restricted Stock Awards. 4

Restricted stock awards under the Plan shall consist of Shares free of any purchase price, or for such purchase price as may be established by the Committee, restricted against transfer, subject to forfeiture, and subject to such other terms and conditions (including attainment of performance objectives) as may be determined by the Committee. Restricted stock shall be evidenced by written restricted stock agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time, which agreement shall contain the terms and conditions applicable to such awards, including in substance the following terms and conditions: (a) Restriction Period. Restrictions shall be imposed for such period or periods as may be determined by the Committee. The Committee, in its discretion, may provide in the agreement circumstances under which the restricted stock shall become immediately transferable and nonforfeitable, or under which the restricted stock shall be forfeited, and, notwithstanding the foregoing, may accelerate the expiration of the restriction period imposed on any Shares at any time. (b) Restrictions Upon Transfer. Restricted stock and the right to vote such Shares and to receive dividends thereon, may not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered, except as herein provided, during the restriction period applicable to such Shares. Notwithstanding the foregoing, and except as otherwise provided in the Plan, the grantee shall have all of the other rights of a stockholder, including, but not limited to, the right to receive dividends and the right to vote such Shares. (c) Certificates. A certificate or certificates representing the number of restricted Shares granted shall be registered in the name of the grantee. The Committee, in its sole discretion, shall determine when the certificate or certificates shall be delivered to the grantee (or, in the event of the grantee's death, to his Beneficiary), may provide for the holding of such certificate or certificates in escrow or in custody by the Company or its designee pending their delivery to the grantee or Beneficiary, and may provide for any appropriate legend to be borne by the certificate or certificates. (d) Lapse of Restrictions. The restricted stock agreement shall specify the terms and conditions upon which any restriction upon restricted stock awarded under the Plan shall expire, lapse, or be removed, as determined by the Committee. 9. Performance Units. Performance unit awards under the Plan shall entitle grantees to future payments based upon the achievements of preestablished long-term performance objectives and shall be evidenced by written performance unit agreements in such form not inconsistent with this Plan as the Committee shall approve from time to time. Such agreements shall contain the terms and conditions applicable to the performance unit awards, including in substance the following terms and conditions: 5

(a) Performance Period. The Committee shall establish with respect to each unit award a performance period. (b) Unit Value. The Committee shall establish with respect to each unit award value for each unit which shall not thereafter change, or which may vary thereafter pursuant to criteria specified by the Committee. (c) Performance Targets. The Committee shall establish with respect to each unit award maximum and minimum performance targets to be achieved during the applicable performance period. Achievement of maximum targets shall entitle grantees to payment with respect to the full value of a unit award. Grantees shall be entitled to payment with respect to a portion of a unit award according to the level of achievement of targets as specified by the Committee for performance which achieves or exceeds the minimum target but fails to achieve the maximum target. (d) Performance Measures. Performance targets established by the Committee shall relate to corporate, subsidiary, division, unit or individual performance and may be established in terms of growth in gross revenue, earnings per share, stock price, ratios of earnings to equity or assets, individual sales, or such other measures or standards as may be determined by the Committee in its discretion. Multiple targets may be used and may have the same or different weighing, and they may relate to absolute performance or relative performance measured against other companies or businesses. (e) Adjustments. At any time prior to the payment of a unit award, the Committee may adjust previously established performance targets or other terms and conditions, including the Company's financial performance for Plan purposes, to reflect major unforeseen events such as changes in laws, regulations or accounting practices, mergers, acquisitions or divestitures or other extraordinary, unusual or non-recurring items or events. (f) Payment of Unit Awards. Following the conclusion of a performance period, the Committee shall determine the extent to which performance targets have been attained and any other terms and conditions satisfied for such period. The Committee shall determine what, if any, payment is due on the unit award and whether such payment shall be made in cash, Shares, or a combination thereof. Payment shall be made in a lump sum or installments, as determined by the Committee, commencing as promptly as practicable following the end of the performance period unless deferred subject to such terms and conditions and in such form as may be prescribed by the Committee. (g) Termination. In the event that a grantee is Terminated as an employee by the Company prior to the end of the performance period by reason of death, Disability, or Retirement with the consent of the Company, any unit award, to the extent earned under the applicable performance targets may, in the Committee's sole discretion, be payable at the end of the performance period 6

according to the portion of the performance period during which the grantee was employed by or provided services to the Company, provided that the Committee shall have the power to provide for an appropriate settlement of a unit award before the end of the performance period. Upon any other Termination, participation shall terminate forthwith and all outstanding unit awards shall be canceled. 10. Loans and Supplemental Cash. The Committee, in its sole discretion to further the purpose of the Plan, may provide for supplemental cash payments or loans to employees or directors in connection with all or any part of an award under the Plan. Supplemental cash payments shall be subject to such terms and conditions as shall be prescribed by the Committee at the time of grant, provided that in no event shall the amount of payment exceed: (a) In the case of an option, the excess fair market value of a Share on the date of exercise over the option price multiplied by the number of Shares for which such option is exercised, or (b) In the case of an SAR, performance unit, or restricted stock award, the value of the Shares and other consideration issued in payment of such award. Any loan shall be evidenced by a written loan agreement or other instrument in such form and containing such terms and conditions (including, without limitation, provisions for interest, payment schedules, collateral, forgiveness or acceleration) as the Committee may prescribe from time to time. 11. Stock Bonuses The Committee may, in its sole discretion, award a bonus to any employee or director in the form of Company Shares in addition to, or in lieu of a cash bonus. In addition, the Company may, in its sole discretion, permit an employee to elect to receive a cash bonus in the form of Company Shares. 12. Restrictions on Transfer of Awards. Except as permitted by this paragraph 12, no awardholder may sell, transfer, assign, convey or otherwise dispose of or alienate any of his awards or any right or interest therein (whether voluntarily, by operation of law, by gift or otherwise) or enter into any contract or agreement or grant any option with respect to the sale, transfer, assignment, conveyance or other disposition of his awards or any right or interest therein. Any purported transfer of awards in violation of this paragraph shall be void and ineffective and shall not operate to transfer any interest in or title to such awards to the purported Award Transferee and the Company shall not record any such purported transfer in its transfer records. 7

(a) Permitted Transfers of Awards by Participants. Upon ten (10) days prior written notice to the Company (or such lesser number of days as the Company may agree to in writing) an awardholder may sell, transfer or assign all or any number of his awards to an Award Transferee who (or which) is an Award Transferee (defined below) only if, prior to such transfer, such Award Transferee has agreed in writing, in form and substance satisfactory to the Company, in its sole discretion, that such Award Transferee and the award transferred to him shall be bound by the provisions of this Plan including, without limitation, those of this paragraph 12. Such notice shall specify the name and address of the proposed Award Transferee, the relationship between the Participant and the proposed transferee which establishes the proposed transferee as an Award Transferee of the Participant and the number and prices (if any) of the awards to be transferred to such proposed Award Transferee. Notwithstanding the foregoing provisions of this paragraph, if awards are transferred to an Award Transferee which is a Qualified Trust and the written document pursuant to which such Qualified Trust was established is later amended without the prior written approval of the Company then, on the effective date of such amendment, ownership of all awards then owned by such Qualified Trust shall revert to its Transferor. (b) Permitted Transfers of Awards By Other Awardholders. Upon ten (10) days prior written notice to the Company (or such lesser number of days as the Company may agree to in writing), an awardholder other than a Participant may sell, transfer or assign all or any number of his awards to his Transferor if, prior to such transfer, such Transferor has agreed in writing, in form and substance satisfactory to the Company, that such Transferor and the awards transferred to him shall be bound by the provisions of this Plan including, without limitation, those of this paragraph 12. Such notice shall specify the number and prices (if any) of the awards to be transferred to such Transferor. (c) Effect of Transfer of Awards. The provisions of this subparagraph (c) shall apply in the event a participant transfers awards to an Award Transferee pursuant to subparagraph (a). (i) Forfeitures of Awards. All of an Award Transferee's awards shall be forfeited on the date any awards owned by his Transferor are or would be forfeited pursuant to paragraph 20. On the date an Award Transferee's awards are forfeited pursuant to this paragraph 12, the rights of such Award Transferee shall be terminated. (ii) Exercise of Awards. An Award Transferee shall be entitled to exercise his awards at such times, in such manner, upon such terms and subject to such conditions, limitations and restrictions as his Transferor is or would be entitled to exercise any awards owned by such Transferor. (iii) Beneficiaries. Upon an Award Transferee's receipt of any awards, the provisions of the Plan governing the determination of a participant's Beneficiary shall apply to such Award Transferee as if such Award Transferee were a participant. (iv) Deemed Ownership of Awards. Each Participant shall be deemed to own all of the awards 8

actually owned by his Award Transferees for the purpose of determining the number of awards to be granted to a Participant pursuant to paragraph 12. (d) Rights of Award Transferees. Notwithstanding anything to the contrary contained in this Plan, the rights of an Award Transferee with respect to all awards owned by such Award Transferee shall be the same as those of the individual who first owned such award determined as if such individual then owned such award. (e) Definitions. Unless otherwise provided, for purposes of the Plan, the following terms have the following meaning: (i) Award Transferee. With respect to a participant, his spouse and lineal descendants who have attained age 21 and a Qualified Trust, the sole beneficiaries of which may not include anyone other than the participant, his spouse and lineal descendants. (ii) Qualified Trust. A trust established pursuant to a written document which has been approved in writing by the Company in its sole discretion and which, by its terms: (1) authorizes the trustee of such trust to: acquire, own and dispose of shares of stock and other securities and awards under which shares of stock and other securities may be issued; exercise any award; grant proxies to vote any securities owned by such trust; and enter into agreements with respect to such securities, the term of which may extend beyond the term of the trust; (2) provides that awards and Shares held by the trustee of such trust shall only be distributed to a beneficiary of such trust if such beneficiary is an Award Transferee of the grantor of such trust, and prior to such distribution, has agreed in writing, in form and substance satisfactory to the Company, in its sole discretion, that such beneficiary and the awards and Shares distributed to him shall be bound by the provisions of this Plan including, without limitation, those of this paragraph 12; (3) cannot be amended without the prior written approval of the Company which approval may be withheld by the Company in its sole discretion; (4) provides that any such amendment which is not so approved by the Company shall be invalid; and (5) contains such other terms and provisions as the Company, it its sole discretion, shall determine to be appropriate. (iii) Transferor. With respect to an Award Transferee, the participant to whom the awards owned by such Award Transferee were originally granted. (iv) 9

13. General Restrictions. Each award under the Plan shall be subject to the requirement that if at any time the Company shall determine that (i) the listing, registration or qualification of the Shares subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any regulatory body, or (iii) an agreement by the recipient of an award with respect to the disposition of Shares, or (iv) the satisfaction of withholding tax or other withholding liabilities is necessary or desirable as a condition of or in connection with such award or the issuance or purchase of Shares thereunder, such award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval, agreement, or withholding shall have been effected or obtained free of any conditions not acceptable to the Company. Any restriction affecting an award shall not extend the time within which the award may be exercised; and neither the Company nor its directors or officers nor the Committee shall have any obligation or liability to the grantee or to a Beneficiary or Award Transferee with respect to any Shares with respect to which an award shall lapse or with respect to which the grant, issuance or purchase of Shares shall not be effected, because of any such restriction. 14. Single or Multiple Agreements. Multiple awards, multiple forms of awards, or combinations thereof may be evidenced by a single agreement or multiple agreements, as determined by the Committee. 15. Rights of the Stockholder. The recipient of any award under the Plan, shall have no rights as a stockholder with respect thereto unless and until certificates for Shares are issued to him, and the issuance of shares shall confer no retroactive right to dividends. 16. Rights to Terminate. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any person the right to continue in the employment or service of the Company or affect any right which the Company may have to terminate the employment or service of such person. 10

17. Withholding. (a) Prior to the issuance or transfer of Shares under the Plan, the recipient shall remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements. The recipient may satisfy the withholding requirement in whole or in part by electing to have the Company withhold Shares having a value equal to the minimum amount required to be withheld. No additional amount may be withheld. The value of the Shares to be withheld shall be the fair market value, as determined by the Committee, of the stock on the date that the amount of tax to be withheld is determined (the "Tax Date"). Such election must be made prior to the Tax Date, must comply with all applicable securities law and other legal requirements, as interpreted by the Committee, and may not be made unless approved by the Committee, in its discretion. (b) Whenever payments to a grantee in respect of an award under the Plan are paid in cash, such payments shall be net of the amount necessary to satisfy any federal, state or local withholding tax requirements. 18. Non-Uniform Determinations. The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 19. Change In Control Provisions. (a) In the event of (1) a Change in Control (as defined) or (2) a Potential Change in Control (as defined), but only if and to the extent so determined by the Board of Directors at or after grant (subject to any right of approval expressly reserved by the Board of Directors at the time of such determination), the following acceleration and valuation provisions shall apply: (i) Any SARs outstanding for at least six months and any stock awards awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested. (ii) Any restrictions and deferral limitations applicable to any restricted stock, performance units or other stockbased awards, in each case to the extent not already vested under the Plan, shall lapse and such shares, performance units or other stock-based awards shall be deemed fully vested. (iii) The value of all outstanding stock awards, SARs, restricted stock, performance units and other stock-based awards, in each case to the extent vested, shall, unless otherwise determined by the Committee in its sole discretion at or after grant but prior to any Change in Control, be cashed out on the basis of the Change in Control Price (as defined) as of the date such Change in Control 11

or such Potential Change in Control is determined to have occurred or such other date as the Committee may determine prior to the Change in Control. (b) As used herein, the term "Change in Control" means the happening of any of the following: (i) Any person or entity, including a "group" as defined in Section 13(d)(3) of the 1934 Act, other than the Company, a subsidiary of the Company, or any employee benefit plan of the Company or its subsidiaries, becomes the beneficial owner of the Company's securities having 25% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election for directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business), or (ii) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of directors of the Company or such other corporation or entity after such transaction, are held in the aggregate by holders of the Company's securities entitled to vote generally in the election of directors of the Company immediately prior to such transactions; or (iii) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's stockholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period. (c) As used herein, the term "Potential Change in Control" means the happening of any of the following: (i) The approval by stockholders of an agreement by the Company, the consummation of which would result in a Change in Control of the Company; or (ii) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company, a wholly-owned subsidiary thereof or any employee benefit plan of the Company or its subsidiaries (including any trustee of such plan acting as such trustee)) of securities of the Company representing five % or more of the combined voting power of the Company's outstanding securities and the award by the Board of Directors of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan. (d) As used herein, the term "Change in Control Price" means the highest price per share paid in any transaction reported on the New York Stock Exchange, or paid or offered in any bona fide 12

transaction related to a Potential or actual Change in Control of the Company at any time during the 60 day period immediately preceding the occurrence of the Change in Control (or, where applicable, the occurrence of the Potential Change in Control event), in each case determined by the Committee. 20. Non-Competition Provision. Unless the award agreement relating to an option, SAR, a restricted stock, stock bonus or performance unit expressly specifies otherwise, a grantee shall forfeit all unexercised, unearned and/or unpaid awards, including, but not by way of limitation, awards earned but not yet paid, all unpaid dividends and dividend equivalents, and all interest, if any, accrued on the foregoing if, (i) in the opinion of the Committee, the grantee without the written consent of the Company, engages directly or indirectly in any manner or capacity as principal, agent, partner, officer, director, employee or otherwise, in any business or activity competitive with the business conducted by the Company or any of its subsidiaries; or (ii) the grantee performs any act or engages in any activity which in the opinion of the Chief Executive Officer of the Company is inimical to the best interests of the Company. 21. Adjustments. In the event of any change in the outstanding common stock of the Company, by reason of a stock dividend or distribution, recapitalization, merger, consolidation, reorganization, split-up, combination, exchange of Shares or the like, the Board of Directors, in its discretion, may adjust proportionately the number of Shares which may be issued under the Plan, the number of Shares subject to outstanding awards, and the option exercise price of each outstanding option, and may make such other changes in outstanding options, SARs, performance units and restricted stock awards, as it deems equitable in its absolute discretion to prevent dilution or enlargement of the rights of grantees, provided that any fractional Shares resulting from such adjustments shall be eliminated. 22. Amendment and Termination. The Board of Directors may terminate, amend, modify or suspend the Plan at any time. No termination, modification, amendment or suspension of the Plan shall adversely affect the rights of any grantee, Beneficiary or Award Transferee under an award previously granted unless the grantee or Beneficiary shall consent; but it shall be conclusively presumed that any adjustment pursuant to paragraph 21 hereof does not adversely affect any such right. 23. Effect on Other Plans. Participation in this Plan shall not affect a grantee's eligibility to participate in any other benefit or incentive plan of the Company. Any awards made pursuant to this Plan shall not be used in determining the benefits provided under any other plan of the Company unless specifically 13

provided therein. 24. Effective Date and Duration of the Plan. The Plan shall become effective when adopted by the Board of Directors. Unless it is sooner terminated in accordance with paragraph 22 hereof, the Plan shall remain in effect until all awards under the Plan have been satisfied by the issuance of Shares or payment of cash or have expired or otherwise terminated, but no award shall be granted more than ten years after the date the Plan is adopted by the Board of Directors. 25. Unfunded Plan. The Plan shall be unfunded. Neither the Company nor any affiliate shall be required to segregate any assets that may be represented by stock options, SARs, stock bonuses or performance units, and neither the Company nor any affiliate shall be deemed to be a trustee of any amounts to be paid under any stock option, SAR, stock bonus or performance unit. Any liability of the Company or any affiliate to pay any grantee, Beneficiary or Award Transferee with respect to an option, SAR or performance unit shall be based solely upon any contractual obligations created pursuant to the provisions of the Plan; no such obligations will be deemed to be secured by a pledge or encumbrance on any property of the Company or an affiliate. 26. Governing Law. The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Tennessee except to the extent that such laws may be superseded by any federal law. Adopted by The Board of Directors of Saks Incorporated on the 7th day of April 1999. By: R. Brad Martin, Chairman of the Board of Directors and Chief Executive Officer 14

Exhibit 10.55 SAKS INCORPORATED 401(k) RETIREMENT PLAN Amended and Restated Effective January 1, 1999 (except as otherwise indicated)

TABLE OF CONTENTS
INTRODUCTION DEFINITIONS 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24 1.25 1.26 1.27 1.28 1.29 1.30 1.31 1.32 1.33 1.34 1.35 1.36 1.37 1.38 1.39 1.40 1.41 1.42

"Account".................................................................................. "Adopting Employer"........................................................................ "Allocation Date".......................................................................... "Beneficiary".............................................................................. "Break in Service"......................................................................... "Code"..................................................................................... "Committee"................................................................................ "Compensation"............................................................................. "Controlled Group"......................................................................... "Disability"............................................................................... "Early Retirement Date".................................................................... "Effective Date"........................................................................... "Employee"................................................................................. "Employer"................................................................................. "Employer Account"......................................................................... "Entry Date"............................................................................... "ERISA".................................................................................... "Fiduciary"................................................................................ "Forfeiture"............................................................................... "Highly Compensated Employee".............................................................. "Hour of Service".......................................................................... "Investment Manager"....................................................................... "Leased Employee".......................................................................... "Matching Contributions"................................................................... "Merged Plans"............................................................................. "Non-highly Compensated Employee".......................................................... "Normal Retirement Age".................................................................... "Normal Retirement Date"................................................................... "Participant".............................................................................. "Personal Account"......................................................................... "Plan"..................................................................................... "Plan Administrator"....................................................................... "Plan Year"................................................................................ "Retired Participant"...................................................................... "Rollover Contributions"................................................................... "Salary Deferral Contributions"............................................................ "Service".................................................................................. "Sponsor".................................................................................. "Spouse"................................................................................... "Trust".................................................................................... "Trust Fund"............................................................................... "Trustee"..................................................................................

1.43 1.44 PARTICIPATION 2.01 2.02 2.03 2.04 2.05 2.06 2.07 CONTRIBUTIONS 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08

"Vesting Service".......................................................................... "Year of Service".......................................................................... IN THE PLAN Eligibility Date........................................................................... Eligibility Determination.................................................................. Participation.............................................................................. Participation Following Reemployment....................................................... Participation Following Change in Classification........................................... Absence in the Armed Services.............................................................. Family and Medical Leave Act Requirements.................................................. TO THE PLAN Employer Contributions..................................................................... Contributions By, or On Behalf of, Participants............................................ Coverage and Discrimination Requirements................................................... Discrimination Requirements for Other Contributions........................................ Multiple Use of Alternative Limitation..................................................... Trustee to Trustee Transfers............................................................... Medium of Financing the Plan............................................................... Investment Directions by Participants......................................................

ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 4.01 Credit of Contributions.................................................................... 4.02 Allocation of Investment Earnings.......................................................... 4.03 Adjustment to Accounts..................................................................... 4.04 Maximum Annual Additions to Participants' Accounts......................................... 4.05 Application of Contributions and Forfeitures Among Employers............................... 4.06 Fair Market Value.......................................................................... IN SERVICE WITHDRAWALS 5.01 Withdrawals at Age 59-1/2.................................................................. 5.02 Withdrawals from Participants' Personal Accounts........................................... 5.03 Hardship Withdrawals....................................................................... 5.04 Loans to Participants...................................................................... GENERAL BENEFIT PROVISIONS 6.01 Form of Benefit Payment.................................................................... 6.02 Time of Payment............................................................................ 6.03 Special Commencement and Distribution of Benefits Rule..................................... 6.04 Single Sum Distribution of Small Benefits.................................................. 6.05 Designation of Beneficiary................................................................. 6.06 Eligible Rollover Distributions............................................................ 6.07 Optional Forms of Benefits Under Merged Plans.............................................. 6.08 Purchase of Annuities...................................................................... 6.09 Failure to Locate..........................................................................

RETIREMENT, DEATH AND DISABILITY BENEFITS 7.01 Benefits Upon Retirement................................................................... 7.02 Death Benefits............................................................................. 7.03 Disability Benefits........................................................................ TERMINATION BENEFITS 8.01 Benefits Upon Termination of Service....................................................... 8.02 Forfeitures................................................................................ 8.03 Payment of Benefits........................................................................ THE COMMITTEE 9.01 9.02 9.03 9.04 9.05

Plan Administrator and Appointment of Committee............................................ Powers and Duties of the Plan Administrator................................................ Plan Administrator Procedures.............................................................. Claims and Review Procedures............................................................... Election Procedures........................................................................

ESTABLISHMENT OF TRUST 10.01 Trust Agreement............................................................................ 10.02 Trust Agreement Part of Plan............................................................... AMENDMENT AND 11.01 11.02 11.03 11.04 11.05 11.06 TERMINATION OF THE PLAN Amendment of Plan.......................................................................... Intent to Continue the Plan................................................................ Termination or Partial Termination of the Plan by the Sponsor.............................. Termination of the Plan Upon Certain Events................................................ Distribution of Trust Fund Upon Complete Termination....................................... Termination of Plan With Respect to an Adopting Employer...................................

CERTAIN PROVISIONS AFFECTING THE EMPLOYER 12.01 Duties of the Employer..................................................................... 12.02 Right of Employer to Discharge Employees................................................... 12.03 Information to be Furnished................................................................ 12.04 Communications from Sponsor to Trustee..................................................... 12.05 No Reversion to Employer................................................................... 12.06 Indemnification by Sponsor................................................................. 12.07 Adoption of Plan by Adopting Employers..................................................... SPECIAL MERGED PLAN ISSUES 13.01 Generally.................................................................................. 13.02 Parisian Retirement and Savings Plan....................................................... 13.03 Younkers Associate Profit Sharing and Savings Plan......................................... 13.04 G.R. Herberger's Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan.......................................................... 13.05 Brody Brothers Dry Goods Company, Inc. 401(k) Profit Sharing Plan.......................... 13.06 Mercantile Transfers....................................................................... 13.07 Employees Who Transfer from Saks Holdings, Inc.............................................

PROVISIONS APPLICABLE TO A TOP HEAVY PLAN 14.01 Top Heavy Plans............................................................................ 14.02 Definitions................................................................................ 14.03 Minimum Allocations in Single Plan......................................................... 14.04 Minimum Vesting Schedules.................................................................. 14.05 Special Limitations and Allocation in Multiple Plans....................................... MISCELLANEOUS 15.01 15.02 15.03 15.04 15.05 15.06 15.07 15.08 15.09 15.10 15.11 15.12 15.13 PROVISIONS Allocation of Responsibility among Fiduciaries for Plan and Trust Administration........... Alienation or Assignment of Benefits (QDRO's).............................................. Headings................................................................................... Construction of the Plan................................................................... Correction of Errors....................................................................... Legally Incompetent........................................................................ Successor Organization..................................................................... Minimum Benefit in Successor Plan.......................................................... Application of Plan Provisions............................................................. Severability of Provisions................................................................. Applicable Law............................................................................. Nonassignability of Duties................................................................. Entire Plan................................................................................

INTRODUCTION Effective October 1, 1993, Proffitt's, Inc. adopted the Proffitt's, Inc. 401(k) Retirement Plan to provide retirement benefits for its eligible Employees. The Plan has been amended from time to time. The name of the Plan was changed to "Saks Incorporated 401(k) Retirement Plan" effective October 1, 1998. Now, in order to make changes to the Plan, the Sponsor hereby amends, restates and continues the Plan effective January 1, 1999 (except as otherwise indicated herein for specified provisions or as required by applicable law or regulations). The purposes of the Plan are to provide the Employees who qualify to participate in the Plan and their Beneficiaries certain benefits as stipulated herein in the event of retirement, death or termination of Service prior to retirement, and to provide such Employees the opportunity to save for such events on a tax-deferred incentive basis pursuant to the provisions of section 401(k) of the Code. The Plan is intended to be qualified under section 401(a) of the Code as a profit sharing plan and its related Trust is intended to qualify as a tax-exempt trust under section 501(a) of the Code. Except as otherwise provided herein, the provisions of the Plan shall apply only to Employees who have Service with the Employer on or after January 1, 1999. i

ARTICLE 1 DEFINITIONS
The following terms when used herein, unless the context clearly indicates otherwise, shall have the meanings set forth hereinafter. 1.01 "ACCOUNT" shall mean the total of a Participant's Employer Account and Personal Account. "ADOPTING EMPLOYER" shall mean the Sponsor and any business organization, sole proprietorship, professional corporation or corporation affiliated with the Sponsor through complete or partial ownership by the Sponsor or by any owner therein, or which is otherwise cooperating with the Sponsor for purposes of establishing and maintaining a qualified plan, which is authorized by the Sponsor to adopt the Plan, and which subsequently adopts the Plan. The term shall also include any business organization or corporation into which the Adopting Employer may be merged or consolidated or by which it may be succeeded. As of January 31, 1999 the following were Adopting Employers: Saks Incorporated (which is also the Plan Sponsor) Herberger's Department Stores, LLC McRae's, Inc. McRae's of Alabama McRae's Stores Partnership Parisian, Inc. Proffitt's Credit Corporation Saks Distribution Centers, Inc. Saks Stores Partnership L.P. 1.03 "ALLOCATION DATE" shall mean each business day that the applicable trading market and the Plan's recordkeeper are open for business. "BENEFICIARY" shall mean the person, persons or legal entity last designated in accordance with Section 6.05 hereof, who shall receive any death benefits that may be payable under the Plan after the death of a Participant or Retired Participant. "BREAK IN SERVICE" shall mean a consecutive twelve (12) month period, during which the Employee does not perform more than five hundred (500) Hours of Service. For purposes of determining eligibility to participate in the Plan, pursuant to Article 2 hereof, the initial twelve (12) month period shall commence on the date the Employee first performs an Hour of Service, and each subsequent twelve (12) month period shall be the Plan Year, beginning with the Plan Year which commences prior to the end of the initial twelve (12) month period. For purposes of determining Vesting Service, the consecutive twelve (12) month period shall be the Plan Year. 1-1

1.02

1.04

1.05

For purposes of determining whether a Break in Service has occurred, Hours of Service shall include any period in which the Employee is absent from work for maternity or paternity reasons for any of the

following: (a) by reason of the pregnancy of the Employee, (b) by reason of the birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement.
Provided, however, that Hours of Service credited for such absence from work shall not exceed the Hours which would normally have been credited to such individual but for such absence. Such Hours of Service shall be credited in the Plan Year in which the absence from work begins if an Employee would be prevented from incurring a Break in Service in such Plan Year solely because the period of absence is treated as Hours of Service or, in any other case, in the immediately following Plan Year. No credit for Hours of Service for absence by reason of such pregnancy or placement shall be given hereunder unless an Employee furnishes to the Plan Administrator such timely information as the Plan Administrator may reasonably require to establish that the absence from work is for a reason set forth in (a) through (d). 1.06 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, and as in effect on the relevant date to be interpreted hereunder. "COMMITTEE" shall mean the committee as provided in Article 9 hereof which may be appointed to administer the day-to-day operations of the Plan. "COMPENSATION" shall mean, except as otherwise provided, compensation as defined in (a) or (b) below, as applicable, subject to (c), which is paid to the Employee by the Employer. (a) Compensation, for all purposes except Sections 1.20, 3.03 and 3.04, means compensation as reported in the "Wages, Tips and Other Compensation" box of Form W-2 which shall include wages within the meaning of Code section 3401(a) and all other payments of compensation to an Employee by his Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code sections 6041(d), 6051(a)(3), and 6052. Compensation shall be determined without regard to any rules under Code section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code section 3401(a)(2)). However, Compensation shall not include (whether or not includable in the Employee's gross income) reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, welfare benefits or severance pay. Compensation shall include Compensation only for the portion of the Plan Year in which the Employee was a Participant. Compensation as defined in this Section 1.08(a) shall include any amount which is contributed by the Employer with respect to the applicable period pursuant to a salary 1-2

1.07

1.08

reduction agreement and which is not includable in the gross income of the Employee under section 125 (dealing with cafeteria plans), 402(e)(3) (dealing with elective deferrals under 401(k) plans), 402(h) (dealing with simplified employee pensions) or 403(b) (dealing with tax sheltered annuities) of the Code. Compensation shall not include any other contribution made by the Employer under this Plan or under any pension plan or other employee benefit plan or insurance plan maintained by the Employer for the benefit of such Employee. (b) For purposes of Section 3.03 and Section 3.04 hereof, Compensation shall mean the total compensation for Service by an Employee for the Employer that is includable in gross income as provided in section 414(s) of the Code. For purposes of Sections 3.03 and 3.04 hereof, compensation shall be determined for the period during the Plan Year in which the Employee is a Participant, or for the entire Plan Year, as determined by the Plan Administrator. Notwithstanding any other provision of the Plan to the contrary, the annual compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is one hundred fifty thousand dollars ($150,000), as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than twelve (12) months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12). If compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. 1.09 "CONTROLLED GROUP" shall mean, except as modified by section 415(h) of the Code for purposes of determining limitations under section 415 of the Code pursuant to Section 4.04 hereof, as follows: any corporation which is a member of a controlled group of corporations (as defined by section 414(b) of the Code) of which the Employer is a member, any other trade or business (whether or not incorporated) which is under common control (as defined by section 414(c) of the Code) with respect to the Employer, any organization which is a member of an affiliated service group (as defined by section 414(m) of the Code) of which the Employer is a member or any other entity required to be aggregated with the Employer pursuant to regulations under section 414(o) of the Code; but only for the period during which such other corporation, trade or business or organization and the Employer are members of such controlled group of corporations, are under such common control or are serving as members of such an affiliated service group. "DISABILITY" shall mean a physical or mental condition of a Participant resulting in: (a) evidence that the Participant is deemed by the Social Security Administration to be eligible to receive a Primary Social Security Disability benefit, or

(c)

1.10

1-3

(b) evidence that the Participant is eligible for disability benefits under the long-term disability plan sponsored by the Employer.
1.11 "EARLY RETIREMENT DATE" shall mean, for a Participant, the first day of the month coinciding with or following the date the Participant terminates Service, provided (i) the Participant has attained age fifty-five (55) and completed five (5) years of Vesting Service and (ii) the date precedes his Normal Retirement Date. "EFFECTIVE DATE" shall mean October 1, 1993, the date of establishment of the Plan; provided, however, that the term shall mean, for an Employee, the effective date of adoption of the Plan by his Employer if such date is later than October 1, 1993. The effective date of this amendment, restatement and continuation of the Plan shall be January 1, 1999, except as otherwise specifically indicated for provisions herein or as otherwise required by applicable law or regulation. 1.13 "EMPLOYEE" shall mean either (a) a person, other than an independent contractor, who is receiving remuneration from the Employer for services rendered to, or labor performed for, the Employer (or who would be receiving such remuneration except for an authorized leave of absence), or (b) a Leased Employee. "EMPLOYER" shall mean the Sponsor or an Adopting Employer, or both, as required by the context of this Plan; provided, however, that if an Employee is simultaneously employed (or considered to be employed) by the Sponsor and one (1) or more Adopting Employers or by two (2) or more Adopting Employers, the term shall mean all such employers. "EMPLOYER ACCOUNT" shall mean the account maintained on behalf of a Participant to which shall be credited the Participant's share of Employer contributions, together with the Participant's share of the investment earnings (or losses) of the Trust Fund allocable to this account. For purposes of administrative convenience, each Participant's Employer Account shall be divided into the following parts: Part I the portion of the Participant's Employer Account which is attributable to Matching Contributions, also known as the Matching Account; the portion of the Participant's Employer Account which is attributable to Qualified Matching Contributions made pursuant to Section 3.01(c) hereof, also known as the QMAC account; and the portion of the Participant's Employer Account which is attributable to trustee to trustee transfers of Employer contribution accounts, if any, made with respect to a Participant's benefits pursuant to Section 3.06 hereof, also known as the Employer Transfer Account.

1.12

1.14

1.15

Part II

Part III

1.16

"ENTRY DATE" shall mean a date upon which an Employee is eligible to become a Participant in the Plan, following his satisfaction of the eligibility requirements pursuant to Section 2.01 hereof. The first day of each calendar month shall be an Entry Date. Provided, however, that, only with respect to individuals who become Employees as a result of the merger or 1-4

consolidation of their employing organization into the Employer, or the acquisition of their employing organization by the Employer, an additional Entry Date may be named by the Sponsor for such Employees. 1.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and as in effect on the relevant date to be interpreted hereunder. "FIDUCIARY" shall mean the Employer, the Plan Administrator, the Trustee, the Investment Manager, if any, and any other business organization or corporation designated by such a fiduciary to carry out fiduciary responsibilities under the Plan, which accepts such designation, but only with respect to the specific responsibilities for each such fiduciary described herein. "FORFEITURE" shall mean the portion of a Participant's Employer Account which is forfeited before full vesting occurs or because of the operation of Section 4.01(b), 4.04 or 8.02 hereof. "HIGHLY COMPENSATED EMPLOYEE" shall mean for Plan Years after December 31, 1996: (a) any Employee who performs Service for the Employer during the determination year and who, during the look-back year, received Compensation from the Employer in excess of $80,000 (as adjusted pursuant to section 415(d) of the Code, except that the base period shall be the calendar quarter ending September 30, 1996); or any Employee who is a five-percent owner (as defined in section 416(i)(1) of the Code) at any time during the look-back year or determination year.

1.18

1.19

1.20

(b)

For this purpose, the "determination year" shall be the Plan Year and the "look-back year" shall be the twelve (12) month period immediately preceding the determination year. A Highly Compensated Employee includes any Employee whose date of termination of Service occurred prior to the determination year, performs no Service for the Employer during the determination year, and was a Highly Compensated active Employee for either the termination year or any determination year ending on or after the Employee's fifty-fifth (55th) birthday. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, and the Compensation that is considered, will be made in accordance with section 414(q) of the Code and the regulations thereunder. Such determination may also take into account other rulings and pronouncements issued by the Secretary of the Treasury, the Internal Revenue Service or other governmental bodies. 1.21 "HOUR OF SERVICE" shall mean the following: (a) An Hour of Service shall mean each actual hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These Hours of Service shall be credited to the Employee for the Plan Year in which the duties are performed. An Hour of Service shall mean each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty 1-5

(b)

or authorized Leave of Absence. No more than five hundred and one (501) Hours of Service shall be credited under this subsection for any single continuous period (whether or not such period of service occurs in a single Plan Year). Hours of Service under this subsection shall be calculated and credited pursuant to section 2530.200b-2 of the Department of Labor Regulations, which are incorporated herein by reference as if fully set forth herein. (c) An Hour of Service shall mean each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer. These Hours of Service shall be credited to the Employee for the Plan Year to which the award or agreement pertains rather than the Plan Year in which the award, agreement or payment is made. Hours of Service shall not be credited under both this and either of the two (2) preceding subsections of this Section. No Hour of Service, however, shall be credited for payments made solely to comply with workmen's or unemployment compensation or disability insurance laws or as reimbursement for medical expenses.

(d)

Hours of Service shall be credited for employment with other members of a Controlled Group of which the Employer is a member. Hours of Service shall also be credited for any individual considered a Leased Employee for purposes of the Plan. 1.22 "INVESTMENT MANAGER" shall mean any Fiduciary, other than the Trustee, who (a) has the power to manage, acquire, or dispose of any asset of the Plan; (i) is registered as an investment advisor under the Investment Advisers Act of 1940; (ii) is a bank, as defined in that Act; or (iii) is an insurance company qualified to perform services described in subsection (a) under the laws of more than one (1) state; and has acknowledged in writing that he is a Fiduciary with respect to the Plan.

(b)

(c)

1.23

"LEASED EMPLOYEE" shall mean any person, other than a common law employee of the Employer, who provides services for the Employer if the following conditions are met: (a) such services are provided pursuant to an agreement between the Employer and a leasing organization, such person has performed services for the Employer (or the Employer and a "related person" as that term is defined in section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one (1) year, and such services are performed under primary direction or control of the recipient Employer.

(b)

(c)

Notwithstanding the foregoing, a Leased Employee shall not be considered an Employee of the Employer as to services performed after December 31, 1986 if: (d) such person is covered by a money purchase pension plan

providing: 1-6

(1) a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under a 401(k) plan, a cafeteria plan pursuant to Code section 125, a simplified employee pension (SEP) pursuant to Code section 402(h) or a tax sheltered annuity pursuant to Code section 403(b), (2) immediate participation, and (3) full and immediate vesting; and (e) Leased Employees do not constitute more than twenty percent (20%) of the recipient's nonhighly compensated workforce.
For purposes of this Plan, contributions or benefits provided to a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. 1.24 "MATCHING CONTRIBUTIONS" shall mean contributions made by the Employer pursuant to Section 3.01(a) hereof. "MERGED PLANS" shall mean the plans that have been merged into the Plan from time to time. Special issues related to such Merged Plans are addressed in Article 13. "NON-HIGHLY COMPENSATED EMPLOYEE" shall mean an Employee who is not a Highly Compensated Employee. "NORMAL RETIREMENT AGE" shall mean for a Participant the date the Participant attains sixty-five (65) years of age. "NORMAL RETIREMENT DATE" shall mean for a Participant the first day of the month coinciding with or following the date he attains his Normal Retirement Age. "PARTICIPANT" shall mean an Employee participating in the Plan in accordance with the provisions of Article 2 hereof. "PERSONAL ACCOUNT" shall mean the account maintained on behalf of a Participant to which shall be credited the amount of any Salary Deferral Contributions, Rollover Contributions or trustee to trustee transfers of employee type accounts resulting from Merged Plans, together with the Participant's share of the investment earnings (or losses) of the Trust Fund allocable to this account. For purposes of reference in this Plan, each Participant's Personal Account shall be divided into the following parts: Part I the portion of the Participant's Personal Account which is attributable to Salary Deferral Contributions made pursuant to 3.02(a) hereof, also known as the Salary Deferral Account; the portion of the Participant's Personal Account which is attributable to Participant Rollover Contributions, also known as the Rollover Account; and

1.25

1.26

1.27

1.28

1.29

1.30

Part II

1-7

Part III

the portion of the Participant's Personal Account which is attributable to trustee to trustee transfers of employee type accounts, if any, made with respect to a Participant's benefits pursuant to Section 3.06 hereof, also known as the Employee Transfer Account.

1.31

"PLAN" shall mean this Plan, entitled "Saks Incorporated 401(k) Retirement Plan," as it may be amended from time to time, and as in effect on the relevant date to be interpreted hereunder. "PLAN ADMINISTRATOR" shall mean the entity designated as the Plan Administrator pursuant to Section 9.01 of the Plan to administer the Plan. "PLAN YEAR" shall mean the twelve (12) consecutive month period from January 1 through the following December 31. "RETIRED PARTICIPANT" shall mean a former Participant whose participation in the Plan has terminated and who is entitled to receive benefits provided by the Plan. "ROLLOVER CONTRIBUTIONS" shall mean the tax-free rollovers made by a Participant pursuant to Section 3.02(b). "SALARY DEFERRAL CONTRIBUTIONS" shall mean contributions made by an Employer on an employee's behalf pursuant to Section 3.02(a) hereof. "SERVICE" shall mean the employment of an Employee by the Employer and shall be measured in Hours of Service; provided, however, that the following periods of employment of an Employee shall be considered Service with the Employer: (a) employment with any members of a Controlled Group while such employers are members of the Controlled Group; and to the extent resolved by the governing body of the Sponsor, any period of continuous employment of the Employee by any predecessor organization to the Employer which ended on the date the predecessor organization merged or consolidated into the Employer.

1.32

1.33

1.34

1.35

1.36

1.37

(b)

In no event shall Service include any period of time during which the Employee was not a common-law employee, but rather a partner or a proprietor or an independent contractor. Furthermore, an Employee's employment with a member of the Controlled Group prior to its becoming a member shall be considered Service for purposes of determining eligibility under Section 2.01 of this Plan, except as otherwise provided in a resolution pursuant to subsection (b) above. Notwithstanding the foregoing, Service before any period of consecutive Breaks in Service shall be disregarded if the Employee does not have a nonforfeitable right to any portion of his Employer Account before such period of consecutive Breaks in Service, and if the number of consecutive Breaks in Service equals or exceeds the greater of (i) five (5) and (ii) the Employee's aggregate number of years of Vesting Service prior to such period of consecutive Breaks in Service. The number of years of Vesting Service prior to such period of consecutive Breaks in Service shall be deemed to exclude any years of Vesting Service not required to be taken into account by reason of any prior period of consecutive Breaks in Service. 1-8

1.38

"SPONSOR" shall mean Saks Incorporated (formerly known as Proffitt's, Inc.), a corporation with corporate offices in Birmingham, Alabama, and any business organization or corporation into which Saks Incorporated may be merged or consolidated or by which it may be succeeded. "SPOUSE" shall mean the actual spouse or surviving Participant or a former spouse of the Participant, such former spouse is to be treated as a spouse or a Participant under a qualified domestic relations section 414(p) of the Code. spouse of a if and to the extent surviving spouse of order described in

1.39

1.40

"TRUST" shall mean the trust established by the Plan under which the Employer contributions and any contributions by Participants shall be received, held, invested and disbursed by the Trustee to, or for the benefit of, Participants, Retired Participants and their Beneficiaries. "TRUST FUND" shall mean any and all cash, securities, real estate and other property held by the Trustee pursuant to the terms of the Plan. "TRUSTEE" shall mean any individual, individuals or financial institution as shall have accepted the appointment by the Sponsor as Trustee under the Plan. For purposes hereof, the term "Trustee" shall include any individual Trustee if more than one (1) Trustee exists. "VESTING SERVICE" shall mean the number of Plan Years during which an Employee completes at least one thousand (1,000) Hours of Service; provided, however, that Service which is counted or disregarded pursuant to Section 1.37 hereof shall be accordingly counted or disregarded in computing a Participant's period of Vesting Service under the Plan. "YEAR OF SERVICE" shall mean a twelve (12) consecutive month period during which an Employee completes at least one thousand (1,000) Hours of Service; provided, however, that Service which is counted or disregarded pursuant to Section 1.37 hereof shall be accordingly counted or disregarded in computing a Participant's Years of Service under the Plan. For purposes of determining eligibility, the initial twelve (12) consecutive month period shall commence on the date the Employee first performs an Hour of Service, and each subsequent twelve (12) month period shall be the Plan Year, beginning with the Plan Year which commences prior to the end of the initial twelve (12) month period, regardless of whether or not the Employee is entitled to be credited with one thousand (1,000) Hours of Service during the initial twelve (12) month period.

1.41

1.42

1.43

1.44

1-9

ARTICLE 2 PARTICIPATION IN THE PLAN 2.01 ELIGIBILITY DATE. Each Employee on December 31, 1998, who is a Participant in the Plan on that date and who continues to be an Employee on January 1, 1999, shall without further requirements, continue as a Participant hereunder. Each other Employee on January 1, 1999, and each person who becomes an Employee after January 1, 1999, shall, subject to the overriding provisions of the following paragraphs, be eligible to become a Participant as described in (a) or (b) below, whichever results in earlier eligibility. (a) NORMAL ELIGIBILITY. An Employee shall be eligible to become a Participant on the first Entry Date coincident with or next following the later of attainment of age twenty-one (21) and completion of one (1) Year of Service, provided he is still an Employee on such Entry Date. ACCELERATED ELIGIBILITY. This subsection (b) shall be applicable only to Employees who are classified as Non-highly Compensated Employees. Such Employees shall be eligible to become Participants as follows: (1) A salaried Employee shall become eligible on the first Entry Date coincident with or next following the later of such Employee's date of employment by the Employer and attainment of age twenty-one (21), provided he is still an Employee on such Entry Date. An hourly Employee shall become eligible on the first Entry Date coincident with or next following the later of attainment of age twenty-one (21) and completion of two hundred fifty (250) Hours of Service in the "initial entry period" (as defined herein). Except as provided hereinafter, the initial entry period shall be the first three (3) months of employment with the Employer. For hourly Employees who were hired before January 1, 1999 or before attainment of age twenty-one (21), the initial entry period shall be: (i) For hourly Employees employed on January 1, 1999 who have attained age twenty-one (21) and are not Participants in the Plan on January 1, 1999, the initial entry period is January 1, 1999 through March 31, 1999. For hourly Employees hired after January 1, 1999 who will have attained age twenty-one (21) on or before the end of the first three (3) months of employment, the initial entry period is the first three (3) months of employment with the Employer. 2-1

(b)

(2)

(ii)

(iii) For all other Employees who are not Participants in the Plan on January 1, 1999, the initial entry period is the three calendar month period ending with the calendar month in which the Employee attains age twenty-one (21). (c) SUSPENSION OF CERTAIN HIGHLY COMPENSATED EMPLOYEES. Notwithstanding the foregoing, an Employee who became eligible to participate pursuant to the terms of subsection (b) above and who later is classified as a Highly Compensated Employee prior to satisfying the conditions described in subsection (a) above, shall become inactive immediately upon being classified as a Highly Compensated Employee. Such Employee shall be ineligible to participate again until he satisfies the conditions described in subsection (a) above or until he ceases to be classified as a Highly Compensated Employee, whichever occurs first.

However, no Employee shall become a Participant prior to the effective date of adoption of the Plan by the Employee's Employer. Notwithstanding the above, the following classes of Employees shall be considered as excluded classes for purposes of the Plan, and Employees who are members of such classes shall not be eligible to participate in the plan: (i) Employees who are employed at one of the distribution centers for the Carson operating group; Employees who are employed at the home office of the Carson operating group in Wisconsin or Illinois or at one of the Wisconsin stores of the Carson operating group; Employees who are employed at the Elmhurst, Illinois credit operation; Employees who are employed at one of the Indiana or Minnesota stores of the Carson operating group; individuals who are represented by a collective bargaining unit, except as otherwise provided in any applicable collective bargaining agreement; Leased Employees; and individuals not otherwise excluded who are designated by the Employer as independent contractors or who perform services as independent contractors, whether or not that categorization is correct.

(ii)

(iii)

(iv)

(v)

(vi) (vii)

2.02

ELIGIBILITY DETERMINATION. Within a reasonable time prior to the date on which an Employee will become eligible, if the Employee continues employment with the Employer, to participate in the Plan, the Plan Administrator shall make available to the Employee a salary deferral agreement and such application for participation as the Plan Administrator shall require and shall notify him of the requirements to become a Participant. Should any question arise as to eligibility, the Plan Administrator shall decide such question, and such determination, if made in good faith and in accordance with the terms of the Plan, shall be final. 2-2

2.03

PARTICIPATION. An Employee shall become a Participant on the first day on which he is eligible to become a Participant, and has filed with the Plan Administrator such application which the Plan Administrator shall require for participation in the Plan in which he has agreed to abide by all the provisions hereof and has specified the amount of the Employee's salary deferral, if any, pursuant to Section 3.02(a) hereof. Notwithstanding anything in the Plan to the contrary, for purposes of becoming eligible to make Rollover Contributions, any Employee shall be eligible regardless of whether the Employee has satisfied the age and service requirements or the entry date requirements of Section 2.01. In the event that a Participant's Service terminates, or the Participant dies, sustains Disability, or retires in accordance with the provisions of the Plan, he shall thereupon cease to be a Participant.

2.04

PARTICIPATION FOLLOWING REEMPLOYMENT. Except as otherwise provided in the following sentence, an individual who has previously met the Plan's age and service requirements and whose Service has terminated, shall be eligible to participate immediately upon again being credited with Service. Such an individual who is re-employed in an excluded class of employees, as described in Section 2.01, shall not be eligible to participate while in such excluded class.

2.05

PARTICIPATION FOLLOWING CHANGE IN CLASSIFICATION. In the event a Participant becomes ineligible to participate because he is no longer a member of an eligible class of Employees, but his Service has not terminated, such Employee shall be eligible to participate immediately upon his return to an eligible class of Employees. If such Participant's Service is terminated, his eligibility to participate shall be determined as a former Participant pursuant to Section 2.04 hereof. In the event an Employee who is not a member of the eligible class of Employees becomes a member of the eligible class, such Employee then shall participate immediately if such Employee has satisfied the minimum age and Service requirements and would have previously become eligible to participate had he been in the eligible class. If such an Employee has not satisfied the minimum age and Service requirements when he becomes a member of the eligible class, he shall participate as provided in Section 2.01 hereof, and his employment in the excluded class shall be treated as Service in determining his eligibility to participate.

2.06

ABSENCE IN THE ARMED SERVICES. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code section 414(u).

2.07

FAMILY AND MEDICAL LEAVE ACT REQUIREMENTS. Notwithstanding any other provisions of the Plan, in the case of an Employee who takes family or medical leave as an eligible employee of a covered employer under the provisions of the Family and Medical Leave Act of 1993 (FMLA), any period of FMLA leave shall be treated as continued Service for purposes of eligibility to participate and Vesting Service to the extent required by applicable law.

2-3

ARTICLE 3 CONTRIBUTIONS TO THE PLAN 3.01 EMPLOYER CONTRIBUTIONS. Each Plan Year ending after the Effective Date, and during the continuance of the Plan, the Employer shall make contributions to the Plan as described below. (a) MATCHING CONTRIBUTIONS. Each Plan Year the Sponsor shall set the "match rate" for the Plan Year, which can be zero percent (0%) or any positive percentage. Each Employer shall make a Matching Contribution equal to the match rate multiplied by the "matchable salary deferrals" contributed on behalf of each Participant entitled to be credited with Matching Contributions, as provided herein, for the Plan Year. "Matchable salary deferrals" shall be Salary Deferral Contributions pursuant to Section 3.02(a) hereof which do not exceed five percent (5%) of the Compensation of each Participant making Salary Deferral Contributions. However, the Employer shall not contribute amounts which (i) would, if allocated to the Employer Account of Highly Compensated Employees pursuant to Section 4.01(b), create excess aggregate contributions (as defined in Section 3.04) or (ii) are attributable to contributions which pursuant to Sections 3.02(a), 3.03 or 3.04 are to be distributed to Employees. Participants entitled to be credited with Matching Contributions are all Participants who make Salary Deferral Contributions during the Plan Year and who are still employed by the Employer on the last day of the Plan Year. Matching Contributions shall be: (i) subject to the vesting schedule provided in Section 8.01 hereof, and (ii) credited to Part I of the Participant's Employer Account. (b) QUALIFIED MATCHING CONTRIBUTION. The Employer may, in order to preserve the qualified status of the Plan, contribute a Qualified Matching Contribution based on the salary deferral contributions of Non-highly Compensated Employees. Qualified Matching Contributions shall be fully vested at all times, shall be subject to the distribution provisions that are applicable to Salary Deferral Contributions and shall be credited to Part II of the Participant's Employer Account.

Employer contributions shall be made no later than the due date (including extensions) for filing the federal income tax return for the year for which such contributions are made. However, any Forfeitures arising since the last Allocation Date or otherwise becoming available shall be applied to reduce Employer contributions to the Plan for the current Plan Year, or as soon thereafter as practicable. In satisfaction of its contribution obligations under this Section, the Employer shall deliver or cause to be delivered cash to the Trustee. Contributions made to the Plan by the Employer shall be made on the condition that they are deductible under section 404 of the Code. 3-1

3.02

CONTRIBUTIONS BY, OR ON BEHALF OF, PARTICIPANTS. A Participant may elect contributions to the Plan, as described below. Such amounts shall be fully vested at all times. (a) SALARY DEFERRAL CONTRIBUTIONS. Effective with the first payroll date on or after the date on which he becomes a Participant, a Participant may voluntarily elect to enter into a salary deferral agreement with the Employer. Such salary deferral agreement shall serve to direct the Employer to contribute, and the Employer shall contribute, to Part I of the Participant's Personal Account, as Salary Deferral Contributions, a percentage of the amount which would otherwise be paid to the Participant as direct Compensation. The amount of his Compensation which the Participant is to defer for a Plan Year shall be stated in percentage points of his Compensation, which may not be more than twenty percent (20%). In addition, such amount shall be subject also to the limitations on annual additions for the limitation year under Section 4.04 hereof. Notwithstanding the preceding, the Committee may establish rules and procedures to facilitate the administration of Salary Deferral Contributions, including but not limited to rules regarding minimum amounts of Salary Deferral Contributions per accounting period, default investment fund for small contributions, and whether or not contribution percentages must be in whole percentages. A Participant's Salary Deferral Contributions to this Plan in any taxable year of the Participant shall not be greater than seven thousand dollars ($7,000), or such increase in this amount, pursuant to section 402(g) of the Code, for any taxable year as results from the annual adjustment factor determined by the Commissioner of the Internal Revenue Service and effective on January 1 of the taxable year. Salary Deferral Contributions to this Plan in excess of the preceding limit occurring in any Plan Year (together with any income allocable to such amount) shall be automatically distributed not later than the first April 15th following the close of the Plan Year in which such excess deferrals occurred, to the Participant on whose behalf the excess was contributed. If the Participant makes "elective deferrals," as defined in regulations issued pursuant to section 402(g) of the Code, to more than one (1) plan, which exceed the limit described above in the aggregate, such Participant may elect a distribution of a part or all of such excess amount (together with any income allocable to such amount) which has been contributed to this Plan. An election to receive a distribution of such excess deferrals must be in writing and must include the Employee's certification that the specified amount is an excess deferral. Such election must be made not later than the first March 15th following the close of the Plan Year in which such excess deferrals occurred. Upon such election, the excess amount specified by the Participant shall be distributed to the Participant not later than the first April 15th following the close of the Plan Year in which such excess deferrals occurred. Income allocable to such excess amount should be determined in the same manner as under Section 3.03. The determination of whether a Participant's elective deferrals with respect to any taxable year shall exceed the limitations of Code section 402(g) shall be the sole responsibility of the Participant and neither the Employer, the Plan Administrator, nor the Trustee shall have any obligations with respect to such determination. 3-2

Salary Deferral Contributions shall be made by payroll deduction and shall be considered to be Salary Deferral Contributions for the Plan Year in which they are actually made. The direction and agreement by the Participant to defer a portion of his Compensation as a Salary Deferral Contribution rather than receive it as a cash benefit shall be in the form of a salary deferral agreement as set forth in Section 2.03 hereof. A Participant's salary deferral agreement may be amended to change the percentage of the Salary Deferral Contribution, prospectively, as of the first day of any payroll period. Provided, however, that the Committee reserves the right to restrict the number and frequency of such changes if they become an administrative problem. A Participant's salary deferral agreement may be terminated and all Salary Deferral Contributions ended as of the first day of any payroll period; provided that following such a complete termination of Salary Deferral Contributions, Salary Deferral Contributions may be resumed on the first day of any payroll period after such termination. A Participant who desires to effect such a change or termination must make such election in such form and at such time as may be required by the Plan Administrator prior to the date as of which the change or termination will become effective. The Plan Administrator may establish additional procedures for the renewal, amendment, termination, or revocation of salary deferral agreements which shall be uniform and nondiscriminatory. However, the requirement of uniformity (but not nondiscrimination) may be suspended, and such differences in procedure (provided such differences are merely procedural) may be permitted between Highly Compensated Employees and Non-highly Compensated Employees as are necessary, proper and convenient in order to bring the Plan into compliance with the coverage and discrimination requirements of Section 3.03 hereof and thereby preserve, or assure the preservation of, the qualified status of the Plan. As a condition precedent for accepting a Participant's salary deferral agreement, the Employer also may, at any time, as of any time, and from time to time, amend, terminate or revoke the salary deferral agreement of a Participant who is a Highly Compensated Employee in order to comply with the coverage and discrimination requirements of Section 3.03 hereof and thereby preserve, or assure the preservation of, the qualified status of the Plan, or for other reasons deemed appropriate by the Committee. However, any such amendment or revocation for a Plan Year shall be made within the time required for the contribution of Salary Deferral Contributions for a Plan Year as provided in Internal Revenue Service Regulations regarding Code section 401(k) and, to the extent applicable, in Department of Labor regulations regarding salary deferral contributions as plan assets. The Employer shall contribute to Part I of the Personal Account of each Participant an amount equal to the reduction in such Participant's Compensation pursuant to his salary deferral agreement. The contribution to be made as a result of such reduction in Compensation shall be paid to the Trustee as soon as practicable, but no later than the date required by Department of Labor regulations concerning the contribution to a trust of salary deferral contributions that are plan assets. Such Salary Deferral Contributions shall be considered to be Employer contributions under the Plan and shall be nonforfeitable when made. 3-3

If the Committee shall determine that the Salary Deferral Contributions would exceed the limitations of Section 3.03 hereof, the Plan Administrator shall, before the end of the Plan Year following the Plan Year during which such excess contribution occurs, distribute the amount of such excess (and income, determined in the same manner as under Section 3.03, allocable thereto) to the Participant on whose behalf the contribution was made. (b) ROLLOVER CONTRIBUTIONS. Rollover Contributions by a Participant (or by an Employee expected to become a Participant) to his Personal Account in cash or in other property acceptable to the Trustee shall be allowed from individual retirement accounts, within the meaning of section 408(a) or (b) of the Code, which have been established as conduits for other qualified plan distributions pursuant to section 402 or section 403 of the Code or from another qualified plan. Acceptance of Rollover Contributions shall be subject to any procedures governing acceptance of Rollover Contributions which may be established by the Committee. However, no portion of any such rollover may be attributable to nondeductible employee contributions. Rollover Contributions shall be remitted to the Trustee as soon as practicable, shall be credited to Part II of the Participant's Personal Account (the "Rollover Account") and shall be fully vested at all times. Rollover Contributions shall be treated as Participant contributions for purposes of investment and allocation of investment earnings (and losses), and shall be distributed as provided in Articles 6, 7 and 8 hereof. Rollover Contributions shall not be considered (i) as contributions by the Employer under Section 3.01 of this Plan, (ii) in determining the maximum benefits permissible under the Plan pursuant to Section 4.04 hereof or (iii) in determining the Top Heavy Ratio in Section 14.02(j) hereof. 3.03 COVERAGE AND DISCRIMINATION REQUIREMENTS. Salary Deferral Contributions for any Plan Year after December 31, 1996 shall satisfy one (1) of the following tests: (a) the average deferral percentage for all Highly Compensated Employees who are eligible to participate in the Plan for the Plan Year shall not be more than the average deferral percentage of all Participants who were Non-highly Compensated Employees for the Plan Year indicated below multiplied by one and twenty-five hundredths (1.25); or the excess of the average deferral percentage for all Highly Compensated Employees who are eligible to participate in the Plan for the Plan Year over that of all Participants who were Non-highly Compensated Employees for the Plan Year indicated below shall not be more than two percent (2%), nor shall the average deferral percentage for such Highly Compensated Employees be more than that of the other group multiplied by two (2).

(b)

For purposes of the tests described above, "current year testing" will apply for Plan Years beginning January 1, 1997 and January 1, 1998, and "prior year testing" will apply for Plan Years beginning on or after January 1, 1999. For a Plan Year, current year testing involves use of the average deferral percentage for the current Plan Year for all Non-highly Compensated Employees who are eligible to participate in the Plan for the current Plan Year. For a Plan Year, prior year testing involves use of the average deferral percentage for the Plan Year next 3-4

preceding the current Plan Year for all Non-highly Compensated Employees who are eligible to participate in the Plan for such preceding Plan Year. For purposes of this Section, the term "average deferral percentage" for a group of Employees shall mean the average of the percentages, calculated separately for each Employee in the group, of the amount of Salary Deferral Contributions and, if applicable, Qualified Matching Contributions, made on behalf of the Employee for a Plan Year, to the amount of the Employee's Compensation for such Plan Year (the "deferral percentage"). Qualified Matching Contributions may be included in the calculation of deferral percentages only if the conditions described in section 1.401(k)-1(b)(5) of the regulations are satisfied. For purposes of calculating the average deferral percentage, eligible Employees with no Salary Deferral Contributions or, if applicable, Qualified Matching Contributions, shall be included in such calculation with deferral percentages of zero percent (0%). For purposes of this Section, the

following rules, relating to aggregation of plans, shall apply: (c) All Salary Deferral Contributions that are made under this Plan and any other plan that is aggregated with this Plan for purposes of sections 401(a)(4) and 410(b) (other than section 410(b)(2)(A)(ii)) of the Code shall be treated as made under a single plan. (d) If this Plan is permissively aggregated with any other plan or plans for purposes of section 401(k) of the Code, such aggregated plans must satisfy sections 401(a)(4) and 410(b) of the Code as though they were a single plan. (e) The deferral percentage for any eligible Employee who is a Highly Compensated Employee and who is eligible to make salary deferral contributions under this Plan and any other plan maintained by the Employer (other than plans that may not be permissively aggregated) shall be determined as if all such plans were a single plan. A Salary Deferral Contribution shall be considered to have been made with respect to a Plan Year if it (i) is allocated to the Account of a Participant as of any date within that Plan Year and (ii) relates to Compensation that either would have been received by the Participant in the Plan Year but for the Participant's election to defer under the arrangement, or is attributable to services performed by the Participant in the Plan Year and, but for the Participant's election to defer, would have been received by the Participant within two and one-half (2-1/2) months after the close of the Plan Year. A contribution shall be considered allocated as of any date within a Plan Year if the following conditions are met: (f) such allocation is not dependent upon participation in the Plan as of any date subsequent to the allocation date, (g) the Employer contributions in addition to those attributable to Salary Deferral Contributions are actually made to the Plan no later than the end of the period described in Code section 404(a)(6) applicable to the taxable year with or within which the Plan Year ends, and (h) the Employer contributions attributable to salary deferrals are actually made to the Plan no later than the end of the twelve (12) month period immediately following the end of the Plan Year to which the contribution relates. 3-5

Excess contributions shall mean, with respect to any Plan Year, "excess contributions" as defined in Code section 401(k)(8)(B). If, for any Plan Year, Salary Deferral Contributions are made with respect to the Highly Compensated Employees in excess of that permissible under subsections (a) or (b) of this Section 3.03, the Plan Administrator shall, before the end of the Plan Year following the Plan Year during which such excess contribution occurs distribute the amount of such excess contributions (and the earnings or losses allocable thereto). Excess contributions are allocated to the Highly Compensated Employees with the largest amounts of contributions taken into account in calculating the average deferral percentage test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such contributions and continuing in descending order until all the excess contributions have been allocated. For purposes of the preceding sentence, the "largest amount" is determined after distribution of any excess deferrals under Section 3.02(a). The income allocable to such excess contribution shall be equal to the allocable gain or loss for the Plan Year. The income allocable to excess contributions for the Plan Year is determined by multiplying the income for the Plan Year allocable to Salary Deferral Contributions by a fraction in which the numerator is the excess contributions for the Employee for the Plan Year and the denominator is the total Account balance of the Employee attributable to Salary Deferral Contributions as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such amount for the Plan Year. Notwithstanding the above, the tests described in this Section and the corrective measures for insuring passage of such tests may be performed in any manner permitted under section 401(k) of the Code, the regulations thereunder and any other related rulings or pronouncements issued by the Secretary of the Treasury or the Internal Revenue Service. 3.04 DISCRIMINATION REQUIREMENTS FOR OTHER CONTRIBUTIONS. The Plan shall satisfy the nondiscrimination requirements of section 401(m) of the Code and the regulations issued thereunder, which are incorporated herein by reference. The Plan shall satisfy such requirements if, with respect to any Plan Year after December 31, 1996, either of the following alternative conditions are met: (a) the average contribution percentage for all eligible Highly Compensated Employees for the Plan Year is not greater than the average contribution percentage for all Participants who were Non-highly Compensated Employees for the Plan Year indicated below multiplied by one and twenty-five hundredths (1.25). the excess of the average contribution percentage for all eligible Highly Compensated Employees for the Plan Year over that of all Participants who were Non-highly Compensated Employees for the Plan Year indicated below is not more than two percent (2%), nor is the average contribution percentage for such Highly Compensated Employees more than that of the other group, multiplied by two (2).

(b)

For purposes of the tests described above, "current year testing" will apply for Plan Years beginning January 1, 1997 and January 1, 1998, and "prior year testing" will apply for Plan Years beginning on or after January 1, 1999. For a Plan Year, current year testing involves use 3-6

of the average contribution percentage for the current Plan Year for all Non-highly Compensated Employees who are eligible to participate in the Plan for the current Plan Year. For a Plan Year, prior year testing involves use of the average contribution percentage for the Plan Year next preceding the current Plan Year for all Non-highly Compensated Employees who are eligible to participate in the Plan for such preceding Plan Year. For purposes of this Section, "Eligible Employee" shall mean any Employee who is eligible to make or be credited with contribution percentage amounts. Contribution percentage amounts shall mean Matching Contributions, voluntary after-tax contributions and (subject to the conditions hereinafter enumerated and to the extent taken into account in the calculation of average contribution percentages) Salary Deferral Contributions and Qualified Matching Contributions. The Employer may elect to include Salary Deferral Contributions, and must include Qualified Matching Contributions, to the extent such contributions are not included in the tests described in Section 3.03 hereof. Salary Deferral Contributions may be included only if the conditions described in section 1.401(m)-1(b)(5) of the regulations are satisfied. The term "average contribution percentage" for a group of Eligible Employees shall mean the average of the ratios, calculated separately for each Eligible Employee in the group, of the contribution percentage amounts made on behalf of an Eligible Employee during the Plan Year to that Eligible Employee's Compensation for such Plan year (the "contribution percentage"). For purposes of calculating the average contribution percentage, Eligible Employees with no contribution percentage amounts shall be included in such calculation with contribution percentages of zero percent (0%). For purposes of this Section, the following rules, relating to aggregation of plans, shall apply: (c) All contribution percentage amounts that are made under this Plan and any other plan that is aggregated with this Plan for purposes of sections 401(a)(4) and 410(b) (other than section 410(b)(2)(A)(ii) of the Code shall be treated as made under a single plan. If this Plan is permissively aggregated with any other plan or plans for purposes of section 401(m) of the Code, such aggregated plans must satisfy sections 401(a)(4) and 410(b) of the Code as though they were a single plan. The contribution percentage for any Eligible Employee who is a Highly Compensated Employee and who is eligible to have contribution percentage amounts credited to him under this Plan and any other plan maintained by the Employer (other than plans that may not be permissively aggregated) shall be determined as if all such plans were a single plan.

(d)

(e)

Notwithstanding anything in the Plan to the contrary, if, for any Plan Year, "excess aggregate contributions" are made with respect to the Highly Compensated Employees in excess of that permissible under this Section 3.04, the Plan Administrator shall, before the end of the Plan Year following the Plan Year during which such excess aggregate contribution occurs distribute the amount of such excess aggregate contributions (and the earnings or losses allocable thereto). Excess aggregate contributions are allocated to the Highly Compensated Employees with the largest amounts of employer contributions taken into account in calculating the average contribution percentage test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such employer contributions and continuing in descending order until all the excess aggregate contributions have been allocated. 3-7

"Excess aggregate contributions" shall mean, with respect to any Plan Year, "excess aggregate contributions" as defined in section 401(m)(6)(B) of the Code. The determination of excess aggregate contributions shall be made after first determining excess elective deferrals pursuant to Section 3.02 and then determining excess contributions pursuant to Section 3.03 hereof. Excess aggregate contributions shall be adjusted for any income up to the date of distribution. The income allocable to excess aggregate contributions for such period is determined in a manner analogous to the above allocation of income to excess deferrals, but basing the allocation on excess aggregate contributions and the income allocable to Matching Contributions. Forfeitures of excess aggregate contributions shall be applied to reduce Employer contributions. Notwithstanding the above, the tests described in this Section and the corrective measures for insuring passage of such tests may be performed in any manner permitted under section 401(m) of the Code, the regulations thereunder and any other related rulings or pronouncements issued by the Secretary of the Treasury or the Internal Revenue Service. 3.05 MULTIPLE USE OF ALTERNATIVE LIMITATION. Compliance with Section 3.03 and Section 3.04 shall not be achieved by the use of both the limitation in Section 3.03(b) and the limitation in Section 3.04(b) for the same Plan Year. The determination and correction of such a multiple use shall be governed by the rules set forth in section 401(m) of the Code and in regulations interpreting such section, which are incorporated herein by reference; provided, however, that the multiple use shall be corrected through reduction of the average contribution percentage of all Highly Compensated Employees. 3.06 TRUSTEE TO TRUSTEE TRANSFERS. A direct transfer to this Plan of plan assets attributable to a Participant's participation in another qualified defined contribution plan may be allowed in cash or other property acceptable to the Trustee to accommodate the merger of such other plan into this Plan. The Committee shall have the authority to allow additional transfers from qualified defined contribution plans of any employer or predecessor organization which has merged with or consolidated with the Employer, with respect to such Participants as the Committee may deem appropriate. The Plan Administrator may allocate Merged Plan accounts and any other transferred accounts into existing parts of the Participant's Employer or Personal Accounts, if appropriate, and/or may establish separate bookkeeping subaccounts for these amounts under Part III of the Participant's Employer Accounts and/or Part III of the Participant's Personal Accounts. Any payout rules or restrictions on distributions of such transferred accounts under such other plan shall be maintained under this Plan with respect to such accounts, to the extent required by section 411(d)(6) of the Code and the regulations thereunder. 3.07 MEDIUM OF FINANCING THE PLAN. Investment of all contributions made in accordance with the Plan and provision for payment of benefits to Retired Participants and Beneficiaries shall be accomplished by a Trust, as it may be amended from time to time, which shall constitute a part of the Plan. 3-8

3.08

INVESTMENT DIRECTIONS BY PARTICIPANTS. The Committee may permit Participants to direct the investment of their Accounts or a portion of their Accounts among a variety of separate investment funds, as specified and identified by the Committee, including a fund invested primarily in common stock of the Sponsor. The Committee shall establish uniform and nondiscriminatory rules and restrictions with respect to such directed investments and communicate such rules and restrictions to the Trustee. If the Committee permits Participants to direct the investment of the Accounts in common stock of the Sponsor, the Committee reserves the right to limit the percentage of each Participant's Account which is invested in common stock of the Sponsor. Elections of investments shall be made pursuant to uniform and nondiscriminatory rules established by the Committee reserves the right to, shall be selected in writing on forms, or by such other method, approved by the Committee, and shall be filed with the Committee or its designated representative. Such elections must be made by providing prior notice to the Committee in such form and manner as the Committee may uniformly and nondiscriminatorily require prior to the date as of which the transfer is elected. Accounts not directed pursuant to the Committee's rules shall be invested in one of the funds designated by the Committee as the default fund. A Participant may, by providing prior notice to the Committee in such form and manner as the Committee may uniformly and nondiscriminatorily require, modify his election with respect to the investment of his Account balances and future contributions. The Trustee shall carry out the investment directions of a Participant made pursuant to such rules and restrictions as soon as practicable after receipt of each such direction. Notwithstanding the foregoing, the Committee may suspend Participants' rights to direct the investment of their accounts at any time, either temporarily or permanently. In particular, temporary suspension is permitted during "blackout periods" that result due to transition of the Plan's recordkeeping services from one entity to another. The Committee shall attempt to notify all Participants and Retired Participants with Accounts in the Plan of such a suspension, whether temporary or permanent, but failure to notify one or more Participants or Retired Participants shall not prevent the suspension from applying with respect to such Participants or Retired Participants.

3-9

ARTICLE 4 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 4.01 CREDIT OF CONTRIBUTIONS. Contributions shall be credited as follows: (a) SALARY DEFERRALS. Salary Deferral Contributions pursuant to Section 3.02(a) hereof which have been deposited with the Trustee shall be credited as of each Allocation Date to Part I of the Personal Account (the "Salary Deferral Account") of each Participant on whose behalf such contributions were made. MATCHING CONTRIBUTIONS. Any Matching Contributions made pursuant to Section 3.01(a) hereof which have been deposited with the Trustee shall be credited to Part I of the Employer Account (the "Matching Account") of each Participant entitled to share in the allocation of Matching Contributions. Each Participant's share in Matching Contributions shall be the amount described in Section 3.01(a) hereof. Those Participants who make Salary Deferral Contributions at any time during the Plan Year and who are still employed by the Employer on the last day of the Plan Year shall be eligible to share in the allocation of Matching Contributions attributable to that Plan Year. No Matching Contribution shall be credited with respect to any Salary Deferral Contribution that is returned or distributed to the Participant in accordance with Section 3.02(a), Section 3.03 (ADP test), Section 3.04 (ACP test) or Section 4.04 (Maximum Annual Additions). In the event that such a Matching Contribution is credited to the Matching Account of a Participant, such Matching Contribution shall be forfeited as of the last day of the Plan Year in which it was credited. Any Matching Contributions forfeited in accordance with the preceding sentence shall not be included in the ACP test in Section 3.04. (c) QUALIFIED MATCHING CONTRIBUTIONS. Any Qualified Matching Contributions made pursuant to Section 3.01(b) hereof which have been deposited with the Trustee shall be credited to Part II of the Employer Account of each Non-highly Compensated Employee who was credited with a Matching Contribution for the Plan Year. Each Participant's share in such Qualified Matching Contributions shall be that amount which bears the same ratio to the total Qualified Matching Contributions as the Participant's Matching Contribution for the Plan Year bears to the total Matching Contribution for the Plan Year for all Non-highly Compensated Employees entitled to such a contribution for the Plan Year. ROLLOVER CONTRIBUTIONS. Rollover Contributions pursuant to Section 3.02(b) hereof shall be credited to Part II of the respective Personal Accounts of Participants who contributed such amounts. MERGED PLAN TRANSFERS. Amounts transferred to this Plan pursuant to a Merged Plan shall be credited to Part III of the respective Employer Accounts and/or Personal Accounts of 4-1

(b)

(d)

(e)

Participants for whom such amounts were transferred, or among the other Accounts described in Section 4.01(a), (b), (c) or (d), as determined by the Plan Administrator. 4.02 ALLOCATION OF INVESTMENT EARNINGS. As of each Allocation Date, the investment earnings, as defined herein, shall be allocated to each Participant's Employer Account and Personal Account as described below. Investment earnings, for purposes of this Section, shall mean the net gain or loss of the Trust Fund from investments, as reflected by interest payments, dividends, realized and unrealized gains and losses on securities, other investment transactions, and expenses paid from the Trust Fund which are not reimbursed by the Employer or charged directly to the accounts of Participants. In determining the investment earnings of the Trust Fund for any period, assets shall be valued on the basis of fair market value. Investment earnings shall be determined and allocated separately for each separate investment fund that is established pursuant to Section 3.08 hereof. The Committee shall determine whether account recordkeeping is to be maintained on a balance forward recordkeeping basis or a daily recordkeeping basis for a given period. (a) BALANCE FORWARD RECORDKEEPING. If the Account recordkeeping for the period is being maintained on a balance forward basis, the investment earnings shall be allocated to each Participant's Accounts in the ratio that the value of each such Account as of the last Allocation Date bears to the total value of all Accounts as of the last Allocation Date. These Account values shall include contributions credited to the Accounts since the last Allocation Date, adjusted to recognize the timing of such contributions, but shall not include amounts withdrawn since the last Allocation Date. For purposes of this subsection only, the term "Participants" shall include Retired Participants, present and former Employees and Beneficiaries who have Account balances, but who would not otherwise be considered to be Participants under the Plan. DAILY RECORDKEEPING. If the Account recordkeeping for the period is being maintained on a daily recordkeeping basis, then investment earnings shall be allocated in Accordance with the attributes of the separate investment funds, in a manner generally consistent with industry standards for daily recordkeeping. The Committee shall have sole authority to make determinations and resolve issues for purposes of this subsection.

(b)

Should the Plan Administrator determine that the strict application of the foregoing allocation procedures will not result in an equitable and nondiscriminatory allocation among the Accounts of Participants, or that another method is appropriate for the purpose, it may modify its procedures for the purpose of achieving an equitable and nondiscriminatory allocation in accordance with the general concepts of the Plan and the provisions of this Article. 4.03 ADJUSTMENT TO ACCOUNTS. As soon as practicable after each Allocation Date, the value of each Account shall be adjusted to be equal to the value of such Account as of the last Allocation Date, plus any additions to and minus any subtractions from the Account since the last Allocation Date. The Committee may direct that any investment, administrative, trust or other fees or charges be charged against the Accounts of Participants. It is the Sponsor's intent that as much of the administrative and investment fees be paid from Plan assets as is allowed by law. The 4-2

Committee may establish procedures for charging fees against Participant Accounts, and may modify such procedures at any time and in such manner as it determines is appropriate and consistent with applicable law. 4.04 MAXIMUM ANNUAL ADDITIONS TO PARTICIPANTS' ACCOUNTS. The annual addition to any Participant's Accounts for any Plan Year beginning after December 31, 1994 shall not exceed the lesser of thirty thousand dollars ($30,000) or twenty-five percent (25%) of such Participant's total cash compensation for the Plan Year. For limitation years beginning after December 31, 1997, compensation (for purposes of this Section) is Compensation as defined in Section 1.08(a). For purposes of applying the limitations of this article, compensation for a limitation year is the compensation actually paid or includable in gross income during such year. The term "annual addition" for a Participant means the sum of the following for the Plan Year: (a) contributions made by the Employer on behalf of the Participant (including salary deferral contributions made pursuant to section 401(k) of the Code, if any); forfeitures allocated to a Participant's Employer Account, if any; and

(b)

(c) contributions made by the Participant, if any; (d) amounts allocated to an individual medical account which is part of a defined benefit plan, as described in Code section 415(l)(1); and (e) amounts attributable to post-retirement medical benefits allocated to a separate account of a key employee under a welfare benefit fund as described in Code section 419(A)(d)(2). If a Participant is, or was, a participant at any time in both a qualified defined benefit pension plan and a qualified defined contribution plan ever maintained by the same employer, then, for any limitation year beginning before January 1, 2000, the sum of the defined benefit fraction and the defined contribution fraction in any limitation year may not exceed one (1). The term "defined benefit fraction" shall mean, for any Plan Year, a fraction the numerator of which is the projected annual benefit of the Participant under all qualified defined benefit pension plans maintained by the Employer (determined as of the close of the Plan Year), if any, and the denominator of which is the lesser of the following: (i) one and four tenths (1.4) multiplied by one hundred percent (100%) of the Participant's average total cash compensation for the three (3) consecutive limitation years in which he received the highest aggregate total cash compensation; or (ii) one and twenty-five hundredths (1.25) multiplied by ninety thousand dollars ($90,000) (or such greater amount as may be determined by the Secretary of the Treasury). The term "defined contribution fraction" shall mean, for any Plan Year, a fraction the numerator of which is the sum of the annual additions to the Participant's accounts under all qualified 4-3

defined contribution plans maintained by the Employer (determined as of the close of the Plan Year) and the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with the Employer: (i) one and twenty-five hundredths (1.25) multiplied by thirty thousand dollars ($30,000) (or such greater amount as may be determined by the Secretary of the Treasury); or (ii) one and four tenths (1.4) multiplied by twenty-five percent (25%) of the Participant's total cash compensation for such Plan Year. For purposes of determining annual additions, the limitation year shall be the Plan Year. All qualified defined benefit pension plans (whether or not terminated) of an employer shall be treated as one (1) qualified defined benefit pension plan for purposes of applying the limitations of sections 415(b), (c) and (e) of the Code. All qualified defined contribution plans (whether or not terminated) of an employer shall be treated as one (1) qualified defined contribution plan for purposes of applying the limitations of sections 415(b), (c) and (e) of the Code. In the case of a group of employers which constitutes a Controlled Group, all such employers shall be considered a single employer for purposes of applying the limitations of section 415 of the Code. If as a result of the allocation of Forfeitures, a reasonable error in estimating the compensation of a Participant, a reasonable error in determining the amount of elective deferral contributions (within the meaning of Code section 402(g)(3)) that may be made with respect to any individual under the limits of Code section 415, or other facts and circumstances allowed by regulation, the annual additions limitation is exceeded in any Plan Year, the excess annual addition shall be charged against the Participant's Accounts in the following order of priority by the amount required to insure compliance with this Section: (i) the annual additions to any other qualified defined contribution plan; (ii) Salary Deferral Contributions which are not matchable Salary Deferral Contributions pursuant to Section 3.01 (a); and (iii) matchable Salary Deferral Contributions pursuant to Section 3.01(a) and Matching Contributions, on a pro rata basis. The portion of such excess which consists of Salary Deferral Contributions shall be returned to the Participant. The Salary Deferral Contributions returned or distributed shall include income on such amounts determined in the same manner as income is determined in Section 3.03 (however, if such method of determining income is not permitted by regulations, then income shall be determined in a manner consistent with any applicable regulations). The portion of such excess attributable to Matching Contributions shall be treated as a Forfeiture for the Plan Year and shall be allocated to, and maintained as, a suspense account under the Plan to which investment gains (or losses) and other income is not allocated and which will be used to reduce Employer contributions along with other Plan Forfeitures in accordance with Section 8.02. In 4-4

addition, no Employer contributions may be made to the Plan until any excess maintained in a suspense account is exhausted. Notwithstanding any provision of the Plan to the contrary, if, in any limitation year, the sum of the defined benefit fraction and the defined contribution fraction exceed one (1.0), then the rate of the annual addition for any Participant shall be automatically reduced to the level necessary to prevent the limitations of this Section from being exceeded with respect to such Participant. 4.05 APPLICATION OF CONTRIBUTIONS AND FORFEITURES AMONG EMPLOYERS. The Sponsor and all such Adopting Employers shall be considered to be the same Employer for purposes of crediting Employer contributions and applying Forfeitures. 4.06 FAIR MARKET VALUE. The Plan Administrator shall cause to be determined the fair market value of all assets held by the Trustee in the Trust hereunder as of each Allocation Date.

4-5

ARTICLE 5 IN SERVICE WITHDRAWALS 5.01 WITHDRAWALS AT AGE 59-1/2. At any time on or after a Participant shall have attained age fifty-nine and a half (59-1/2), if the Participant remains employed by the Employer, the Participant may elect to receive a distribution of all or part of the vested amount credited to the Account maintained on behalf of the Participant as of the immediately preceding Allocation Date, except such amounts attributable to Merged Plans that are subject to additional distribution restrictions (such as transfers from a money purchase pension plan which cannot be withdrawn before the Participant's Normal Retirement Date). A Participant who makes such a withdrawal shall continue to be eligible to participate in the Plan on the same basis as any other Employee. The Committee may limit the number of withdrawals that may be requested in a uniform and nondiscriminatory manner during any Plan Year. 5.02 WITHDRAWALS FROM PARTICIPANTS' PERSONAL ACCOUNTS. While a Participant or a Retired Participant is in the Service of the Employer, he shall be permitted to withdraw as soon as practicable following his request (i) all or part of Part II of his Personal Account (attributable to Rollover Contributions) or (ii) Part III of his Personal Account attributable to after-tax contributions made under a Merged Plan. The Committee may limit the number of withdrawals that may be requested in a uniform and nondiscriminatory manner during any Plan Year. 5.03 HARDSHIP WITHDRAWALS. While a Participant or a Retired Participant is in the Service of the Employer, he shall be permitted to withdraw the contributions to Part I of his Personal Account (attributable to Salary Deferral Contributions) to the extent necessary to satisfy an immediate and heavy financial need arising from a hardship. The Committee shall determine whether an emergency financial hardship has been proven by the Participant in accordance with regulations issued by the Secretary of the Treasury pursuant to section 401(k) of the Code and the Secretary of the U.S. Department of Labor pursuant to ERISA section 408. The Committee may limit the number of withdrawals that may be requested in a uniform and nondiscriminatory manner during any Plan Year. The determination of whether a Participant or a Retired Participant has an immediate and heavy financial need and no other resources available to satisfy such need shall be made in accordance with the following conditions. (a) FINANCIAL NEED TEST. The immediate and heavy financial needs for which a hardship withdrawal may be granted shall be limited to the following: (1) Expenses for medical care described in Code section 213(d) previously incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as 5-1

defined in Code section 152) or necessary for these persons to obtain medical care described in Code section 213(d); (2) Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); Payment of tuition and related education fees for the next twelve (12) months of post-secondary education for the Participant, or the Participant's spouse, children, or dependents (as defined in Code section 152); Payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence; or Other expenses which the Commissioner of the Internal Revenue Service indicates will be deemed to be made on account of such need.

(3)

(4)

(5)

The amount of any hardship withdrawal granted pursuant to this Section 5.03 shall be limited to the lesser of: (6) the actual amount of the Salary Deferral Contributions made to Part I of the Participant's or former Participant's Personal Account, without regard to income allocable thereto, less the amount of Salary Deferral Contributions previously withdrawn; and the amount required to relieve the financial need plus amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the hardship distribution.

(7)

(b)

RESOURCES TEST. To qualify for a hardship withdrawal pursuant to Section 5.03(a), the Participant or Retired Participant must certify that the financial need giving rise to the hardship cannot be met from other resources that are reasonably available to the participant, such as: (1) insurance reimbursement; (2) liquidation of assets, including those of the spouse and minor children of the Participant; (3) cessation of contributions to the Plan; (4) other plan distributions or commercial loans.

5.04

LOANS TO PARTICIPANTS. The Committee shall adopt a written instrument which shall be signed and dated by the Committee, providing rules and regulations and guidelines concerning loans from the Plan's Trust Fund to participants. Such written instrument shall include, but need not be limited to the

following: 5-2

(a) The identity of the person or positions authorized to administer the participant loan program; (b) A procedure for applying for loans; (c) The basis on which loans will be approved or denied; (d) Limitations (if any) on the types and amounts of loans offered; (e) The procedure under the program for determining a reasonable rate of interest; (f) The types of collateral which may secure a participant loan; and (g) The events constituting default and the steps that will be taken to preserve Plan assets in the event of such default. Subject to the rules, regulations and guidelines adopted by the Committee in such written instrument, the Committee, upon receipt of written application of a Participant in such manner and form as required by the Committee, may authorize and direct the Trustee to make a loan to the Participant from the Trust Fund. For purposes of this Section 5.04 only, the term "Participant" shall include former Participants and Beneficiaries who are parties in interest within the meaning of section 3(14) of ERISA. Any outstanding loans which were maintained under a Merged Plan shall be maintained on and after that date under this Plan until all amounts of principal and interest thereon have been repaid, or in the event of default, recovered, pursuant to the terms of the documents evidencing such loans and the provisions of the Participant loan program established under the Merged Plan. Loans pursuant to the preceding sentence shall be considered to be an asset of such person's Account only, and not the Account of any other person. Loan repayments will be suspended under this Plan as permitted under section 414(u)(4) of the Code. 5-3

ARTICLE 6 GENERAL BENEFIT PROVISIONS 6.01 FORM OF BENEFIT PAYMENT. The only form of payment under the Plan shall be a lump sum payment of the Participant's entire vested Account; provided, however, that additional forms of payment may apply with regards to Participants who are covered by the Merged Plan provisions described in Article 13. 6.02 TIME OF PAYMENT. A Participant may elect to receive distribution of his vested Account as soon as practicable following termination of Service; provided, however, that unless the Participant elects to delay such distribution, the distribution shall begin no later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs: (a) (b) the date the Participant attains sixty-five (65) years of age; the date which is the tenth (10th) anniversary of the first (1st) day of the Plan Year in which the Participant commenced participation in the Plan; or the date the Participant terminates Service with the Employer.

(c)

If the amount of the payment required to commence on the date determined under this Section cannot be ascertained by such date, or if it is not possible to make such payment on such date because the Plan Administrator has been unable to locate the Participant after making reasonable efforts to do so, then a payment retroactive to such date may be made no later than sixty (60) days after the earliest date on which the amount can be ascertained under the Plan or the date on which the Participant is located (whichever is applicable). A Participant's election to receive a distribution before his sixty-fifth (65th) birthday must be in writing, in such form as the Plan Administrator shall uniformly and nondiscriminatorily require, and may be submitted at any time during the ninety (90) day period preceding the date the amount is paid and following the date which the Participant is provided with information concerning the Participant's right, if any, to defer payment of his benefit. Such notice shall be provided at least thirty (30) and no more than ninety (90) days before the date described in the preceding sentence. Such distribution may commence less than thirty (30) days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (d) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects a distribution. 6-1

(e)

6.03

SPECIAL COMMENCEMENT AND DISTRIBUTION OF BENEFITS RULE. Notwithstanding any other provisions of the Plan, but in addition to such provisions (as applicable), the distribution shall comply with the requirements contained in this Section.

(a) GENERAL RULES. (1) The requirements of this Section shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. (2) All distributions required under this Section shall be determined and made in accordance with any applicable regulations under section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of section 1.401(a)(9)-2 of the proposed regulations. (b) REQUIRED BEGINNING DATE. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's required beginning date. The consent of the Participant or of the Participant's Spouse or Beneficiary shall not be required to make a distribution required under this Section. "Required beginning date" shall be determined in accordance with the following: (1) NON-FIVE-PERCENT (5%) OWNERS. The required beginning date of a Participant who is not a "fivepercent (5%) owner" (as defined in (2) below) is the first day of April of the calendar year following the calendar year in which the later of retirement and attainment of age seventy and one-half (70-1/2) occurs. (2) FIVE-PERCENT (5%) OWNERS. The required beginning date of a Participant who is a five-percent (5%) owner is the first day of April following the later of: (A) the calendar year in which the Participant attains age seventy and one-half (70-1/2), and (B) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a five-percent (5%) owner, and the calendar year in which the Participant retires. A Participant is treated as a five-percent (5%) owner for purposes of this subsection (b) if such participant is a five-percent (5%) owner as defined in section 416(i) of the Code (determined in accordance with section 416 but without regard to whether the Plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age sixty-six and one-half (66-1/2) or any subsequent Plan Year. (3) Once distributions have begun to a five-percent (5%) owner under this Section, those distributions must continue even if the Participant ceases to be a five-percent (5%) owner in a subsequent year. (c) DURATION OF BENEFITS. Benefits to a Participant shall be distributed, beginning not later than the required beginning date set forth in subsection (b) in accordance with regulations, for a 6-2

period not exceeding the life of such Participant or, if applicable, the joint lives of such Participant and his Beneficiary, or over the life expectancy of such Participant or, if applicable, the joint life expectancies of the Participant and his Beneficiary. For purposes of this Section, "life expectancy" shall mean the life expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or designated Beneficiary) as of the Participant's (or designated Beneficiary's) birthday in the applicable calendar year, reduced by one (1) for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be the first distribution calendar year, and if life expectancy is being recalculated such succeeding calendar year. If annuity payments commence before the required beginning date, the applicable calendar year is the year such payments commence. Life expectancy and joint and last survivor expectancy are computed by use of the expected return multiples in Tables V and VI of section 1.72-9 of the Treasury Regulations. (d) MINIMUM AMOUNT TO BE DISTRIBUTED EACH YEAR. If the Participant's interest is to be distributed in other than a single sum, the following distribution rules shall apply on or after the required beginning date. (1) The amount to be distributed each year, beginning with distributions for the first distribution calendar year shall not be less than the quotient obtained by dividing the Participant's benefit by the lesser of (i) the applicable life expectancy as described in Section 6.03(c) or (ii) if the Participant's Spouse is not the designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the proposed regulations. (2) The minimum distribution required for the Participant's first distribution calendar year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the employee's required beginning date occurs, must be made on or before December 31 of that distribution calendar year. (3) Distribution calendar year. For purposes of this Section, the term "distribution calendar year" means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to Section 6.03(e) below. (e) DEATH DISTRIBUTION PROVISIONS. (1) DISTRIBUTION BEGINNING BEFORE DEATH. If the Participant dies after distribution of his or her interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (2) DISTRIBUTION BEGINNING AFTER DEATH. If the Participant dies before distribution of his or her interest begins, distribution of the Participant's entire interest shall be 6-3

completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with (i) or (ii) below: (i) if any portion of the Participant's interest is payable to a designated Beneficiary, distributions may be made over the life or over a period certain not greater than the life expectancy of the designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; (ii) if the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (i) above shall not be earlier than the later of (1) December 31 of the calendar year immediately following the calendar year in which the Participant died and (2) December 31 of the calendar year in which the Participant would have attained age 70-1/2. If the Participant has not made an election pursuant to this subsection (e)(2) by the time of his or her death, the Participant's designated Beneficiary must elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Section, or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated Beneficiary, or if the designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (3) For purposes of subsection (e)(2) above, if the surviving Spouse dies after the Participant, but before payments to such Spouse begin, the provisions of subsection (e)(2), with the exception of paragraph (ii) therein, shall be applied as if the surviving Spouse were the Participant. (4) For the purposes of this subsection (e), distributions of a Participant's interest is considered to begin on the Participant's required beginning date (or, if subsection (e)(3) above is applicable, the date distribution is required to begin to the surviving Spouse pursuant to subsection (e)(2) above). If distribution in the form of an annuity irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences. (f) LIMITATIONS ON DISTRIBUTION OF SALARY DEFERRALS. Notwithstanding anything expressed or implied to the contrary elsewhere in this Plan, amounts attributable to Salary Deferral Contributions pursuant to Section 3.02(a) hereof shall not be distributed earlier than upon the occurrence of one of the following events: (i) the employee's retirement, death, Disability, or termination of Service; (ii) the termination of the Plan without the establishment of a successor plan; 6-4

(iii) the date of the sale or other disposition by the Employer of substantially all of the assets used by such corporation in a trade or business of the Employer with respect to an Employee who continues employment with the corporation acquiring such assets; (iv) with regard to an Employee who continues employment with such subsidiary, the date of the sale or other disposition by the Employer of such corporation's interest in a subsidiary; (v) with regard to distributions of Salary Deferral
Contributions only, the Participant's or former Participant's hardship, as defined in Section 5.03 hereof. 6.04 SINGLE SUM DISTRIBUTION OF SMALL BENEFITS. In the event that a Retired Participant or Beneficiary shall become entitled to receive any benefit under the Plan after December 31, 1997, and the value of the nonforfeitable benefit attributable to Employer and Employee contributions is not greater than (or at the time of any prior distribution was not greater than) five thousand dollars ($5,000), such benefit shall be paid to such person in a single sum before the end of the second Plan Year following the Plan Year during which the Participant ceases to participate in the Plan. In addition, the Plan Administrator shall cause the foregoing amount to be paid if such distribution would have been paid by the end of the second Plan Year following the Plan Year during which Service terminates but for the fact that the value of the vested Account then exceeded the cash-out limit in effect under Treas. Reg. 1.411(a)-11T(c)(3)(ii). Payment under this Section shall be in lieu of the form of benefit otherwise payable under any provision of this Plan. 6.05 DESIGNATION OF BENEFICIARY. Subject to the rights of a surviving Spouse described herein, each Participant or Retired Participant shall have the right to designate the Beneficiary to receive the death benefit on his behalf, and to revoke any such designation. Each such designation, or revocation thereof, shall be evidenced by a written instrument filed with the Plan Administrator and signed by the Participant or Retired Participant. Unless the conditions which follow for the designation of a Beneficiary other than the Spouse are satisfied, the Beneficiary of a Participant or Retired Participant who is married on the date of his death shall be the surviving Spouse, whether or not so designated in the written instrument filed with the Plan Administrator and even if no such instrument is filed. Designation of a Beneficiary other than the Spouse shall be valid only if either: (a) the Spouse consents in writing to such designation, acknowledging the effect thereof, witnessed by a notary public or Plan representative; the Retired Participant or Participant, although married at the time of the designation, is ultimately not survived by his Spouse; or

(b)

(c) the surviving Spouse cannot be located. 6-5

Such spousal consent obtained pursuant to (a) shall be irrevocable. If the Participant or Retired Participant is survived by a Spouse other than the Spouse who consented to designation of another as Beneficiary, the consent of the former Spouse shall be ineffective. If no designation of Beneficiary is on file with the Plan Administrator at the time of the death of a Participant or Retired Participant, or if such designation is not effective for any reason, and if there is no surviving Spouse, the death benefit shall be payable to the estate of the Participant or Retired Participant (which shall be conclusively deemed to be the Beneficiary designated to receive such death benefit). 6.06 ELIGIBLE ROLLOVER DISTRIBUTIONS. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. Provided, however, that direct rollovers are not permitted for amounts under two hundred dollars ($200). (a) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. DISTRIBUTEE. A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are distributees with regard to the interest of the Spouse or former Spouse. DIRECT ROLLOVER. A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 6-6

(b)

(c)

(d)

6.07

OPTIONAL FORMS OF BENEFITS UNDER MERGED PLANS. In no event shall any Participant who was a participant of a Merged Plan be precluded from electing an optional form of payment or feature that is a protected benefit pursuant to Reg. Section 1.411(d)(4) offered under the applicable Merged Plan for the payment of the Participant's vested Account balance under the Plan.

6.08

PURCHASE OF ANNUITIES. If Merged Plan benefits are to be paid in the form of an annuity for the life of the Participant or the joint lives of the Participant and his Beneficiary, then the Trustee shall purchase such annuity contracts from a life insurance company licensed to do business in the state in which the Sponsor maintains offices, utilizing for such purchase the entire amount in the Accounts of the Participant. Any annuity contract which is purchased hereunder to provide benefits otherwise payable under the Plan, and which is distributed to a former Participant or Beneficiary, shall be endorsed as "nontransferable." The terms of any annuity contract purchased and distributed by the Plan to a Participant or Spouse shall comply with the requirements of this Plan. If Merged Plan benefits are to be paid in the form of installments, then the Committee may purchase an installment annuity contract from a life insurance company in accordance with the provisions above applicable to life annuity purchases.

6.09

FAILURE TO LOCATE. If the Participant or Beneficiary to whom benefits are to be distributed cannot be located, and reasonable efforts have been made to find him, including sending notification by certified or registered mail to his last known address, then the Plan Administrator shall consider the balances in the Participant's Account forfeited, and such amounts shall be applied in accordance with Section 8.02. In the event that such Participant or Beneficiary is subsequently located, the balance in his Account at the time of forfeiture shall be reinstated and distributed to him.

6-7

ARTICLE 7 RETIREMENT, DEATH AND DISABILITY BENEFITS 7.01 BENEFITS UPON RETIREMENT. As of his Normal Retirement Date or his Early Retirement Date, a Participant may retire from Service or he may elect to continue in Service. If such a Participant continues in Service, then he shall continue to be treated in all respects as a Participant until his actual retirement. Except as provided in Section 6.03 hereof, no retirement benefit shall be payable until his actual retirement, unless the Participant elects an in-service withdrawal pursuant to Article 5. The Participant who retires pursuant to this Section 7.01 shall be entitled to a retirement benefit equal to one hundred percent (100%) of the value of both his Employer Account and his Personal Account determined on the Allocation Date coincident with or immediately preceding his retirement, increased by any contributions allocated after such Allocation Date, and reduced by any payments or withdrawals made from such Accounts since such preceding Allocation Date. Such benefit shall be subject to the general benefit payment provisions of Article 6 hereof; provided, however, that upon the Participant's request, the commencement date of any benefits payable to a Participant shall be as soon as practicable following his retirement date. Upon attainment of Normal Retirement Age, a Participant shall be one hundred percent (100%) vested in the value of his Accounts. 7.02 DEATH BENEFITS. In the event of the death of a Participant or Retired Participant prior to the complete distribution of his Accounts, the amount of the death benefit on his behalf shall be one hundred percent (100%) of both his Employer Account and Personal Account, determined on the Allocation Date coincident with or immediately preceding the date of his death, increased by any contributions allocated after such Allocation Date, and reduced by any payments or withdrawals made from such Accounts since such preceding Allocation Date. However, the death benefit to be distributed from the Employer Account of a Retired Participant whose participation in the Plan terminated before the date of his death (other than a disabled Participant pursuant to Section 7.03 hereof) shall be determined by application of the vested percentage described in Section 8.01 hereof. The death benefit shall be subject to the general benefit provisions of Article 6 hereof. The benefit shall be paid in a single sum, or in such other optional form as may be elected by the Participant or Beneficiary, as the case may be, under Section 6.01 hereof, to the designated Beneficiary of the deceased Participant as soon as practicable after the last day of the Plan Year during which such death occurs; provided, however, that upon the Beneficiary's request, the commencement date of any benefits payable to a Beneficiary shall be as soon as practicable following the date such death occurs. 7-1

7.03

DISABILITY BENEFITS. In the event the Committee determines that a Participant incurs Disability while still an Employee, such Participant shall be entitled to one hundred percent (100%) of both his Employer Account and Personal Account, determined on the Allocation Date coincident with or immediately preceding the date of his Disability, increased by any contributions allocated after such Allocation Date, and reduced by any payments or withdrawals made from such Accounts since such preceding Allocation Date. Any benefits due a disabled Participant from his Employer Account and his Personal Account shall be paid or applied for his benefit subject to the general benefit provisions of Article 6 hereof; provided, however, that, if the Participant so elects, the commencement date of any benefits payable to such a Participant may be as soon as practicable following the date such Disability occurs and prior to the Participant's Normal Retirement Date. In the event of the death of the Participant subsequent to the date his Disability occurred and prior to the commencement of his disability benefits hereunder, the amount payable on behalf of such Participant shall be paid as a death benefit as provided otherwise in this article.

7-2

ARTICLE 8 TERMINATION BENEFITS 8.01 BENEFITS UPON TERMINATION OF SERVICE. A Participant whose Service terminates for reasons other than retirement on or after his Normal Retirement Date, death or Disability shall be entitled to (i) a vested percentage, determined at the date his Service terminates, of Part I of his Employer Account (Matching Account), (ii) one hundred percent (100%) of Part II of his Employer Account (QMAC Account) and (iii) one hundred percent (100%) of his Personal Account. The vested percentage of any Accounts established under Part III of his Employer Account attributable to a Merged Plan shall be determined pursuant to Article 13. Such Accounts will be determined as of the Allocation Date coincident with or immediately preceding the date the Participant's Service terminates, increased by any contributions allocated after such Allocation Date, and reduced by any payments or withdrawals made from the Accounts since such preceding Allocation Date. The vested percentage of the Matching Account of a Participant shall be

determined from the following schedule:
Years of Vesting Service --------------Less than 5 5 or more Vested Percentage ---------0% 100%

Provided, however, that the vested percentage shall be one hundred percent (100%) for a Participant on and after his Normal Retirement Age. 8.02 FORFEITURES. The portion of a former Participant's Employer Account in which he does not have a nonforfeitable interest shall be treated as a Forfeiture as of the earlier of the following dates: (a) the date the Participant is paid the entire vested amount of his Accounts, or the date the Participant incurs five (5) consecutive Breaks in Service.

(b)

Forfeitures arising under this Section 8.02 or any other provision of this Plan shall be first applied to reinstate previously forfeited Accounts of former Participants which are required to be reestablished pursuant to Section 6.09 and this Section 8.02. Any additional Forfeitures shall be applied as a credit against Employer contributions otherwise due in accordance with the provisions of Section 4.01 hereof. For purposes of the Section, if the value of an Employee's vested Account balance is zero, the former Participant shall be deemed to have received a distribution of such vested Account 8-1

balance and the Employer Account shall be treated as a Forfeiture as of the date such Employee terminates Service. If a former Participant receives or is deemed to have received a distribution from his Employer Account due to termination of participation in the Plan, no later than the close of the second Plan Year following the Plan Year during which he ceases to be a Participant, which distribution is: (a) equal to his vested Employer Account, but less than one hundred percent (100%) of such Account, and in an amount not exceeding five thousand dollars ($5,000) or, if greater, which the Participant elected to receive,

(b)

and he subsequently resumes Service before he incurs five (5) consecutive Breaks in Service, he may repay such distribution to the Plan. Such repayment must be made before the earlier of the date the Participant incurs five (5) consecutive Breaks in Service and the fifth anniversary of the date of the Participant's resumption of Service following the Break in Service. In the event of such repayment, the amount of the Participant's Employer Account at the date of the distribution shall be reestablished. 8.03 PAYMENT OF BENEFITS. Any amounts due a Retired Participant pursuant to this article shall be paid or applied for his benefit in accordance with the general benefit provisions of Article 6 hereof; provided, however, that upon the Participant's request, the commencement date of any benefits payable to a Participant shall be as soon as practicable following the date his Service terminates and before his Normal Retirement Date. In the event of the death of the Participant subsequent to the date his Service terminates and prior to the commencement of his benefits, the amount payable on behalf of such Participant shall be paid as provided in Article 7 hereof.

8-2

ARTICLE 9 THE COMMITTEE 9.01 PLAN ADMINISTRATOR AND APPOINTMENT OF COMMITTEE. The Sponsor shall be the Plan Administrator of the Plan. The Board of Directors of the Sponsor may appoint a Committee consisting of not less than three (3) persons to assist the Plan Administrator and to carry out the day to day administrative functions of the Plan as the Plan Administrator may delegate to the Committee and as the Plan shall specifically provide. Members of the Committee shall serve without compensation, but the reasonable expenses of the Committee in discharging its responsibilities shall be borne by the Sponsor. Any member of the Committee may at any time be removed, with or without cause, and his successor appointed by the Chief Executive Officer of the Sponsor and any vacancy caused by death, resignation or other reason shall be filled by the Chief Executive Officer of the Sponsor. The Sponsor will notify the Trustee in writing of the names of the members of the Committee and of any changes in Committee membership that may transpire from time to time. 9.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR. The Plan Administrator shall administer and supervise the operation of the Plan in accordance with the terms and provisions of the Plan. The Plan Administrator shall have all power and authority (including discretion with respect to the exercise of that power and authority) necessary, properly advisable, desirable or convenient for the performance of its duties, which duties shall include, but not be

limited to, the following: (a) to construe the Plan in good faith; (b) to determine eligibility of Employees for participation in the Plan, and to notify Employees of their eligibility and the requirements for such participation; (c) to determine and certify eligibility for benefits under the Plan, and to direct the Trustee concerning the amount, manner and time of the payment of such benefits and any annuity contracts to be purchased on behalf of Participants, Retired Participants and Beneficiaries; (d) to prepare and distribute, in such manner as the Plan Administrator determines to be appropriate, information explaining the Plan; (e) to require a Participant to complete and file with the Plan Administrator an application for a benefit and all other forms approved by the Plan Administrator, and to require that the Participant furnish all pertinent information requested by the Plan Administrator, which information may be relied upon by the Plan Administrator; (f) to cause the allocations of contributions to the Plan and investment earnings (or losses) to be made as of each Allocation Date; 9-1

(g) to adopt such rules as it deems necessary, desirable or appropriate for the administration of the Plan, provided such rules are consistent with the terms and provisions of the Plan; all rules and decisions of the Plan Administrator shall be uniformly and consistently applied to all Participants in similar circumstances; (h) to appoint such agents as it may need in the performance of its duties; and (i) to receive and review the reports from the Trustee and other agents.
9.03 PLAN ADMINISTRATOR PROCEDURES. The Plan Administrator may adopt such procedures and regulations as it deems desirable for the administration of the Plan. Such procedures and regulations shall be nondiscriminatory and shall to the extent feasible be maintained in writing. 9.04 CLAIMS AND REVIEW PROCEDURES. The Plan Administrator shall establish reasonable procedures concerning the filing of claims for benefits hereunder and shall administer such procedures uniformly. If a claim is wholly or partially denied, the Plan Administrator shall furnish the claimant, within a reasonable period of time after receipt of the claim by the Plan Administrator, a notice of such denial, setting forth at least the following information

in language calculated to be understood by the claimant: (a) the specific reason or reasons for the denial; (b) specific reference to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claims review procedure in the Plan. Upon receipt of such a notice of denial, or if such a notice is not furnished but the claim has not been granted within sixty (60) days of its filing, the claimant or his duly authorized representative may appeal to the Plan Administrator for a full and fair review. In submitting a request for review, the claimant or his duly authorized representative may request a review upon written application to the Plan Administrator, may review pertinent documents, and may submit comments in writing. Such request for review must be made within sixty (60) days of the receipt by the claimant of the notice of denial (or within sixty (60) days of the expiry of the sixty (60) day period beginning with the date of the filing of the claim, if no such notice is received during such period). The Plan Administrator shall respond promptly to a request for review and shall deliver a written decision which shall include, in a manner calculated to be understood by the claimant, the decision itself, specific reasons therefor and specific references to the pertinent Plan provisions on which the decision is based. The decision shall be made not later than one hundred twenty (120) days after receipt of a request for review. 9-2

Any decision by the Plan Administrator shall be conclusive and binding upon all persons, subject to the claims review procedure described in this Section 9.04 and subject to judicial review where it is shown by clear and convincing evidence that the Plan Administrator acted in an arbitrary and capricious manner. 9.05 ELECTION PROCEDURES. Whenever an election or any other type of action is required to be communicated to the Plan Administrator in writing or on a form designated by the Plan Administrator, the communication may be in any other form acceptable to the Plan Administrator, including by means of a voice response unit or other electronic media.

9-3

ARTICLE 10 ESTABLISHMENT OF TRUST 10.01 TRUST AGREEMENT. Contributions made by the Employer and Participants of the Plan and all other assets of this Plan shall be held in trust under a trust agreement. The Employer shall enter into a trust agreement with the Trustee for the administration of the Trust which shall contain the assets of the Plan. The Trustee shall not be responsible for the administration of this Plan but only for the Trust established pursuant to this Plan. 10.02 TRUST AGREEMENT PART OF PLAN The trust agreement shall be deemed to be a part of this Plan, and any rights or benefits accruing to any person under this Plan shall be subject to all of the relevant terms and provisions of the trust agreement, including any amendments. In addition to the powers of the Trustee set forth in the trust agreement, the Trustee shall have any powers, express or implied, granted to it under the Plan. In the event of any conflict between the provisions of the trust agreement and the provisions of the Plan, the provisions of the Plan shall control, except for the duties and responsibilities of the Trustee, in which case the trust agreement shall control.

10-1

ARTICLE 11 AMENDMENT AND TERMINATION OF THE PLAN 11.01 AMENDMENT OF PLAN. The Board of Directors of the Sponsor, or its designee, shall have the right at any time, and from time to time, to modify, alter or amend the Plan in whole or in part by instrument in writing duly executed. Notwithstanding the foregoing, the Plan shall not be amended in the following respects: (a) the duties, powers and responsibilities of the Trustee shall not be increased without the written consent of the Trustee; subject to Section 12.05 hereof, no amendment may be made to permit any part of the funds of the Trust to be used for or diverted to purposes other than for the exclusive benefit of Participants, Retired Participants and their Beneficiaries or for administration expenses of the Plan; no amendment may be made, unless it is necessary to meet the requirements of any federal law or regulation, which shall reduce the benefits which have accrued or the nonforfeitable percentage applicable to any Participant, Retired Participant or Beneficiary prior to the later of the date of adoption or the effective date of such amendment, nor shall any amendment to the Plan eliminate an optional form of distribution provided under Section 6.01 hereof except as may be permitted by federal law or regulation; and no amendment to the vesting provision in Section 8.01 hereof shall become effective with respect to a Participant who has completed three (3) or more years of Service as of the expiration of the election period described below, unless such Participant is given the opportunity, for a period of sixty (60) days, to elect irrevocably to have his nonforfeitable benefits computed

(b)

(c)

(d)

without regard to such amendment after the latest of: (i) the date of adoption of the amendment, (ii) the effective date of the amendment, and (iii) the date written notification of the amendment is furnished such Participant.
An executed copy of any amendment to the Plan shall be furnished the Trustee as soon as practicable after the date of adoption thereof. 11.02 INTENT TO CONTINUE THE PLAN. The Employer has established the Plan with the bona fide intention and expectation that from year to year it will make contributions as herein provided. However, the Employer realizes that it may become inadvisable to continue such contributions. The Employer shall have the right to 11-1

modify, suspend or discontinue contributions to the Plan at any time and from time to time, and such action shall not be deemed to be a termination of the Plan unless it constitutes a complete discontinuance of Employer contributions to the Plan.

11.03 TERMINATION OR PARTIAL TERMINATION OF THE PLAN BY THE SPONSOR.
In the event the Sponsor concludes that it is impossible or inadvisable to continue the Plan, the Board of Directors of the Sponsor shall have the right to terminate the Plan by an appropriate action which shall specify the date of termination. A certified copy of a writing reflecting such action shall be delivered to the Committee and to the Trustee, and as soon as possible thereafter the Committee shall send or deliver to each then Participant a notice of such action. If a determination is made that the Plan has experienced a complete or partial termination, the Accounts of affected Participants shall become nonforfeitable without regard to Section 8.01 hereof. 11.04 TERMINATION OF THE PLAN UPON CERTAIN EVENTS. The Plan shall automatically terminate upon the occurrence of any of the following events: (a) liquidation of the Sponsor's business unless the sponsorship of the Plan is transferred to another employer; or the merger or consolidation of the Sponsor into any other corporation, or the sale by the Sponsor of substantially all of its assets to any corporation or other business organization which shall fail to adopt and continue the Plan within ninety (90) days from the effective date of such consolidation, merger or sale of assets.

(b)

11.05

DISTRIBUTION OF TRUST FUND UPON COMPLETE TERMINATION. Upon complete termination of the Plan, or upon complete discontinuance of Employer contributions to the Plan, the balance in each Participant's or Retired Participant's Accounts (after payment of all expenses and proportional adjustment of Participants' Accounts to reflect such expenses, investment gains or losses and reallocations to the date of termination) shall become nonforfeitable and each Participant, Retired Participant or Beneficiary shall be entitled to receive any amounts then credited to his Accounts in the Trust Fund. The Trustee may make payment of such amounts in a single sum or annual installments, either in cash or in assets in kind of the Trust Fund, or partly in cash and partly in assets in kind of the Trust Fund. In no event shall any such payment in kind be made in the form of a life annuity. Upon the distribution of all of the Trust Fund as aforesaid, the Trustee shall be discharged from all obligations under the Trust and no Participant, Retired Participant or Beneficiary shall have any further rights or claim therein.

11.06

TERMINATION OF PLAN WITH RESPECT TO AN ADOPTING EMPLOYER. Each Adopting Employer reserves the right to terminate the Plan at any time with respect to Employees of the Adopting Employer by action of its governing body. The Adopting Employer shall also have the right to suspend contributions to the Plan from time to time, and such suspension of contributions shall not be deemed to be a termination of the Plan with respect to 11-2

the Employees of the Adopting Employer unless it constitutes a complete discontinuance of Employer contributions to the Plan. In the event of termination of the Plan only with respect to the Employees of the Adopting Employer, the Plan Administrator may direct that the portion of the Trust Fund attributable to Employees of the Adopting Employer be segregated by the Trustee into a separate fund. The portion of the Trust Fund which is so segregated shall be retained in a separate trust fund and applied in one of the following methods, at the discretion of the Plan Administrator. (a) If the Adopting Employer shall demonstrate conclusively, within the one hundred eighty (180) day period immediately following termination of the Plan with respect to its Employees, that it has established a successor retirement plan and trust for the benefit of its Employees which is qualified under sections 401(a) and 501(a), respectively, of the Code, then such assets shall be transferred to the successor trustee. If the Adopting Employer shall fail, within the one hundred eighty (180) day period immediately following termination of the Plan with respect to its Employees, to establish a successor retirement plan and trust which is qualified under sections 401(a) and 501(a), respectively, of the Code, then such assets shall be distributed for the benefit of the Employees of the Adopting Employer in accordance with the method described in Section 11.05 hereof.

(b)

At the discretion of the Plan Administrator, the one hundred eighty (180) day period may be extended.

11-3

ARTICLE 12 CERTAIN PROVISIONS AFFECTING THE EMPLOYER 12.01 DUTIES OF THE EMPLOYER. The Sponsor shall furnish the Trustee with the information required in the Trust agreement. Each Employer shall make its contributions as the same may be appropriated by due action, which contributions may be in cash or in other property acceptable to the Trustee. The Employer shall keep accurate books and records with respect to its Employees and their compensation. 12.02 RIGHT OF EMPLOYER TO DISCHARGE EMPLOYEES. The adoption and maintenance of the Plan shall not be deemed to constitute a contract between the Employer and any Employee, or to be a consideration for, or an inducement or condition of, the employment of any person. 12.03 INFORMATION TO BE FURNISHED. Each Employer shall deliver to the Plan Administrator information required to perform the allocations described in Article 4 hereof, in such manner and at such time as is required by the Plan Administrator. 12.04 COMMUNICATIONS FROM SPONSOR TO TRUSTEE. The Trustee may rely upon and shall be protected in acting upon any information furnished to it by the Sponsor in writing subscribed by a duly authorized agent of the Sponsor. Any certification by the Sponsor of the information required or permitted to be certified to the Trustee pursuant to the provisions of the Plan, shall, for all purposes of the Plan, be binding upon all parties in interest. 12.05 NO REVERSION TO EMPLOYER. The Employer has no beneficial interest in the Trust Fund, and no part of the Trust Fund shall ever revert or be repaid to the Employer, directly or indirectly, except, if, and to the extent, permitted by the Code and applicable regulations thereunder for the following: (a) in the event that the deduction of an Employer contribution to the Plan under section 404 of the Code is disallowed, in which case the contribution (to the extent disallowed) shall be returned to the Employer, upon the request of the Employer within one (1) year after the disallowance of the deduction; or in the event that the Employer contribution is made by mistake of fact, in which case the amount of such mistaken contribution shall be returned to the Employer provided no more than one (1) year has elapsed since the date of payment by the Employer of the mistaken contribution. 12-1

(b)

12.06

INDEMNIFICATION BY SPONSOR. To the extent permitted by law the Sponsor shall indemnify from any loss or expense the Plan Administrator, any individual member of the Committee, or any individual serving as Trustee, in connection with the good faith discharge of duties under the Plan.

12.07

ADOPTION OF PLAN BY ADOPTING EMPLOYERS. Notwithstanding anything herein to the contrary, with the authorization of the Board of Directors of the Sponsor or its designee, any corporation or entity affiliated with the Sponsor through complete or partial ownership by the Sponsor or by any owner thereof or which is otherwise cooperating with the Sponsor for purposes of establishing a retirement plan may adopt the Plan as an Adopting Employer in a manner satisfactory to the Board of Directors of the Sponsor. Subject to the provisions of Code section 413(c), each Adopting Employer's participation in the Plan shall constitute a single plan, within the meaning of the regulations under section 414(l) of the Code, with the participation in the Plan of the Sponsor and/or other Adopting Employers. An Adopting Employer may terminate participation in the Plan at any time with respect to Employees of the Adopting Employer by action of its Board of Directors as provided in Section 11.06 hereof.

12-2

ARTICLE 13 SPECIAL MERGED PLAN ISSUES 13.01 GENERALLY. The purpose of this Article is to provide for the merger of the certain plans into this Plan, and to specify the terms under which participants of such plans will participate in this Plan. The rules described in this Article shall override any other provisions of the Plan. 13.02 PARISIAN RETIREMENT AND SAVINGS PLAN. Parisian, Inc. ("Parisian") and certain of its affiliates ("Parisian Affiliates") will adopt this Plan and become adopting Employers under this Plan effective as of February 1, 1997, for the benefit of their eligible employees, and the Parisian Retirement and Savings Plan (the "Parisian Plan") will be merged into this Plan as described below. (a) PARTICIPATION. Effective as of February 1, 1997, this Plan will be extended to each individual employed by Parisian or a Parisian Affiliate on February 1, 1997, and who was eligible to participate in the Parisian Plan on that date (each an "Eligible Employee"). An individual's employment with Parisian or a Parisian Affiliate prior to February 1, 1997 will be treated as employment with an Employer under this Plan. Employment with any other organization prior to February 1, 1997 that was counted under the Parisian Plan will also be treated as employment with an Employer under this Plan. February 1, 1997 will be a special Entry Date for purposes of this Plan, and each Eligible Employee of Parisian or a Parisian Affiliate on February 1, 1997 will automatically become a Participant in this Plan as of that date. Each Employee of Parisian or a Parisian Affiliate who either is hired after that date or first satisfies the age and service requirements of Section 2.01 after that date will become a Participant in this Plan as described in Article 2. MERGER OF PLANS. The Parisian Plan will be merged into this Plan as of January 31, 1997 (the "Merger Date") and continued in the form of this Plan. The merger of the Parisian Plan into this Plan and the resulting transfer of assets will be made in accordance with sections 401(a)(12) and 414(l) of the Code and the regulations thereunder. TRANSFER OF ASSETS. The assets of the Trust Fund for the Parisian Plan will be transferred to the Trustee of this Plan on or as soon as practicable after the Merger Date. TRANSFER OF ACCOUNT BALANCES. All Accounts maintained under the Parisian Plan on January 31, 1997 for Participants and Beneficiaries of the Parisian Plan will be adjusted as of that date in accordance with the provisions of the Parisian Plan. The net credit balances in such Accounts as adjusted as of January 31, 1997 will be transferred to this Plan and credited as of the Merger Date in such manner as the Committee shall determine. In addition, the Accounts of any former Participants of the Parisian Plan which are required to be restored after January 31, 1997, shall be credited in the same manner as described in the preceding sentence.

(b)

(c)

(d)

13-1

(e) VESTING OF TRANSFERRED ACCOUNTS. The accounts transferred from the Parisian Plan attributable to "Elective Deferrals," "Qualified Matching Contributions," "Qualified Nonelective Contributions," "Rollover Contributions" and "Thrift Contributions" shall be one hundred percent (100%) vested at all times. The accounts transferred from the Parisian Plan attributable to "Employer Contributions" shall be subject to the vesting schedule of Section 8.01, that applies to the Matching Account. (f) DISTRIBUTION OF ACCOUNT BALANCES. Any Participant or Beneficiary who has a transferred account established under Section 13.02(d) shall be allowed to elect distribution of his vested Account under the Plan in such manner or form as they could have elected under the terms of the Parisian Plan as in effect immediately prior to the Merger Date. (g) LOANS. Any loans that had previously been made to Participants under the Parisian Plan and that remain outstanding on the Merger Date will be maintained on and after that date under this Plan until all amounts of principal and interest thereon have been repaid, or, in the event of default, recovered, pursuant to the terms of the documents evidencing such loans and the provisions of the Participant loan program established under the Parisian Plan. (h) INSURANCE POLICIES. This Plan does not permit any Account to be applied to purchase an insurance policy. However, this Plan shall permit the transfer of certain insurance policies from the Parisian Plan. Such insurance policies shall be liquidated as soon after such transfer as administratively feasible. (i) MATCHING CONTRIBUTIONS. The Matching Contribution for 1997 that
is made pursuant to Sections 3.01(a) and 4.01(b) on behalf of each Participant who was a participant in the Parisian Plan during the month of January 1997, shall be based upon that Participant's Compensation as defined in Section 1.08 for the full calendar year of 1997 and shall be based on all Salary Deferral Contributions made under this Plan and "Elective Deferrals" made under the Parisian Plan for calendar year 1997. 13.03 YOUNKERS ASSOCIATE PROFIT SHARING AND SAVINGS PLAN. Younkers, Inc. ("Younkers") and certain of its affiliates ("Younkers Affiliates") will adopt this Plan and become Adopting Employers under this Plan effective as of February 1, 1997, for the benefit of their eligible employees, and the Younkers Associate Profit Sharing and Savings Plan (the "Younkers Plan") will be merged into this Plan as described below. (a) PARTICIPATION. Effective as of February 1, 1997, this Plan will be extended to each individual employed by Younkers or a Younkers Affiliate on February 1, 1997, and who was eligible to participate in the Younkers Plan on that date (each an "Eligible Employee"). An individual's employment with Younkers or a Younkers Affiliate prior to February 1, 1997 will be treated as employment with an Employer under this Plan. Employment with any other organization prior to February 1, 1997 that was counted under the Younkers Plan (specifically including employment with Shoe Corporation of America for Employees who became Younkers Employees in 1996) will also be treated as employment with an Employer under this Plan. February 1, 1997 will be a special Entry Date for purposes of this Plan, and each Eligible Employee of Younkers or a Younkers Affiliate on February 1, 1997 will automatically become a Participant in this Plan as of that date. Each Employee of Younkers or a Younkers Affiliate who either is hired after that date or first satisfies the age 13-2

and service requirements of Section 2.01 after that date will become a Participant in this Plan as described in Article 2. (b) MERGER OF PLANS. The Younkers Plan will be merged into this Plan as of January 31, 1997 (the "Merger Date") and continued in the form of this Plan. The merger of the Younkers Plan into this Plan and the resulting transfer of assets will be made in accordance with sections 401(a)(12) and 414(l) of the Code and the regulations thereunder. TRANSFER OF ASSETS. The assets of the Trust Fund for the Younkers Plan will be transferred to the Trustee of this Plan on or as soon as practicable after the Merger Date. TRANSFER OF ACCOUNT BALANCES. All Accounts maintained under the Younkers Plan on January 31, 1997 for Participants and Beneficiaries of the Younkers Plan will be adjusted as of that date in accordance with the provisions of the Younkers Plan. The net credit balances in such Accounts as adjusted as of January 31, 1997 will be transferred to this Plan and credited as of the Merger Date in such manner as the Committee shall determine. In addition, the Accounts of any former Participants of the Younkers Plan which are required to be restored after January 31, 1997, shall be credited in the same manner as described in the preceding sentence. VESTING OF TRANSFERRED ACCOUNTS. The accounts transferred from the Younkers Plan attributable to "Salary Deferral Contributions," "Matching Contributions," "Rollover Contributions" and "Participant Voluntary Contributions" shall be one hundred percent (100%) vested at all times. The accounts transferred from the Younkers Plan attributable to "Profit Sharing Contributions" shall be vested at the greater of (i) the vesting percentage under the Younkers Plan as of January 31, 1997, and (ii) the vesting percentage that applies to Matching Contributions under Section 8.01 of this Plan. DISTRIBUTION OF ACCOUNT BALANCES. Any Participant or Beneficiary who has a transferred account established under subsection 13.03(d) shall be allowed to elect distribution of his vested Account under the Plan in such manner or form as they could have elected under the terms of the Younkers Plan as in effect immediately prior to the Merger Date. The installment option will be available for all accounts of such Participants. Terminated or retired Participants in the Younkers Plan on the Merger Date with Accounts that are transferred to this Plan shall have the further option of electing partial lump sums at the times and in the amounts selected by said Participant. The Committee may establish rules for the payment of such partial lump sums, and may direct that expenses associated with the payment of such partial lump sums be charged against the Accounts of said Participants. REIMBURSEMENT OF SURRENDER CHARGES AND MARKET VALUE ADJUSTMENTS. The Employer is expressly permitted to make a contribution to the Plan to reimburse the Accounts of Participants which were charged with a surrender charge or market value adjustment as a result of the liquidation of assets immediately prior to the plan merger. Such contribution, if made, shall be credited to the Accounts of affected Participants in proportion to the surrender charge or market value adjustment that was charged to their Account, and shall be treated as a reimbursement of expenses and not as an Employer contribution for purposes of the Plan.

(c)

(d)

(e)

(f)

(g)

13-3

(h) EXEMPTION FROM EXCLUDED CLASS. Notwithstanding the provisions of Section 2.01 hereof, Eligible Employees as defined in subsection (a) above who are represented by a collective bargaining unit on the Merger Date shall not be considered as being in an excluded class solely as a result of being represented by a collective bargaining unit. (i) AMOUNTS AVAILABLE FOR HARDSHIP. The transferred Matching Account
shall be included in the determination of amounts available for hardship withdrawal pursuant to Section 5.03 hereof. 13.04 G.R. HERBERGER'S INC. 401(k) EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN. G. R. Herberger's, Inc. ("Herberger's") will adopt this Plan and become an Adopting Employer under this Plan effective as of January 1, 1998, for the benefit of its eligible employees, and the portion of the G. R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan attributable to a participant's elective deferral contributions and matching contributions will be spun-off into a separate plan (the "Herberger's Plan") and will be merged into this Plan as described below. (a) PARTICIPATION. Effective as of January 1, 1998, this Plan will be extended to each individual employed by Herberger's on January 1, 1998, and who was eligible to participate in the Herberger's Plan on that date (each an "Eligible Employee"). An individual's employment with Herberger's prior to January 1, 1998 will be treated as employment with an Employer under this Plan. Employment with any other organization prior to January 1, 1998 that was counted under the Herberger's Plan will also be treated as employment with an Employer under this Plan. Each Eligible Employee of Herberger's on January 1, 1998 will automatically become a Participant in this Plan as of that date. Each Employee of Herberger's who either is hired after that date or first satisfies the age and service requirements of Section 2.01 after that date will become a Participant in this Plan as described in Article 2. MERGER OF PLANS. The Herberger's Plan will be merged into this Plan as of midnight on December 31, 1997 (the "Merger Date") and continued in the form of this Plan. The merger of the Herberger's Plan into this Plan and the resulting transfer of assets will be made in accordance with sections 401(a)(12) and 414(l) of the Code and the regulations thereunder. TRANSFER OF ASSETS. The assets of the Trust Fund for the Herberger's Plan will be transferred to the Trustee of this Plan on or as soon as practicable after the Merger Date. TRANSFER OF ACCOUNT BALANCES. All Accounts maintained under the Herberger's Plan on December 31, 1997 for Participants and Beneficiaries of the Herberger's Plan will be adjusted as of that date in accordance with the provisions of the Herberger's Plan. The net credit balances in such Accounts as adjusted as of December 31, 1997 and as further adjusted between that date and the actual date of transfer of the assets, will be transferred to this Plan and credited as of the transfer date in such manner as the Committee shall determine. In addition, the Accounts of any former Participants of the Herberger's Plan which are required to be restored after December 31, 1997, shall be credited in the same manner as described in the preceding sentence.

(b)

(c)

(d)

13-4

(e) VESTING OF TRANSFERRED ACCOUNTS. The accounts transferred from the Herberger's Plan attributable to "Salary Deferral Contributions" and "Rollover Contributions" shall be one hundred percent (100%) vested at all times. The accounts transferred from the Herberger's Plan attributable to "Matching Contributions" shall be vested at the greater of (i) the vesting percentage under the Herberger's Plan as of December 31, 1997, and (ii) the vesting percentage that applies to Matching Contributions under Section 8.01 of this Plan. (f) DISTRIBUTION OF ACCOUNT BALANCES. Any Participant or Beneficiary
who has a transferred account established under subsection 13.04 (d) shall be allowed to elect distribution of his vested Account under the Plan in such manner or form as they could have elected under the terms of the Herberger's Plan as in effect immediately prior to the Merger Date. The installment option and in-kind distribution option will be available for all accounts of such Participants. Terminated or retired Participants in the Herberger's Plan on the Merger Date with Accounts that are transferred to this Plan shall have the further option of electing partial lump sums at the times and in the amounts selected by said Participant. The Committee may establish rules for the payment of such partial lump sums, and may direct that expenses associated with the payment of such partial lump sums be charged against the Accounts of said Participants. 13.05 BRODY BROTHERS DRY GOODS COMPANY, INC. 401(k) PROFIT SHARING PLAN. Brody Brothers Dry Goods Company, Inc. ("Brody") was acquired by the Sponsor. Most employees of Brody became employees of Proffitt's, Inc. shortly after the acquisition. The Brody Brothers Dry Goods Company, Inc. 401(k) Profit Sharing Plan (the "Brody Plan") shall be merged into this Plan as described below. (a) PARTICIPATION. A person employed by Brody on May 23, 1998 who became an Employee of Proffitt's, Inc. on or after May 24, 1998 and before June 28, 1998 pursuant to the acquisition of Brody's by Proffitt's, Inc. shall be allowed to enter the Plan immediately provided he has satisfied the age and service requirements of Section 2.01. An individual's employment with Brody prior to May 24, 1998 will be treated as employment with an Employer under this Plan. Employment with any other organization prior to May 24, 1998 that was counted under the Brody Plan will also be treated as employment with an Employer under this Plan. The date such person becomes an Employee of the Employer will be a special Entry Date for purposes of this Plan. MERGER OF PLANS. The Brody Plan will be merged into this Plan as of July 31, 1998 (the "Merger Date") and continued in the form of this Plan. The merger of the Brody Plan into this Plan and the resulting transfer of assets will be made in accordance with sections 401(a)(12) and 414(l) of the Code and the regulations thereunder. TRANSFER OF ASSETS. The assets of the Trust Fund for the Brody Plan will be transferred to the Trustee of this Plan on or as soon as practicable after the Merger Date. TRANSFER OF ACCOUNT BALANCES. All Accounts maintained under the Brody Plan on July 31, 1998 for Participants and Beneficiaries of the Brody Plan will be adjusted as of that date in accordance with the provisions of the Brody Plan. The net credit balances in such Accounts as adjusted as of July 31, 1998 will be transferred to this Plan and credited as of the Merger Date in such manner as the Committee shall determine. In addition, the 13-5

(b)

(c)

(d)

Accounts of any former Participants of the Brody Plan which are required to be restored after July 31, 1998, shall be credited in the same manner as described in the preceding sentence. (e) VESTING OF TRANSFERRED ACCOUNTS. The accounts transferred from the Brody Plan attributable to "Elective Contributions," shall be one hundred percent (100%) vested at all times. The accounts transferred from the Brody Plan attributable to "Matching Contributions" shall be subject to the vesting schedule of Section 8.01, that applies to the Matching Account. The accounts transferred from the Brody Plan attributable to "Discretionary Non-Elective Contributions" shall be subject to the following

vesting schedule:
Years of Vesting Service -----------------------less than 3 3 4 5 or more Vested Percentage ----------------0% 20% 40% 100%

(f) DISTRIBUTION OF ACCOUNT BALANCES. Any Participant or Beneficiary who has a transferred account established under Section 13.05(d) shall be allowed to elect distribution of his vested Account under the Plan in such manner or form as he could have elected under the terms of the Brody Plan as in effect immediately prior to the Merger Date. (g) LOANS. Any loans that had previously been made to Participants
under the Brody Plan and that remain outstanding on the Merger Date will be maintained on and after that date under this Plan until all amounts of principal and interest thereon have been repaid, or, in the event of default, recovered, pursuant to the terms of the documents evidencing such loans and the provisions of the Participant loan program established under the Brody Plan. 13.06 MERCANTILE TRANSFERS. This Section will describe the special rules applicable to the accounts of Mercantile Employees, as defined below. (a) DEFINITIONS. The following terms shall have the meanings set hereinafter. (1) "GAYFER PLAN" shall mean the C. J. Gayfer Company, Inc. Savings and Profit Sharing Plan. "HAIR SALON EMPLOYEE" shall mean a former employee of Mercantile who became an Employee of the Employer on or before February 6, 1999, as a result of being hired by the Employer from one of the hair and nail salons of the Mercantile Stores, and who is not a Mercantile Store Employee. "MERCANTILE" shall mean Mercantile Stores Company, Inc. or one of its affiliates. "MERCANTILE EMPLOYEE" shall mean an individual who is either a Mercantile Store Employee or a Hair Salon Employee.

(2)

(3)

(4)

13-6

(5) "MERCANTILE PLAN" shall mean the Mercantile Stores Savings, Profit Sharing and Supplemental Retirement Plan. (6) "MERCANTILE STORE EMPLOYEE" shall mean a former employee of Mercantile who became an Employee of the Employer directly as a result of the Employer's acquisition of the Mercantile Stores. (7) "MERCANTILE STORES" shall mean former Mercantile stores acquired by the Employer on or about October 3, 1998, and a former Dillard's, Inc. store acquired by the Employer on or about December 1, 1998. (8) "TRANSFER ACCOUNTS" shall mean the accounts transferred directly from the Mercantile Plan and/or the Gayfer Plan at the direction of the plan administrator(s) and/or trustee(s) of such plan(s) in the form of direct trustee-to-trustee transfers. Transfers wherein the participants were given the option of receiving distributions from the Mercantile Plan and/or the Gayfer Plan shall be treated as Rollover Contributions pursuant to Section 3.02(b) hereof, and shall not be treated as Transfer Accounts. (9) "TRANSFER DATE" shall mean, for a Mercantile Employee, the date or dates on which such Mercantile Employee's Transfer Accounts were transferred from the Mercantile Plan and/or the Gayfer Plan to this Plan. (b) PARTICIPATION. The participation of Mercantile Employees in this Plan shall be determined pursuant to this subsection (b). (1) MERCANTILE STORE EMPLOYEES. Except as otherwise provided herein, Mercantile Store Employees who were eligible to participate in the Mercantile Plan on the day before such individuals became Employees of the Employer shall be eligible to participate in this Plan on the date that such individuals became Employees of the Employer. The dates that such individuals became Employees of the Employer will be special Entry Dates for purposes of this Plan. Notwithstanding the foregoing, Mercantile Store Employees at the Cortana Mall store in Baton Rouge, Louisiana, who were eligible to participate in the Mercantile Plan on the day before such individuals became Employees of the Employer shall be eligible to participate in the Plan on January 1, 1999. Mercantile Store Employees who were not eligible to participate in the Mercantile Plan on the day before such individuals became Employees of the Employer shall be eligible to participate as provided in Section 2.01 of the Plan. (2) HAIR SALON EMPLOYEES. Hair Salon Employees shall be eligible to participate as provided in Section 2.01 of the Plan. (c) PRIOR SERVICE. Except as otherwise provided herein, employment of a Mercantile Employee with Mercantile shall be counted as Service under this Plan for all purposes. For an individual who was a participant in the Mercantile Plan on the day prior to the date such individual became an Employee of the Employer, Vesting Service under this plan for such prior period of employment shall equal the years of vesting service for such period determined under the rules of the Mercantile Plan. Notwithstanding the foregoing, such 13-7

prior service shall be disregarded in determining eligibility for participation under this Plan for Hair Salon Employees. (d) TRANSFER OF ASSETS AND ACCOUNT BALANCES. The Transfer Accounts of Mercantile Employees, and the assets associated with such Transfer Accounts, shall be transferred from the Mercantile Plan and/or the Gayfer Plan to this Plan as soon as administratively feasible after the plan administrator(s) and/or trustee(s) of such plan(s) direct that the transfers be made. Such transfers shall be in the form of direct trustee-totrustee transfers, and shall be credited to Accounts in this Plan in such manner as the Committee shall determine. (e) VESTING OF TRANSFER ACCOUNTS. The Transfer Accounts which were automatically one hundred percent (100%) vested under The Mercantile Plan and/or the Gayfer Plan shall be one hundred percent (100%) vested under this Plan. The Transfer Accounts which were not automatically one hundred percent (100%) vested under such plans shall be subject to the following vesting schedule:
Years of Vesting Service --------------less than 3 3 4 5 or more Vested Percentage ---------0% 20% 40% 100%

(f) DISTRIBUTION OF ACCOUNT BALANCES. Any Participant or Beneficiary who has a Transfer Account established under Section 13.06(d) shall be allowed to elect distribution of all of his vested Accounts under the Plan in such manner or form as he could have elected under the terms of the Mercantile Plan and/or the Gayfer Plan as in effect immediately prior to the Transfer Date. (g) LOANS. Any loans that had previously been made to Participants
under the Mercantile Plan that remain outstanding on the Transfer Date and that were transferred to this Plan as part of a Transfer Account will be maintained on and after that date under this Plan pursuant to the terms of the documents evidencing such loans and the provisions of the loan program established under the Mercantile Plan. 13.07 EMPLOYEES WHO TRANSFER FROM THE SAKS FIFTH AVENUE DIVISION This Section, to be effective on the date this document is executed, will describe the special rules applicable to individuals who become Employees of the Employer as a result of transferring employment from the Saks Fifth Avenue Division. (a) SERVICE. For individuals covered by this Section, employment with any company in the Saks Fifth Avenue Division will be treated as employment with the Employer and will be counted as Service under the Plan. PARTICIPATION. The date of transfer for such an individual shall be treated as an Entry Date for such individual pursuant to Section 1.16 hereof, and such individual will be immediately eligible to participate in this Plan on such Entry Date, provided the conditions described in Section 2.01 hereof have been satisfied as of the transfer date. ACCOUNTS NOT TO BE TRANSFERRED. The accounts of such individuals in the 401(k) plan of any company in the Saks Fifth Avenue Division will not be transferred to this Plan as a trustee to trustee transfer.

(b)

(c)

13-8

ARTICLE 14 PROVISIONS APPLICABLE TO A TOP HEAVY PLAN 14.01 TOP HEAVY PLANS. The provisions of this article are designed to meet the requirements of section 416 of the Code and shall automatically supersede any conflicting provisions in the Plan in every Plan Year in which this Plan is or becomes a Top Heavy Plan. Provided, however, that if the provisions of this article are in conflict with final regulations issued by the Secretary of the Treasury with respect to Top Heavy Plans, then such final regulations shall supercede the provisions of this article to the extent not otherwise specifically prohibited by law. 14.02 DEFINITIONS. For purposes of this article, and only this article, unless a term defined in this article is the subject of explicit reference elsewhere in the Plan, the following terms when used herein, unless the context clearly indicates otherwise, shall have the meanings set forth hereinafter: (a) "COMPENSATION" shall mean, for each Employee, Compensation as that term is defined in Section 4.04 of the Plan, plus, for 1997, amounts contributed by the Employer pursuant to a salary reduction agreement which are excludible from the employee's gross income under section 125, section 402(e)(3), section 402(h)(1)(B) or section 403(b) of the Code. However, "Compensation" shall not include compensation in excess of the applicable dollar limits in Section 1.08(c) hereof. "DETERMINATION DATE" shall mean, with respect to any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the Determination Date shall be the last day of such Plan Year. "KEY EMPLOYEE" shall mean any Employee or former Employee (or Beneficiary of such Employee) who, at any time during the determination period, was (i) an officer of the Employer having an annual Compensation greater than fifty percent (50%) of the maximum dollar limitation in effect under section 415(b)(1)(A) of the Code for any such Plan Year, (ii) an owner of one (1) of the ten (10) largest interests in the Employer if such interest is greater than one-half percent (1/2%) and such individual's Compensation exceeds the maximum dollar limitation under section 415(c)(1)(A) of the Code, (iii) a five percent (5%) or more owner of the Employer or (iv) a one percent (1%) or more owner of the Employer who has an annual Compensation of more than one hundred and fifty thousand dollars ($150,000). The term "determination period" shall mean the Plan Year containing the Determination Date and the four (4) preceding Plan Years. The determination of who is a Key Employee shall be made in accordance with section 416(i)(1) of the Code and regulations thereunder. For purposes hereof, the term "officer" shall mean an administrative executive who is in regular and continued service. An Employee who merely has the title of an officer, but not the authority of an officer, is not to be considered an officer hereunder. Furthermore, for purposes hereof, at any time during a determination 14-1

(b)

(c)

period, no more than fifty (50) Employees of all members of a Controlled Group, or, if lesser, the greater of three (3) individuals or ten percent (10%) of such Employees, shall be treated as officers hereunder. The officers subject to these preceding limitations shall be comprised of the individual officers selected from the group of all individuals who were officers in the current Plan Year of the determination period or any of the four (4) preceding Plan Years in the determination period, who had the largest average annual compensation throughout the total of those five (5) Plan Years in the determination period. For purposes of (ii) herein, if two (2) employees have the same interest in the Employer, the Employee having the greater annual Compensation (without regard to the dollar limitation of Section 14.02(a) hereof) from the Employer shall be treated as having a larger interest. Likewise, for purposes hereof, the term "owner" shall mean an individual considered to be an owner within the meaning of section 318 of the Code; provided, however, that subparagraph (c) of section 318(a)(2) shall be applied by substituting "5 percent" for "50 percent". (d) "NON-KEY EMPLOYEE" shall mean any Employee who is not a Key Employee. "PERMISSIVE AGGREGATION GROUP" shall mean the Required Aggregation Group of plans plus any other plan or plans of the Employer, as selected by the Employer, which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code. "PRESENT VALUE" shall mean, if the Employer also now or ever maintains a qualified defined benefit pension plan, the present value of a benefit based only on the interest and mortality rates specified in that plan.

(e)

(f)

(g) "REQUIRED AGGREGATION GROUP" shall mean as follows: (1) each qualified plan of the Employer in which at least one (1) Key Employee participates or participated at any time during the determination period (regardless of whether or not the plan terminated), and (2) any other qualified plan of the Employer which enables a plan described in the preceding subsection (1) to meet the requirements of sections 401(a)(4) or 410 of the Code. (h) "SUPER TOP HEAVY PLAN" shall mean, for any Plan Year, the Plan if it would be a Top Heavy Plan under Section 14.02(i) hereof if the words "ninety percent (90%)" were substituted for the words "sixty percent (60%)" in Section 14.02(i) hereof. (i) "TOP HEAVY PLAN" shall mean, for any Plan Year, the Plan if any of the following conditions exists. (1) If the Top Heavy Ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (2) If this Plan is a part of a Required Aggregation Group of plans, but not part of a Permissive Aggregation Group, and the Top Heavy Ratio for the Required Aggregation Group of plans exceeds sixty percent (60%). 14-2

(3) If this Plan is a part of a Required Aggregation Group and also is a part of a Permissive Aggregation Group of plans, and the Top Heavy Ratio for the Permissive Aggregation Group exceeds sixty percent (60%). (j) "TOP HEAVY RATIO" shall mean as follows. (1) If the Employer maintains one (1) or more defined contribution plans (including any simplified employee pension plan under section 408(k) of the Code), and the Employer has never maintained any defined benefit plan which has covered or could cover a Participant in this Plan, then the Top Heavy Ratio is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date (including any part of any account balance distributed in the five (5) year period ending on the Determination Date), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the five (5) year period ending on the Determination Date) of all Participants as of the Determination Date. Both the numerator and denominator of the Top Heavy Ratio are adjusted to reflect any contribution which is due but unpaid as of the Determination Date. (2) If the Employer maintains one (1) or more defined contribution plans (including any simplified employee pension plan under section 408(k) of the Code), and the Employer maintains or has maintained one (1) or more defined benefit pension plans which have covered or could cover a Participant in this Plan, then the Top Heavy Ratio is a fraction, the numerator of which is the sum of account balances under the defined contribution plans for all Key Employees and the present value of accrued benefits under the defined benefit pension plans for all Key Employees, and the denominator of which is the sum of the account balances under the defined contribution plans for all Participants and the present value of accrued benefits under the defined benefit pension plans for all Participants. Both the numerator and denominator of the Top Heavy Ratio are adjusted for any distribution of an account balance or an accrued benefit made in the five (5) year period ending on the Determination Date and any contribution due, but unpaid, as of the Determination Date. (3) For purposes of the preceding subsections (1) and (2), the value of account balances and the present value of accrued benefits shall be determined as of the most recent Top Heavy Valuation Date that falls within or ends with the twelve (12) month period ending on the Determination Date. The account balances and accrued benefits of a Participant who is a Non-Key Employee, but who was a Key Employee in a prior year, or who has not been credited with at least one (1) Hour of Service with any Employer maintaining the Plan at any time during the preceding five (5) year period ending on the Determination Date, shall be disregarded. The calculation of the Top Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account shall be made in accordance with section 416 of the Code and the regulations thereunder. Distributions shall include distributions under a terminated plan which if it had not been terminated would have been included in the Required Aggregation Group. When aggregating plans, the value of account balances and accrued benefits shall be calculated with reference to the determination dates that fall within the same calendar year. 14-3

(4) The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of section 411(b)(1)(C) of the Code. (k) "TOP HEAVY VALUATION DATE" shall mean, with respect to any Plan
Year, for this Plan, the Determination Date, and shall mean with respect to any Plan Year for a defined benefit pension plan maintained by the Employer, if any, the day within the twelve (12) month period ending on the determination date for such defined benefit pension plan as of which the actuarial determination of the minimum funding standard is calculated. 14.03 MINIMUM ALLOCATIONS IN SINGLE PLAN. Notwithstanding the provisions of Section 4.01 hereof, and before any contributions are allocated thereunder, minimum Employer Contributions shall be made and allocated pursuant to this Section in a Plan Year in which the Plan is a Top Heavy Plan. (a) The minimum Employer contribution for a Participant who is a Non-Key Employee for any Plan Year in which the Plan is a Top Heavy Plan shall not be less than the lesser of (i) three percent (3%) of his Compensation or (ii) the percentage at which Employer contributions (including salary deferral contributions and Employer matching contributions) and Forfeitures are allocated for the Plan Year in respect of the Key Employee for whom such percentage is the highest for the Plan Year, taking into account such Key Employee's Compensation. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the Plan Year because of the following: (1) the Participant's failure to complete one thousand (1,000) Hours of Service. the Participant's failure to make mandatory Employee contributions, if any, required for participation in the Plan; or the Participant's Compensation was less than any stated required amount.

(2)

(3)

This subsection shall not apply, however, to any Participant who was not employed by the Employer on the last day of the Plan Year. In determining Employer contributions under this Section, contributions or benefits under Chapter 2 of the Code (relating to taxes on self-employed income), Chapter 21 of the Code (relating to the Federal Insurance Contribution Act) or any other Federal or State laws (including Title II of the Social Security Act) shall not be taken into account. In determining Employer contributions under this Section for a Non-Key Employee, Salary Deferral Contributions and Employer Matching Contributions needed to satisfy the actual contribution percentage nondiscrimination test pursuant to Section 3.04 or the actual deferral percentage nondiscrimination test pursuant to Section 3.03 shall not be taken into account. 14-4

The minimum allocations required hereunder (to the extent required to be nonforfeitable under section 416(b) of the Code) shall not be forfeitable under sections 411(a)(3)(B) (regarding the suspension of benefits upon reemployment of a retiree) or 411(a)(3)(D) (regarding withdrawal of mandatory contributions) of the Code. (b) Any Employer contributions remaining unallocated shall be allocated pursuant to the provisions of Section 4.01 hereof; provided, however, that all allocations under the Plan pursuant to Section 4.01 shall be determined with respect to Compensation as that term is defined in Section 1.08 hereof, but subject to the dollar limitations set forth in Section 1.08(c) hereof.

14.04

MINIMUM VESTING SCHEDULES. Notwithstanding the provisions of Section 8.01 hereof, the nonforfeitable interest of each Participant in his Employer Account in a Plan Year in which this Plan is a Top Heavy Plan shall be the vested percentage set forth in the following table (or the vested percentage

determined in accordance with Section 8.01, if greater):
Years of Vesting Service --------------Less than 3 3 or more Vested Percentage ---------0% 100

If the vesting schedules under the Plan shift in or out of the preceding schedule for any Plan Year because of a change in the Plan's Top Heavy status, then such shift shall be considered an amendment to the relevant vesting schedule and the election rule for Participants with three (3) or more years of Service set forth in Section 11.01(d) hereof shall apply. Furthermore, any contributions that become nonforfeitable under this minimum vesting schedule for a Top Heavy Plan shall remain nonforfeitable if the Plan shifts out of Top Heavy status. The minimum vesting schedule applies to all benefits within the meaning of section 411(a)(7)(A) of the Code (except those attributable to voluntary Participant contributions, if any), including benefits accrued before the effective date of section 416 of the Code and benefits accrued before the Plan became a Top Heavy Plan. Further, no reduction in nonforfeitable benefits may occur in the event the Plan's status as a Top Heavy Plan changes for any Plan Year. However, this section does not apply to the account balances of any Participant who does not have an hour of Service after the Plan has initially become a Top Heavy Plan, and the nonforfeitable percentage and such Participant's Employer Account shall be determined without regard to this section. 14.05 SPECIAL LIMITATIONS AND ALLOCATION IN MULTIPLE PLANS. If for any Plan Year the Plan is a Top Heavy Plan, and the Employer maintains, or has ever maintained, a qualified defined benefit pension plan which is part of a Required or Permissive Aggregation Group, as appropriate, then the provisions of this Section shall apply. If none of the Employer's plans are considered a Super Top Heavy Plan, then the Employer shall provide each Participant who would receive an allocation under Section 14.03 hereof and who is 14-5

a participant also in the qualified defined benefit pension plan an allocation pursuant only to Section 14.03 hereof in lieu of accruing a benefit that year under the pension plan, but substituting in Section 14.03(a) hereof the term "seven and one-half percent (7-1/2%)" for the term "three percent (3%)". The Employer shall provide each Participant who would receive an allocation under Section 14.03 hereof, but who is not a participant also in the qualified defined benefit pension plan, an allocation pursuant to Section 14.03 hereof, but substituting in subsection (a) thereof the term "four percent (4%)" for the term "three percent (3%)". If any of the Employer's plans are considered a Super Top Heavy Plan, then in applying the limitations of Section 4.04 hereof, the term "one (1)" shall be substituted for the term "one and twenty-five hundredths (1.25)" in both the defined benefit fraction and the defined contribution fraction, as such terms are defined in Section 4.04 hereof. Furthermore, the Employer shall provide each Participant who would receive an allocation under Section 14.03 hereof and who is a participant also in the defined benefit pension plan an allocation pursuant only to Section 14.03 hereof in lieu of accruing a benefit that year under the pension plan, but substituting in Section 14.03(a) hereof the term "five percent (5%)" for the term "three percent (3%)". The Employer shall provide each Participant who would receive an allocation under Section 14.03 hereof, but who is not a participant also in the defined benefit pension plan, an allocation only pursuant to Section 14.03 hereof.

14-6

ARTICLE 15 MISCELLANEOUS PROVISIONS 15.01 ALLOCATION OF RESPONSIBILITY AMONG FIDUCIARIES FOR PLAN AND TRUST ADMINISTRATION. Each Fiduciary shall have only those specific powers, duties, responsibilities and obligations as are specifically given it under the Plan. Each Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of any other Fiduciary as being proper under the Plan and is not required to inquire into the propriety of any such direction, information or action. It is intended that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value. Each Fiduciary shall discharge its duties set forth in the Plan solely in the interests of the Participants, Retired Participants and their Beneficiaries: (a) for the exclusive purpose of: (1) providing benefits to such persons; and (2) defraying reasonable expenses of administering the Plan; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

The Plan is intended to operate in compliance with Department of Labor Regulations section 2550.404c-1 with respect to certain transactions. To the extent that the Plan is operated in compliance with those regulations, the Plan Fiduciaries shall have the protections provided by section 404(c) of the ERISA, specifically that: (a) a Participant exercising control over the assets in his Account shall not be deemed a fiduciary by reason of his exercise of such control; and (b) no person who is otherwise a fiduciary shall be liable for any loss, or by reason of any breach, which results from such exercise of control. 15.02 ALIENATION OR ASSIGNMENT OF BENEFITS (QDRO's). The right of any Participant, Retired Participant or Beneficiary in any benefit or to any payment hereunder or to any segregated account may not be anticipated, conveyed, assigned, mortgaged or encumbered either by voluntary or involuntary action or by operation of law nor shall any such right or interest be in any manner subject to levy, attachment, execution, garnishment or any other seizure under legal, equitable or other process, except pursuant to a qualified domestic relations order, as defined in section 414(p) of the Code, or pursuant to a domestic relations order entered before January 1, 1985, under which payment of benefits under that order has 15-1

commenced as of January 1, 1985. Otherwise, such interest in this Plan shall be payable only in accordance with the provisions hereof; provided, however, that distributions pursuant to a qualified domestic relations order may be made without regard to the age or employment status of the Participant. 15.03 HEADINGS. The headings and sub-headings of Articles and Sections are included solely for convenience of reference, and if there be any conflict between such headings and the text of the Plan, the text shall control. 15.04 CONSTRUCTION OF THE PLAN. In the construction of the Plan, the masculine gender shall include the feminine, the feminine gender shall include the masculine, and the singular shall include the plural, unless the context clearly indicates otherwise. 15.05 CORRECTION OF ERRORS. If any error or change in records results in any Participant, Retired Participant or Beneficiary receiving from the Plan more or less than he would have been entitled to receive had the records been correct or had the error not been made, the Plan Administrator, upon discovery of such error, shall correct the error by adjusting, as far as practicable, the payments in such a manner that the benefits to which such person was correctly entitled shall be paid. 15.06 LEGALLY INCOMPETENT. If any Participant, Retired Participant or Beneficiary is a minor, or is in the judgment of the Plan Administrator otherwise legally incapable of personally receiving and giving a valid receipt for any payment due him hereunder, the Plan Administrator may, unless and until claim shall have been made by a guardian or conservator of such person duly appointed by a court of competent jurisdiction, direct that such payment, or any part thereof, be made to such person or to such person's spouse, child, parent, brother or sister, or other person deemed by the Plan Administrator to be a proper person to receive such payment. Any payment so made shall be, to the extent of the payment, a complete discharge to the Employer and Trustee of any liabilities under the Plan. 15.07 SUCCESSOR ORGANIZATION. In the event of a merger or consolidation of any Employer into, or transfer of all or substantially all of its assets to, any legal entity, unincorporated business organization or corporation, provision may be made by such successor legal entity, unincorporated business organization or corporation for its election of the continuance of this Plan as to such successor entity. Such successor shall, upon its election to continue this Plan, be substituted in place of the transferor Employer by an instrument duly authorizing such substitution and duly executed by such Employer and its successor. Upon notice of such substitution, accompanied by a certified copy of the resolutions or other appropriate written instrument of the governing body of such Employer and its successor authorizing such substitution and delivered to the Trustee, the Trustee shall be authorized to recognize such successor in place of the transferor Employer. 15-2

15.08

MINIMUM BENEFIT IN SUCCESSOR PLAN. In the event of any merger or consolidation of the Plan with, or the transfer of assets or liabilities of the Plan to, any other qualified plan or trust, each Participant, Retired Participant and Beneficiary shall be entitled upon termination of the successor plan or trust immediately after the merger, consolidation or transfer to a benefit in an amount not less than he would have been entitled to receive if the Plan had terminated immediately before the merger, consolidation or transfer.

15.09

APPLICATION OF PLAN PROVISIONS. The provisions of the Plan shall apply only to Employees who terminate Service, or incur Breaks in Service, on or after the Effective Date.

15.10

SEVERABILITY OF PROVISIONS. The provisions of this Plan are severable, and should any provision be ruled illegal, unenforceable or void, all other provisions not so ruled shall remain in full force and effect.

15.11

APPLICABLE LAW. The provisions of this Plan shall be interpreted and construed according to the laws of the State of Alabama, unless federal law is exclusively controlling.

15.12

NONASSIGNABILITY OF DUTIES. Unless provided herein, the duties and responsibilities of the Fiduciaries of the Plan shall be nonassignable.

15.13

ENTIRE PLAN. This Plan constitutes the entire qualified profit sharing and section 401(k) plan of the Sponsor, and no modifications or alterations to this Plan shall be enforceable unless properly and validly made pursuant to the amendment provisions of Article 11 hereof. IN WITNESS WHEREOF, the Sponsor has caused the Plan to be executed by

its duly authorized representative on this ------ day of --------------, 1999. SPONSOR: SAKS INCORPORATED
Attest: ---------------------By: -------------------------------------

Title: The Plan may be executed in several counterparts, each of which shall be deemed an original. 15-3

EXHIBIT 10.56 TRUST AGREEMENT FOR THE SAKS INCORPORATED 401(k) RETIREMENT PLAN

TRUST AGREEMENT FOR THE SAKS INCORPORATED 401(k) RETIREMENT PLAN TABLE OF CONTENTS
Establishment 1 1.1 Establishment of Trust............................................1 1.2 Plan Qualification................................................1 1.3 Other Trusts......................................................1 Administration of Trust Fund 2 2.1 General Administration............................................2 2.2 Contributions to Trust............................................2 2.3 Accounts..........................................................2 2.4 Distributions from Trust..........................................2 Investment Direction 3 3.1 Directed Trustee..................................................3 3.2 Named Fiduciary - Investment Direction............................4 3.3 Participant - Investment Direction................................4 3.4 Appointment of Investment Manager.................................4 3.5 Short-Term Investment Pending Instructions........................6 3.6 Securities Lending................................................7 Powers Of Trustee 7 4.1 Directed Powers of the Trustee....................................7 4.2 Discretionary Powers of the Trustee...............................8 4.3 Voting............................................................9 Accountings 5.1 5.2 10 Valuation and Reports............................................10 Approval of Account..............................................10

Compensation, Fees And Expenses 11 6.1 Trustee Compensation.............................................11 6.2 Taxes and Expenses...............................................11 6.3 Method of Payment................................................11 Resignation Or Removal Of Trustee 12

Protection/Limitation On Liability For Trustee 12 8.1 Trustee's Protection.............................................12 8.2 Reliance by Trustee..............................................13 8.3 Absence of Instructions..........................................13 8.4 Indemnification by the Sponsor and Plan Administrator............13

Prohibition Of Diversion

14

Amendment And Termination Of The Trust 15 10.1 Amendment........................................................15 10.2 Termination......................................................15 Miscellaneous Provisions 15 11.1 Nonalienation....................................................15 11.2 Employment.......................................................16 11.3 Certification of Trust Agreement.................................16 11.4 Governing Law....................................................16 11.5 Segregation of Assets............................................16 11.6 Titles...........................................................16 11.7 Counterparts.....................................................17 11.8 Severability.....................................................17 11.9 Written Notice...................................................17 11.10 Confidentiality of Agreement.....................................17 Definitions 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 12.12 17 "Act"............................................................17 "Agreement"......................................................17 "Code"...........................................................17 "Named Fiduciary"................................................17 "Participant"....................................................17 "Participant Loan"...............................................17 "Plan"...........................................................18 "Plan Administrator".............................................18 "Recordkeeper"...................................................18 "Trust"..........................................................18 "Trust Fund".....................................................18 "Trustee"........................................................18

TRUST AGREEMENT This agreement, made and entered into the _____ day of ________________, 1999, by and between Saks Incorporated (the "Sponsor"), a corporation having its principal office in Birmingham, Alabama and AmSouth Bank, an Alabama banking corporation (the "Trustee"). W I T N E S S E T H: WHEREAS, the Sponsor has duly established the Saks Incorporated 401(k) Retirement Plan, hereinafter called the "Plan," for certain of its employees and the employees of other adopting employers and has authorized the creation of a Trust Fund to be administered under the Plan by the Trustee, to which Trust Fund contributions are to be made from time to time by the Sponsor and the other adopting employers, to be used for the exclusive benefit of its said employees and their successors in interest in accordance with the provisions of the Plan and as hereinafter set forth; and WHEREAS, the Trustee is willing to serve as a directed trustee and to hold and administer such money and other property pursuant to the terms of the Plan and this Trust Agreement; NOW, THEREFORE, the Sponsor and the Trustee agree as follows: ARTICLE I ESTABLISHMENT 1.1 ESTABLISHMENT OF TRUST. The Sponsor hereby continues the Trust previously established, which consists of amounts contributed and/or transferred to the Trustee, investments and proceeds thereof and earnings thereon, reduced by payments from the Trust as provided herein. The Trustee, by executing this Trust Agreement, accepts the Trust and agrees to administer the Trust as provided herein. 1.2 PLAN QUALIFICATION. The Sponsor hereby represents that the Plan is qualified under Code Section 401(a) and agrees to notify the Trustee if it has reason to believe the Plan has ceased or will cease to be so qualified. Trustee will have no liability or responsibility for the validity, legal effect or tax qualification of the Plan. 1.3 OTHER TRUSTS. Nothing in this Trust Agreement shall prevent the establishment of other trusts under the Plan. 1

ARTICLE II ADMINISTRATION OF TRUST FUND 2.1 GENERAL ADMINISTRATION. This Trust Fund shall be a part of the Plan and shall be administered for the exclusive purposes of providing benefits to Participants, as defined in the Plan, and their successors in interest and defraying reasonable expenses of administering the Plan, and shall be administered in accordance with the provisions of the Plan and of the Act. The Trustee, by executing this Trust Agreement, agrees to be bound by the terms of the Plan applicable to it and by the terms of this agreement. The Sponsor hereby agrees to provide a copy of the Plan document to the Trustee to notify the Trustee of any amendment to the Plan and provide a copy of such amendment to the Trustee within fifteen days of its effective date. 2.2 CONTRIBUTIONS TO TRUST. The Trustee will accept such cash contributions made by or on behalf of Participants as it receives from time to time from the Sponsor, and such assets as are acceptable to the trustee, as may be transferred by Participants or by the trustee or custodian of another qualified plan or individual retirement account, if the Plan Administrator, as defined in the Plan, has certified that such transfer is in accordance with the Plan. The Trustee will have no responsibility for determining the time or amount of any contribution to the Trust or enforcing the collection of any contribution. Also, the Trustee will have no responsibility for determining that contributions satisfy any applicable requirement of the Plan or law, including, but not limited to, the minimum contribution requirements of Code Sections 412 and 416. Also, the Trustee will have no responsibility for determining whether the amount of any contribution (or the portion of such contribution allocated to the account (s) of a participant) is within any applicable limit, including, but not limited to, the limits imposed by Code Sections 401(k) and (m), 402(g), 404 and 415. The contribution or transfer of any amount to the Trustee hereunder constitutes a certification by the Sponsor and the Plan Administrator that such contribution or transfer is in accordance with the Plan. 2.3 ACCOUNTS. The Trustee will maintain such accounts or funds as are necessary for the Trustee to carry out its responsibilities under the Plan; and the Trustee will make credits to or charges against such accounts or funds as provided therein. The Trustee will not maintain records of individual Participant accounts. 2.4 DISTRIBUTIONS FROM TRUST. The Trustee shall pay benefits and expenses (other than taxes and Trustee compensation and expenses) from the Trust Fund only upon the written direction of the Plan Administrator. 2

(a) The Sponsor will certify to the Trustee the identity of the Plan Administrator (and of any other person authorized to act on behalf of the Sponsor for purposes of the Plan) and will provide specimen signatures of the person or persons serving as Plan Administrator or on behalf of the Sponsor. The Trustee may assume that the authority of such person or persons continues unless the Sponsor advises the Trustee otherwise in writing. The Trustee shall be fully entitled to rely on such directions and shall be under no duty to ascertain whether the directions are in accordance with the provisions of the Plan. (b) If the Plan Administrator has delegated certain functions to a Recordkeeper, the Plan Administrator may instruct the Trustee to take directions from such Recordkeeper. The Plan Administrator will provide specimen signatures of the person or persons serving as the Recordkeeper. The Trustee may assume that the authority of such person(s) continues unless the Plan Administrator advises the Trustee otherwise in writing. The Trustee shall be fully entitled to rely on directions from the Recordkeeper and shall be under no duty to ascertain whether the directions are in accordance with the provisions of the Plan. (c) Upon receipt of a written notice from the Plan Administrator certifying that an amount is payable to a Participant, or other person under the Plan, the Trustee will promptly pay such amount in accordance with the notice and will be fully protected in so doing. The Plan Administrator's notice will include all information necessary to enable the Trustee to make such payment, including income tax withholding instructions and the account or accounts or investment fund or funds to be charged with such payments. The Plan Administrator's giving of a payment notice constitutes a certification from the Plan Administrator to the Trustee that such payment is in accordance with the Plan, that the Plan Administrator has provided the Participant any and all notices and explanations required by law and that the Plan Administrator has properly obtained any waivers or consents of the Participant, the Partner's spouse or other distributee required by law. The Trustee will have no responsibility for the application of any payment by the recipient, for determining the rights or benefits of any person in the Trust or under the Plan, for the administration of the Plan, or for the adequacy of the Trust to meet all liabilities arising under the Plan. The Trustee shall not have any responsibility for calculating or determining any amount to be distributed to a Participant and/or for compliance with any applicable requirements for minimum distributions. ARTICLE III INVESTMENT DIRECTION 3.1 DIRECTED TRUSTEE. The Trustee shall act only as a directed Trustee and shall exercise no discretion over the investment or distribution of the Trust Fund. The Trustee shall invest and reinvest the Trust Fund, without distinction between principal and income, in accordance with investment directions, as provided in this Article. The Trustee will have no responsibility to review or question such investment directions or to review any 3

investment to be acquired, held or disposed of pursuant to such investment directions or to make any recommendations with respect to the disposition or continued retention of any such investment. When accepting and implementing such investment directions, the Trustee will have no responsibility or liability for compliance with any applicable requirements concerning plan investments under the Plan or the Act or for any loss or diminution in value which results from the choice of investments for the Trust Fund. Whenever the Trustee is permitted or required to act upon instructions or directions of a Named Fiduciary, Plan Administrator, Participant, or investment manager, the Trustee will have no responsibility or liability for any action taken or omitted by the Trustee in reliance thereon. It is understood and agreed by the parties that although the Trustee will perform certain ministerial and custodial duties with respect to the assets held in Trust, such duties will be performed in the normal course by officers and other employees of the Trustee or by such other person or persons with whom the Trustee has contracted to perform services for it, all of whom may be unfamiliar with investment management, and that such duties will not include the exercise of any discretionary authority or other authority to manage and control assets comprising the Trust Fund. 3.2 NAMED FIDUCIARY - INVESTMENT DIRECTION. Subject to Sections 3.3 and 3.4, the Trustee shall invest the Trust Fund pursuant to the written direction of the Plan's Named Fiduciary to whom such responsibility has been assigned. The Sponsor will certify to the Trustee the identity of such Named Fiduciary (and of any other person authorized to act on behalf of such Named Fiduciary for purposes of the Plan) and will provide specimen signatures of such person or persons. The Trustee may assume that the authority of such person or persons continues unless the Sponsor notifies the Trustee in writing. The Trustee will not be liable, or obligated to inquire into, the acts or omissions of such Named Fiduciary. 3.3 PARTICIPANT - INVESTMENT DIRECTION. If the Plan permits Participants to direct the investment of some or all of their Plan accounts, the Trustee will invest the Trust Fund pursuant to the Plan and the Participants' investment directions. Each Participant shall convey investment instructions to the Plan Administrator and the Plan Administrator shall transmit those instructions, in writing, promptly to the Trustee, unless the Sponsor and the Trustee have agreed, in a separate written agreement, to accept Participant directed investment instructions from the Recordkeeper of the Sponsor. 3.4 APPOINTMENT OF INVESTMENT MANAGER. (a) The Named Fiduciary to whom such responsibility has been assigned may in writing appoint an investment manager or managers to assume responsibility for the investment of any portion or all of the assets of the Trust Fund for such time as such Named Fiduciary may determine and, unless such power is reserved to that Named Fiduciary, for directing the Trustee to vote or refrain from voting any stocks, bonds or other securities held in the Trust over which the investment manager has investment responsibility and to exercise or refrain from exercising 4

any rights to subscribe for additional stocks, bonds or other securities appurtenant to such securities. Communication of such appointment to the Trustee by a Named Fiduciary shall constitute an allocation to the investment manager of fiduciary responsibility for the part of the Trust Fund subject to its management and control. If the Plan gives a Participant investment control over the assets in his account, the Participant may appoint an investment manager; in such a case, references to the Named Fiduciary in this Section 3.4 will be deemed to be references to the Participant. If the Employer's Plan allows Participants to select individual securities for their own accounts, the Trustee shall implement the investment transactions of directing Participants through brokers designated by Participants, or, in the absence thereof, through brokers of its own choosing, or shall settle transactions upon receipt of instructions from Participants. The Trustee shall not be responsible for any loss caused by a Participant's inaction, or by action upon any notice, direction or other certification furnished by a Participant pursuant to Paragraph 3.4 and which the Trustee reasonably believes to be genuine. The Trustee shall have no duty to review the securities or other property held in the account of any such Participant or to make any suggestions or recommendations to any such Participant with respect to the investment, reinvestment, or disposition of investments made by any such Participant. The Trustee shall not be responsible for investment performance arising from compliance with the instructions of any such Participant, unless said Participant shall have directed that monies standing to the credit of his account be invested in a portfolio or collective fund managed by the Trustee. (b) The Sponsor shall ascertain and shall certify to the Trustee that any investment manager appointed hereunder is (i) registered as an investment adviser under the Investment Advisers Act of 1940; (ii) a bank, as defined in that Act; or (iii) an insurance company qualified to perform investment management services under the laws of more than one state, and that the instrument or instruments appointing an investment manager and evidencing the investment manager's acceptance of such appointment contains an acknowledgment by the investment manager that it is a fiduciary with respect to the Plan. (c) The investment manager(s) will have sole responsibility for the investment and, unless reserved to a Named Fiduciary, the voting and subscription action of the portion of the Trust Fund under its or their respective management and the Trustee shall take such action only upon the proper instructions of the Investment Manager. The Trustee will not be liable, or obligated to inquire into, the acts or omissions of any investment manager appointed hereunder. If directed by the Sponsor, the Trustee shall charge compensation of an Investment Manager and any expenses related to investments directly by an Investment Manager against such accounts. The Trustee shall not be responsible for determining the reasonableness of any compensation paid to or agreed to be paid to an Investment Manager. 5

The Trustee shall not be responsible for any loss caused by its acting upon any notice, direction or certification of any Investment Manager appointed by the Sponsor which the Trustee reasonably believes to be genuine. The Trustee shall have no duty to question any direction, action or inaction of any Investment Manager. The Trustee shall have no duty to review the securities or other property held in any investment manager account or to make any suggestions to any Investment Manager or to the Sponsor with respect to the investment, reinvestment, or disposition of investments in any investment manager account. The Trustee shall not be responsible for investment performance arising from its compliance with the instructions of any Investment Manager. (d) The investment manager shall from time to time certify to the Trustee the name of the person or persons authorized to act on behalf of the investment manager hereunder, and furnish the Trustee a specimen of the signature of any such person. Any person so certified shall be deemed to be the authorized representative of the investment manager. When any person so certified shall cease to have authority to act on behalf of the investment manager, the investment manager shall promptly give notice to that effect to the Trustee. Until such notice is received by the Trustee, such person shall continue to be an authorized representative. (e) All directions to the Trustee by the investment manager shall be in writing (provided that the Trustee may, in its discretion, accept oral directions subject to confirmation in writing) and shall be signed by an authorized representative of the investment manager (as described above). Notwithstanding anything herein to the contrary, the Trustee shall be fully protected in acting in accordance with the following types of directions, to the same extent as if such directions were given by the investment manager in writing: (i) directions with respect to securities transactions (including, without limitation, the affirmation and/or confirmation of such transactions) received by it through a system or arrangement for the coordination of securities transaction settlements operated by any central securities depository, securities clearing organization, or book-entry system which serves to link investment managers, securities brokers, and custodian banks; and (ii) directions (including, without limitation, the affirmation and/or confirmation of transactions) received by the Trustee through authenticated telecommunications facilities, including, without limitation, communications effected directly between electronic devices, provided that the Trustee and the investment manager have agreed that such procedures afford adequate safeguards. The investment manager's directions may be given as standing instructions. (f) If an investment manager resigns or is removed by the Named Fiduciary, the Named Fiduciary will promptly notify the Trustee and that portion of the Trust Fund will again be invested pursuant to Section 3.2 or 3.3 hereof until another investment manager has been appointed with respect to such portion of the Trust Fund. 6

3.5 SHORT-TERM INVESTMENT PENDING INSTRUCTIONS. In the event the Trustee fails to receive direction with respect to the investment of any cash contribution or any cash pending investment, distribution or payment of expenses, the Trustee shall invest such cash in a fund designated by the Trustee. 3.6 SECURITIES LENDING. The Named Fiduciary or, if an investment manager has been appointed, the investment manager, (hereinafter the "Appointing Fiduciary") may appoint the Trustee as securities lending fiduciary, if the Trustee consents to such appointment, to establish, manage and administer a securities lending program on behalf of the Trust Fund, pursuant to which the Trustee shall have authority to cause any or all securities held in the Trust Fund (excluding securities held in any portion of the Trust Fund which the Appointing Fiduciary identifies in writing to the Trustee as not being eligible to participate in said program) to be lent to such one or more borrowers as the Trustee shall determine, in accordance with Prohibited Transaction Class Exemption 81-6. The Appointing Fiduciary shall enter into a written agreement with the Trustee setting forth the terms and conditions of the Trustee's appointment, including without limitation the compensation to be paid to the Trustee for its services with respect to such securities lending program. ARTICLE IV POWERS OF TRUSTEE 4.1 DIRECTED POWERS OF THE TRUSTEE. The Trustee shall have the following powers and authority in the administration of the Trust; provided, however, that such powers and authority shall be exercised by the Trustee only upon the receipt of direction as provided in Article III: (a) to deal with all or any part of the Trust assets, including the power to acquire and dispose of assets; (b) to hold any part of the Trust Fund in cash pending the investment or distribution thereof, without liability for interest; (c) to enforce by suit or otherwise, or to waive its rights on behalf of the Trust, and to defend claims asserted against it or the Trust; however, the Trustee will not be required to institute or defend itself, the Plan, or the Trust in any court or administrative proceeding unless it has first been indemnified to its satisfaction for the costs and expenses thereof; (d) to compromise, adjust and settle any and all claims against or in favor of it or the Trust; (e) to vote, or give proxies to vote, any stock or other security, and to waive notice of meetings; 7

(f) to oppose, or participate in and consent to the reorganization, merger, consolidation or readjustment of the finances or capitalization of any enterprise, to pay assessments and expenses in connection therewith, and to deposit securities under deposit agreements; (g) to invest or reinvest principal and income of the funds belonging to the Trust Fund in common or preferred stocks (including common stock issued by the Sponsor), bonds, mutual funds (including mutual funds for which the Trustee serves as investment advisor), or other securities, or limited partnership interests, or real or personal properties or interests therein, or any options, warrants or other instruments representing rights to receive, purchase, or subscribe for the same, or evidencing or representing any other rights or interests therein, or group annuity investment contracts issued by a legal reserve life insurance company authorized to do business in any State in the United States, or certificates of deposit, variable demand notes, and demand or time deposits (including any such notes and deposits of the Trustee bearing a reasonable rate of interest) or to hold any reasonable amounts of such principal or income in cash; (h) to execute such deeds, leases, contracts, bills of sale, notes, proxies and other instruments in writing as shall be deemed requisite or desirable in the proper administration of the Trust Fund; (i) unless otherwise provided in the Plan, to cause all or any part of the money or other property of this Trust to be commingled with the money or other property of trusts created by others by causing such assets to be invested as part of any one or more collective investment funds or group trusts maintained by fiduciaries with respect to this Plan and Trust, including the Trustee. The Declaration of Trust under which each such collective investment fund or group trust is established and maintained, as from time to time amended, is hereby made a part of this trust to the same extent as if its terms were set out in full herein. (j) to sell for cash, to convert, redeem or exchange for other securities or other property, to tender securities pursuant to tender offers, or otherwise to dispose of any securities or other property at any time held by the Trustee; (k) to exercise any conversion privilege, subscription or other rights incident to property in the Trust and to make payments incidental thereto; (1) to serve without being required to give bond to any court; and to do all acts and things, not specified herein, which it deems advisable to carry out the Trust; and generally to exercise any of the powers of an owner with respect to all or any part of the Trust. (m) Notwithstanding anything else contained in the Plan or this Agreement, the Trustee may not purchase any employer securities or employer real property other than Qualifying Employer Securities or Qualifying Employer Real Property as defined in section 407 of ERISA and the Trustee shall not invest in Qualifying Employer Securities or Qualifying Employer Real Property in excess of the amounts permitted by ERISA. If the Trustee at any time holds such assets in 8

excess of the applicable limits, it shall dispose of such excess assets as required by ERISA. 4.2 DISCRETIONARY POWERS OF THE TRUSTEE. The Trustee shall have the following powers and authority in the administration of the Trust to be exercised in its sole discretion: (a) to register or cause to be registered any securities held by it hereunder in its own name or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity, to permit securities or other property to be held by or in the name of others, to hold any securities in bearer form and to deposit any securities or other property in a domestic depository, clearing corporation, or similar corporation or a foreign depository, provided the requirements of Department of Labor Regulation 2550.404b-1 are met; (b) to make, execute, and deliver as Trustee hereunder, any and all instruments in writing necessary or proper for the accomplishment of any of the powers referred to in Section 4.1 or in this Section 4.2; (c) to employ suitable agents, advisers, and counsel and to pay their reasonable expenses and compensation as expenses of the Trust; (d) to contract with another person or persons,, related or unrelated to the Trustee, to perform any of the Trustee's duties hereunder, including, but not limited to, Trust Fund recordkeeping, provided, that the expenses and compensation of such person or persons shall be an expense of the Trustee, and not an expense of the Trust; (e) to bring, join in, or oppose any suits or legal proceedings involving the Trust where the Trustee may be adversely affected by the outcome, individually or as trustee, or where it is advised by counsel that such action is required on its part by the Act or other applicable law; (f) to receive all rents, issues, dividends, income, profits, and properties of every nature, due the Trust Fund, and to hold or make distribution therefor in accordance with the terms of this Trust Agreement; (g) to take any action committed to the Trustee's discretion by other provisions of this Agreement; and (h) generally to exercise such powers and to do such acts (exclusive of powers and acts involving investment management or otherwise committed to the discretion of the investment manager or any other party hereunder) whether or not expressly authorized, which may be considered necessary or desirable by the Trustee for the protection of the Trust. 9

4.3 VOTING. The Plan Administrator shall be entitled to direct the Trustee as to the manner in which shares of common stock of the Sponsor are to be voted, except as may be otherwise provided in the Plan. ARTICLE V ACCOUNTINGS 5.1 VALUATION AND REPORTS. (a) The Trustee will keep full accounts of all its receipts, disbursements and other transactions hereunder, and, annually, will determine the fair market value of the assets of the Trust as of the last business day of the plan year. If any assets of the Trust Fund are invested in property for which there is no readily ascertainable market value, the individual who directed such investment be made under Article III shall supply the Trustee with a proper valuation. For purposes of such accounts, the fiscal year of the Trust will coincide with the plan year. Within a reasonable time after the end of the plan year, or within a reasonable time after its removal or resignation, or the termination of the Trust, the Trustee will render to the Plan Administrator an account of its administration of the Trust since the last previous such accounting. (b) With the consent of the Trustee, the Plan Administrator or Sponsor may establish other valuation dates, and the Trustee will render to the Plan Administrator an account of the value of the Trust assets as of the current valuation date and, if requested, of its transactions hereunder since the preceding valuation date. (c) The Trustee's records pertaining to the Trust Fund shall be open to inspection, copying and audits at reasonable times by the Plan Administrator and any investment manager. No person other than the Plan Administrator will have the right to demand or receive any report or account from the Trustee. In any proceeding for a judicial settlement of any account or for instructions, the only necessary parties will be the Trustee and the Plan Administrator. 5.2 APPROVAL OF ACCOUNT. The written approval of any account by the Plan Administrator will be final and binding upon the Plan Administrator, the Sponsor, the Participants and all persons who then are or thereafter become interested in the Trust, as to all matters and transactions stated or shown therein. The failure of the Plan Administrator to notify the Trustee within 60 days after the Trustee's sending of any account of its objections (if any) to the account will be the equivalent of written approval. If the Plan Administrator files any objections within such 60-day period with respect to any matters or transactions stated or shown in the account and the Plan Administrator and the Trustee cannot resolve the questions raised by such objections, the Trustee will have the right to have such questions settled by judicial proceedings. Nothing herein will deprive the Trustee of the right to have a judicial settlement of its accounts. 10

ARTICLE VI COMPENSATION, FEES AND EXPENSES 6.1 TRUSTEE COMPENSATION. (a) As compensation for its services hereunder, the Trustee shall be entitled to receive from the Sponsor compensation in accordance with its schedule of fees, as amended by the Trustee from time to time, but not in excess of reasonable compensation for such services. Regardless, the Trustee may not increase its fees until it has given the Sponsor written notice at least thirty (30) days preceding such increase. (b) The Trustee may charge a reasonable fee in addition to its normal fees if it performs any services not contemplated in the fee schedule at the request of the Plan Administrator or Sponsor. (c) The Trustees fee, unless paid by the Sponsor at its option within thirty days of the Trustee's invoice, shall be paid from the Trust. 6.2 TAXES AND EXPENSES. (a) Any or all real and personal property taxes, income taxes and other taxes of any and all kinds whatsoever upon or in respect of the Trust Fund hereby created or any money, income or property forming a part thereof, and any or all fees and expenses actually and properly incurred in the administration of the Plan or the Trust Fund, may be paid directly from the assets of the Trust Fund. To the extent such taxes, fees and expenses are not paid from the Trust Fund, they shall be paid by the Sponsor. (b) The Trustee may assume that any taxes assessed on or in respect of the Trust Fund are lawfully assessed unless the Plan Administrator or the Sponsor shall in writing advise the Trustee that in the opinion of counsel for the Sponsor such taxes are not lawfully assessed. In the event that the Plan Administrator or Sponsor shall so advise the Trustee, the Trustee, if so requested by the Plan Administrator and suitable provision for their indemnity having been made, shall contest the validity of such taxes in any manner deemed appropriate by the Plan Administrator, Sponsor or counsel for the Sponsor. The word "taxes" in this Section 6.2 shall be deemed to include any interest or penalties that may be levied or imposed in respect to any taxes assessed. 6.3 METHOD OF PAYMENT. In order to provide for payment of any fees, taxes or expenses as provided in Sections 6.1 and 6.2, the Trustee in its discretion may partially or fully liquidate any asset in the Trust Fund and shall not be liable for any loss occasioned thereby. Any expenses of the Trustee which are not paid from the Trust for whatever reason will be the responsibility of the Sponsor. Any payment out of the Trust Fund of any of the taxes and expenses authorized in this Article VI, and of all other costs, expenses or compensation authorized 11

by this Trust Agreement and by the Sponsor to be paid out of the Trust Fund, shall be deemed to be for the exclusive benefit of the Participants and their successors in interest. ARTICLE VII RESIGNATION OR REMOVAL OF TRUSTEE (a) Any Trustee may resign at any time by giving 60 days' written notice to the Sponsor, and the Sponsor may remove any Trustee at any time by giving 60 days' written notice to the Trustee; in either case, the notice period may be reduced to such shorter period as the Trustee and the Sponsor agree upon. The Trustee's removal or resignation will be effective upon the last day of the notice period or, if later, the acceptance of the Trust by the successor Trustee. Until the effective date of the appointment of a successor Trustee (or the termination of the Trust and complete distribution of its assets), the incumbent Trustee will have full authority and responsibility to act as Trustee hereunder. (b) When the Trustee's resignation or removal becomes effective, the Trustee will perform all acts necessary to transfer the assets of the Trust to its successor. However, the Trustee may reserve such portion of the trust assets as it may reasonably determine to be necessary for payment of its fees and any taxes and expenses; any balance of such reserve remaining after payment of such fees, taxes and expenses will be paid over to its successor. (c) Resignation or removal of the Trustee will not terminate the trust. In the event of any vacancy in the position of Trustee, whether by the resignation or removal of the Trustee, the Sponsor will appoint a successor trustee and such appointment will become effective upon the acceptance of its office by the successor trustee. If the Sponsor does not appoint such a successor within 60 days after notice of resignation or removal is given, the Trustee may apply to a court of competent jurisdiction for such appointment or terminate the Trust and make distributions in the manner prescribed in the Plan. Each successor Trustee so appointed and accepting a Trusteeship hereunder will have all of the rights and powers and all of the duties and obligations of the original trustee under the provisions hereof. (d) No trustee will be liable or responsible for anything done or omitted to be done in the administration of the Trust before it became Trustee or after it ceases to be Trustee. ARTICLE VIII PROTECTION/LIMITATION ON LIABILITY FOR TRUSTEE 8.1 TRUSTEE'S PROTECTION. Except as provided in Article III, the Trustee shall have no duty to take any action other than as herein specified, unless the Sponsor or the Plan Administrator shall furnish it with instructions in proper form and such instructions shall have been specifically agreed to by it, or to defend or engage in any suit unless it shall have first agreed in writing to 12

do so and shall have been fully indemnified to its satisfaction. The Trustee may designate in a writing to the Sponsor or Plan Administrator a person or persons to whom instructions may be provided in lieu of instructions to the Trustee directly, and receipt of instructions by such person(s) shall be treated as an instructions received by the Trustee. 8.2 RELIANCE BY TRUSTEE. (a) The Trustee may rely upon any decision of the Plan Administrator purporting to be made pursuant to the terms of the Plan, and upon any information, statements, certifications or directions submitted by the Sponsor or the Plan Administrator (including statements concerning the entitlement of any Participant to benefits under the Plan or directions to make payments), and will not be bound to inquire as to the basis of any such decision or information or statements, and will incur no obligation or liability for any action taken or omitted by the Trustee in reliance thereon. (b) Whenever the Trustee is permitted or required to act upon the instructions or directions of the Sponsor or Plan Administrator, the Trustee will be fully protected in not acting in the absence hereof. (c) The Trustee may conclusively rely upon and shall be protected in acting in good faith upon any written representation or order from the Sponsor or the Plan Administrator or any other notice, request, consent, certificate or other instrument or paper believed by the Trustee to be genuine and properly executed, or any instrument or paper if the Trustee believes the signature thereon to be genuine. (d) The Trustee may consult with legal counsel (who may be or may not be counsel for the Sponsor) concerning any questions which may arise with respect to its rights and duties hereunder, and the opinion of such counsel will be full and complete protection in respect of any action taken or omitted by the Trustee hereunder in good faith and in accordance with the opinion of such counsel. 8.3 ABSENCE OF INSTRUCTIONS. If the Trustee receives no instructions from the Sponsor and/or Plan Administrator in response to communications sent to the Plan Administrator or the Sponsor at the last known address as shown on the books of the Trustee, the Trustee may make such determination with respect to distributions and other administrative matters arising under the Plan as it considers reasonable. Any determinations so made will be binding on all persons having or claiming any interest under the Plan or Trust, and the Trustee will incur no obligation or responsibility for any such determination made in good faith or for any action taken in pursuant thereof. 8.4 INDEMNIFICATION BY THE SPONSOR AND PLAN ADMINISTRATOR. (a) The Sponsor and the Plan Administrator (if different from the Sponsor) shall indemnify and hold harmless the Trustee and its officers, directors, employees, shareholders, and agents (the "Indemnitees") from and against any losses, costs, damages, or expenses, including reasonable attorneys' fees, which the 13

Indemnitees may incur or pay out by reason of (i) the Indemnitees acting in accordance with the directions the Sponsor, Plan Administrator, Participant (if such self direction is permitted by the Plan), or an investment manager or failing to act in the absence of such certification or other information provided by the Sponsor, Plan Administrator, Participant, or an investment manager; (ii) the Trustee's exercise and performance of its powers and duties hereunder, unless the same are judicially determined to be due to the Trustee's gross negligence, bad faith or willful misconduct; or (iii) any (alleged or actual) action or inaction, including but not limited to the diversion of assets, on the part of the Sponsor, Plan Administrator, Participant, or an investment manager, unless such losses, costs, damages, or expenses arise out of the Trustee's gross negligence, bad faith, or willful misconduct. (b) In addition, regardless of whether the Plan meets the requirements of Section 404(c) of the Act and regulations thereunder, if the Participant is permitted to direct the investment of his or her account, the Sponsor and Plan Administrator (if different from the Sponsor) shall indemnify and hold harmless the Indemnitees from and against any losses, costs, damages, or expenses, including reasonable attorneys' fees, which the Indemnitees may incur or pay out by reason of the Indemnitees' acting in accordance with a Participant's directions or failing to act in the absence of such directions or acting or failing to act in reliance on a Participant's instructions incorrectly conveyed by the Plan Administrator. (c) The Sponsor further agrees to indemnify and hold harmless the Trustee for any losses, costs, damages, or expenses, including reasonable attorney's fees, which the Indemnitees may incur or pay out by reason of any (alleged or actual) action or inaction on the part of any predecessor or successor Trustee. ARTICLE IX PROHIBITION OF DIVERSION (a) Except as provided in subparagraph (b) hereof, at no time prior to the satisfaction of all liabilities with respect to Participants and their successor in interest under the Plan shall any part of the corpus or income of the Trust Fund be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their successors in interest or for defraying reasonable expenses of administering the Plan including, but not limited, to the Trustee's fee. (b) The provisions of subparagraph (a) notwithstanding, contributions made by the Sponsor under the Plan shall be returned to the Sponsor if the Sponsor certifies to the Trustee in writing that one or more of the following conditions exists and agrees to indemnify the Trustee for any loss, costs, damages or expenses, including reasonable attorneys' fees, which the Trustee may incur as a result of returning such contribution: (i) a contribution was made by mistake of fact - such contribution shall be returned to the Sponsor within one year of the payment of such contribution; 14

(ii) contributions to the Plan are specifically conditioned
upon their deductibility under the Internal Revenue Code and a deduction has been disallowed - for any such contribution, the amount disallowed shall be returned to the Sponsor within one year after the disallowance of the deduction. Contributions which are not deductible in the taxable year in which made but are deductible in subsequent taxable years shall not be considered to be disallowed for purposes of this subsection; and/or (iii) the Commissioner of Internal Revenue has determined that the Plan is not initially qualified under the Internal Revenue Code - any contribution made incident to that initial qualification by the Sponsor shall be returned to the Sponsor within one year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the Sponsor's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe.

For purposes of this Article IX, the term "Sponsor" shall include other adopting employers under the Plan, to the extent not inconsistent with the terms of the Plan. ARTICLE X AMENDMENT AND TERMINATION OF THE TRUST 10.1 AMENDMENT. The Trustee may, by delivery to Sponsor of an instrument in writing, amend this agreement at any time and such amendment shall become effective on the date 60 days after delivery of such instrument, unless the Sponsor delivers a written objection to the Trustee prior to the expiration of such 60 day period. Provided, that no amendment shall divert any part of the Trust Fund to any purpose other than providing benefits to Participants and their successors in interest or defraying reasonable expenses of administering the Plan. 10.2 TERMINATION. If the Plan is terminated in whole or in part, the Trustee shall distribute the Trust Fund or any part thereof in such manner and at such times as the Plan Administrator or its designee shall direct in writing. The Trust created hereunder will terminate upon the distribution or application of all the assets of the Trust fund. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 NONALIENATION. Except as otherwise required in the case of any qualified domestic relations order within the meaning of Section 414(p) of the Internal Revenue Code, the benefits or proceeds of any allocated or unallocated portion of the assets of the Trust Fund and any interest of any Participant or beneficiary arising out of or created by the Plan either before or after

15

the Participant's retirement shall not be subject to execution, attachment, garnishment or other legal or judicial process whatsoever by any person, whether creditor or otherwise, claiming against such Participant or successor in interest. No Participant or successor in interest shall have the right to alienate, encumber or assign any of the payments or proceeds or any other interest arising out of or created by the Plan and any action purporting to do so shall be void. The provisions of this Section shall apply to all Participants and successors in interest, regardless of their citizenship or place of residence. 11.2 EMPLOYMENT. Nothing contained in this Trust Agreement or in the Plan shall require the Sponsor or any Adopting Employer to retain any employee in its service. 11.3 CERTIFICATION OF TRUST AGREEMENT. Any person dealing with the Trustee may rely upon a copy of this agreement and any amendments thereto certified to be true and correct by the Trustee. 11.4 GOVERNING LAW. The construction, validity and administration of this agreement shall be governed by the laws of the State of Alabama, except to the extent that such laws have been specifically superseded by the Act. 11.5 SEGREGATION OF ASSETS. To the extent not inconsistent with the requirements of Code Section 401(a) or the regulations thereunder, the Plan Administrator or its designee may, if it so determines, at any time and from time to time, designate any group or groups of the eligible employees or other beneficiaries covered by the Plan as a separate class and may direct the Trustee to segregate in a separate fund, to be held for the benefit of such class, the part of the Trust Fund allocable to such class as determined by the Plan Administrator or its designee. The Plan Administrator or its designee shall cause the Trustee to effect such segregation by delivering to the Trustee a written notice directing such segregation. The Trustee may rely conclusively and without investigation upon any such notice and shall segregate such assets as the Plan Administrator may direct. The Trustee's valuation of such assets for that purpose shall be conclusive. The Trustee shall hold all of the assets so segregated under this provision, together with such payments as shall thereafter be made to the Trust Fund in behalf of such class, and the income therefrom, as a subpart of the Trust Fund and subject to the terms of this agreement, or shall dispose of the same as directed by the Plan Administrator. In the event that the Trust Fund or any subpart thereof created by this agreement shall be terminated as to such class, the Plan Administrator shall direct the disposition of the assets held by the Trustee for such class through transfer. 11.6 TITLES. The titles to sections of this Trust Agreement are placed herein for convenience of reference only, and the Trust Agreement is not to be construed by reference thereto.

16

11.7

COUNTERPARTS. This Trust Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart.

11.8

SEVERABILITY. If any provision of this Trust Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Trust Agreement shall be construed and enforced as if such provisions had not been included.

11.9

WRITTEN NOTICE. Any written notice, demand, direction, or instruction given to the parties to this Agreement shall be duly given if mailed or delivered: (a) to the Trustee at P.O. Box 830859, Birmingham, Alabama, 35283-0859 or any other address as shall be specified by the Trustee in writing; and to the Sponsor, at the address indicated on the signature page hereto.

(b)

11.10

CONFIDENTIALITY OF AGREEMENT. This Agreement shall be considered and treated as confidential between the Sponsor and the Trustee and shall only be provided to other persons to the extent required by the Act.

ARTICLE XII DEFINITIONS As used in this Agreement of Trust, the following terms shall have the meanings given below, unless a different meaning is clearly required by context.
12.1 "ACT" means the Employee Retirement Income Security Act of 1974, as amended. "AGREEMENT" means this Agreement of Trust, as set forth herein and as subsequently amended pursuant to Section 10.1. "CODE" means the United States Internal Revenue Code of 1986, as amended. "NAMED FIDUCIARY" means the Named Fiduciary appointed pursuant to the Plan, but only with respect to the specific responsibilities for each such fiduciary as described in the Plan. "PARTICIPANT" means a participant in the Plan, as defined therein. "PARTICIPANT LOAN" means a loan from the Trust Fund to a Participant pursuant to the terms of the Plan.

12.2

12.3

12.4

12.5 12.6

17

12.7 12.8

"PLAN" means the plan named on page 1 hereof. "PLAN ADMINISTRATOR" means the plan administrator appointed pursuant to the Plan and/or, whenever the Plan Administrator has delegated certain of its duties to a Recordkeeper, the Recordkeeper. "RECORDKEEPER" means the person or persons to whom the Plan Administrator has delegated certain of its duties. "TRUST" means the fiduciary relationship established hereunder with respect to the Trust Fund. "TRUST FUND" means all property received by the Trustee hereunder and any property into which the same may be converted, together with the income thereon, excluding amounts properly disbursed by the Trustee under the terms hereof. "TRUSTEE" means the Trustee or Trustees whose signatures are affixed to this Amendment of Trust, and the Adoption Agreement, as trustee under this Agreement of Trust, or any successor trustee acting hereunder.

12.9

12.10

12.11

12.12

18

IN WITNESS WHEREOF, this Trust Agreement has been executed in behalf of the parties hereto, all on the day and year first above written. SPONSOR: SAKS INCORPORATED
Attest: ----------------By: -----------------------------------------------

Title: Address for receipt of notices:

750 Lakeshore Parkway Birmingham, AL 35211 TRUSTEE: AMSOUTH BANK
Attest: ----------------By: -----------------------------------------------

Title: 19

EXHIBIT 10.57 SAKS INCORPORATED SUPPLEMENTAL SAVINGS PLAN

TABLE OF CONTENTS
INTRODUCTION 1.01 1.02 DEFINITIONS 1-1 Establishment and Name of Plan.................................1-1 Intent and Status of Plan......................................1-1 2-1

ELIGIBILITY AND PARTICIPATION 3-1 3.01 Eligibility....................................................3-1 3.02 Participation..................................................3-1 3.03 Termination of Participation for Purposes of Making Deferrals..3-1 3.04 Special Participation for Purposes of Deferring Stock Awards...3-1 DEFERRED COMPENSATION ACCOUNTS 4-1 4.01 Deferred Compensation Account..................................4-1 4.02 Elective Deferral Amounts......................................4-1 4.03 Interest Credited to Deferred Compensation Accounts............4-2 4.04 Vesting of Accounts............................................4-3 4.05 Stock Award Account............................................4-3 DISTRIBUTION OF DEFERRED COMPENSATION BENEFITS 5-1 5.01 In General.....................................................5-1 5.02 Time of Distribution...........................................5-1 5.03 Hardship Distributions.........................................5-1 5.04 Amount and Method of Distribution of Benefits..................5-1 5.05 Committee Decision.............................................5-2 5.06 Payments After Participant's Death.............................5-2 5.07 Designation of Beneficiaries...................................5-2 5.08 Distributions from Stock Award Account.........................5-2 FINANCING AND UNFUNDED STATUS 6-1 6.01 Costs Borne by the Participating Companies.....................6-1 6.02 Source of Benefit Payments and Medium of Financing the Plan....6-1 6.03 Unfunded Status................................................6-1 ADMINISTRATION 7-1 7.01 General Administration.........................................7-1 7.02 Committee Procedures...........................................7-1 7.03 Facility of Payment............................................7-1 7.04 Indemnification of Committee Members...........................7-1 employer participation 8-1 8.01 Adoption of Plan...............................................8-1 8.02 Employer Accounting............................................8-1 8.03 Withdrawal from the Plan by Employer...........................8-1

AMENDMENT AND TERMINATION OF PLAN 9-1 9.01 Amendment and Termination......................................9-1 GENERAL PROVISIONS 10-1
10.01 10.02 10.03 10.04 Limitation of Rights..........................................10-1 No Assignment or Alienation of Benefits.......................10-1 Successors....................................................10-1 Governing Law.................................................10-2

ARTICLE 1 INTRODUCTION 1.01 ESTABLISHMENT AND NAME OF PLAN. Proffitt's, Inc. established, as of the Effective Date, an unfunded, deferred compensation plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Participating Companies, entitled the "Proffitt's, Inc. Supplemental Savings Plan." This document is an amendment and restatement of the plan and shall be effective as of the date of execution. Pursuant to this amendment and restatement, the name of the plan shall be changed to the "Saks Incorporated Supplemental Savings Plan." 1.02 INTENT AND STATUS OF PLAN. The Plan is intended to be an unfunded plan maintained by the Corporation with the Participating Companies primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees (and intended to be within the exemptions therefore in, without limitation, sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA and section 2520.104-23 of the Labor Regulations). The Plan is intended to be "unfunded" for purposes of both ERISA and the Code. The Plan is not intended to be qualified as a qualified plan under section 401(a) of the Code; rather, the Plan is intended to be a "nonqualified" plan.

1-1

ARTICLE 2 DEFINITIONS
Each following word, term and phrase shall have the following respective meanings whenever such word, term or phrase is capitalized and used in any Article of this Plan unless the context clearly indicates otherwise: 2.01 "BASIC COMPENSATION" means the portion of a Participant's Compensation that is not Bonus Compensation. "BOARD" means the Board of Directors of the Corporation. "BONUS COMPENSATION" means the portion of a Participant's Compensation that is paid in the form of a bonus. "COMMITTEE" means the Committee appointed by the Board to administer the Plan pursuant to Article 8 hereof. If no such Committee has been appointed, then the term Committee shall mean the Corporation. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMPENSATION" means the cash compensation which is earned and otherwise payable in a given Compensation Deferral Period to a Participant, including any amounts that would be payable as cash compensation except for the Participant's election to defer such amount under this plan or a plan under Code section 401(k) or Code section 125. "COMPENSATION DEFERRAL AGREEMENT" means the written agreement to defer Compensation contemplated by Articles 3 and 4 hereof executed by the Participant and the Participating Company. "COMPENSATION DEFERRAL DATE" means the Effective Date in the initial plan year, and January 1 in each calendar year thereafter. "COMPENSATION DEFERRAL PERIOD" means the twelve (12) consecutive month period beginning on each January 1 and ending on each following December 31 thereafter (the calendar year). "CORPORATION" means Saks Incorporated (formerly Proffitt's, Inc.), an Alabama corporation and any business organization or corporation into which Saks Incorporated may be merged or consolidated or by which it may be succeeded. "DEFERRED COMPENSATION ACCOUNT" means the account established by the Participating Companies pursuant to Article 4 of this Plan for each Participant to which shall be credited (added) the Participant's Elective Deferral Amounts; and from which any distributions and any hardship withdrawal distributions shall be subtracted; and to which shall be credited interest at the Retirement Rate as described in Section 4.03 hereof. All amounts which are credited to such Deferred Compensation Account are credited solely for computation purposes and are at all times general assets of the Participating Companies and subject to the claims of the general creditors of the Participating Companies.

2.02 2.03

2.04

2.05

2.06

2.07

2.08

2.09

2.10

2.11

2-1

2.12

DISABILITY" means a physical or mental condition of a Participant resulting in: (a) evidence that the Participant is deemed by the Social Security Administration to be eligible to receive a Primary Social Security disability benefit, or evidence that the Participant is eligible for disability benefits under the long-term disability plan sponsored by a Participating Company, or evidence satisfactory to the Committee that the Participant is totally and permanently disabled.

(b)

(c)

Whether or not a Participant meets any or all of the above conditions will be determined solely and exclusively by the Committee. 2.13 "DISTRIBUTION DATE" means either (a) the date that is as soon as administratively possible after the date the Participant terminates employment with the Participating Companies or (b) the date that is as soon as administratively possible after the end of the Plan Year in which the Participant terminates employment, as elected by the Participant in his Compensation Deferral Agreement. "EFFECTIVE DATE" means April 1, 1997, the date the Plan is established. The effective date of this amendment and restatement is the date this document is executed. 2.15 "EMPLOYEE" means a person, other than an independent contractor, who is receiving remuneration from the Employer for services rendered to, or labor performed for, the Employer (or who would be receiving such remuneration except for an authorized leave of absence). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "PARTICIPANT" means an eligible Employee participating in the Plan pursuant to the provisions of Article 3 hereof. "PARTICIPATING COMPANY" means the Corporation and any subsidiary or affiliate of the Corporation which adopts the Plan with the Corporation's consent as described in Section 8.01. As of January 31, 1999, the following were Participating Companies: Saks Incorporated (which is also the Plan sponsor) Herberger's Department Stores, LLC McRae's, Inc. McRae's of Alabama McRae's Stores Partnership Parisian, Inc. Proffitt's Credit Corporation Saks Distribution Centers, Inc. Saks Stores Partnership L.P. 2.19 "PLAN" means this Saks Incorporated Supplemental Savings Plan as established and set forth herein (together with any and all supplements hereto), and as amended from time to time.

2.14

2.16

2.17

2.18

2-2

2.20

"PLAN YEAR" means the twelve (12) consecutive month period being on each January 1 and ending on each following December 31 thereafter (the calendar year). "REGULAR PARTICIPANT" means a Participant who is not a Select Group Participant. "RETIREMENT ACCOUNT" means a Participant's Deferred Compensation Account, and to which interest is credited at the Retirement Rate. "RETIREMENT RATE" means the annual rate of interest that is credited to the Retirement Account pursuant to Section 4.03 hereof. Until changed by the Committee, the Retirement Rate shall be seven and one-half percent (7.5%) per annum. The Committee may change the Retirement Rate at any time. "SELECT GROUP PARTICIPANT" means a Participant who is eligible for special treatment and privileges under the Plan, as described elsewhere in the Plan. The following Participants are currently Select Group Participants: Brad Martin James Coggin Robert Mosco Douglas Coltharp Donald Wright William Capiello Brian Martin The Committee shall have the authority to name new Select Group Participants and to redesignate Select Group Participants as Regular Participants, at its discretion.

2.21

2.22

2.23

2.24

2.25

"TERMINATION ACCOUNT" means the portion of a Participant's Deferred Compensation Account that would have resulted had the Deferred Compensation Account always been credited with interest at the Termination Rate rather than the Retirement Rate. "TERMINATION RATE" means the annual rate of interest that is credited to the Termination Account pursuant to Section 4.03 hereof. Until changed by the Committee, the Termination Rate shall be five percent (5%) per annum. The Committee may change the Termination Rate at any time. "VALUATION DATE" means the last day of each calendar quarter, or such other dates as the Committee, in its discretion, may designate.

2.26

2.27

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ARTICLE 3 ELIGIBILITY AND PARTICIPATION 3.01 ELIGIBILITY. Eligibility to participate in the Plan shall be limited to Employees of the Participating Companies who are in a select group of management or highly compensated Employees and who are designated, from time to time, by the Committee as eligible to participate in the Plan. At Plan inception, the Employees eligible to participant shall be those eligible Employees as described above whose annual base rate of pay from one or more Participating Companies is greater than eighty thousand dollars ($80,000). The Committee shall have the authority to, at any time and from time to time, change the conditions for eligibility within the constraints imposed by the first sentence of this Section 3.01. Notwithstanding the above, the following classes of Employees shall be considered as excluded classes for purposes of the Plan, and Employees who are members of such classes shall not be eligible to participate in the plan: (a) Employees who are employed at one of the distribution centers for the Carson operating group; Employees who are employed at the home office of the Carson operating group in Wisconsin or Illinois or at one of the Wisconsin stores of the Carson operating group; Employees who are employed at the Elmhurst, Illinois credit operation; Employees who are employed at one of the Indiana or Minnesota stores of the Carson operating group.

(b)

(c)

(d)

3.02

PARTICIPATION. An Employee eligible to participate in the Plan as provided in Section 3.01 hereof may elect to become a Participant in the Plan by electing to defer Compensation with respect to any Compensation Deferral Period under Article 4 hereof.

3.03

TERMINATION OF PARTICIPATION FOR PURPOSES OF MAKING DEFERRALS. Participation in the Plan for purposes of being able to make Elective Deferral Amounts pursuant to Section 4.02 hereof under this Plan shall terminate when a Participant's employment with the Participating Companies as an Employee terminates or when such Participant is no longer designated by the Committee as an Employee eligible to participate in the Plan.

3.04

SPECIAL PARTICIPATION FOR PURPOSES OF DEFERRING STOCK AWARDS Notwithstanding any other provision of the Plan to the contrary, the Committee, in its discretion, may allow an Employee eligible to participate in the Plan who is also an Executive Officer of the Corporation to elect to defer special compensation that such Employee may become eligible to receive in the form of an award of Corporation Stock. Whenever used in this Plan, the term "Corporation Stock" shall mean the common stock of the Corporation.

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ARTICLE 4 DEFERRED COMPENSATION ACCOUNTS 4.01 DEFERRED COMPENSATION ACCOUNT. On behalf of Participating Companies the Committee shall establish and maintain for each Participant or former Participant under the Plan a book reserve account (the Deferred Compensation Account as defined in Section 2.11 hereof) for the purpose of determining deferred compensation payable to the Participant. Such Deferred Compensation Account shall be governed by the provisions of this Article 4. 4.02 ELECTIVE DEFERRAL AMOUNTS. Elective deferral of Compensation by Participants under the Plan is governed by the provisions of this Section. Amounts deferred by a Participant pursuant to this Section shall constitute "Elective Deferral Amounts" for purposes of this Plan and shall be fully vested at all times. (a) COMPENSATION ELECTIVE DEFERRALS. The following provisions apply to elective deferral of Compensation by Participants under the Plan. (i) COMPENSATION DEFERRAL ELECTIONS BY PARTICIPANTS. With respect to a Compensation Deferral Period, a Participant may make an election prior to the Compensation Deferral Date on which such Compensation Deferral Period begins to defer a specified percentage of the Basic Compensation and a separate specified percentage of the Bonus Compensation which would otherwise be payable by the Participating Company to the Participant during the Compensation Deferral Period beginning on such Compensation Deferral Date. Any such election shall be made on a Compensation Deferral Agreement which is duly executed by the Participant and which is delivered by such Participant to the Committee before such Compensation Deferral Date and may not be revoked, changed or modified for and during the applicable Compensation Deferral Period and the provisions of subsection 4.02(a)(iii) hereof shall apply to any such election. COMPENSATION DEFERRAL ELECTIONS BY CERTAIN NEW PARTICIPANTS. In the case of an Employee who first becomes eligible to participate in the Plan during a Compensation Deferral Period, such an Employee may make an election no later than thirty (30) days following the date such Employee first becomes eligible to participate in the Plan to defer a specified percentage of the Basic Compensation and a separate specified percentage of the Bonus Compensation which would otherwise be earned by such employee and be payable by the Participating Employer after the later of (i) the date the Employee first becomes eligible to participate in the Plan or (ii) the date such Compensation Deferral Agreement is received by the Committee and during the remainder of the Compensation Deferral Period. Any such election shall be made on a Compensation Deferral Agreement which is duly executed by the Employee and which is delivered by such Employee to the Committee no later than thirty (30) days following the date the Employee first becomes eligible to participate in the Plan, and may not be revoked, changed or modified for and during the applicable Compensation Deferral Period, and the provisions of subsection 4.02(a)(iii) shall apply to any such election. If such Employee does not make any such election, such Employee may make an election under Section 4.02(a) with

(ii)

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respect to the next Compensation Deferral Period (or later Compensation Deferral Periods) pursuant to the applicable provisions. (iii) CONTINUATION AND IRREVOCABILITY OF ELECTION. Any
election by a Participant pursuant to subsection 4.02(a)(i) or 4.02(a)(ii) (and any subsequent election) will continue (and may not be modified, altered, or changed in any way) until the earliest of (A) the Compensation Deferral Period commencing after the date the Participant delivers to the Committee a written notice to suspend future deferrals of Compensation under the Plan, (B) the Compensation Deferral Period commencing after the date on which the Participant delivers a new Compensation Deferral Agreement modifying his previous election to the Committee, (C) the Participant is no longer designated as eligible to participate in the Plan, (D) the Participant terminates employment with the Participating Companies, or (E) the Plan is amended or terminated such that the Plan no longer permits deferrals of Compensation. (iv) LIMITATIONS ON PERCENTAGE AMOUNTS. Except as hereinafter provided, a Participant may elect to make a deferral of up to twenty percent (20%) of the Participant's annual Basic Compensation and up to one hundred percent (100%) of the Participant's Bonus Compensation otherwise payable to him. The Chief Executive Officer of the Corporation may elect to make a deferral of up to one hundred percent (100%) of both his annual Basic Compensation and his Bonus Compensation otherwise payable to him. DISTRIBUTION ELECTIONS. At the time of a Participant's initial deferral election, the Participant must specify the date on which his Deferred Compensation Account shall be paid or commence (i.e. the Distribution Date). The Distribution Date specified at the time of the Participant's initial election is irrevocable and shall apply to all amounts payable to the Participant under the Plan.

(v)

(b)

WITHHOLDING AND CREDITING OF ELECTIVE DEFERRAL AMOUNTS. The Participating Company shall withhold the specified percentage amounts deferred by the Participant hereunder from the Compensation which is otherwise payable to the Participant. The Committee shall credit amounts equal to such withheld amounts to the Participant's Deferred Compensation Account.

4.03

INTEREST CREDITED TO DEFERRED COMPENSATION ACCOUNTS. Interest shall be credited to the Deferred Compensation Accounts of Participants as described in this Section 4.03. (a) RETIREMENT ACCOUNT. As of each Valuation Date, each Participant's Retirement Account will be credited with interest at the rate for the period ending on the Valuation Date which is equivalent to the annual Retirement Rate. TERMINATION ACCOUNT. As of each Valuation Date, each Participant's Termination Account will be credited with interest at the rate for the period ending on the Valuation Date which is equivalent to the annual Termination Rate. SELECT GROUP. Notwithstanding the above, and until such time as changed by the Committee, the Deferred Compensation Accounts of Select Group Participants will be credited with interest at rates which, on an annualized basis, are one (1) percentage point higher than the rates applicable to Regular Participants. The Committee shall have the

(b)

(c)

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discretion of changing at any time and from time to time the rates applicable to the Accounts of Select Group Participants. 4.04 VESTING OF ACCOUNTS. Participants' Deferred Compensation Accounts will be vested as described in this Section 4.04. A Participant's Termination Account will always be fully vested. The excess of a Participant's Retirement Account over his Termination Account will become fully vested on the earliest of the following dates: (a) the date the Participant attains age sixty-two (62) years, provided the Participant is actively employed by a Participating Company on such date; the date of the Participant's death, provided the Participant is actively employed by a Participating Company on such date; the date of the Participant's Disability, provided the Participant is actively employed by a Participating Company on such date.

(b)

(c)

Notwithstanding the above, the Committee may, at its discretion, designate a Participant as fully vested in his entire Deferred Compensation Account for any reason it deems appropriate. The portion of a Participant's Deferred Compensation Account which is not vested as described above will be forfeited as of the date the Participant terminates employment. 4.05 STOCK AWARD ACCOUNT. Notwithstanding any other provision of the Plan to the contrary, the Committee shall establish and maintain a special stock award account for each Participant or former Participant who has elected to defer receipt of future awards of Corporation Stock. Such stock award account shall be subject to the following provisions. (a) An Employee who is eligible to defer receipt of a future award of Corporation Stock may make an election prior to the date that such Employee has met the requirements established by the Corporation for receipt of such award. Any such election shall be made on a stock award deferral agreement which is duly executed by the Employee and which is delivered by such Employee to the Committee prior to the date such Employee has met the requirements for receipt of such award. The deferral period shall be the period ending on the date that the Participant is no longer an Executive Officer of the Corporation. This stock award deferral election may not be revoked, changed or modified during the deferral period. Each Participant's stock award account shall be comprised of a Corporate Stock Subaccount and a Dividend Subaccount. The Corporate Stock Subaccount shall be credited with an amount equal to the current market value of the Corporate Stock that was to have been awarded to the Participant and that was instead deferred pursuant to the terms of such Participant's stock award deferral agreement. The Corporate Stock Subaccount shall be further adjusted from time to time to reflect the change in the market value of such stock, including the recognition of any stock splits. The Dividend Subaccount shall be credited with an amount equal to any dividends that would have been paid on an amount of Corporate Stock equal to the amount deferred by the Participant, as adjusted for stock splits, if any. The Dividend Subaccount shall be credited with interest as directed by the Committee. Each Participant's stock award account shall be fully vested at all times.

(b)

(c)

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ARTICLE 5 DISTRIBUTION OF DEFERRED COMPENSATION BENEFITS 5.01 IN GENERAL. The benefits to be paid as deferred compensation are governed by the provisions of this Article 5. A Participant whose employment with the Participating Companies terminates for any reason shall be entitled to distribution of benefits pursuant to this Article, subject to the provisions of Article 7. 5.02 TIME OF DISTRIBUTION. The Corporation on behalf of the Participating Company or Companies shall distribute benefits on the Distribution Date elected by the Participant with his initial Compensation Deferral Agreement. 5.03 HARDSHIP DISTRIBUTIONS. Notwithstanding the foregoing, the Committee may, in its sole discretion, commence distribution of benefits from the vested portion of a Participant's Deferred Compensation Account at any date earlier than that provided in Section 5.02 based on a determination of an unforeseeable financial emergency. A Participant may withdraw in cash the vested portion of the balance of his deferral account needed to satisfy the unforeseeable financial emergency, to the extent that the unforeseeable financial emergency may not be relieved: (a) through reimbursement or compensation by insurance or otherwise; or by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship.

(b)

An "unforeseeable financial emergency" is a severe financial hardship to the Participant resulting from: (1) a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant; loss of the Participant's property due to casualty; or such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant as determined by the Committee.

(2) (3)

A withdrawal on account of an unforeseeable financial emergency shall be paid as soon as possible following the date on which the Committee approves the withdrawal. 5.04 AMOUNT AND METHOD OF DISTRIBUTION OF BENEFITS. A Participant whose employment with the Participating Companies terminates shall be entitled to the vested balance of his Deferred Compensation Account as of the Distribution Date. Distribution of such deferred compensation benefits to a former Participant under this Plan shall be made in a single lump sum payment.

5-1

Notwithstanding the foregoing, any hardship distributions which are made as provided in Section 5.03 above from a Participant's Deferred Compensation Account shall be made in such amounts and for such periods of time as may be considered necessary by the Committee to meet the conditions of such financial hardship; provided, however, that in no event will amounts in excess of the remaining value of the Participant's Deferred Compensation Account become payable to the Participant. 5.05 COMMITTEE DECISION. Any decision to be made by the Committee under this Article 5 with respect to the distribution of benefits with respect to a Participant or former Participant under this Plan shall be made by the Committee, but such Participant shall exclude himself therefrom for purposes of those decisions if such Participant is a member of the Committee. 5.06 PAYMENTS AFTER PARTICIPANT'S DEATH. If the Participant dies before his benefit under the Plan has been distributed to him, then the deferred compensation benefits otherwise payable with respect to such Participant under the Plan shall be paid in a lump sum to the beneficiary or beneficiaries designated by the Participant. 5.07 DESIGNATION OF BENEFICIARIES. The Participant may designate in writing (on a form provided by the Committee and delivered to the Committee before his death) primary and contingent beneficiaries to receive any deferred compensation benefit payments which may be payable hereunder following the Participant's death and the proportions in which such beneficiaries are to receive such payments. The Participant may change such designation from time to time and the last written designation delivered to the Committee prior to the Participant's death will control. If the Participant fails to specifically designate such a beneficiary, or if no designated beneficiary survives the Participant, or if all designated beneficiaries who survive the Participant die before all payments are made, then the remaining payments shall be made to the Participant's surviving spouse if such spouse is then living; if such spouse is not living, then to the executors or administrators of the estate of the Participant. The Committee may determine the identity of such persons and shall incur no responsibility by reason of the payment of such interest in accordance with any such determination made in good faith. 5.08 DISTRIBUTIONS FROM STOCK AWARD ACCOUNT. Notwithstanding any provision of Article 5 to the contrary, the distribution of a stock award account described in Section 4.05 shall be made as described in this Section 5.08. The distribution of a Participant's stock award account shall be made as of the date the Participant is no longer an Executive Officer of the Corporation in a lump sum payment to the Participant or, in the event of the Participant's death prior to such distribution, to his estate. The Corporation shall distribute the amount credited to the Participant's Corporate Stock Subaccount in the form of shares of Corporation Stock. An amount equal to the Participant's Dividend Subaccount shall be distributed in cash. If, at the time of distribution, the Participant does not tender to the Corporation an amount equal to the amount required to be withheld for income taxes due as a result of the distribution, then the Participant shall be deemed to have authorized the Corporation to withhold enough of the distribution to pay such tax withholding amount.

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ARTICLE 6 FINANCING AND UNFUNDED STATUS 6.01 COSTS BORNE BY THE PARTICIPATING COMPANIES. The costs of the Plan shall be borne by the Participating Companies or, at the election of the Committee, by the trust if one is created pursuant to section 6.02 hereof. 6.02 SOURCE OF BENEFIT PAYMENTS AND MEDIUM OF FINANCING THE PLAN. Benefits payable under the Plan to any Participant shall be paid directly by the Participating Company which employs the Participant. The Participating Company shall not be required to fund or otherwise segregate assets to be used for payment of benefits under the Plan. While the Participating Company may, in the discretion of the Committee, make investments in the funds designated by the Committee as investment funds in amounts equal or unequal to Participants' Deferred Compensation Accounts hereunder, the Participating Company shall not be under any obligation to make such investments and any such investment shall remain an asset of the Participating Company subject to the claims of its general creditors. Notwithstanding the foregoing, the Participating Company, in the discretion of the Committee, may maintain one or more grantor trusts ("trust") to hold assets to be used for payment of benefits under the Plan. The assets of the trust with respect to benefits payable to the employees of each Participating Company shall remain the assets of such Participating Company subject to the claims of its general creditors. Any payments by a trust of benefits provided to a Participant under the Plan shall be considered payment by the Participating Company and shall discharge the Participating Company of any further liability under the Plan for such payments. 6.03 UNFUNDED STATUS. This Plan is intended to be unfunded for purposes of both ERISA and the Code.

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ARTICLE 7 ADMINISTRATION 7.01 GENERAL ADMINISTRATION. The Board shall appoint a Committee consisting of not less than three (3) persons to administer the Plan. Any member of the Committee may at any time be removed, with or without cause, and his successor appointed by the Chief Executive Officer of the Corporation, and any vacancy caused by death, resignation or other reason shall be filled by the Chief Executive Officer of the Corporation. The Committee shall be the plan administrator of the Plan and in general shall be responsible for the management and administration of the Plan. The Committee shall have full power to administer the Plan in all of its details (including establishing claims procedures and other rules), subject to applicable requirements of law. No member of the Committee who is an employee of the Participating Companies shall receive compensation for his services to the Plan. The Committee shall have such duties and powers as may be necessary to discharge its duties under this Plan. The fiscal records of the Plan shall be maintained on the basis of the Plan Year. 7.02 COMMITTEE PROCEDURES. The Committee may act at a meeting or in writing without a meeting. The Committee may adopt such by-laws and regulations as it deems desirable for the conduct of its affairs. All decisions shall be made by majority vote. No member of the Committee who is at any time a Participant in this Plan shall vote in a decision of the Committee (whether in a meeting or by written action) made specifically and uniquely with respect to such member of the Committee or amount, payment, timing, form or other aspect of the benefits of such Committee member under this Plan. 7.03 FACILITY OF PAYMENT. Whenever, in the Committee's opinion, a person entitled to receive any payment of a benefit or installment thereof hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may direct payments to such person or to his legal representative or to a relative or friend of such person for his benefit, or the Committee may direct the payment for the benefit of such person in such manner as the Committee considers advisable. Any payment of a benefit or installment thereof in accordance with the provisions of this Section shall be a complete discharge to the Committee and the Participating Companies of any liability for the making of such payment under the provisions of the Plan. 7.04 INDEMNIFICATION OF COMMITTEE MEMBERS. The Participating Companies shall indemnify and hold harmless each member of the Committee against any and all liability, claims, damages and expense (including all expenses reasonably incurred in his defense in the event that the Participating Companies fail to provide such defense upon his written request) which the Committee member may incur while acting in good faith in the administration of the Plan.

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ARTICLE 8 EMPLOYER PARTICIPATION 8.01 ADOPTION OF PLAN. Any subsidiary or affiliate of the Corporation may, with the approval of the Corporation and under such terms and conditions as the Committee may prescribe, adopt the Plan by filing with the Corporation a resolution of its Board of Directors to that effect. The Corporation may amend the Plan as necessary or desirable to reflect the adoption of the Plan by an employer, provided however, that an adopting employer shall not have the authority to amend or terminate the Plan under Article 9. 8.02 EMPLOYER ACCOUNTING. If a trust is established pursuant to Section 6.02, the Committee shall maintain a bookkeeping account in the name of each Participating Company which, pursuant to rules established by the Committee, will

reflect: (a) deposits made by that Participating Company to the trust; (b) income, losses, and appreciation or depreciation in the value of trust assets resulting from investment of the trust to the extent such items are attributable to such Participating Company's deposits; (c) payments made from the trust to Participants employed or formerly employed by that Participating Company (or to their beneficiaries) in the form of benefits payable to them under the plan, or to its creditors; and (d) any other amounts charged to that Participating Company's account, including its share of compensation and expenses.
8.03 WITHDRAWAL FROM THE PLAN BY EMPLOYER. Any such employer shall have the right, at any time, upon the approval of and under such conditions as may be provided by the Committee, to withdraw from the Plan by delivering to the Committee written notice of its election so to withdraw. Upon receipt of such notice by the Committee, the portion of the deferral account of Participants and beneficiaries attributable to amounts deferred while the Participants were employees of such withdrawing employer, plus any net earnings, gains and losses on such amounts, shall be distributed from the trust at the direction of the Committee in cash at such time or times as the Committee, in its sole discretion, may deem to be in the best interest of such employees and their beneficiaries. To the extent the amounts held in the trust for the benefit of such Participants and beneficiaries are not sufficient to satisfy the employer's obligation to such Participants and their beneficiaries accrued on account of their employment with the employer, the remaining amount necessary to satisfy such obligation shall be an obligation of the employer, and the Corporation and the other Participating Companies shall have no further obligation to such Participants and beneficiaries with respect to such amounts.

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ARTICLE 9 AMENDMENT AND TERMINATION OF PLAN 9.01 AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan (without the consent of any Participant, former Participant or beneficiary) at any time, provided that such amendment does not decrease or divest any then Participant or former Participant of the amounts in his Deferred Compensation Account as of the date of amendment.

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ARTICLE 10 GENERAL PROVISIONS 10.01 LIMITATION OF RIGHTS. Neither the establishment of this Plan nor any amendment thereof, nor the payment of any benefits, will be construed as giving to any Employee, Participant, beneficiary, or other person any legal or equitable right against the Participating Companies, except as provided herein. Neither the establishment of this Plan nor any amendment thereof, nor the payment of benefits, nor any action taken with respect to this Plan shall confer upon any person the right to be continued in the employment of the Participating Companies or Subsidiaries. 10.02 NO ASSIGNMENT OR ALIENATION OF BENEFITS. The rights of a Participant, former Participant, beneficiary or any other person to payment of benefits under this Plan shall not be assigned, transferred, anticipated, conveyed, pledged or encumbered except by will or the laws of descent or distribution; nor shall any such right be in any manner subject to levy, attachment, execution, garnishment or any other seizure under legal, equitable or other process for payment of any debts, judgments, alimony, or separate maintenance, or reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise. Provided, however, that a Participant shall have the right to designate in writing and in accordance with the provisions of Section 5.07 hereof primary and contingent beneficiaries to receive benefit payments subsequent to the death of the Participant. 10.03 SUCCESSORS. The provisions of this Plan shall be binding upon and inure to the benefit of the Corporation, its successors, and assigns, and each Participant and his heirs, executors, administrators and legal representatives. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the assets of the Corporation, and successors of any such corporation or other business entity.

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10.04

GOVERNING LAW. Except to the extent Federal law is controlling, the provisions of this Plan shall be interpreted and construed according to the laws of the State of Alabama to the extent not preempted by applicable law.

IN WITNESS WHEREOF, the Corporation has caused this Plan to be duly executed for and on behalf of the Corporation by its duly authorized officers on this the ----- day of --------------, 1999. SAKS INCORPORATED By: Title: ATTEST:

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Exhibit 10.58 TRUST AGREEMENT FOR THE SAKS INCORPORATED SUPPLEMENTAL SAVINGS PLAN

TABLE OF CONTENTS
Section 1: Section 2. Section 3. Section Section Section Section Section Section Section Section Section Section Section 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Establishment of Trust........................................... Payments to Plan Participants and Their Beneficiaries............ Trustee Responsibility Regarding Payments to Trust Beneficiary When Company is Insolvent........................................ Payments to Company.............................................. Investment Authority............................................. Disposition of Income............................................ Accounting by Trustee............................................ Responsibility of Trustee........................................ Compensation and Expenses........................................ Resignation and Removal of Trustee............................... Appointment of Successor......................................... Amendment or Termination......................................... Miscellaneous.................................................... Effective Date................................................... 1 2 2 3 4 5 5 6 6 6 7 7 8 8

TRUST AGREEMENT FOR THE SAKS INCORPORATED SUPPLEMENTAL SAVINGS PLAN This agreement is made by and between Saks Incorporated, a corporation organized and existing under the laws of the State of Alabama (the "Company"), and Trustmark National Bank (the "Trustee"); (a) WHEREAS, Company has adopted the Saks Incorporated Supplemental Savings Plan; (b) WHEREAS, Company has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan; (c) WHEREAS, Company has established a trust (hereinafter called "Trust") for the purpose of contributing to the Trust assets that shall be held therein, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; (d) WHEREAS, the Company and the Trustee desire to amend and restate the trust agreement establishing the Trust; (e) WHEREAS, it is the intention of the parties that this Trust shall continue to constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; (f) WHEREAS, it is the intention of Company to continue to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; NOW, THEREFORE, the parties do hereby amend and restate the terms of the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1: ESTABLISHMENT OF TRUST. (a) Company will make an initial deposit with Trustee, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable, except as provided in Sections 3 and 4 hereof. (c) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their 1

beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES. (a) Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Company shall make the balance of each such payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient. SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT. (a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 2

(b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of Company shall have the duty to inform Trustee in writing of Company's Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee shall determine whether Company is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (2) Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company's solvency. (3) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise. (4) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4. PAYMENTS TO COMPANY. (a) Except as provided in Section 3 hereof, or in the event of excess trust funding (defined herein), after the Trust has become irrevocable, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. (b) "Excess trust funding" shall be defined as trust assets in excess of the Plan's accrued liability. If and when trust assets exceed the Plan's accrued liability, unless the Company is Insolvent, the Trustee shall, upon the written request of the Company, pay to the Company 3

the excess trust funding. For purposes of this Section 4, "accrued liability" shall mean the total of Participants' "Deferred Compensation Accounts" under the Plan. SECTION 5. INVESTMENT AUTHORITY. (a) Trustee may invest and reinvest the funds of the trust fund in any property, real, personal or mixed, wherever situate, and whether or not productive of income or consisting of wasting assets, including, without limitation, common and preferred stock, bonds, notes, debentures, leaseholds, mortgages (including without limiting the generality of the foregoing, any collective or part interest in any bond and mortgage or note and mortgage), certificates of deposit, and oil, mineral or gas properties, royalties, interests or rights (including equipment pertaining thereto), without being limited to the classes of property in which trustees are authorized by law or any rule of court to invest trust funds and without regard to the proportion any such property may bear to the entire amount of the trust fund. Trustee may invest and reinvest all or any portion of the trust fund collectively with other funds through the medium of one (1) or more common, collective or commingled trust funds which have been or may hereafter be established and maintained by Trustee, the instrument or instruments establishing such trust fund or funds, as amended from time to time, being made part of this Trust by reference as if fully set forth herein so long as any portion of the trust fund shall be invested through the medium thereof. Trustee is expressly authorized to invest all or part of the trust fund in savings accounts, time deposits, certificates of deposit, money market accounts, repurchase agreements and/or any other interest-bearing accounts (regardless of the term of such deposits or investments), if any, issued by Trustee or any of its affiliates, which bear a reasonable interest rate . Trustee is further expressly authorized to utilize the discount brokerage operation, if any, offered by Trustee. (b) Trustee may sell or exchange any property or asset of the trust fund at public or private sale, with or without advertisement, upon terms acceptable to Trustee and in such manner as Trustee may deem wise and proper. The proceeds of any such sale or exchange may be reinvested as is provided hereunder. The purchaser of any such property from Trustee shall not be required to look to the application of the proceeds of any such sale or exchange by Trustee. (c) Trustee shall have full power to mortgage, pledge, lease or otherwise dispose of the property of the trust fund without securing any order of court therefor, without advertisement, and to execute any instrument containing any provisions which Trustee may deem proper in order to carry out such actions. Any such lease so made by Trustee shall be binding, notwithstanding the fact that the term of the lease may extend beyond the termination of the Plan. (d) Trustee shall have the power to borrow money upon terms agreeable to Trustee and pay interest thereon at rates agreeable to Trustee, and to repay any debts so created. (e) Trustee may participate in the reorganization, recapitalization, merger or consolidation of any corporation wherein Trustee may own stock or securities and may deposit such stock or 4

other securities in any voting trust or protective committee or like committee or trustee, or with the depositaries designated thereby, and may exercise any subscription rights or conversion privileges, and generally may exercise any of the powers of any owner with respect to any stock or other securities or property comprising the trust fund. (f) Trustee may, through any duly authorized officer or proxy, vote any share of stock which Trustee may own from time to time. (g) Trustee shall retain in cash and keep unproductive of income such funds as from time to time it may deem advisable. Trustee shall not be required to pay interest on any such cash in its hands pending investment, nor shall Trustee be responsible for the adequacy of the trust fund to discharge any and all payments under the Plan. All persons dealing with Trustee are released from inquiry into the decision or authority of Trustee to act. (h) Trustee may hold stocks, bonds, or other securities in its own name, or in the name of a nominee selected by it for the purpose, but said Trustee shall nevertheless be obligated to account for all securities received by it as part of the corpus of the trust estate herein created, notwithstanding the name in which the same may be held. (i) If Company so desires, Trustee may use the trust fund to purchase insurance policies or annuity contracts issued by a life insurance company. (j) Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by the Company. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan participants, except that voting rights with respect to Trust assets will be exercised by the Company. (k) Company shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. SECTION 6. DISPOSITION OF INCOME. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7. ACCOUNTING BY TRUSTEE. Trustees shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within sixty (60) days following the close of each calendar year and within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds or such purchases or sales (accrued interest paid or receivable being separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. 5

SECTION 8. RESPONSIBILITY OF TRUSTEE. (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Company. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If Trustee undertakes or defends any litigation arising in connection with this Trust, Company agrees to indemnify Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If Company does not pay such costs, expenses and liabilities in a reasonably timely manner, Trustee may obtain payment from the Trust. (c) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the Policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) However, notwithstanding the provisions of Section 8(e) above, Trustee may loan to Company the proceeds of any borrowing against an insurance policy held as an asset of the Trust. (g) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9. COMPENSATION AND EXPENSES. Company may pay some or all of the administrative, trust and other fees and expenses of operating the Plan and the Trust. To the extent such fees and expenses are not paid by the Company, they shall be paid from the Trust. SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE. (a) Trustee may resign at any time by written notice to Company, which shall be effective sixty (60) days after receipt of such notice unless Company and Trustee agree otherwise. 6

(b) Trustee may be removed by Company on sixty (60) days notice or upon shorter notice accepted by Trustee. (c) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. (d) If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraphs (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11. APPOINTMENT OF SUCCESSOR. (a) If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. SECTION 12. AMENDMENT OR TERMINATION. (a) This Trust Agreement may be amended by a written instrument executed by Trustee and Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof. (b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. (c) Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Company. 7

SECTION 13. MISCELLANEOUS. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of Alabama to the extent not preempted by federal law. SECTION 14. EFFECTIVE DATE. The effective date of this amendment and restatement of the Trust Agreement shall be the date of execution. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed by their duly authorized representatives on this _______ day of _____________, 1999. COMPANY: SAKS INCORPORATED
Attest:____________________________ By:_________________________________ Title:______________________________ TRUSTEE: TRUSTMARK NATIONAL BANK Attest:_____________________________ By:_________________________________ Title:______________________________

8

CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Saks Incorporated (formerly Proffitt's, Inc.) listed below of our report dated March 16, 1999, on our audits of the consolidated financial statements of Saks Incorporated and Subsidiaries as of January 30, 1999 and January 31, 1998 and for each of the three years in the period ended January 30, 1999 which report is incorporated by reference in this Annual Report on Form 10-K for the years ended January 30, 1999. Registration Statements on Form S-3 Registration Numbers 333-66755 333-71933 Registration Statements on Form S-4 Registration Numbers 333-09043 333-41563 333-60123 Registration Statements on Form S-8 Registration Numbers 33-46306 33-88390 333-00695 333-25213 33347535 333-66759 Birmingham, Alabama April ____, 1999

AMENDED AND RESTATED BYLAWS OF SAKS INCORPORATED (As amended effective April 7, 1999) ARTICLE I IDENTIFICATION; OFFICES AND REGISTERED AGENT Section 1. Identification. The name of the Corporation is SAKS Incorporated, a Tennessee corporation (the "Corporation"). Section 2. Principal Office. The principal office of this Corporation is located at 750 Lakeshore Parkway, Birmingham, Alabama 35211, as provided in the Charter. The Board of Directors may, by resolution, amend the Charter to change the address of the principal office. Section 3. Registered Agent. The Corporation has designated and shall continue to have a registered agent in the State of Tennessee. If the registered agent resigns or is for any reason unable to perform his duties, the Corporation shall promptly designate another registered agent. The Corporation may, by resolution of the Board of Directors, appoint such other agents for the service of process in such other jurisdictions as the Board of Directors may determine. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Meetings. All meetings of the shareholders for the election of directors shall be held in the City of Alcoa, State of Tennessee, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Tennessee as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of shareholders for any other purpose may be held at such time and place, within or without the State of Tennessee, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof Section 2. Annual Meetings. Annual meetings of the shareholders, commencing with fiscal year 1988, shall be held on the 2nd Monday of June if said date is not a legal holiday, and if a legal holiday, then on the next day following which is not a legal holiday, or at such other date and time as shall be designated from time to time by the Board of Directors, for the purpose of electing directors of the Corporation and for the transacting of such other business as may properly come before the meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each shareholder entitled to vote at such meeting not less than 10 days nor more than 60 days before the date of the meeting. Section 3. Shareholder List. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of the shareholders, a

complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for the purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held (which place shall be specified in the notice of the meeting), or, if not so specified at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section 4. Special Meetings. Special meetings of the shareholders may be called by the Board of Directors or by the Chairman of the Board, or by the President, and shall be called by the Chairman, the President, the Secretary, or an assistant Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of the holders of record of at least twenty-five percent (25%) of the outstanding shares of the Corporation entitled to vote at the meeting. Each special meeting shall be held at such time as the Board of Directors shall determine, or, in the absence of such determination by the Board of Directors, at such time as the person or persons calling or requesting the call of the meeting shall specify in the notice or in the written request. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each shareholder entitled to vote at such meeting not less than 10 days or more than 60 days before the date of the meeting. The business transacted at any special meeting shall be limited to the purposes stated in the notice. Section 5. Waiver of Notice. The shareholders may waive the requirement of written notice of annual and special meetings by written waiver duly executed and filed with the minutes of the meeting. Section 6. Quorum. The holders of record of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the Charter. A quorum once present, is not broken by the subsequent withdrawal of any shareholder. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Charter a different vote is required, in which case such express provision shall govern and control the decision of such question. 2

Section 7. Meeting Chairman. The Chairman of the Board, or if absent or unable to serve, the President, or if absent or unable to serve, the Treasurer or Secretary, shall call meetings of the shareholders to order and act as Chairman of such meetings. The shareholders may elect any one of their number to act as Chairman of any meeting in the absence of the aforenamed individuals. Section 8. Proxies. Every shareholder entitled to vote at a shareholders' meeting may authorize another person or persons to act for him by proxy. Each proxy must be in writing and signed by the shareholder or by his attorney in fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Each proxy shall be revocable at the pleasure of the shareholder executing it, unless it conforms to the requirements of an irrevocable proxy, as provided by statute. All proxies must be delivered to the Secretary of the Corporation prior to the opening of the meeting, except for proxies granted after the meeting has opened, which proxies shall be delivered to the Secretary as soon as practicable after execution. Section 9. Determination of Shareholder. In order to determine shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may provide that the Stock Transfer Books be closed for a stated period, but not to exceed 40 days. If the Stock Transfer Books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the Stock Transfer Books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the Stock Transfer Books are not closed and no record date is fixed for determination of shareholders entitled to notice of or entitled to vote at a meeting of shareholders or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed, or the date on which the resolution of the Board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. Section 10. Shareholder Action By Written Consent. Any action required or permitted to be taken by the shareholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. ARTICLE III NOTICE REQUIREMENTS AND CONDUCT OF SHAREHOLDERS MEETINGS Section 1. Notice of Nominations. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors authorized to make such nominations or by any shareholder entitled to vote in the election of directors generally. However, any such shareholder nomination may be made only if written notice of such nomination has been given, either by personal delivery or the United States mail, postage prepaid, to the 3

Secretary of the Corporation not later than (a) with respect to an election to be held at an annual meeting of shareholders, one hundred twenty (120) days in advance of the anniversary date of the proxy statement for the previous year's annual meeting, and (b) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. In the case of any nomination by the Board of Directors or a committee appointed by the Board of Directors authorized to make such nominations, compliance with the proxy rules of the Securities and Exchange Commission shall constitute compliance with the notice provisions of the preceding sentence. In the case of any nomination by a shareholder, each such notice shall set forth: (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director, if elected); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder, and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder; and (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder. The President, Chief Executive Officer, or chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 2. Notice of New Business. At an annual meeting of the shareholders only such new business shall be conducted, and only such proposals shall be acted upon, as have been properly brought before the meeting. To be properly brought before the annual meeting, such new business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For a proposal to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and, if the Corporation is a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"), the proposal and the shareholder must comply with Rule 14a-8 under the Exchange Act. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation within the time limits specified by Rule 14a-8, if applicable. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposed to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual 4

meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (d) any financial interest of the shareholder in such proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that new business or any shareholder proposal was not properly brought before the meeting in accordance with the provisions of this Section 2, and if he or she should so determine, he or she shall so declare to the meeting and any such business or proposal not properly brought before the meeting shall not be acted upon at the meeting. Section 3. Conduct of Shareholders Meetings. The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to shareholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV BOARD OF DIRECTORS Section 1. Number of Directors. The affairs of the Corporation shall be managed by a Board of up to 18 directors. Effective as of the annual meeting of shareholders in 1997, the Board shall be divided into three classes, designated as Class I, Class II, and Class III, as nearly equal in number as possible. The initial term of office of Class I shall expire at the annual meeting of shareholders in 1998, that of Class II shall expire at the annual meeting of shareholders in 1999, and that of Class III shall expire at the annual meeting in 2000, and in all cases as to each director until his or her successor shall be elected and shall qualify, or until his or her earlier resignation, removal from office, death, or incapacity. 5

Subject to the foregoing, at each annual meeting of shareholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting and until their successors shall be elected and qualified. Vacancies on the Board for any reason, and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a vote of the majority of the directors then in office, although less than a quorum, or by a sole remaining director. If the number of directors is changed, the Board shall determine the class or classes to which the increased or decreased number of directors shall be apportioned; provided that the directors in each class shall be as nearly equal in number as possible. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Notwithstanding any other provisions of the Charter or these Bylaws (and notwithstanding that a lesser percentage may be specified by law, the Charter, or these Bylaws), the affirmative vote of the holders of 80% or more of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with this Article IV, Section 1 of these Bylaws. Section 2. Removal of Directors. Any or all directors may be removed by a vote of a majority of the shareholders entitled to vote, only for cause as defined by the Tennessee Business Corporation Act. Section 3. Filling of Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors, for any reason, may be filled by a vote of the majority of the directors then in office, although less than a quorum exists, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the vacancy or newly created directorship may be filled by vote of the shareholders at any meeting of the shareholders, notice of which shall have referred to the proposed election. Any director elected by the shareholders to fill any vacancy shall be elected to hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified, unless sooner displaced. Section 4. Annual Meeting. The annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of the shareholders, provided a quorum be present and no notice of such meeting shall be necessary. In the event such meeting of the Board of Directors is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. 6

Section 5. Notice of Meetings. The annual and all regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Special meetings shall be held upon written notice not less than one day before the meeting. Section 6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or President, or if either is absent or unable to do so, by any Vice President, or by any two directors. Section 7. Quorum. At all meetings of the Board, a majority of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Charter or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Dissent to Action. A director who is present at a meeting of the Board, at which any action is taken, shall be presumed to have concurred in the action, unless his dissent thereto shall be entered in the Minutes of the meeting, or unless he shall submit his written dissent to the person acting as the Secretary of the meeting before the adjournment thereof, or shall deliver or send such dissent to the Secretary of the Corporation promptly after the adjournment of the meeting. Such rights to dissent shall not apply to a director who voted in favor of any such action. A director who is absent from a meeting at which such action is taken shall be presumed to have concurred in the action unless he shall deliver or send by registered or certified mail his dissent thereto to the Secretary of the Corporation or shall cause such dissent to be filed with the Minutes of the proceedings of the Board within 10 days after learning of such action. Section 9. Action without Meeting. Unless otherwise restricted by the Charter or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing setting forth the actions so taken, signed by all of the persons entitled to vote thereon, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 10. Board Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, but no such committee shall have the power or authority in reference to amending the Charter, adopting an agreement of merger or 7

consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the shareholders a dissolution of the Corporation or a revocation of the dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Charter expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 11. Compensation of Directors. Unless otherwise restricted by the Charter, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 12. Indemnification. The Corporation shall indemnify, to the full extent authorized or permitted by the Tennessee Business Corporation Act, any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (whether civil, administrative or investigative) by reason of the fact that he, his testator or intestate is or was a director of the Corporation or serves or served as a director of any other enterprise at the request of the Corporation. Section 13. Mandatory Resignation. Directors who are also officers of the Corporation shall submit a letter of resignation as such to the Board of Directors upon any termination of employment as an officer of the Corporation, and directors who are not officers of the Corporation shall likewise submit a letter of resignation upon any change in that director's principal business or other activity in which the director was engaged at the time of his or her election. ARTICLE V OFFICERS Section 1. Appointment. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board, a Chief Executive Officer, a President, an Executive Vice President, a Chief Operating Officer, a Chief Financial Officer, a Treasurer, and a Secretary. The Board of Directors may also choose additional vice presidents and one or more assistant secretaries and assistant treasurers. Any two of the aforementioned offices may be filled by the same person, except that no one person may be Secretary and also President. No person shall purport to execute or attest any document or instrument on behalf of the Corporation in more than one capacity. 8

Section 2. Term. The officers of the Corporation shall hold office for one year or until their successors are chosen and qualified subject, however, to the removal of any officer pursuant to these Bylaws. Section 3. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 4. Removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 5. Duties. All officers shall have such authority to perform such duties in the management of the Corporation as are normally incident to their offices and as the directors from time to time provide. Section 6. The Chairman of the Board and Chief Executive Officer. The Chairman of the Board and Chief Executive Officer of the Corporation shall preside at all meetings of the shareholders and the Board of Directors, shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 7. Other Duties of the Chairman of the Board. He shall execute bonds, mortgages and other contracts, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 8. The President. The President shall perform such duties as shall be prescribed to him from time to time by the Board of Directors. Section 9. Duties of the President and the Vice President(s). In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, the President shall perform the duties of the Chief Executive Officer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The Vice President(s) shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 10. The Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. 9

Section 11. Assistant Secretary. The Assistant Secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 12. The Chief Financial Officer and Treasurer. The Chief Financial Officer and the Treasurer, in his capacity as such officers, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. Section 13. Duties of the Chief Financial Officer and Treasurer. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as the Treasurer and of the financial condition of the Corporation. Section 14. Bond. If required by the Board of Directors, the Chief Financial Officer and the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 15. Assistant Treasurer(s). The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 16. Indemnification. The Corporation shall indemnify, to the full extent authorized or permitted by the Tennessee Business Corporation Act, any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he, his testator or intestate is or was an officer of the Corporation or serves or served as a director or officer of any other enterprise at the request of the Corporation. 10

ARTICLE VI CAPITAL STOCK Section 1. Certificate. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the Chief Executive Officer or the President and the Chief Operating Officer, a Vice President, the Treasurer (or an Assistant Treasurer), or the Secretary (or an Assistant Secretary) of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Facsimile Signatures. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issuance. Section 3. Notice of Restrictions. Each certificate of stock which is restricted or limited as to its transferability or voting rights, or which is callable under the Charter, which is preferred or limited as to dividends or rights upon voluntary or involuntary dissolution, shall have a notice of such restriction, limitation or preference conspicuously stated on the face or back of the certificate. Upon the removal of expiration of any such restriction or limitation, the holder of such certificate shall be entitled to receive a new certificate upon the surrender of the old restricted or limited certificates, and the payment of the reasonable expenses of the Corporation incurred in connection therewith. Section 4. Reissuance of Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 5. Transfer of Shares. The Corporation shall register a transfer of a stock certificate presented to it for transfer if: (a) the certificate is endorsed by the appropriate person or persons; 11

(b) the signature of the appropriate person or persons has been guaranteed by a national banking association, a bank organized and operating under the statutes of the State of Tennessee, or a member of the National Association of Security Dealers, and reasonable assurance is given that the endorsements are effective, unless the Secretary of the Corporation waives such requirements; (c) there has been compliance with any applicable law relating to the collection of taxes; and (d) the transfer is in fact rightful or is to a bona fide purchaser. Section 6. Endorsements. An endorsement of the stock certificate in registered form is made when an appropriate person signs on it or on a separate document an assignment or transfer of it, or a power to assign or transfer it, or when the signature of this person is written without more upon the back of the certificate. An endorsement may be in blank, which includes an endorsement to bearer, or special, which specifies the person to whom the stock is to be transferred, or who has the power to transfer it. The Corporation may elect to require reasonable assurance beyond that specified in this Section. Section 7. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Tennessee. ARTICLE VII DIVIDENDS, SURPLUS AND RESERVE Section 1. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in cash, property or its own shares, except where the Corporation is insolvent, as that term is defined in Section 48-1-102 (14), Tennessee Code Annotated, or when the payment thereof would render the Corporation insolvent, or when the declaration of payment thereof would be contrary to any restrictions contained in the Charter, these Bylaws, or in any applicable valid contract. The declaration and payment of any such dividend shall be in accordance with Section 48-1-511, Tennessee Code Annotated, as it may be amended from time to time. Section 2. Capital Distributions. The Board of Directors may distribute to the shareholders of the Corporation out of capital surplus, a portion of its assets, in cash or property, subject to the following provisions: 12

(a) no such distribution shall be made at a time when the Corporation is insolvent or when such distribution would render the Corporation insolvent; (b) no such distribution shall be made unless such distribution is authorized by the affirmative vote of the holders of the majority of all of the outstanding shares of stock entitled to vote thereon; (c) no such distribution shall be made to the holders of any class of shares unless all cumulative dividends accrued on all preferred or special classes of shares entitled to preferential dividends shall have been fully paid; (d) no such distribution shall be made to the holders of any class of shares which would reduce the remaining net assets of the Corporation below the aggregate preferential amount payable in the event of voluntary liquidation to the holders of shares having preferential rights to the assets of the Corporation in the event of liquidation; and (e) each such distribution, when made, shall be identified as a distribution from capital surplus and the amount per share shall be disclosed to the shareholders receiving the same, concurrently with the distribution thereof. Section 3. Increases of Capital Surplus. The capital surplus of the Corporation may be increased from time to time by resolution of the Board, directing that all or part of the earned surplus of the Corporation be transferred to capital surplus. The Board of Directors may, by resolution, apply any part or all of the capital surplus of the Corporation to the reduction or elimination of any deficit arising from losses however incurred; provided, however, that the earned surplus has first been exhausted by charging such losses to earned surplus and then only to the extent that such losses exceed the earned surplus. Each such application of capital surplus shall, to the extent thereof, effect a reduction of capital surplus. Section 4. Seal. The Corporation shall have a corporate seal. The presence or absence of a seal on any instrument shall not affect the character, validity, or legal effect thereof in any respect. The affixing of a seal shall not be necessary for the execution of any instrument or document by the Corporation. ARTICLE VIII AMENDMENTS Subject to the provisions of the Charter of the Corporation, these Bylaws may be altered, amended, or repealed or new bylaws may be adopted by the vote of a majority of all of the shareholders or by the majority vote of the entire Board of Directors, when such power is conferred upon the Board of Directors by the Charter, at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. 13

ARTICLE IX MISCELLANEOUS PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 2. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors. Section 3. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation may nevertheless indemnify each director or officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. Section 4. Notices. Whenever, under the provisions of the statutes, the Charter or these Bylaws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or electronic facsimile, in which event it shall be deemed to have been given when deposited with a telegraph or electronic facsimile office for transmission. Section 5. Indemnification. Notwithstanding anything in the Charter to the contrary, the Corporation shall be permitted, but shall not be required, to indemnify and hold harmless any employee or agent of the Corporation made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. 14

EXHIBIT 13.11 Saks Incorporated is one of the country's premier retail enterprises, operating 352 stores in 38 states, with over $6 billion in annual revenues, and more than 60,000 associates. The Company is well positioned to capitalize on a most promising future. With the retail authority of the Saks Fifth Avenue brand and the stability and strength of our core department store businesses and infrastructure, we believe the growth prospects of this company are extraordinary.
Saks Fifth Avenue Stores Full-Line Resort Main Street Parisian Specialty Department Stores Traditional Department Stores Proffitt's McRae's Younkers Herberger's Carson Pirie Scott Boston Store Bergner's Off 5th Stores Bullock & Jones Men's Store Contents Financial Highlights Letter to Our Shareholders Five-Year Financial Summary Management's Discussion and Analysis Consolidated Financial Statements Notes to Consolidated Financial Statements Report of Independent Accountants Report of Management Market Information Directors and Certain Officers Store Locations Shareholder Information Corporate Information

43 9 7 44

stores stores stores stores

31 stores 29 stores 52 stores 38 stores 30 stores 12 stores 14 stores 42 stores 1 store

1 2 13 14 23 27 57 57 58 59 60 62 63

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales Income before non-routine items Diluted earnings per common share before non-routine items Income before extraordinary items Diluted earnings per common share before extraordinary items Diluted weighted average common shares Total assets Shareholders' equity

FISCAL YEAR ENDED ------------------------------------January 30, January 31, February 1, 1999 1998 1997 ----------------------------$6,219,893 $5,726,346 $4,926,862 $ 153,525 $ 166,222 $ 109,364 $ $ $ 1.05 24,985 0.17 $ $ $ 1.17 416,237 2.86 $ $ $ 0.81 93,578 0.70

146,383 $5,188,981 $2,007,575

149,085 $4,270,253 $1,944,529

132,583 $3,630,276 $1,397,934

Note: Non-routine items include extraordinary items, gains or losses from long-lived assets, merger and integration charges, year 2000 expenses, ESOP expenses and the 1997 recognition of a $294,846 deferred tax asset. A Distinctive Approach 1998 was another great year in your Company's history. Excluding merger-related and other charges, we again posted record operating results while continuing the integration process of our recent acquisitions. The biggest news during 1998 was our September merger with Saks Holdings, Inc. and our corporate name change from Proffitt's, Inc. to Saks Incorporated. Saks Fifth Avenue holds a top-tier position in one of the most attractive and fastest growing segments in retailing, an undisputed reputation for style leadership and customer service and numerous brand extension opportunities. Our merger strategy is clear. We acquire companies at a fair value that have a strong franchise and customer loyalty, quality real estate in attractive markets, solid financial performance and meaningful synergy opportunities. The Saks Holdings transaction was consistent with that strategy. This merger combined two of the most compelling growth companies in retailing today. Our operating strength and support infrastructure are allowing Saks Fifth Avenue's management team to focus on merchandising, marketing and customer relationships. Our financial capacity will provide the resources to fund the extraordinary growth opportunities for this premier global brand. In our past transactions, we have successfully integrated the acquired companies as a result of a systematic process which includes retaining and incenting the key management personnel of the acquired company, maintaining the store identity and store level associates to assure the transaction is transparent to our customers, retaining the merchandising organization to tailor assortments to customer preferences, engaging in processes of benchmarking and best practices to improve performance across all operations and centralizing certain support functions to reduce the expense structure and improve efficiency and productivity. The same integration process is well underway for Saks Fifth Avenue. We continue to execute our merchandising synergy plans. We believe substantial opportunities remain to improve the Company's merchandising operations as we realize scale opportunities and purchasing power, improve merchandising execution and inventory management, recognize additional synergies in distribution and logistics and further intensify private brand offerings. We have demonstrated our ability to deliver substantial cost savings and other synergies as a part of our acquisition processes. We remain on schedule regarding the synergies process with our Younkers, Parisian, Herberger's and Carson Pirie Scott transactions. During 1998, we achieved our targeted $39 million of cost savings related to these previous mergers and expect to achieve an incremental $10 million of savings in 1999 and another $20 million in 2000. In conjunction with the Saks Holdings transaction, we realized approximately $12 million of cost synergies in 1998 and expect incremental synergies related to this merger of

approximately $50 million to $60 million in 1999 and $13 million in 2000. We will continue to focus on other opportunities to improve productivity throughout our organization. We remain focused on the quality and size of our proprietary credit card portfolio, as we continue to benefit from the operating efficiencies and credit card term changes made possible by our national credit card bank. During the year, we further refined the Company's capital structure to strengthen the balance sheet. Our capital structure objectives are to maintain appropriate leverage, diversified funding sources, an appropriate fixed/floating interest rate mix and adequate liquidity to fund operations and expansion. 1998 was a year of outstanding new unit growth. We acquired four stores from North Carolina-based Brody's and 15 former Mercantile stores from Dillard's, along with opening, expanding and remodeling additional properties. These activities added approximately 3.6 million square feet to our store base, an increase of 11 percent. This performance was double the rate of quality annual square footage growth we previously targeted. Our future internal growth plans call for an average of 12 to 15 new units annually. To date, we have commitments for 13 new stores in 1999, totaling 1.2 million square feet of space, and we continue to negotiate for other new unit, expansion and renovation opportunities that meet our stringent return criteria. Through the scale associated with our corporate store development activities and certain re-engineering processes, we intend to reduce the fixed investment associated with our new square footage growth. This will result in improved returns on these future investments, while maintaining the unique design and quality associated with our store brands. We have an exceptional ten-year record of shareholder value creation which ranks among the top performances of all American businesses. I believe we can maintain this relative performance in our core business through a relentless focus on improving returns and execution, while developing new distribution strategies to leverage the power of our franchises, our brands and our customer relationships. It is a fascinating time to be in the retail business. Sincerely,
/s/ R. Brad Martin Chairman of the Board and Chief Executive Officer Saks Incorporated

Luxury stores 59 Speciality department stores 44 Traditional department stores 206 Particular attention to detail Our stores exceed expectations, because we listen to our customers. Then we simply deliver more. We analyze information on customer preferences, purchasing patterns and lifestyle requirements. We know what works, on a market to market basis, as well as why and when. At each of our stores, we thoughtfully build and nurture long-term

customer relationships. With a customer's initial store visit, our sales associates begin the clienteling process by tracking personal customer preferences. This process has become key to growing these valued relationships. We foster a culture of superior service, designed to personalize each customer encounter. Customers are greeted and thanked by name. Sales are followed with notes of appreciation. Individual communication with our customers also builds interest in new merchandise arrivals, special promotions and unique events like trunk shows, fashion shows and designer appearances. This communication increases store visits, creates additional transactions and strengthens customer loyalty. Building loyalty builds business. Our host of successful, value-added affinity programs, like SaksFirst, Parisian Platinum and Younkers Gold, are designed to reward customers for their loyalty to our stores. At Saks Incorporated, when it comes to our customers, details make the difference. Individual Style The store nameplates associated with Saks Incorporated--Saks Fifth Avenue, Parisian, Proffitt's, McRae's, Younkers, Herberger's, Carson Pirie Scott, Bergner's and Boston Store--have distinct and valuable identities as style leaders in their markets. Our customers look to us as early indicators of fashion trends. They count on our ability to address individual needs of style at every level. And because we tailor the merchandise assortments to meet the preferences and lifestyles of each customer group and each marketplace, our product assortments are as distinctive as our geographic reach. The global power of our name, our reputation, our focus on style and our attention to customer relationships have allowed Saks Incorporated to forge strong partner-ships with key vendors and prestigious designers. These valued partnerships enable us consistently to offer our customers a stylish array of exceptional merchandise, attractively priced. Opportunities to Standout Our style leadership and customer relationships provide a great foundation for developing additional opportunities for Saks Incorporated. Our proprietary brands are becoming increasingly important in our overall merchandise assortments. We have developed and introduced high quality product offerings which are ours exclusively. These brands will allow us to deliver exceptional value and style to our customers. Our private brands stand out in style that's ours alone. Another source for potential growth is our catalog businesses. With Folio and Bullock & Jones combined, we distributed 55 catalogs to nearly 30 million customers in 1998. We have in place the direct response infrastructure to expand this business in order to further leverage the power of our brands in this fast changing, out-of-store arena. Building on our direct response infrastructure, we are also in the early stages of developing our Internet strategies and applications, including business process improvements and more effective communication

and marketing to customers. In addition, there are specific Internet-related retailing strategies that are appropriate for our Company. We believe that the long-term viability of an Internet-based retail concept will rely on the power of its brand. Because of the unique authority and global appeal of the Saks Fifth Avenue brand, developing electronic commerce opportunities is an important focus for Saks Incorporated. Unique Properties Saks Incorporated operates more than 35 million square feet of premium real estate across the country, including some of the most prestigious addresses in fashion retailing today. Our customers know our stores for their unique design elements. The lighting, fixturing, decor, aisle-width and special amenities in each of our stores provide an extraordinary and exciting shopping experience. Our distinct shopping environments beautifully showcase our outstanding merchandise assortments. Our strong balance sheet positions us to further fund new store growth. We see many opportunities to cultivate this growth across all of our store formats. New store locations, remodels and expansions are carefully selected and executed to assure that our stringent return criteria are achieved. We remain focused on increasing existing store productivity and improving the efficiency of every asset employed in this business. The orchestration of lighting, traffic patterns and visual presentation creates an environment that is both beautiful and accessible.

SAKS INCORPORATED & SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY
52 Weeks Ended January 30, 1999 ----------6,219,893 4,093,467 -----------21,126,426 1,289,228 498,733 $ 52 Weeks Ended January 31, 1998 ----------5,726,346 3,731,293 -----------1,995,053 1,165,118 444,276 $ 52 Weeks Ended February 1, 1997 ----------4,926,862 3,208,989 -----------1,717,873 1,057,144 367,247 $ 53 Weeks Ended February 3, 1996 ----------4,422,107 2,900,026 -----------1,522,081 961,407 330,634 10,017 (36,058) 64,237 2,931 -----------188,913 (141,725) 4,051 -----------51,239 48,914 -----------2,325 (8,051) -----------$ (5,726) ============ $ $ 0.00 (0.07) $

(In Thousands, Except Per share Amounts) Consolidated Income Statement Data: Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Expenses related to attempted Younkers takeover (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items

61,785 111,307 10,437 -----------154,936 (110,971) 22,201 -----------66,166 41,181 -----------24,985 (25,881) -----------$ (896) ============ $ $ 0.17 (0.01)

(134) 36,524 6,590 9,513 -----------333,166 (113,685) 2,330 -----------221,811 (194,426) -----------416,237 (11,323) -----------$ 404,914 ============ $ $ 3.03 2.94

1,406 16,929 3,910 -----------271,237 (114,881) (11,780) -----------144,576 50,998 -----------93,578 (12,746) -----------$ 80,832 ============ $ $ 0.72 0.62

Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Weighted average common shares Basic Diluted Consolidated Balance Sheet Data: Working capital Total assets Senior long-term debt, less current portion Subordinated debt Shareholders' equity

$ $

0.17 (0.01)

$ $

2.86 2.79

$ $

0.70 0.60

$ $

0.00 (0.07)

142,856 146,383

137,588 149,085

125,056 132,583

111,974 113,309

$ 887,875 $ 5,188,981 $ 2,110,395 $ 4,252 $ 2,007,575

$ 1,096,359 $ 4,270,253 $ 1,093,806 $ 286,964 $ 1,944,529

$ 951,752 $ 3,630,276 $ 863,475 $ 501,767 $ 1,397,934

$ 710,468 $ 2,899,565 $ 1,256,349 $ 150,505 $ 691,059

MANAGEMENT'S DISCUSSION AND ANALYSIS Saks Incorporated (formerly Proffitt's, Inc. and hereinafter the "Company") is a national retailer currently operating 352 premier and traditional department stores under the following names: Saks Fifth Avenue (59 stores), Proffitt's (31 stores), McRae's (29 stores), Younkers (52 stores), Parisian (44 stores), Herberger's (38 stores), Carson Pirie Scott ("Carson's") (30 stores), Bergner's (14 stores), Boston Store (12 stores), Off 5th (42 stores), and Bullock & Jones (1 store). The Company also operates a direct mail business under the Folio and Bullock & Jones names. The Company has experienced significant growth since 1994, principally through a series of acquisitions. The Company's major acquisitions are outlined below:

Name ----------McRae's Younkers Parisian Herberger's Carson Pirie Scott, Boston Store, and Bergner's Saks Fifth Avenue and Off 5th ("SFA")

Headquarters ------------Jackson, MS Des Moines, IA Birmingham, AL St. Cloud, MN Milwaukee, WI

Number of Stores Acquired --------31 50 40 37 55

Locations ----------Southeast Midwest Southeast/Midwest Midwest Midwest

Date Acquired ------------March 31, 1994 February 3, 1996 October 11, 1996 February 1, 1997 January 31, 1998

New York, NY

95

National

September 17, 1998

Additionally, the Company has grown through the construction of new units as well as through the acquisition of store locations such as the purchase of 15 former Mercantile stores from Dillard's in late 1998. Merchandising, sales promotion and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit administration, store planning and information technology, are centralized. Income statement information for each year presented has been restated to reflect the Younkers, Herberger's, Carson Pirie Scott, and SFA mergers, which were accounted for as poolings of interests. The operations of Parisian and the 15 stores purchased from Dillard's, which were accounted for using the purchase method of accounting, have been included in the income statements subsequent to their respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding):
52 Weeks Ended January 30, 1999 ("1998") -----------100.0% 65.8 -------34.2 20.7 8.0 1.0 1.8 0.2 -------2.5 (1.8) 0.4 -------52 Weeks Ended January 31, 1998 ("1997") -----------100.0% 65.2 -------34.8 20.3 7.7

Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes Net income (loss)

0.6 0.1 0.2 -------5.8 (2.0) --------

1.1 0.7 -------0.4

3.9 (3.3) -------7.3

(0.4) -------0.0% ========

(0.2) -------7.1% ========

Net Sales Total Company net sales increased by 9.0%, 16.0% and 11.0% in 1998, 1997 and 1996, respectively. The 1998 increase was primarily due to a comparable store sales increase of 4.0% and incremental revenues generated from new store additions during 1998 and 1997 including the third and fourth quarter sales from the 15 stores purchased from Dillard's. The 1997 increase was primarily due to a comparable store sales increase of 5.0% and new store additions during 1997, combined with the full year inclusion of Parisian which was acquired in October 1996. The 1996 increase was primarily due to a comparable store sales increase of 6.0%, new store additions during 1996 and 1995 and a partial year of revenues generated from the Parisian stores. Gross Margins Gross margins were 34.2%, 34.8% and 34.9% of net sales in 1998, 1997 and 1996, respectively. The Company's cost of sales includes certain purchasing and distribution costs. The decrease in gross margin percent from 1997 to 1998 was primarily due to markdowns associated with the aged and excessive quantities of inventory at SFA recognized contemporaneous with the SFA acquisition. These markdowns at SFA negatively affected gross margin by approximately 1.5% and were partially offset by margin improvement resulting from enhanced buying power with core vendors due to the Company's increased scale. The decrease in gross margin percent from 1996 to 1997 was primarily due to increased penetration in certain lower margin merchandise categories, sales shortfalls in bridge apparel in the spring of 1997 resulting in higher markdowns and higher inventory shortage and processing costs associated with a new SFA distribution center offset by enhanced buying power with core vendors due to the Company's increased scale, expansion of key brands and benchmarking of operations. Management believes the merchandising operations of the business can be further enhanced through continued execution of the Company's best practices and benchmarking process, more effective controls and disciplines, through the introduction of a new private brand program in its non-SFA stores, which began in the fall of 1998, and the expansion of existing private brand offerings in the SFA stores. While the Company anticipates that it will continue to emphasize premier national brands and exclusive designer labels in its stores, management's goal is to increase the private brand business from approximately 8.0% of sales to approximately 12.0% of sales by 2000. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were 20.7%, 20.3% and

21.5% of net sales in 1998, 1997 and 1996, respectively. The increase in the SG&A percentage from 1997 to 1998 was primarily due to SFA legal claims and self insurance liabilities, expenses related to real estate realignments and store closings and a $23.4 million loss recognized from conforming the delinquent accounts policies of SFA's proprietary credit card receivables to those of the Company. The reduction of the SG&A percentage from 1996 to 1997 was due to increased economies of scale and realization of synergies associated with the Company's acquisitions, targeted cost savings programs, increases in net finance charge income and implementation of cost reduction initiatives during 1997. Management identified synergies in conjunction with the Younkers, Parisian, Herberger's, Carson's and SFA business combinations. The implementation of these synergies reduced operating expenses by a total of $20.0 million in 1997 and $51.0 million in 1998. Incremental savings relating to these mergers of approximately $60.0 million are planned in 1999. Cost reductions are being achieved through the elimination of duplicate corporate expenses, economies of scale, implementation of best practices, and consolidation of certain administrative support functions. These changes are expected to deliver additional leverage on expenses in the future. Finance charge income and securitization gains derived from the Company's proprietary credit cards is included as a component of SG&A. Gross finance charge income (before allocation of finance charges to the third party purchasers of accounts receivable [see "Liquidity"]), was $261,500, $213,500 and $170,900 in 1998, 1997 and 1996, respectively. The increase since 1996 is due primarily to the increase in sales, the increase in the number of proprietary accounts, the increased utilization of the receivables securitization program and changes in certain credit card terms. The allocation of finance charges to the third party purchasers of accounts receivable totaled approximately $66,900 in 1998, $47,300 in 1997 and $40,700 in 1996. Utilization of the Company's accounts receivable securitization programs increased each year presented (see "Liquidity") commensurate with the Company's growth in proprietary credit card sales and the securitization of Carson's accounts receivable beginning in February 1998. Effective February 1998 (and September 1998 for SFA), all of the Company's proprietary credit cards are issued by National Bank of the Great Lakes (the "Bank"), a wholly owned subsidiary of the Company (see "Liquidity"). The Bank has the ability to assess uniform finance charges (including late fees) in all 38 states in which the Company operates. Other Operating Expenses Other operating expenses were 8.0%, 7.7% and 7.4% of net sales in 1998, 1997 and 1996, respectively. The increase in 1998 over 1997 was primarily due to the additional amortization of approximately $270.0 million in goodwill and intangibles recorded with the 1998 purchases of Brody Brothers Dry Goods Company, Inc. ("Brody's"), Bullock & Jones (a direct mail business and one retail store) and the 15 stores from Dillard's.

In addition to the incremental goodwill and intangibles amortization, the 1998 rate was negatively affected by incremental depreciation expense and rental expense from 20 new stores opened and acquired in the third and fourth quarters of 1998. (Gains) Losses from Long-Lived Assets Losses from long-lived assets in 1998 of $61.8 million are principally comprised of the write-off of the carrying amount of several relocated or closed stores, costs associated with terminating certain new store projects which did not meet the Company's investment return criteria and impairment charges related to several abandoned or under-performing store locations and a distribution facility. These charges were primarily the result of the Company's review of the SFA real estate portfolio subsequent to the SFA merger. Merger and Integration Charges In connection with the Company's mergers with SFA, Carson's, Herberger's and Younkers and the acquisition of Parisian and the former Mercantile stores from Dillard's, the Company incurred certain costs to effect the transactions and other costs to integrate and combine the operations of the companies. For 1998, these costs totaled $111.3 million, or 1.8% of net sales. The 1998 costs were comprised of (1) $44.8 million of SFA merger transaction costs related principally to investment banking, legal and accounting fees, transfer taxes and other direct merger costs; (2) $42.4 million of integration charges associated with the SFA merger related principally to such items as severance, the consolidation of administrative operations and the write-off of redundant information technology systems and certain development projects; and (3) $24.1 million of continuing integration costs related to mergers and acquisitions from the prior two years, including the acquisition of the 15 Dillard's stores in the third and fourth fiscal quarters of 1998. For 1997, these costs totaled $36.5 million, or 0.6% of net sales. The 1997 charges were comprised of (1) $13.8 million of Carson's merger transaction costs related principally to investment banking, legal and accounting fees and other direct merger costs; (2) $17.3 million of integration charges associated with the Carson's merger related principally to such items as severance, the consolidation of administrative operations, and the write-off of duplicate assets; and (3) $12.4 million of continuing integration costs related to mergers and acquisitions from the prior two years offset by a $7.0 million decrease in the estimated costs to exit a SFA distribution facility. For 1996, these costs totaled $16.9 million, or 0.3% of net sales. The 1996 charges were comprised of (1) $2.6 million of Herberger's merger transaction costs related principally to investment banking, legal and accounting fees and other direct merger costs; (2) $7.4 million of integration charges associated with the Herberger's merger related principally to such items as severance, the consolidation of administrative operations, and the write-off of duplicate assets; (3) $5.9 million related

to the continuing integration of Younkers' operations; and (4) $1.0 million relating to consulting and advisory fees paid to a shareholder of SFA. Management also expects to incur certain additional integration costs in 1999, primarily related to the integration of duplicate systems and assets accumulated through the series of acquisitions described above. These expenses are expected to total approximately $30.0 to $35.0 million. Year 2000 Expenses The Year 2000 ("Y2K") issue is the result of computer programs being written using two digits rather than four to define the applicable year. Some of the Company's computer programs that have date-sensitive software may potentially recognize a date using "00" as the year 1900 rather than the Year 2000 or may not recognize a date indicated as "00". This incorrect or lack of recognition could result in a system failure or miscalculations causing disruptions of operations, including among other things a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company's management has recognized the need to address the Y2K issue within its internal operational systems as well as with suppliers and other third parties. As with many other companies, a significant number of the Company's information systems have required and will require modification over the next year in order to render these systems Y2K compliant. The Company recognizes that failure to timely resolve internal Y2K issues could result in an inability of the Company to order merchandise, receive and distribute merchandise to its stores, pay for merchandise received (which could delay delivery of merchandise), process purchases and payments made with the Company's proprietary credit cards, and, in the worst case, sell merchandise and otherwise process its daily business for an indeterminate period of time (which could result in default or other events permitting the Company's lenders to terminate and/or accelerate the Company's credit and accounts receivable facilities), each of which could materially and adversely affect the Company's financial condition and results of operations. However, Company management believes these scenarios are unlikely based on the progress the Company has made in its Y2K compliance process. The Company is modifying or replacing significant portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company believes that with modifications to existing software, conversions to new software, and changes to non-information technology systems, the Y2K issue can be mitigated. The Company has initiated formal communications with its material merchandise suppliers, service suppliers, store landlords and shopping mall owners to determine the extent to which the Company is vulnerable to failure of those third parties to remediate their own Y2K issues. The Company believes that its program to identify supplier and other third party compliance efforts will minimize the Company's Y2K exposure. However, the Company cannot control the conduct of its suppliers and other third parties, and it is possible the Company will experience significant Y2K problems as a result of third party non-compliance. The Company is also

addressing the Y2K issue with its non-information technology systems ("Non-IT"). Non-IT systems, include among other things security, fire prevention and climate control. The review of the Non-IT systems is ongoing, and a plan is in place for resolving Non-IT Y2K issues by mid-1999. The Company is in the process of developing Y2K contingency plans for its critical business processes; however, based on the Company's Y2K compliance efforts and project status to date, the Company does not expect to use these plans. The Company will continue to evaluate the need for contingency plans as the Y2K project continues and will develop and implement additional plans if such need is identified. The Company is utilizing both internal and external resources to reprogram, replace and test software for Y2K modifications. During 1997 and 1998, the Company substantially completed its assessment of the Y2K issue and began systems modifications, resulting in charges of $10.4 million in 1998, or 0.2% of net sales. During 1997, the Company incurred $6.6 million of Y2K related charges, or 0.1% of net sales. The Company expects to incur additional Y2K charges estimated to be $6.0 million in 1999. The Company is meeting its internal modification schedule and expects to complete compliance and testing of Y2K modifications by September 1999. The costs of the project and the date on which the Company plans to complete the modifications are based on management's best estimates, which were derived utilizing assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. Specific factors that might cause such differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. ESOP Expenses Herberger's had an Employee Stock Ownership Plan ("ESOP") which was terminated on December 31, 1997. Charges related to the ESOP totaled $9.5 million, or 0.2% of net sales, in 1997. Of this total, $7.9 million related to the termination of the plan. ESOP charges totaled $3.9 million, or 0.1% of net sales in 1996. Interest Expense Total interest expense was $111.0 million, $113.7 million and $114.9 million in 1998, 1997 and 1996, respectively. Interest expense as a percentage of net sales was 1.8%, 2.0% and 2.3% for 1998, 1997 and 1996, respectively. The decrease in interest expense in 1998 compared to 1997 was primarily the result of (1) exchanging high interest rate debt of SFA (REMIC certificates, SFA revolver) with lower interest rate debt of the Company; (2) replacing the Carson's accounts receivable debt facility with the Company's accounts receivable securitization program; and (3) lower interest rates on the Company's revolving credit facilities, offset by increased borrowing costs associated with the third and fourth quarter acquisition of 15 stores from Dillard's, increased capital and inventory

investments throughout 1998 and the Company's election to issue long-term fixed rate securities in the public debt markets with the proceeds utilized to pay down outstandings under the revolving credit facility which was being assessed interest at short-term floating interest rates. The decrease in interest expense in 1997 compared to 1996 was primarily due to (1) the use of proceeds from SFA's May 1996 initial public offering (IPO) to repay outstanding indebtedness; (2) the use of proceeds from SFA's convertible notes offering in September 1996 to pay down higher cost debt; (3) improved cash flow from operations; and (4) lower interest rates on the revolving credit facilities, offset by increased borrowing costs associated with the October 1996 acquisition of Parisian and increased capital and inventory investments. Other Income (Expense), Net In 1998, the Company recorded other income of $22.2 million, or 0.4% of net sales, which is principally comprised of $42.5 million for the favorable settlement of pending litigation between Carson's and Bank One, Wisconsin related to the Carson's 1991 Chapter 11 bankruptcy filing, offset by charges of $17.4 million related to the termination of certain interest rate hedging agreements. In 1996, the Company recorded a loss of $10.5 million, or 0.2% of net sales, related to the write-down of the Carson's County Seat Debentures (the "Debentures"). Carson's received the Debentures in 1993 when County Seat Holdings, Inc. exercised its option to exchange the Debentures for other securities that had been issued to Carson's as part of the sale price for Carson's 1989 divestiture of County Seat Stores, Inc. to a management-led buyout group. Income Taxes In 1998, 1997 and 1996 the effective income tax rates differ from the statutory tax rates principally due to nondeductible goodwill amortization, ESOP charges, and merger related costs. In 1997, the Company recognized a $294.8 million deferred income tax benefit in the fourth quarter. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this income tax benefit also enabled SFA to reduce goodwill by $34.5 million due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. Income Before Extraordinary Items Income before extraordinary loss on early extinguishment of debt was $25.0 million in 1998, or 0.4% of net sales, $416.2 million in 1997, or 7.3% of net sales and $93.6 million in 1996, or 1.9% of net sales. Extraordinary Items In 1998, primarily as a result of the SFA merger, the Company completed various balance sheet restructuring transactions that were designed to enhance liquidity, strengthen the Company's balance sheet and position the Company for future growth. These transactions included (1) the repurchase

of the Company's $125.0 million, 8.125% senior notes, due 2004; (2) the replacement of the $600.0 million revolving credit facility with a $750.0 million five-year revolving credit facility and a $750.0 million 364 day revolving credit facility that includes a four-year term-out option; (3) the repurchase of approximately $272.0 million of the SFA 5.50% convertible subordinated notes; (4) the repayment and subsequent cancellation of the SFA revolving credit facility and some other property leases; and (5) the repurchase of $65.0 million of SFA REMIC certificates. As a result of these five transactions, the Company incurred an extraordinary loss on early extinguishment of debt of $25.9 million, net of income taxes. The Company replaced the majority of this cancelled debt with fixed term senior notes (see Liquidity and Capital Resources for discussion of debt issued in 1998). Subsequent to the fiscal year end, the Company prepaid the remaining $236.0 million in SFA REMIC certificates, which will result in an extraordinary loss in 1999 of approximately $9.5 million, net of income taxes. During 1997, the Company made certain modifications to its capital structure, including retiring approximately $114.0 million of 9.875% Parisian Senior Subordinated Notes due 2003, prepaying approximately $15.0 million of 11.0% Junior Subordinated Notes, prepaying certain mortgages and replacing the Company's existing revolving credit and working capital facilities with a new revolving credit facility. As a result of this early extinguishment of debt, certain deferred costs and premiums associated with the debt facilities, such as loan origination costs, were written off resulting in a loss of $11.3 million, net of income taxes. In 1996, the Company recognized $12.7 million of extraordinary charges, net of income taxes, associated with the prepayment of term borrowings under the SFA credit facility, the repayment of outstanding balances on the revolving credit portion of the SFA credit facility and the prepayment of certain mortgages. Inflation and Deflation Inflation and deflation affect the costs incurred by the Company in its purchase of merchandise and in certain components of its SG&A expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. The Company attempts to offset the effects of merchandise deflation through control of expenses. Seasonality The Company's business, like that of most retailers, is subject to seasonal influences, with a significant portion of net sales and net income realized during the fall season, which includes the Christmas selling season. In light of these patterns, SG&A expenses are typically higher as a percentage of net sales during the first three quarters of each year, and working capital needs are greater in the last two quarters of each year. The fall season increases in working capital needs have typically been financed with internally generated funds, the sale of interests in accounts receivable and borrowings under the Company's revolving credit facilities. Generally,

more than 30% of the Company's net sales and over 50% of net income are generated during the fourth quarter. Liquidity and Capital Resources Cash Flow The Company's primary needs for liquidity are to acquire, renovate or construct new stores and to provide working capital for new and existing stores. The Company anticipates that cash generated from operating activities will be sufficient to meet its financial commitments and to capitalize on opportunities for future new store growth. Cash provided by operating activities was $522.9 million in 1998, $209.3 million in 1997 and $140.7 million in 1996. Cash provided by operating activities principally represented income before depreciation and amortization charges, the non-cash portion of extraordinary losses and losses from long-lived assets and changes in working capital. The increase from 1997 to 1998 was primarily related to the sale of the Carson's receivables in February 1998 into the Company's accounts receivable securitization facility. Cash used in investing activities was $943.7 million in 1998, $319.0 million in 1997 and $330.6 million in 1996. Cash used in investing activities principally consists of business acquisitions, construction of new stores and the renovation and expansion of existing stores. The increase in 1998 is primarily due to the acquisition of former Mercantile stores from Dillard's. Cash provided by financing activities for 1998, 1997 and 1996 totaled $402.6 million, $83.6 million, and $186.7 million, respectively. The increase from 1997 to 1998 is principally comprised of the issuance of $1.1 billion in senior notes and an increase in the Company's revolving credit facilities balance to fund (1) the acquisition of the 15 stores from Dillard's; (2) repayment of the Carson's $125.0 million receivables facility; (3) the repayment of the Company's $125.0 million, 8.125% senior notes; and (4) the repayment of $350.0 million of SFA convertible debenture and REMIC certificates (see Capital Structure discussion below). Cash provided by financing activities in 1996 was primarily due to proceeds of $457.5 million from the issuance of stock offset by repayments on the Company's credit and receivables facilities and long-term debt instruments. The availability of net operating loss carryforwards and other tax benefits generated in prior years by SFA and Carson's will enable the Company to reduce its cash requirements for income tax payments in the next several years. National Bank of the Great Lakes On January 31, 1998, in connection with the Company's acquisition of Carson's, the Company acquired National Bank of the Great Lakes (the "Bank"), which is a wholly owned subsidiary of the Company. Immediately after this acquisition, the Company contributed all of its proprietary credit card

accounts and account balances to the Bank. As a result, the Bank became the sole owner of the Company's proprietary credit card accounts maintained for customers of the Company and sells 100% of the accounts receivable generated by these accounts to the Company's special purpose subsidiaries. Accounts Receivable Securitization: Younkers Master Trust Facility In 1995, the Younkers Master Trust ("YMT") was established by Younkers Credit Corporation ("YCC"), a wholly owned, special purpose subsidiary of the Company. YMT has issued to third parties a total of $75.0 million of asset-backed securities in two separate classes. On May 6, 1998 YCC was merged into Proffitt's Credit Corporation. Accounts Receivable Securitization: Proffitt's Credit Card Master Trust Facility The Bank sells an undivided interest in its accounts receivable through a wholly owned special purpose subsidiary, Proffitt's Credit Corporation ("PCC") to Proffitt's Credit Card Master Trust ("PCCMT"). At January 31, 1998, the PCCMT funding capacity consisted of $221.0 million in fixed rate certificates and a variable funding certificate ("VFC") with a capacity of $150.0 million. During 1998, as a result of the initial sale of the Carson's proprietary credit card receivables into PCCMT, the merging of YCC with and into PCC, and the additional proprietary credit card sales from the Dillard's stores, PCCMT issued an additional $245.5 million in fixed rate asset backed securities and also increased the VFC to $300.0 million. Accounts Receivable Securitization: Saks Master Trust facility The Bank also sells an undivided interest in its accounts receivable through a second wholly owned special purpose subsidiary, Saks Finance Company ("SFC"), to Saks Master Trust ("SMT"). In 1996, the trust sold two series of certificates of beneficial interests with subordinated structures. The first series is a term series with a capacity of $413.0 million. The second series is a variable series with a maximum capacity of $118.0 million. In August 1998, SFC executed a new $397.0 million receivables securitization facility to finance the monthly accumulation of cash required to repay the previously issued and outstanding term series. The SFA outstanding term series matures in April and June of 1999. The Company intends to merge the SFA accounts receivable securitization program into the Company's existing accounts receivable securitization programs after the accumulation period is completed and the outstanding certificates are repaid. Operating Lease Agreement In June 1997, SFA entered into a $100.5 million operating lease agreement, which was used to finance qualified properties and related fixtures and leasehold improvements. Under this agreement, the lessor agreed to acquire and construct new store sites in order to lease them to SFA. SFA had guaranteed a residual value of approximately $19.0 million at January 31, 1998 and had approximately $77.5 million available under this lease agreement to fund capital expenditures. On September 17, 1998, the Company terminated the operating lease agreement, which resulted in the purchase of

properties valued at approximately $30.0 million. Capital Structure During 1998, primarily resulting from the SFA merger and the acquisition of the stores from Dillard's, the Company implemented a comprehensive capital restructure designed to reduce the Company's level of secured indebtedness, create a more appropriate fixed to floating interest rate balance, lengthen the duration of debt capital and increase overall liquidity. The restructuring process included numerous capital transactions throughout 1998. In September 1998, the Company completed a tender offer for the $125.0 million, 8.125% senior notes, repurchased $65.0 million of the SFA REMIC certificates and replaced its $600.0 million revolving credit facility with two $750.0 million revolving credit facilities, with 364 day and five-year terms. In connection with the revolving credit facility restructuring, the Company terminated and repaid the SFA credit facility and the SFA real estate operating lease agreement. In November 1998, the Company issued $850.0 million in senior notes, which were comprised of $500.0 million, 8.25% notes, due 2008, and $350.0 million, 7.25% notes, due 2004, and repurchased $267.7 million of SFA's convertible subordinated notes, due 2006. In December 1998, the Company issued $250.0 million, 7.50% notes, due 2010. As of January 30, 1999, the Company's debt consisted of $608.0 million outstanding on its revolving credit facilities, $160.7 million of capital leases, $235.8 million of REMIC certificates, $17.1 million of mortgage debt and $1.1 billion in senior notes. On February 10, 1999, the Company prepaid all outstanding REMIC certificates. The prepayment terms of the REMIC certificates required the Company to fund an escrow account with $363.8 million on January 29, 1999. The escrow account was funded through the Company's revolving credit facility. The escrow funds exceeded the amount required to extinguish the debt, including prepayment premiums and accrued interest, by $115.0 million. This amount represented the $95.0 million face amount of certificates previously repurchased by the Company and related prepayment premiums and accrued interest, and was therefore returned to the Company and used to reduce amounts outstanding under the revolving credit facility. After adjusting the Company's debt for this transaction, the Company's total outstanding debt was $1.8 billion, representing a debt to total capitalization percentage of 47.0% and a $378.3 million increase over outstanding debt in 1997. This increase over 1997 is principally due to the Dillard's stores purchase as well as 1998 capital expenditures. Capital Needs The Company estimates capital expenditures for 1999 will approximate $425.0 million, primarily for the construction of new store openings in 1999, initial construction work on stores expected to open in 2000, several store expansions and renovations, enhancements to management information systems and regular maintenance capital expenditures. The Company anticipates its capital expenditures and working capital requirements relating to planned new and existing stores will be funded

through cash provided by operations, ongoing sales of receivables under the securitization programs and additional borrowings. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations. The Company maintains favorable banking relations and anticipates that the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed. The Company also believes it has access to a variety of other capital markets. Segment Reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The objective of this statement is to provide users of financial statements information about the different types of business activities in which a company engages and the different economic environments in which it operates. The statement provides companies the opportunity to aggregate two or more operating segments into a single operating segment if the segments have similar characteristics. In applying SFAS No. 131, the Company identified three reportable segments, which are as follows: department stores, catalog, and furniture. The department store segment includes all department stores which the company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The catalog segment includes the Company's direct marketing catalogs of Folio and Bullock & Jones. The Company's furniture segment includes the Company's four free-standing furniture stores as well as furniture departments within existing department stores. The combined operations of the catalog and furniture segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus the three identified segments are combined within the consolidated financial statements of the Company. New Accounting Pronouncements In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that all derivative financial instruments be recorded on the financial statements. SFAS No. 133 is effective for the Company in the first quarter of 2000, and the Company is in the process of ascertaining the impact this new standard will have on its financial statements. Forward-Looking Information This report contains "forward-looking" statements within the meaning of the federal securities laws. The forwardlooking information and statements contained throughout Management's Discussion and Analysis are premised on many factors, some of which are outlined below. Actual consolidated results might differ materially from projected forward-looking information if there

are any material changes in management's assumptions. The forward-looking information and statements are based on a series of projections and estimates that involve certain risks and uncertainties. Potential risks and uncertainties include such factors as the level of consumer spending for apparel and other merchandise carried by the Company; the competitive pricing environment within the department and specialty store industries; the effectiveness of planned advertising, marketing and promotional campaigns; appropriate inventory management; realization of planned synergies; effective cost containment; and solution of Year 2000 systems issues by the Company and its suppliers. For additional information regarding these and other risk factors, please refer to the Company's public filings with the Securities and Exchange Commission, which may be accessed via EDGAR through the Internet at www.sec.gov. When used in this report, words such as "believes," "estimates," "plans," "expects," "should," "may," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. Management undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures management makes on related subjects in its reports with the Securities and Exchange Commission.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------$ 6,219,893 $ 5,726,346 $ 4,926,862 4,093,467 3,731,293 3,208,989 ------------------------------2,126,426 1,995,053 1,717,873 1,289,228 1,165,118 1,057,144 181,966 155,361 150,839 10,567 61,785 111,307 10,437 ----------154,936 (110,971) 22,201 ----------66,166 41,181 ----------24,985 (25,881) ----------157,018 136,119 134,121 17,018 (134) 36,524 6,590 9,513 ----------333,166 (113,685) 2,330 ----------221,811 (194,426) ----------416,237 (11,323) ----------114,714 123,533 117,355 11,645 1,406 16,929 3,910 ----------271,237 (114,881) (11,780) ----------144,576 50,998 ----------93,578 (12,746) -----------

(In thousands, except per share amounts) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Property and equipment rentals Depreciation and amortization Taxes other than income taxes Store pre-opening costs (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes

Net income (loss) Preferred stock payments Net income (loss) available to common shareholders Earnings per common share: Basic earnings per common share before extraordinary loss Extraordinary loss Basic earnings (loss) per common share Diluted earnings per common share before extraordinary loss Extraordinary loss Diluted earnings (loss) per common share Weighted average common shares Basic Diluted

(896) ----------$ (896) -----------

404,914 ----------$ 404,914 -----------

80,832 (3,828) ----------$ 77,004 -----------

$

0.17 (0.18) ----------$ (0.01) =========== 0.17 (0.18) ----------$ (0.01) =========== 142,856 146,383 $

$

3.03 (0.09) ----------$ 2.94 =========== $ 2.86 (0.07) ----------$ 2.79 =========== 137,588 149,085

$

0.72 (0.10) ----------$ 0.62 =========== 0.70 (0.10) ----------$ 0.60 =========== 125,056 132,583 $

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 30, 1999 ----------January 31, 1998 -----------

(In thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Other current assets Deferred income taxes Total Current Assets Property and Equipment, net of depreciation Goodwill and Intangibles, net of amortization Deferred Income Taxes Cash Placed in Escrow for Debt Redemption Other Assets Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses Accrued compensation and related items Sales taxes payable Current portion of long-term debt Total Current Liabilities Senior Debt Other Long-Term Liabilities Subordinated Debt Shareholders' Equity Common stock Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total Shareholders' Equity Total Liabilities and Shareholders' Equity

$

32,752 159,596 1,406,182 110,426 83,958 ----------1,792,914

$

50,864 412,209 1,244,682 111,621 77,869 ----------1,897,245 1,725,979 327,307 251,793

2,118,555 586,297 249,816 363,753 77,646 ----------$ 5,188,981 ===========

67,929 ----------$ 4,270,253 ===========

$

360,388 411,505 78,009 39,614 15,523 ----------905,039 2,110,395 165,972

$

333,794 342,576 69,286 42,172 13,058 ----------800,886 1,093,806 144,068 286,964 14,148 2,028,067

14,401 2,099,243 (7,487) (98,582) ----------2,007,575 ----------$ 5,188,981 ===========

(97,686) ----------1,944,529 ----------$ 4,270,253 ===========

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Paid-In Capital ---------$1,332,495 536,733 4,633 (27,973) 8,809 (57) 16,000 278 122 28,663 Accumulated Deficit --------$(641,421) 80,832

Balance at February 3, 1996 Net income Issuance of common stock Income tax benefits related to exercised stock options Purchases and retirements of stock Sale of treasury stock Reclassification of ESOP stock Preferred stock dividends Decrease in tax valuation allowance Stock compensation Unrealized gain on ESOP shares Conversion of preferred stock Common stock dividends, $.28 per Herberger's share Balance at February 1, 1997 Net income Issuance of common stock Income tax benefits related to exercised stock options 2-for-1 stock split Purchases and retirements of stock Decrease in tax valuation allowance Stock compensation Conversion of 4.75% subordinated debentures Termination of ESOP Balance at January 31, 1998 Net loss Minimum pension liability (net of taxes of $4,787 ) Comprehensive income

Preferred Stock --------$ 28,850

Common Stock ------$ 9,271 1,849

(776) 290

(7,060) 69,907 (796)

(28,850)

142

(3,032) (1,030) --------(502,600) 404,914

---------

------10,776 144

---------1,899,703 24,839 7,319 (3,070) (13,043) 16,000 1,451 86,082 8,786 ---------2,028,067

3,070 (53) 9 202 --------------14,148

--------(97,686) (896)

--------------Issuance of common stock Income tax benefits related to exercised stock options Decrease in tax valuation allowance Stock compensation Stock repurchase Balance at January 30, 1999 -------$ -========

------------228

------------------37,481 16,444 16,000 1,723 (472) ---------$2,099,243 ==========

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

27 (2) ------$14,401 =======

--------$ (98,582) =========

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------$ (896) $ 404,914 $ 80,832

(In thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss on extinguishment of debt Depreciation and amortization Recognition of NOL carryforwards Deferred income taxes Write-offs of long-lived assets, merger and integration items Loss on County Seat debentures ESOP expenses Restructuring items Changes in operating assets and liabilities: Retained interest in accounts receivable Merchandise inventories Other current assets Accounts payable and accrued liabilities Other operating assets and liabilities Net Cash Provided By Operating Activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Acquisitions of Dillard's stores, Brody's and Bullock & Jones Acquisition of Parisian Net Cash Used In Investing Activities

14,599 155,361 14,926 79,617

8,356 136,119 (283,675) 23,050 (134) 8,786 (800)

12,746 123,533 31,628 1,406 10,525 1,481 885 (38,706) (90,829) (13,533) 18,831 1,896 ----------140,695 ----------(247,814) 36,282

293,948 (127,203) (8,112) 97,302 3,397 ----------522,939 ----------(421,062) 2,500 (525,117) ----------(943,679) -----------

(18,327) (175,912) 27,704 99,352 (20,128) ----------209,305 ----------(346,876) 27,851

----------(319,025) ----------175,546 (258,802)

(119,070) ----------(330,602) ----------380,837 (394,256)

Financing Activities Proceeds from long-term borrowings Payments on long-term debt and capital lease obligations Cash placed in escrow for debt redemption Net borrowings (repayments) under credit and receivables facilities Proceeds from issuance of stock Purchase of treasury stock ESOP loan repayment Payments to preferred and common shareholders Other Net Cash Provided By Financing Activities Decrease In Cash and Cash Equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

1,100,000 (506,960) (363,753) 136,250 37,565 (474)

148,142 23,185 (13,096) 9,778 (1,124) ----------83,629 ----------(26,091) 76,955 ----------$ 50,864 ===========

(237,457) 457,532 (14,383) (4,858) (742) ----------186,673 ----------(3,234) 80,189 ----------$ 76,955 ===========

----------402,628 ----------(18,112) 50,864 ----------$ 32,752 ===========

Noncash investing and financing activities are further described in the accompanying notes. The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Summary of Significant Accounting Policies Saks Incorporated (formerly Proffitt's, Inc.) (the "Company"), is a national retailer operating department stores under the following names: Saks Fifth Avenue, Proffitt's, McRae's, Younkers, Parisian, Herberger's, Carson Pirie Scott ("Carson's"), Bergner's, Boston Store and Off 5th. The Company also operates a direct mail business under the Folio and Bullock & Jones names. On September 17, 1998, Saks Holdings, Inc. ("SFA") merged with and into a wholly owned subsidiary of Proffitt's, Inc. SFA was the holding company of Saks & Company which did business as Saks Fifth Avenue, Off 5th and Folio. In connection with the merger, Proffitt's, Inc. changed its corporate name to Saks Incorporated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported financial statements to conform with the financial statement presentation of the current period. These reclassifications have no effect on previously reported net income and shareholders' equity. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. These consolidated financial statements have been restated to include the financial position and results of operations of SFA, which the Company acquired in 1998 and accounted for the acquisition under the pooling of interests method of accounting, as if SFA and the Company had operated as one entity since inception. See Note 3, Mergers and Acquisitions, for further discussion of this and other business combination transactions. Note 2 - Summary of Significant Accounting Policies Fiscal Year The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years 1998, 1997 and 1996 contain 52 weeks and ended on January 30, 1999, January 31, 1998 and February 1, 1997, respectively. Net Sales Net sales include sales of merchandise and services and sales of leased departments, net of returns and exclusive of sales tax. Retail sales are recorded on the accrual basis and profits on installment sales are recognized in full when the sales are recorded. Sales of leased departments were $259,615 in 1998, $255,365 in 1997 and $234,902 in 1996.

Cash and Cash Equivalents Cash and cash equivalents consist of deposits with banks and financial institutions that have maturities, when purchased, of three months or less. Cash equivalents are stated at cost, which approximates fair value. On February 10, 1999, the Company prepaid approximately $236,000 of SFA real estate indebtedness ("REMIC certificates"). The prepayment requirements of the REMIC certificates required the Company to fund an escrow account with the REMIC certificates' payoff funds ten days prior to repurchase. The Company funded $363,753 into the escrow account on January 29, 1999. The escrow funds are classified as cash placed in escrow for debt redemption on the consolidated balance sheet. The amount funded to the escrow account differs from the amount prepaid due to the requirement to fund REMIC certificates owned by outside parties as well as $95,000 of REMIC certificates owned by the Company, prepayment premiums and accrued interest. The escrow account was relieved on February 10, 1999 with the prepayment of the REMIC certificates. Approximately $95,000 was refunded to the Company and the remaining funds satisfied accrued interest and the prepayment premiums. Retained Interest in Accounts Receivable The Company's credit card bank provides credit to and performs ongoing credit evaluations of its customers. Concentration of credit risk is limited because of the large number of customers and their dispersion throughout the United States and other countries. The Company's credit card bank sells its proprietary credit card receivables to multiple special purpose subsidiaries and trusts in exchange for certificates representing undivided interest in such receivables. Gains or losses on the sale of the receivables depends in part on the previous carrying amount of retained interests allocated in proportion to their fair values. The Company estimates fair value based on the present value of future cash flows expected under management's best estimates of assumptions including credit losses, payment rates and discount rates commensurate with the risks involved. Due to the short-term nature of the proprietary credit card portfolio, the carrying value of the Company's retained interest approximates fair value. The Company retains the servicing rights to all receivables sold to the special purpose subsidiaries and trusts. Merchandise Inventories Merchandise inventories are stated at the lower of cost (last-in, first-out ["LIFO"] for non-SFA inventories and the retail method for SFA inventories) or market and include freight and certain purchasing and distribution costs. A substantial portion of the Company's non-SFA inventory was determined using LIFO cost. At January 30, 1999 and January 31, 1998, the LIFO value of the non-SFA inventory exceeded market value, and as a result, inventory was stated at the lower market amount. At January 30, 1999 and January 31, 1998, SFA inventory was $554,678 and $529,535, respectively, and was determined using the retail method. Consignment merchandise on hand of $105,536 and $103,759 at January

30, 1999 and January 31, 1998, respectively, is not reflected in the consolidated balance sheets. Advertising Direct response advertising relates primarily to the production and distribution of the Company's catalogs and is amortized over the estimated life of the catalog. Direct response advertising amounts included in other current assets in the consolidated balance sheets at January 30, 1999 and January 31, 1998 were $5,451 and $5,145, respectively. All other advertising and sales promotion costs are expensed in the period incurred. Advertising expenses were $190,143, $192,154 and $166,927 in fiscal years 1998, 1997 and 1996, respectively. Store Pre-Opening Costs Store pre-opening costs are expensed when incurred. Property and Equipment Property and equipment are stated at cost. For financial reporting purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over primarily 10 to 40 years while fixtures and equipment are depreciated over primarily 5 to 15 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or their related lease terms. Gains or losses on the sale of assets are recorded at disposal. Internally developed and purchased computer software is capitalized and amortized using the straight-line method over 5 to 15 years. Costs incurred for the Year 2000 assessment and resulting software modifications are expensed as incurred. The carrying value of property and equipment is periodically reviewed and adjusted by the Company whenever events or changes in circumstances indicate that the estimated fair value is less than the carrying amount. See Note 6 for fiscal 1998 adjustments to carrying values of property and equipment. Goodwill and Intangibles The Company has allocated the purchase price of purchase transactions first to identifiable tangible assets and liabilities based on estimates of their fair value, with the remainder allocated to goodwill and other intangible assets. Amortization of goodwill and intangibles is provided on a straight-line basis over the respective lives of the various intangible assets ranging from 10 to 40 years. In 1998, the Company completed three purchase transactions with resulting goodwill and intangibles additions. The Company's purchases of Brody Brothers Dry Goods (six department stores in North Carolina), Bullock & Jones (direct mail business and one retail store) and 15 store locations from Dillard's resulted in 1998 additions of approximately $270,000. In 1997, the Company recorded a net reduction of goodwill of $34,525 due to the recognition of the tax benefit generated from differences for financial statement purposes and income tax regulations in the recording of various assets and liabilities at acquisition. The Company recognized amortization expense of $11,601,

$10,064 and $6,075 in fiscal years 1998, 1997 and 1996, respectively. As of January 30, 1999 and January 31, 1998, the accumulated amortization of goodwill and intangible assets was $39,070 and $26,500, respectively. At each balance sheet date, the Company evaluates the recoverability of goodwill and intangible assets based upon utilization of the assets and expectations of related cash flows. Based upon its most recent analysis, the Company believes that no impairment of goodwill and intangibles exists at January 30, 1999. Derivatives Policy The Company uses financial derivatives only to reduce risk in conjunction with specific business transactions. The Company has purchased forward rate lock agreements and interest rate cap agreements to limit its exposure to adverse movements in interest rates related to planned debt issuances and floating rate debt costs associated with its various financing activities and accounts receivable securitization. In addition, the Company entered into interest rate swap agreements to fix a portion of the floating rate cost exposure related to the accounts receivable securitization. The financial institutions associated with these agreements are considered to be major, well-known institutions. In fiscal 1998, and as a result of the merger with SFA, the Company terminated two interest rate agreements. The interest rate agreements were (1) an interest rate hedging agreement which included an option feature related to the continuation of the SFA receivables securitization agreement and (2) an interest rate hedging agreement related to a planned long-term debt offering that was ultimately cancelled. As a result of terminating these two agreements, the Company recorded charges of $17,400, which are included in other income (expense) in the consolidated statements of income. Employee Stock Ownership Plans Shares acquired after January 30, 1994 were accounted for in accordance with Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans." All other unreleased shares were accounted for in accordance with SOP 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans." See Note 13 for discussion of the Herberger's Employee Stock Ownership Plan ("ESOP") termination during 1997. Stock-Based Compensation The Company records compensation expense for all stock-based compensation plans using the intrinsic value method. Compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price on the measurement date. Pro forma disclosures of net income and earnings per share are presented in Note 13, as if the fair value method had been applied. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are

determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Common Share Basic earnings per common share ("EPS") have been computed based on the weighted average number of common shares outstanding, after recognition of preferred stock payments of $3,828 for 1996. The Company's 4.75% and 5.50% convertible subordinated debentures were considered in diluted earnings per share, when dilutive. In the fourth quarter of 1998, the Company repurchased with cash approximately $272,000 of SFA's 5.50% convertible subordinated notes and during 1997, the Company converted $86,250 of the 4.75% convertible subordinated debentures into 4,040 shares of common stock. Common stock issued upon the conversion of the preferred stock in 1996, and the convertible subordinated debentures in 1997 have been included in the weighted average number of shares outstanding subsequent to the date of conversion for computing basic earnings per share. Computation of Per Share Earnings
FOR THE YEAR ENDED JANUARY 30, 1999 -------------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures -------DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $24,985 142,856 $0.17

3,527

--------

--------

$24,985 ========

146,383 ========

$0.17 =======

FOR THE YEAR ENDED JANUARY 31, 1998 ---------------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $416,237 137,588 $3.03

3,438 10,664 -------8,059 --------

--------

$426,901 ========

149,085 ========

$2.86 =======

FOR THE YEAR ENDED FEBRUARY 1, 1997 -----------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $89,750 125,056 $0.72

3,487 2,500 -------4,040 --------

--------

$92,250 ========

132,583 ========

$0.70 =======

Segment Reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The objective of this statement is to provide users of financial statements information about the different types of business activities in which a company engages and the different economic environments in which it operates. The statement provides companies the opportunity to aggregate two or more operating segments into a single operating segment if the segments have similar characteristics. In applying SFAS No. 131, the Company identified three reportable segments, which are as follows: department stores, catalog, and furniture. The department store segment includes all department stores which the company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of

the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The catalog segment includes the Company's direct marketing catalogs of Folio and Bullock & Jones. The Company's furniture segment includes the Company's four free-standing furniture stores as well as furniture departments within existing department stores. The combined operations of the catalog and furniture segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus the three identified segments are combined within the consolidated financial statements of the Company. New Accounting Pronouncements In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that all derivative financial instruments be recorded on the financial statements. SFAS No. 133 is effective for the Company in the first quarter of 2000, and the Company is in the process of ascertaining the impact this new standard will have on its financial statements. The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998. Components of the Company's comprehensive income for 1998 include the net loss of $896 and a minimum pension liability adjustment of $7,487, net of taxes, as presented in the consolidated statements of shareholders' equity. The Company had no components of comprehensive income in 1997 and 1996. Note 3 - Mergers and Acquisitions The Company has experienced significant growth since 1994, primarily through a series of acquisitions. The Company's significant acquisitions are outlined below:
Date Acquired -----------March 31, 1994 February 3, 1996 October 11, 1996 February 1, 1997 January 31, 1998 September 17, 1998 Accounting Treatment ------------Purchase Pooling Purchase Pooling Pooling Pooling Shares Issued -------872 17,632 5,894 8,000 27,565 52,500 Purchase Price --------$ 256,000 $ 517,000

Acquired Company ----------------McRae's Younkers Parisian Herberger's Carson Pirie Scott Saks Holdings

Additionally, the Company acquired 15 former Mercantile stores, including inventories and proprietary credit card accounts and receivables, from Dillard's in the third and fourth quarters of 1998 for the aggregate purchase price of $482,000. The following unaudited pro forma summary presents the consolidated results of operations as if the 15 stores purchased from Dillard's had occurred at the beginning of the periods presented. The summary is neither indicative of what would have occurred had the acquisition been made as of

those dates nor indicative of results which may occur in the future.
Unaudited -----------------------------1998 1997 ------------------------Pro forma: Net sales Income before extraordinary items Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items $ 6,491,341 23,070 (2,811) $ 6,142,168 414,162 402,839

$ $ $ $

0.16 (0.02) 0.16 (0.02)

$ $ $ $

3.01 2.93 2.78 2.70

Separate results of the combined entities in the SFA pooling transaction were as follows:
Year Ended ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------Revenue: Proffitt's SFA Consolidated Extraordinary item: Proffitt's SFA Consolidated Net income (loss): Proffitt's SFA Consolidated $ 3,801,879 2,418,014 ----------$ 6,219,893 =========== $ (12,319) (13,562) ----------$ (25,881) =========== $ 116,227 (117,123) ----------$ (896) =========== $ 3,544,656 2,181,690 ----------$ 5,726,346 =========== $ (9,345) (1,978) ----------$ (11,323) =========== 62,737 342,177 ----------$ 404,914 =========== $ $ 2,992,606 1,934,256 ----------$ 4,926,862 ===========

$ (12,746) ----------$ (12,746) =========== 67,080 13,752 ----------$ 80,832 =========== $

SFA's financial statements have been restated to conform to the Company's accounting methods and financial statement presentation which included changing SFA's previously reported income and shareholders' equity. SFA

previously included certain store receiving costs in inventory, accrued certain estimated vendor rebates as receivables and deferred store preopening costs. The effect of the conformity restatement is to reduce previously reported net income by $1,627 in 1997 and $10,392 in 1996. Additionally, the Company has changed its presentation of net finance charge income to include such as a component of selling, general and administrative expenses with no effect on previously reported net income. Note 4 - Marketable Securities Investments in marketable securities are carried as available-for-sale securities at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from income and are reported as a component of shareholders' equity until realized. Carson's held $23,353 par value of 9.0% Junior Subordinated Exchange Debentures due 2004 of County Seat Holdings, Inc. In 1996, Carson's wrote down its entire interest in the County Seat Debentures and reflected such in other income (expense). In 1997, Carson's sold its County Seat Debentures for an insignificant amount. Note 5 - Accounts Receivable Securitizations The Company has entered into agreements to securitize a majority of the proprietary credit card receivables of its credit card bank. The securitization of receivables involves the continual transfer of receivables with limited recourse from the Company's wholly owned special purpose subsidiaries to its credit card related trusts: Saks Master Trust ("SMT"), Proffitt's Credit Card Master Trust ("PCCMT") and Younkers Master Trust ("YMT") in exchange for cash and subordinated certificates representing undivided interests in the pool of receivables, and the subsequent issuance by the trusts of certificates of beneficial interest, also representing undivided interests in the pool of receivables, to investors. The Company has the ability to issue securities in fixed or variable denominations with fixed or variable implicit discount rates. At January 30, 1999, the Company had available the following funding sources:

Entity -------SMT SMT YMT PCCMT PCCMT

Funding Capacity ----------------Fixed at $413,000 Variable up to $118,000 Fixed at $75,000 Fixed at $466,500 Variable up to $300,000

Amount Outstanding January 30, 1999 ---------------$ 367,829 76,800 75,000 466,500 173,007 -----------$ 1,159,136

Average Implicit Discount Rate ------------Variable Variable 6.45% 6.20% Variable

Funding Basis ------Libor/C Libor

CP

At January 30, 1999, the weighted average variable rate for the commercial paper based facilities was 5.10%. The various agreements contain covenants requiring the maintenance of certain financial ratios and receivables portfolio performance measures. While the Company has no obligations to reimburse the trust or investors for credit losses, the Company is obligated to repurchase receivables related to customer credits such as merchandise returns and other receivables defects. Finance charges earned by the certificate investors were $66,930, $47,311 and $40,742 for 1998, 1997 and 1996, respectively. Net finance charge income included in selling, general and administrative expenses in the consolidated statements of income totaled $194,590 in 1998, $166,221 in 1997 and $130,178 in 1996. Gains on sales of accounts receivable included within net finance charge income were $36,400 and $15,000 in 1998 and 1997, respectively. The third party interest in the credit card related trusts was $1,159,136 and $842,394 at January 30, 1999 and January 31, 1998, respectively. The Company's retained interest was $159,596 and $412,209 at January 30, 1999 and January 31, 1998, respectively. In addition to these ownership interests transferred to the credit card related trusts, the Company entered into a stand alone facility to finance its acquisition of accounts receivable from the Dillard's stores. Under this facility, the Dillard's stores accounts receivable were purchased by Proffitt's Credit Corporation ("PCC"), one of the Company's special purpose subsidiaries and subsequently transferred to a third party commercial paper conduit. As of January 30, 1999, approximately $17,894 was outstanding under this facility. National Bank of the Great Lakes (the "Bank"), a wholly owned national credit card bank subsidiary, issues all proprietary credit cards to the Company's customers, extends all credit, and sells all accounts receivable generated by the credit cards to the Company's special purpose subsidiaries, PCC and SFA Finance Company ("SFC"). Note 6 - Property and Equipment A summary of property and equipment is as follows:
January 30, 1999 ----------$ 286,193 1,137,562 193,849 1,020,443 162,296 ----------2,800,343 (697,288) ----------2,103,055 15,500 ----------$ 2,118,555 =========== January 31, 1998 ----------$ 260,862 955,981 155,643 823,769 55,361 ----------2,251,616 (544,637) ----------1,706,979 19,000 ----------$ 1,725,979 ===========

Land and land improvements Buildings Leasehold improvements Fixtures and equipment Construction in progress

Accumulated depreciation

Property held for sale, net of accumulated depreciation

As a part of the Company's merger with SFA, the Company commenced a process to determine the ongoing utility and value of its existing information technology systems hardware and software. The valuation process included performing an inventory of the Company's in-process development projects and significant operating systems and hardware and determining the future use of the identified projects and systems. As a result, the Company wrote down its investment in capitalized information technology systems software and hardware by $23,000 in 1998. This charge, which is included in merger and integration charges in the consolidated statement of income, primarily represented the termination of SFA software development projects that were in process before SFA's merger with the Company. In 1998, primarily as a result of the merger with SFA, the Company reviewed the carrying value of several store locations not meeting the Company's minimum investment return criteria, closed and relocated stores, unused corporate office space and terminated planned store projects. This process resulted in an impairment charge comprised of: store closings/relocations, $28,900; termination of new store projects, $12,600; non-cash flowing store locations, $12,700; other miscellaneous assets, $1,800; and accrued closure costs of $6,000. Approximately $42,000 of this aggregate $62,000 charge was recognized in the fourth quarter. Note 7 - Income Taxes The components of income tax expense (benefit) are as follows:
Year Ended -------------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------Current: Federal State $8,574 1,134 ------9,708 14,724 202 ------14,926 ------$24,634 ========= $51,562 8,845 ------60,407 (239,397) (22,598) ------(261,995) ------$(201,588) ========= $14,522 4,848 ------19,370 27,572 4,056 ------31,628 ------$50,998 =========

Deferred: Federal State

Total expense (benefit)

The tax effect for extraordinary losses on early extinguishment of debt was a benefit of $16,547, $7,162, and $0 for fiscal years 1998, 1997 and 1996, respectively. Components of the net deferred tax asset or liability recognized in the consolidated balance sheets are as follows:
January 30, 1999 --------Current: Deferred tax assets: Trade accounts receivable Accrued expenses AMT credit NOL carryforwards Valuation allowance January 31, 1998 ---------

$

-56,844 800 32,999 (6,155) --------84,488

$

6,123 49,198 704 32,999 (6,155) --------82,869

Deferred tax liabilities: Inventory Other

Net current deferred tax asset Non-current: Deferred tax assets: Capital leases Other long-term liabilities Deferred compensation NOL carryforwards Valuation allowance

-(530) --------(530) --------$ 83,958 =========

(3,788) (1,212) --------(5,000) --------$ 77,869 =========

$

20,567 44,476 2,657 294,906 (25,251) --------337,355

$

19,205 44,644 1,908 291,552 (41,251) --------316,058

Deferred tax liabilities: Property and equipment Deferred gain Other assets

Net non-current deferred tax asset

(53,387) (6,265) (27,887) --------(87,539) --------$ 249,816 =========

(40,134) (6,491) (17,640) --------(64,265) --------$ 251,793 =========

At January 30, 1999, the Company has $734,782 and $106,000 in federal and state tax net operating loss carryforwards related to losses incurred by

SFA and Carson's. The carryforwards will expire between 2003 and 2017. The future utilization of these carryforwards is restricted under federal income tax change-in-ownership rules and SFA's and Carson's ability to generate sufficient taxable income. The continued improvement in SFA's operating income in fiscal 1997, as well as estimates of SFA's future profitability, enabled the Company to recognize a $294,846 deferred tax asset in the fourth quarter of 1997. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this tax benefit also enabled SFA to reduce goodwill by $34,525 due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. The valuation allowance attributable to Carson's losses and tax basis differences was reduced by $16,000 for each of the years ended January 30, 1999 and January 31, 1998, based on management's reassessment of the realizability of the related deferred tax asset in future years. The tax benefit resulting from the reduction in the valuation allowance is credited directly to shareholders' equity. The Company believes it is more likely than not that the benefit of the net deferred tax assets will be realized. Income tax expense varies from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference are as follows:
1998 --------$ 8,308 857 14,887 3,100 (3,000) 1997 --------$ 71,164 7,015 7,004 3,475 (294,846) 4,415 185 --------$(201,588) ========= 1996 --------$ 50,602 6,474 1,860 1,308 (10,880) 1,634 --------$ 50,998 =========

Expected income taxes at 35% State income taxes, net of federal benefit Nondeductible merger related costs Amortization of goodwill Favorable settlement of tax examination Recognition of NOL carryforward Non-deductible ESOP expenses Other items, net Actual income taxes

482 --------$ 24,634 =========

The Company made income tax payments, net of refunds received, of $19,852, $12,664 and $34,172 during 1998, 1997 and 1996, respectively. Note 8 - Senior Debt A summary of senior debt is as follows:

SFA real estate financing -- REMIC certificates Revolving credit agreements Carson's receivables facility Notes, 8.25%, maturing 2008 Notes, 7.50%, maturing 2010 Notes, 7.25%, maturing 2004 Notes, 8.125%, maturing 2004 Real estate notes, mortgage notes and industrial revenue bonds Capital lease obligations

January 30, 1999 ----------$ 235,841 608,000 500,000 250,000 350,000

January 31, 1998 ----------$ 300,841 346,750 125,000

125,000 17,144 160,681 ----------2,121,666 (11,271) ----------$ 2,110,395 =========== 39,865 169,408 ----------1,106,864 (13,058) ----------$ 1,093,806 ===========

Current portion

Real Estate Financing In May 1995, SFA, through a subsidiary trust, completed a real estate financing aggregating $335,000 through the issuance of mortgage loans collateralized by intercompany leases. Mortgage certificates in the principal amount of $175,000 bore interest at variable rates based on three-month LIBOR, payable quarterly. The remaining $160,000 in certificates, which were subordinated to the other certificates, bore interest at annual fixed rates ranging from 8.98% to 12.36%, payable semiannually. In fiscal years 1995, 1996, 1997 and 1998, the Company repurchased $4,159, $15,000, $15,000 and $65,000, respectively, of its outstanding REMIC certificates. The Company recorded extraordinary charges of $2,951, $3,352 and $8,174 in fiscal years 1996, 1997 and 1998, respectively, associated with the repurchase premium and accelerated write-off of deferred financing costs related to these repurchases. On February 10, 1999, subsequent to the Company's 1998 fiscal year-end, the Company prepaid the remaining $235,841 in outstanding REMIC certificates. The Company's fiscal 1999 first quarter will reflect an extraordinary charge of approximately $9,500 associated with the prepayment premium and accelerated write-off of deferred financing costs related to this prepayment. Revolving Credit Facilities In 1998, the Company twice replaced its revolving credit agreement. The first occurred in conjunction with the Carson's merger in which the Company replaced its revolving credit agreement and Carson's revolver with a new $600,000 revolving credit facility. Previously unamortized debt issuance costs associated with the replaced revolver were written off and reflected in the extraordinary loss on early extinguishment of debt in 1998. The second replacement was made in conjunction with the SFA merger, in which the Company replaced its $600,000 revolving credit facility and the SFA credit facility with a $750,000 five-year term revolving credit facility, and a $750,000 364 day revolving credit facility (reduced to $500,000 in

March 1999) that includes a four-year term-out option. Previously unamortized debt issuance costs associated with the replaced revolver and SFA credit facility were written off and reflected in the extraordinary loss on early extinguishment of debt in 1998. Interest on the two remaining credit facilities is variable and the weighted average interest rate at January 30, 1999 was 5.76%. Prior to the merger with the Company, Carson's financed its credit card receivables with a $200,000 facility ("Receivables Facility"). In connection with the merger, the Receivables Facility was terminated and the $125,000 outstanding balance under the Receivables Facility was repaid on February 2, 1998 with proceeds from the sale of receivables under the Company's receivables securitization agreements (see Note 5). Other Senior Debt In connection with the SFA merger, the Company, in the third and fourth quarters of fiscal 1998, initiated a series of refinancing activities related to other senior debt designed to enhance liquidity, strengthen its balance sheet and position the Company for future growth. The refinancing activities included completing a tender offer for the $125,000, 8.125% notes resulting in an extraordinary charge on early extinguishment of debt of $11,625 and also issuing and selling $1,100,000 of unsecured notes with interest rates ranging from 7.25% to 8.25% and maturities ranging from 2004 to 2010. The Company utilized the revolving credit agreements to fund the repurchase of the 8.125% notes and utilized the proceeds from the $1,100,000 in unsecured notes to pay down the revolving credit agreements. On February 17, 1999, subsequent to the Company's fiscal year-end, the Company issued $200,000 in 7.375% notes, due 2019. The net proceeds of the notes were used to reduce outstanding amounts on the Company's revolving credit facilities. In May 1996, SFA completed an initial public offering with net proceeds of $417,769. The proceeds from the offering were primarily used to prepay term loan borrowings and outstanding revolving credit balances under SFA's existing credit facility. The Company recorded an extraordinary loss of $3,340 associated with the accelerated write-off of deferred financing costs related to these payments. Maturities At January 30, 1999, maturities of senior and subordinated debt for the next five years and thereafter, giving consideration to lenders' call privileges and the Company's option to term-out the revolving credit facility, are as follows:
Year -------1999 2000 2001 2002 2003 Maturities -----------$15,523 7,558 5,609 240,938 616,276

Thereafter

1,240,014 ----------$2,125,918 ===========

The Company made interest payments, net of capitalized interest, of $93,999, $97,745 and $94,848 during 1998, 1997 and 1996, respectively. Note 9 - Subordinated Debt Subordinated debt represents uncollateralized obligations subordinated in right of payment to all senior debt and is composed of the following:
January 30, 1999 ---------$4,252 -------$4,252 ======== January 31, 1998 ----------$276,000 10,964 --------$ 286,964 =========

Convertible debentures, interest at 5.50% Notes, interest at 9.875%

In September 1996, SFA issued $276,000 aggregate principal amount of 5.50% convertible debentures for net cash proceeds, after offering expenses and financing costs, of $267,500. During the fourth quarter of 1998, the Company repurchased $271,748 of the 5.50% convertible subordinated notes and expects to redeem the remaining notes in 1999. During 1998, the Company recorded an extraordinary loss of $6,175 relating to the accelerated write-off of deferred financing costs related to the prepayments. In October 1997, the Company converted its 4.75% convertible debentures into 4,040 shares of the Company's common stock. As a result of this conversion, certain deferred debt issuance costs aggregating $600 were written off as an extraordinary item. Effective with the Parisian acquisition, the Company assumed $125,000 of existing Parisian subordinated notes. In 1997, the Company purchased approximately 90% of these notes which resulted in an extraordinary loss from the extinguishment of debt of approximately $7,900. In July 1998, the remaining outstanding notes were repurchased. Note 10 - Leases The Company leases certain land and buildings under various non-cancelable capital and operating leases. The leases generally provide for contingent rentals based upon sales in excess of stated amounts and require the Company to pay real estate taxes, insurance and occupancy costs. Generally, the leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 5 to 20 years. At January 30, 1999, future minimum rental commitments under capital leases and non-cancelable operating leases consisted of the following:

Operating Leases ------------1999 $ 122,339 2000 117,961 2001 115,286 2002 112,975 2003 111,118 Thereafter 917,166 ---------$1,496,845 =========== Amounts representing interest Capital lease obligations

Capital Leases ------------$ 25,059 25,151 23,481 22,784 22,586 342,511 --------$461,572 ======== (300,891) -------$160,681 ========

Total rental expense for operating leases was $181,966, $157,018 and $114,714 during 1998, 1997 and 1996, respectively, including contingent rents of approximately $22,806, $20,733 and $17,762, respectively. In June 1997, SFA entered into a $100,500 operating lease agreement, which was used to finance qualified properties. Under the agreement, the lessor agreed to construct new store sites in order to lease them to the Company. At January 31, 1998, the Company guaranteed a residual value of approximately $18,869 and had approximately $77,500 available under the agreement to fund capital expenditures. On September 17, 1998, the Company terminated the operating lease agreement which resulted in the purchase of properties valued at approximately $30,000. The Company leases certain selling space within its stores to other specialty retailers under contingent rental agreements. Rental income related to these agreements was $12,633, $13,024 and $11,846, in 1998, 1997 and 1996, respectively. During 1997 and 1996, the Company consummated the sale and sale-leaseback of certain property and equipment with proceeds of $4,630 and $30,269, respectively. Note 11 - Employee Benefit Plans Employee Savings Plans The Company sponsors various qualified savings plans that cover substantially all full-time employees. Company contributions charged to expense under these plans, or similar predecessor plans, for 1998, 1997 and 1996 were $8,667, $6,509 and $5,133, respectively. Defined Benefit Plans The Company sponsors two noncontributory defined benefit pension plans for substantially all employees of Carson's and SFA. Benefits are principally based upon years of service and compensation prior to retirement. The Company generally funds pension costs currently, subject to regulatory funding limitations. In 1998, the SFA defined benefit plan was amended and converted to a cash balance plan.

1998 -------Net periodic pension expense: Service cost Interest cost Expected return on plan assets Net amortization and deferral of prior service costs Net pension expense $ 10,401 18,989 (20,707) 90 -------$ 8,773 ========

1997 -------$ 10,652 17,839 (18,699) (61) -------$ 9,731 ========

1996 -------$ 10,978 16,937 (16,827) 68 -------$ 11,156 ========

January 30, 1999 --------Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan amendment Actuarial gain Benefits paid Benefit obligation at end of year

January 31, 1998 ---------

$ 265,753 10,401 18,989 2,228 17,025 (17,819) --------$ 296,577 =========

$ 232,402 10,652 17,839 19,840 (14,980) --------$ 265,753 =========

January 30, 1999 --------Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year Pension plans' funding status: Accumulated benefit obligation Effect of projected salary increases Projected benefit obligation Fair value of plan assets Funded status Unrecognized actuarial loss (gain) Unrecognized prior service cost

January 31, 1998 ---------

$ 230,422 11,992 15,142 (17,819) --------$ 239,737 ========= $(282,041) (14,536) --------(296,577) 239,737 --------(56,840) 17,843 1,955

$ 204,877 35,208 5,317 (14,980) --------$ 230,422 ========= $(249,830) (15,923) --------(265,753) 230,422 --------(35,331) (7,312) (173)

Contributions subsequent to measurement date Accrued pension cost classified in other liabilities

4,549 --------$ (32,493) =========

159 --------$ (42,657) =========

Amounts recognized in the consolidated balance sheet: Accrued benefit liability Intangible asset Additional minimum pension liability (reflected in equity net of tax) Net amount recognized Assumptions: Discount rate Expected long-term rate Average assumed rate of Measurement date -- CPS Measurement date -- SFA

$ (46,890) 2,123 12,274 --------$ (32,493) ========= 7.00% 9.50% 3.66% 11/1/98 11/1/98

$ (42,657)

--------$ (42,657) ========= 7.39% 9.50% 3.66% 11/1/97 1/31/98

of return on assets compensation increase plan plan

Retiree Health Care Plans The Company provides health care benefits for certain groups of employees who retired before 1997. The plans were contributory with the Company providing a frozen annual credit of varying amounts per year of service. The net annual expense and liabilities for the unfunded plans reflected in the Company's consolidated balance sheets are as follows:
1998 ----Net periodic pension expense: Interest cost Net amortization of (gain) loss Net pension expense $ 749 (196) ----$ 553 ===== 1997 ----$ 783 (188) ----$ 595 ===== 1996 ----$ 815 (112) ----$ 703 =====

January 30, 1999 ---------Change in benefit obligation: Benefit obligation at beginning of year Interest cost Actuarial gain Benefits paid Benefit obligation at end of year $ 10,530 749 (1,186) (690) -------$ 9,403 ========

January 31, 1998 ----------$ 10,649 783 (282) (620) -------$ 10,530 ========

Plan funding status: Accumulated postretirement benefit obligation Fair value of plan assets Funded status Unrecognized actuarial loss (gain) Contributions subsequent to measurement date Accrued pension cost classified in other liabilities Sensitivity Analysis: Effect of a 1.0% increase in health cost trend assumption on total of cost and interest cost components Effect on benefit obligations Effect of a 1.0% decrease in health cost trend assumption on total of cost and interest cost components Effect on benefit obligation Assumptions: Discount rate Pre-medicare medical inflation Post-medicare medical inflation Ultimate medical inflation (2001) Measurement date

$ (9,403) --------(9,403) (4,644) 181 -------$(13,866) ========

$(10,530) --------(10,530) (3,653) 149 -------$(14,034) ========

care service in 1998 care service in 1998

$ $

37 526

$ $

37 560

$ $

(33) (473)

$ $

(33) (504)

7.00% 7.00% 6.25% 5.00% 11/1/98

7.50% 8.00% 7.00% 5.00% 11/1/97

Note 12 - Shareholders' Equity Preferred Stock In 1994, the Company issued 600 shares of series A Cumulative Convertible Exchangeable Preferred Stock in a private offering (10,000 total shares authorized). Net proceeds to the Company were approximately $28,900 after offering expenses. Dividends were cumulative and were paid at $3.25 per annum per share. On June 28, 1996, the holder converted the preferred stock into 2,844 shares of the Company's common stock. The Company paid $3,032 to the holder of the preferred stock to induce early conversion. Common Stock The Company has 500,000 shares of $.10 par value common shares authorized of which 142,856 and 141,461 shares were issued and outstanding at January 30, 1999 and January 31, 1998, respectively. In August 1997, the Company's Board of Directors approved a 2-for-1 stock split of the outstanding shares of the Company's common stock. The split was effected in the form of a stock dividend; each shareholder received one additional share for each outstanding share of common stock held of record as of the close of business on October 15, 1997. The per share amounts presented in the Company's consolidated financial statements are reflective of the 2-for-1 stock split. Each outstanding share of common stock has one preferred stock

purchase right attached. The rights (which were revised in March 1998) generally become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the common stock. Each right entitles its holder to buy 1/200 share of Series C Junior Preferred Stock at an exercise price of $278 per 1/100 of a share, subject to adjustment in certain cases. The rights expire in March 2008. Once exercisable, if the Company is involved in a merger or other business combination or an outside party acquires 20% or more of the common stock, each right will be modified to entitle its holder (other than the acquirer) to purchase common stock of the acquiring company or, in certain circumstances, common stock having a market value of twice the exercise price of the right. Other Previously, Herberger's was required to repurchase shares from inactive participants of its ESOP at fair value. Treasury stock transactions were accounted for under the cost method with gains or losses on transactions credited or charged to additional paid-in-capital. No shares were purchased in 1998, and 3 and 170 shares were purchased in 1997 and 1996, respectively. In connection with the rescission of the put option on the ESOP shares (see Note 13), the Company retired all 13,794 shares of the Company's common stock held in Treasury. Prior to the merger with the Company, Carson's purchased and retired 700 common shares for $13,096 during the year ended January 31, 1998. Information regarding other changes in shareholders' equity is summarized below:

Balance at February 3, 1996 Reclassification of ESOP stock Stock compensation Purchase and retirement of stock Sale of treasury stock Balance at February 1, 1997 Stock compensation Termination of ESOP Balance at January 31, 1998 Minimum pension liability Balance at January 30, 1999

Treasury Stock --------$(37,683)

Deferred ESOP Compensation -----------$ -(9,778)

Unamortized Stock Compensation -----------$ (453) 286

Other Comprehensive Income ------------$ --

21,481 16,202 ----------

--------(9,778) 9,778 -----------------$ -=========

--------(167) 167 -----------------$ -=========

----------

-----------------$ -=========

---------(7,487) --------$(7,487) =========

Note 13 - Employee Stock Plans ESOP Herberger's sponsored an employee stock ownership plan for the benefit of its employees. Contributions to the ESOP were made at the discretion of the Board of Directors and were $3,670 in 1996. At various times, the ESOP purchased shares of the Company's common stock using the proceeds of ESOP loans. These shares were initially held in a suspense account by the Plan trustee. As contributions were made and dividends were paid and the ESOP debt was repaid, shares were released from suspense and allocated to the accounts of participants, and the Company recognized compensation expense. For shares acquired after January 30, 1994, ESOP expense was recorded equal to the estimated fair value of shares allocated and those shares became outstanding for earnings per share computations. For all other shares, ESOP expense was recorded equal to the cost of the shares released. All shares acquired prior to January 30, 1994 were considered outstanding for earnings per share calculations. Prior to the merger, Herberger's shares distributed from the ESOP could be put to Herberger's at fair value for cash under certain conditions. As such, the shares were carried at fair value and not reflected on the balance sheet in shareholders' equity. Effective with the merger, the put option was rescinded, and accordingly, the ESOP shares are reflected in shareholders' equity. During 1997, the ESOP was terminated. As a result, the Company received approximately $10,000 in cash representing payment of a $9,000 note receivable from the ESOP. All previously unallocated common shares of the Company held by the ESOP were allocated to the ESOP participants, resulting in a primarily non-cash charge of $7,900. Stock Options and Grants The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to or above fair value of the common shares at the date of the option grant, no compensation cost is recognized. Had compensation cost for the Company's stock-based compensation plans been determined under the fair value method, using the Black-Scholes option-pricing model, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below.

Net income (loss) Basic earnings (loss) per common share Diluted earnings (loss) per common share

January 30, 1999 --------------------------As Reported Pro Forma ------------------$ (896) $(21,127) $(0.01) $(0.01) $ $ (0.15) (0.14)

January 31, 1998 -----------------------As Reported Pro Forma ------------------$ 404,914 $395,237 $ $ 2.94 2.79 $ $ 2.87 2.72

Februa --------As Report --------$ 80,83 $ $ 0.6 0.6

The four assumptions for determining compensation costs under the fair value method include (1) a risk-free interest rate based on zero-coupon government issues on each grant date with the maturity equal to the expected term of the option (5.22%, 6.22% and 6.15% for 1998, 1997 and 1996, respectively), (2) an expected term of five years, (3) an expected volatility of 32.7%, 39.7% and 34.4% for 1998, 1997 and 1996, respectively, and (4) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, employees and directors. At January 30, 1999 the Company has available for grant 1,000 shares of common stock. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest ten years after grant date with accelerated vesting at the discretion of the Company's Board of Directors if the Company meets certain performance objectives. A summary of the stock option plans for 1998, 1997 and 1996 is presented below:

Range of Exercise Price Outstanding at beginning of year Granted Converted in acquisition Exercised Forfeited Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year

1998 ---------------------Weighted Average Exercise Shares Price --------------9,567 4,111 (2,568) (592) ------10,518 $ 4,885 ------$18.17 25.78 14.06 27.41 -----$21.63 $16.89 ------

1997 ----------------------Weighted Average Exercise Shares Price ---------------8,780 3,519 (2,027) (705) ------9,567 5,929 ------$ 14.07 25.90 11.37 25.27 ------$ 18.17 $ 13.88 -------

-----

Sh ---

( -

-

$ 9.83 =======

$ 10.80 =======

$ =

The following table summarizes information about stock options outstanding at January 30, 1999:
OPTIONS OUTSTANDING ---------------------------------------------Weighted Number Average Weighted Outstanding at Remaining Average January 30, Contractual Exercise 1999 Life (Years) Price -----------------------------89 2 $ 4.67 311 5 5.86 2,099 5 11.58 1,513 8 17.89 4,069 10 23.43 2,361 9 31.72 76 9 47.72 -------------10,518 $ 21.63 ======= ======== OPTIONS EXE ------------------Number Exercisable at January 30, 1999 --------------89 311 1,953 923 805 782 22 ------4,885 =======

Range of Exercise Prices $3.75 to $5.63 $5.64 to $8.45 $8.46 to $12.69 $12.70 to $19.06 $19.07 to $28.60 $28.61 to $42.91 $42.92 to $48.78

The Company also granted restricted stock awards of 383, 176 and 298 shares to certain employees in 1998, 1997 and 1996, respectively. The fair value of these awards on the dates of grants was $7,284, $4,600 and $3,763 for 1998, 1997 and 1996, respectively. During 1998, 1997 and 1996, compensation cost of $2,870, $5,700 and $2,239, respectively, has been recognized in connection with these awards. Stock Purchase Plan The stock purchase plan (the "Plan") provides that an aggregate of 700 shares of the Company's common stock is available for purchase. Under the Plan, an eligible employee may elect to participate by authorizing limited payroll deductions to be applied toward the purchase of common stock at a 15.0% discount to market value. Under the Plan, 73 and 62 shares of the Company's common stock were purchased by employees in 1998 and 1997, respectively. At January 30, 1999, the Plan has available for future offerings 510 shares. Note 14 - Commitments and Contingencies Carson's and its subsidiaries emerged from Chapter 11 bankruptcy in 1993. The Company recognized $1,350, $680 and $1,280 in 1998, 1997 and 1996, respectively, to reflect the favorable resolution of claims. Management believes Carson's has adequately provided for the resolution of all bankruptcy claims and other matters related to the Plan of Reorganization remaining at January 30, 1999. In the fourth quarter of 1998, pending litigation between Carson's and Bank One, Wisconsin, related to the Chapter 11 bankruptcy filing was settled resulting in the Company receiving a settlement payment of $42,500, which is included in other income (expense) in the 1998 consolidated statement of income. The Company is involved in several legal proceedings arising from its normal business activities, and accruals for such claims have been established where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. Note 15 - Related Party Transactions During 1996, the Company paid $796 of preferred stock dividends and a $3,032 payment for early conversion of the preferred stock to an investment group in which a Director is a partner. Prior to the merger of Proffitt's and SFA, a shareholder of SFA provided various consulting and advisory services to SFA under an agreement which expired in July 1996. The fees paid or payable for such services were approximately $1,000 in 1996. Note 16 - Fair Values of Financial Instruments The Company has entered into interest rate cap agreements to reduce the effect of increases in interest rates on real estate financing. The Company is also an indirect beneficiary of interest rate cap agreements relating to the accounts receivable securitization. At January 30, 1999, there were

five interest rate cap agreements outstanding. Accordingly, the Company is entitled to receive from various financial institutions the amount, if any, by which the Company's interest payments on its debt are recorded as a reduction of interest expense. Two of the interest rate cap agreements serve to cap $175,000 of SFA's real estate financing at 9.70% through May 2002. Three of the interest rate cap agreements serve to cap a decreasing notional amount of the SFA receivables securitization at 10.0% through May 1999. The combined fair value of the Company's interest rate agreements were $0 and $124 as of January 30, 1999 and January 31, 1998, respectively. During 1996, SFA entered into a financial fixed-rate swap agreement, which was renegotiated in 1997. SFA used this interest rate swap solely as a risk management tool with an objective of managing the level of interest rate risk relating to its accounts receivable securitization. In 1998, as a result of SFA's merger with the Company and the planned 1999 merger of the SFA accounts receivable securitization with that of the Company's, the Company terminated the fixed rate swap agreement resulting in a charge of $7,900, which is included in other income (expense) in the 1998 consolidated statement of income. The fair values of the Company's cash and cash equivalents, retained interest in accounts receivable and accounts payable approximate their carrying amounts reported in the consolidated balance sheets, due to the immediate or short-term maturity of these instruments. For variable rate notes that reprice frequently, such as the revolving credit facilities, fair value approximates carrying value. The fair value of fixed rate real estate and mortgage notes is estimated using discounted cash flow analyses with interest rates currently offered for loans with similar terms and credit risk, and as of January 30, 1999 and January 31, 1998 the fair value of these notes approximated the carrying value. The fair value of publicly-held REMIC certificates, notes and subordinated debentures is based on quoted market prices. The fair values of the Company's financial instruments other than the instruments considered short-term in nature at January 30, 1999 and January 31, 1998 were as follows:
Carrying Amount --------------January REMIC 8.25% 7.25% 7.50% 5.50% 30, 1999 certificates senior notes senior notes senior notes convertible debentures $235,841 $500,000 $350,000 $250,000 $4,252 Estimated Fair Value -------------------$238,841 $547,095 $359,195 $259,768 $4,243

January 31, 1998 REMIC certificates 8.125% senior notes 9.875% notes 5.50% convertible debentures

$300,841 $125,000 $10,964 $276,000

$315,700 $132,700 $11,731 $246,081

The fair value of the long-term debt and interest rate cap agreements were estimated based on quotes obtained from financial institutions for those or similar instruments or on the basis of quoted market prices. Note 17 - Merger and Integration Charges Merger and integration charges incurred in fiscal years 1998, 1997 and 1996 (before income taxes) were as follows:
1998 ------Related to corresponding year's merger: Merger transaction costs, principally investment banking, legal and other direct merger costs Severance and related benefits Conversion and consolidation of systems and administrative operations Abandonment and write-down of information technology software, hardware and other assets Related to all other mergers and acquisitions: Termination of Younkers' benefit plan Conversion and consolidation of systems Termination of merchandise purchasing agreements Severance, relocation and other integration costs associated with all mergers and acquisitions and consulting fees Revisions to prior year estimates: 1995 charges associated with exit of a SFA distribution center 1997 ------1996 -------

$44,848 11,096 8,327

$13,800 11,100

$2,649 3,129 3,355

23,000

6,200

885 1,362 4,549

11,564

2,600 3,900

12,472

5,924

1,000

-------$111,307 ========

(7,000) -------$36,524 ========

-------$16,929 ========

A reconciliation of the aforementioned charges to the amounts of merger and integration costs remaining unpaid at the applicable balance sheet date is as follows:
1998 -------Amounts unpaid at beginning of year related to prior merger and integration events Merger and integration charges Amounts paid Amounts representing non-cash charges Amounts unpaid at end of year 1997 -------1996 --------

$ 25,994 111,307 (76,728) (28,622) -------$ 31,951 ========

$ 10,291 43,524 (13,321) (14,500) -------$ 25,994 ========

$ 16,000 16,929 (20,221) (2,417) -------$ 10,291 ========

The components of the aforementioned amounts unpaid are as follows:
January 30, 1999 ---------$17,530 6,638 5,900 January 31, 1998 ---------$ 5,750 12,795

Direct merger costs* Severance Contractual obligations to be paid within one year of merger Contractual obligations with extended payment terms (such as rents for abandoned leases and payments on abandoned contracts) Other (includes all merger and integration efforts) Totals

348 1,535 ------$31,951 =======

4,500 2,949 ------$25,994 =======

*Principally consists of investment banker fees paid subsequent to year end.

Note 18 - Quarterly Financial Information (Unaudited)
First Quarter --------Fiscal year ended January 30, 1999 Net sales Gross margin Income (loss) before extraordinary loss Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Fiscal year ended January 31, 1998 Net sales Gross margin Income (loss) before extraordinary loss Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items $1,412,602 $ 490,032 $ 28,124 $ 28,124 $ $ $ $ 0.20 0.20 0.19 0.19 Second Quarter --------$1,283,744 $ 444,894 $ 2,982 $ 2,648 $ $ $ $ 0.02 0.02 0.02 0.02 Third Quarter --------$1,472,817 $ 484,048 $ (106,154) $ (127,710) $ $ $ $ (0.74) (0.89) (0.74) (0.89)

$1,302,118 $ 451,103 $ 25,198 $ 21,846 $ $ $ $ 0.19 0.16 0.18 0.16

$1,188,351 $ 402,557 $ (4,734) $ (5,854) $ $ $ $ (0.03) (0.04) (0.03) (0.04)

$1,417,041 $ 513,844 $ 39,606 $ 38,994 $ $ $ $ 0.29 0.28 0.28 0.27

Note 19 - Condensed Consolidating Financial Information The following tables present condensed consolidating financial information for 1998, 1997 and 1996 for (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated Senior Notes (which are all of the wholly owned subsidiaries of Saks Incorporated), except for PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts; and (3) on a combined basis, PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts, the only non-guarantor subsidiaries of the Senior Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements are more meaningful in understanding the financial position of the guarantor subsidiaries. Saks Incorporated is comprised of substantially all of the Proffitt's and Younkers stores and certain corporate management and financing functions. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guaranty subsidiaries under an informal lending arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. On January 31, 1999, immediately following the Company's fiscal year end, the Company restructured its legal entity composition. This restructuring changed the composition of Saks Incorporated to include only the operations of a small group of corporate employees and all of the Company's long-term debt. The Proffitt's and Younkers stores, corporate management and financing functions previously included within the operations of Saks Incorporated were moved to guarantor subsidiary entities. On February 10, 1999 (subsequent to the 1998 year end), the Company prepaid the outstanding REMIC certificates that were held by the REMIC subsidiaries. The condensed financial statements presented do not reflect the restructured legal entity composition.

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended January 30, 1999
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs Losses from long-lived assets Year 2000 expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income (loss) before provision (benefit) for income taxes and extraordinary item Provision (benefit) for income taxes Income (loss) before extraordinary item Extraordinary item, net of taxes Net income (loss) Saks Incorporated -----------$800,592 494,355 -------306,237 155,531 59,597 1,448 31,952 331 884 -------56,494 Guarantor Subsidiaries -----------$5,419,301 3,599,112 ---------1,820,189 1,239,310 469,700 9,119 79,355 41,005 9,553 ---------(27,853) Non-Guarantor Subsidiaries ------------Elimina -------

--------

----

$ 88,977 (41,131)

$(19

20,449 -------(68,295) ---19

(7,000)

(19,909) 30,412 19,775 (64,983) 33,737 ----------

194,590 26,909 (30,412)

(19

14,321 (18,466) (11,536) --------

(3 (27,522) -----------

33,813 22,724 -------11,089 (11,985) -------$ (896) ========

(28,821) (15,389) ---------(13,432) (6,994) ---------$ (20,426) ==========

95,270 33,846 -------61,424 (6,902) -------$ 54,522 ========

(3

---(3 ---$ (3 ====

SAKS INCORPORATED & SUBSIDIARIES CONDENSED BALANCE SHEETS As of January 30, 1999
(dollars in thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Deferred income taxes Intercompany borrowings Other current assets Total Current Assets Property and Equipment, net Goodwill and Intangibles, net Other Assets Deferred Income Taxes Cash Placed in Escrow for Debt Redemption Investment in and Advances to Subsidiaries Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses and other current liabilities Intercompany borrowings Current portion of long-term debt Total Current Liabilities Senior Debt Deferred income taxes Other Long-term Liabilities Investment by and Advances from Parent Shareholders' Equity Total Liabilities and Shareholders' Equity Saks Incorporated -----------Guarantor Subsidiaries -----------Non-guarantor Subsidiaries -----------Eliminations ------------

$

20,366

$(26,751) 220 1,184,597 87,175 90,810 ---------1,336,051 1,270,766 460,580 55,592 249,816 363,753

$ 39,137 159,322

54 221,585 (3,217) 11,070 19,471 ---------269,329 342,355 125,717 1,196

$(11,070) 145 -------198,604 505,434 20,858 ----------(11,070)

3,112,552 ---------$3,851,149 ==========

1,350,621 ---------$5,087,179 ==========

-------$724,896 ========

(4,463,173) ----------$(4,474,243) ===========

$48,768 39,118

$311,620 452,000 $ 38,010 11,070

$

(11,070)

452 ---------88,338 1,709,093 18,893 27,250

15,071 ---------778,691 165,461 (27,045) 136,992 4,033,080

-------49,080 235,841 8,152 1,730 430,093 -------$724,896 ========

----------(11,070)

(4,463,173) ----------$(4,474,243) ===========

2,007,575 ---------$3,851,149 ==========

---------$5,087,179 ==========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW For the Year Ended January 30, 1999
(dollars in thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Extraordinary loss on extinguishment of debt Write-offs of long lived assets, merger and integration items Changes in operating assets and liabilities, net Net cash provided by operating activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Acquisition of Dillard's stores, Brody's and Bullock & Jones Net cash used in investing activities Financing activities Intercompany borrowings, contributions and distributions Proceeds from long-term borrowings Payments on long-term debt Net borrowings under credit and receivables facility Cash placed in escrow for debt redemption Proceeds from issuance of stock Purchase of treasury stock Net cash provided by (used in) financing activities Decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Saks Incorporated -----------$ (896) Guarantor Subsidiaries -----------$ (20,426) Non-guarantor Subsidiaries -----------$ 54,522 Elimina ------$(34,

(14,321) 15,263 20,224

(19,775) 126,159 (19,897) 14,599

34, 13,939 14,599

59,086 (15,373) ----------4,897 514 ---------140,260

20,531 274,191 ---------377,782

(48,277) 2,500

(327,785)

(45,000)

(248,196) ----------(293,973)

(276,921) ---------(604,706)

---------(45,000)

(1,212,694) 1,100,000 (10,320) 398,000

1,375,413

(162,719)

(450,661) (136,750) (363,753)

(45,979) (125,000)

19,525 (474) ----------294,037 4,961 15,405 ----------$ 20,366 ===========

18,040 ---------442,289 (22,157) (4,594) ---------$ (26,751) ========== ---------(333,698) (916) 40,053 ---------$ 39,137 ==========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED STATEMENTS OF INCOME For the Year Ended January 31, 1998
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs (Gains) from long-lived assets Year 2000 expenses ESOP expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income before provision for income taxes and etraordinary item Provision (benefit) for income taxes Income before extraordinary item Extraordinary item, net of taxes Net income Saks Incorporated -----------$746,896 480,435 -------266,461 156,787 56,343 412 11,500 (8) 357 -------41,070 Guarantor Subsidiaries -----------$4,979,450 3,250,858 ---------1,728,592 1,111,830 405,979 16,606 25,024 (126) 6,233 9,513 ---------153,533 Non-guarantor Subsidiaries -----------Eliminati ---------

--------

-------

$ 62,722 (35,064)

$(166,2

-------(27,658)

------166,2

(4,627)

(20,503) 13,372 58,804 (59,373) 2,279 ----------

166,221 25,130 (13,372)

(166,2

397,357 (10,612) (178) --------

(456,1 (43,700) 229 --------

-------

423,010 14,753 -------408,257 (3,343) -------$404,914 ========

148,112 (242,283) ---------390,395 (6,424) ---------$ 383,971 ==========

106,850 33,104 -------73,746 (1,556) -------$ 72,190 ========

(456,1

------(456,1

------$(456,1 =======

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS As Of January 31, 1998
(dollars in thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Deferred income taxes Intercompany borrowings Other current assets Total Current Assets Property and Equipment, net Goodwill and Intangibles, net Other Assets Deferred Income Taxes Investment in and Advances to Subsidiaries Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses and other current liabilities Intercompany borrowings Current portion of long-term debt Total Current Liabilities Senior Debt Other Long-term Liabilities Subordinated Debt Investment by and Advances from Parent Shareholders' Equity Total Liabilities and Shareholders' Equity Saks Incorporated -----------Guarantor Subsidiaries -----------Non-guarantor Subsidiaries -----------Eli ---

$15,405 113 171,212 6,797 30,715 6,777 ---------231,019 186,266 7,340 2,297 (8,683) 1,959,326 ---------$2,377,565

$(4,594) 273 1,073,470 64,625 90,293 98,292 ---------1,322,359 953,642 319,967 39,731 260,476 1,352,541 ---------$4,248,716

$40,053 411,823 6,447 $ 6,552 ---------464,875 586,071 25,901 ---

---------$1,076,847

(3 --$(3

$39,713 45,563

$294,081 380,800 $27,671 121,008

$

452 ---------85,728 336,545 10,763

12,606 ---------687,487 331,420 131,476 286,964 2,811,369

---------148,679 425,841 1,829

---

500,498 ---------$1,076,847 ==========

(3 --$(3 ===

1,944,529 ---------$2,377,565 ==========

---------$4,248,716 ==========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOW For the Year Ended January 31, 1998
(dollars in thousands) Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Recognition of NOL carry-forwards Extraordinary loss on extinguishment of debt (Gains) from long-lived assets ESOP expenses Restructuring items Changes in operating assets and liabilities, net Net cash provided by operating activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Net cash provided by (used in) investing activities Financing Activities Intercompany borrowings, contributions and distributions Proceeds from long-term borrowings Payments on long-term debt Net borrowings under credit and receivables facility Proceeds from issuance of stock Purchase of treasury stock ESOP loan repayment Payments to preferred and common shareholders Net cash provided by (used in) financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Saks Incorporated -----------$404,914 Guarantor Subsidiaries -----------$383,971 Non-guarantor Subsidiaries -----------$72,190 Eliminations -----------$(456,161)

(397,357) 12,874 222

(58,804) 103,240 24,397 (283,675) 20,005 (1,569)

456,161

1,425 (8)

5,375 (126) 8,786 (800) (124,864) -------57,500

1,556

52,575 -------74,645

(15,022) ------77,160

---------

(13,349) 23,221 -------9,872

(253,807) 4,630 -------(249,177)

(79,720) ------(79,720) ---------

(226,093) 175,546 (32,720)

184,610

41,483

(196,082) 136,750

(30,000) 11,392

15,762 (13,096)

7,423 9,778 (1,124) -------141,355 (50,322) 45,728 -------$(4,594) =======

-------(80,601) 3,916 11,489 -------$15,405 =======

------22,875 20,315 19,738 ------$40,053 =======

---------

---------

=========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended February 1, 1997
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs Year 2000 expenses ESOP expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income before provision for income taxes and extraordinary item Provision for income taxes Income before extraordinary item Extraordinary item, net of taxes Net income Saks Incorporated -----------$737,902 461,117 -------276,785 172,219 57,026 8,729 Guarantor Subsidiaries -----------$4,188,960 2,747,872 ---------1,441,088 976,472 333,599 11,645 8,200 1,406 3,910 ---------105,856 Non-guarantor Subsidiaries -----------Eliminati ---------

--------

-------

$ 38,631 (35,023)

$(130,1

-------38,811

-------(3,608)

------130,1

8,500 (2,475)

12,691 (18,550) 6,749

108,987 21,025 (6,749)

(130,1

55,584 (6,404) 7,319 --------

58,868 (63,323) (19,186) ----------

(114,0 (45,154) 87 --------

-------

100,935 20,103 -------80,832 -------$ 80,832 ========

83,105 20,968 ---------62,137 (10,722) ---------$ 51,415 ==========

74,588 9,927 -------64,661 (2,024) -------$62,637 =======

(114,0 ------(114,0 ------$(114,0 =======

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW For the Year Ended February 1, 1997
(dollars in thousands) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Extraordinary loss on extinguishment of debt Losses on County Seat Debentures Losses from long-lived assets ESOP expenses Restructuring items Changes in operating assets and liabilities, net Net cash provided by operating activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Acquisition of Parisian Net cash used in investing activities Financing Activities Intercompany borrowings, contributions and distributions Proceeds from long-term borrowings Payments on long-term debt Net borrowings under credit and receivables facility Proceeds from issuance of stock Purchase of treasury stock ESOP loan repayment Payments to preferred and common shareholders Net cash provided by(used in) financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Saks Incorporated -----------$ 80,832 Guarantor Subsidiaries -----------$ 51,415 Non-guarantor Subsidiaries -----------$ 62,637 Eli --$

(55,184) 14,123 8,901

(58,868) 89,545 22,679 10,722 10,525 1,406 1,481 885 19,865 48 2,024

(34,394) --------14,278

(61,574) --------68,216

(26,373) --------58,201

-

(8,544) 5,410 --------(3,134)

(226,102) 30,872 (119,070) --------(314,300)

(13,168)

--------(13,168)

-

(121,314) 113,037 (19,727)

125,880 267,800 (370,370) (201,820)

(4,566)

(4,159) (35,637)

35,438 (14,383)

422,094 (742) (4,858) --------237,984 (8,100) 53,828 --------$ 45,728 =========

--------(6,949) 4,195 7,294 --------$ 11,489 =========

--------(44,362) 671 19,067 --------$ 19,738 =========

-

-

=

Report of Independent Accountants To the Board of Directors and Shareholders Saks Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Saks Incorporated and Subsidiaries as of January 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above.
/s/ PricewaterhouseCoopers LLP Birmingham, Alabama March 16, 1999

Report of Management The accompanying consolidated financial statements, including the notes thereto, and the other financial information presented in the Annual Report have been prepared by management. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based upon our best estimates and judgments. Management is responsible for the consolidated financial statements, as well as the other financial information in this Annual Report. The Company maintains an effective system of internal accounting control. We believe that this system provides reasonable assurance that transactions are executed in accordance with management authorization and that they are appropriately recorded in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. Reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived. The consolidated financial statements and related notes have been audited by independent certified public accountants. Management has made

available to them all of the Company's financial records and related data and believes all representations made to them during their audits were valid and appropriate. Their report provides an independent opinion upon the fairness of the financial statements. The Audit Committee of the Board of Directors is composed of four independent Directors. The Committee is responsible for recommending the independent certified public accounting firm to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting control and financial reporting matters. The independent auditors have unrestricted access to the Audit Committee.
/s/ R. Brad Martin R. Brad Martin Chairman of the Board and Chief Executive Officer /s/ Douglas E. Coltharp Douglas E. Coltharp Executive Vice President and Chief Financial Officer

Effective July 7, 1997, the Company's common stock began trading on the New York Stock Exchange under the symbol PFT. Until that time, the Company's stock was traded on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol PRFT. Effective September 18, 1998, the Company changed its corporate name from Proffitt's, Inc. to Saks Incorporated and its New York Stock Exchange Symbol from PFT to SKS. As of March 15, 1999, there were approximately 2,600 shareholders of record. The prices in the table below represent the high and low sales prices for the stock as reported by the New York Stock Exchange (beginning on July 7, 1997) and by the National Association of Securities Dealers, Inc. (prior to July 7, 1997). The prices have been adjusted to reflect a 2-for-1 stock split effected in the form of a stock dividend in October 1997. The Company presently follows the policy of retaining earnings to provide funds for the operation and expansion of the business and has no present intention to declare cash dividends in the foreseeable future. Future dividends, if any, will be determined by the Board of Directors of the Company in light of circumstances then existing, including the earnings of the Company, its financial requirements and general business conditions. The Company declared no dividends to common shareholders in either 1998 or 1997.
FISCAL YEAR ENDED ---------------------------------------------January 30, 1999 January 31, 1998 Price Range Price Range --------------------------------------High Low High Low -----------------------$ 40.75 $ 29.38 $ 20.69 $ 15.63 $ 44.44 $ 29.00 $ 26.67 $ 18.88 $ 34.50 $ 16.38 $ 30.63 $ 24.88 $ 36.94 $ 22.13 $ 32.44 $ 25.00

Quarter --------First Second Third Fourth

Board of Directors R. Brad Martin Chairman of the Board and Chief Executive Officer of Saks Incorporated Ronald de Waal Vice Chairman of the Board; Chairman of We International, B.V. Bernard E. Bernstein Partner in the law firm of Bernstein, Stair & McAdams LLP Stanton J. Bluestone Retired Chairman and Chief Executive Officer of Carson Pirie Scott & Co. John W. Burden Retail Consultant; Retired Chairman and CEO of Federated Department Stores and Allied Stores Corporation Edmond D. Cicala President of Edmond Enterprises, Inc.; Retired Chairman of the Goldsmith's Division of Federated Department Stores James A. Coggin President and Chief Administrative Officer of Saks Incorporated Julius W. Erving President of The Erving Group; Executive Vice President of the Orlando Magic Michael S. Gross Vice President of Apollo Capital Management, L.P. Donald E. Hess Chairman Emeritus of Parisian; Chief Executive Officer of Southwood Partners

G. David Hurd Emeritus Chairman and retired Chief Executive Officer of Principal Financial Group Philip B. Miller Chairman and Chief Executive Officer of Saks Fifth Avenue Robert M. Mosco President of Merchandising and Chief Operating Officer of Saks Incorporated C. Warren Neel Dean of the College of Business at the University of Tennessee Charles J. Philippin Member of the Management Committee of Investcorp Stephen I. Sadove President Bristol-Myers Squibb Co. Worldwide Beauty Care and Nutritionals Marguerite W. Sallee Chief Executive Officer of Bright Horizons Family Solutions Gerald Tsai, Jr. Private Investor Certain Corporate Officers R. Brad Martin Chairman of the Board and Chief Executive Officer James A. Coggin President and Chief Administrative Officer Robert M. Mosco President of Merchandising and Chief Operating Officer

Douglas E. Coltharp Executive Vice President and Chief Financial Officer Brian J. Martin Executive Vice President of Law and General Counsel Dan C. Smith Executive Vice President and Chief Information Officer Store Officers Toni E. Browning President and Chief Executive Officer of Proffitt's Christina Johnson Vice Chairman of Saks Fifth Avenue Max W. Jones President and Chief Executive Officer of Herberger's Frank E. Kulp, III President and Chief Executive Officer of Younkers Michael R. MacDonald President and Chief Executive Officer of Carson Pirie Scott Philip B. Miller Chairman and Chief Executive Officer of Saks Fifth Avenue W. Travis Saucer President and Chief Executive Officer of McRae's John T. Wyatt President and Chief Executive Officer of Parisian SAKS FIFTH AVENUE FULL-LINE STORES

ARIZONA Phoenix CALIFORNIA Beverly Hills Costa Mesa San Diego San Francisco COLORADO Denver CONNECTICUT Stamford FLORIDA Bal Harbor Boca Raton Ft. Lauderdale Orlando Palm Beach Gardens South Miami Tampa GEORGIA Atlanta ILLINOIS Chicago Oakbrook Old Orchard LOUISIANA New Orleans MARYLAND Chevy Chase MASSACHUSETTS Boston MICHIGAN Dearborn Troy MINNESOTA Minneapolis MISSOURI Frontenac Kansas City

NEVADA Las Vegas NEW JERSEY Hackensack Short Hills NEW YORK Garden City Huntington New York City White Plains OHIO Beachwood Cincinnati OREGON Portland PENNSYLVANIA Bala Cynwyd Pittsburgh TEXAS Dallas Houston (2) San Antonio VIRGINIA McLean SAKS FIFTH AVENUE RESORT STORES CALIFORNIA Carmel Palm Springs Palm Desert FLORIDA Ft. Myers Naples Palm Beach Sarasota NEW YORK Southampton

SOUTH CAROLINA Hilton Head SAKS FIFTH AVENUE MAIN STREET STORES CALIFORNIA La Jolla Pasadena Santa Barbara CONNECTICUT Greenwich OKLAHOMA Tulsa SOUTH CAROLINA Charleston TEXAS Austin PARISIAN STORES ALABAMA Birmingham (5) Decatur Dothan Florence Huntsville (2) Mobile Montgomery (2) Tuscaloosa FLORIDA Jacksonville Orlando (4) Pensacola Tallahassee GEORGIA Atlanta (5) Columbus Macon Savannah INDIANA Indianapolis (2)

LOUISIANA Baton Rouge (2) Lafayette MICHIGAN Livonia MISSISSIPPI Tupelo OHIO Cincinnati (2) Dayton SOUTH CAROLINA Columbia (2) TENNESSEE Chattanooga Knoxville Nashville PROFFITT'S STORES GEORGIA Dalton Rome KENTUCKY Ashland Elizabethtown NORTH CAROLINA Asheville Goldsboro Greenville Kinston Rocky Mount SOUTH CAROLINA Greenville Spartanburg TENNESSEE Athens Chattanooga (2) Cleveland Greeneville Johnson City Kingsport

Nashville (5) Oak Ridge VIRGINIA Bristol WEST VIRGINIA Morgantown Parkersburg MCRAE'S STORES ALABAMA Birmingham (5) Dothan Gadsden Huntsville (2) Mobile Selma Tuscaloosa FLORIDA Mary Esther Pensacola LOUISIANA Baton Rouge Monroe MISSISSIPPI Biloxi Columbus Gautier Greenville Hattiesburg Jackson (3) Laurel Meridian Natchez Tupelo Vicksburg YOUNKERS STORES ILLINOIS Moline

IOWA Ames Bettendorf Cedar Falls Cedar Rapids (2) Davenport Des Moines (4) Dubuque Fort Dodge Iowa City (2) Marshalltown Mason City Sioux City (2) Waterloo West Burlington MICHIGAN Bay City Holland Marquette Port Huron Traverse City MINNESOTA Austin Duluth NEBRASKA Grand Island Lincoln Omaha (3) SOUTH DAKOTA Sioux Falls WISCONSIN Appleton (2) Eau Claire Fond du Lac Green Bay Madison (2) Manitowoc Marinette Marshfield Milwaukee (2) Racine Sheboygan Sturgeon Bay Superior Wausau Wisconsin Rapids HERBERGER'S STORES COLORADO Grand Junction IOWA

Ottumwa MINNESOTA Albert Lea Alexandria Bemidji Brainerd

Wausau Wisconsin Rapids HERBERGER'S STORES COLORADO Grand Junction IOWA Ottumwa MINNESOTA Albert Lea Alexandria Bemidji Brainerd

Fergus Falls Mankato Minneapolis Moorhead New Ulm St. Cloud St. Paul Stillwater Virginia Willmar MONTANA Billings Butte Great Falls Havre Kalispell Missoula NEBRASKA Hastings Kearney Norfolk North Platte Scottsbluff NORTH DAKOTA Dickinson Bismarck Fargo Minot

SOUTH DAKOTA Aberdeen Rapid City Watertown WISCONSIN Beaver Dam LaCrosse Rice Lake WYOMING Rock Springs CARSON PIRIE SCOTT STORES ILLINOIS Aurora (2) Bloomingdale Bourbonnais Calumet City Chicago (3) Chicago Ridge Dundee Evergreen Park Hammond Joliet Lincolnwood Lombard (2) Matteson Mount Prospect Norridge North Riverside Orland Park Schaumburg St. Charles Vernon Hills Waukegan Wilmette (2) INDIANA Michigan City Merrillville MINNESOTA Rochester BOSTON STORES WISCONSIN Brookfield (2)

Green Bay Janesville Madison (2) Milwaukee (5) Racine BERGNER'S STORES ILLINOIS Bloomington Champaign Forsyth Galesburg Machesney Park Pekin Peoria Peru Quincy Rockford (2) Springfield Sterling Urbana OFF 5TH STORES ARIZONA Tempe Tucson CALIFORNIA Anaheim Cabazon Camarillo Folsom Milpitas Ontario Petaluma San Diego COLORADO Castle Rock CONNECTICUT Clinton FLORIDA Ellenton Orlando Sunrise

GEORGIA Dawsonville HAWAII Waipahu ILLINOIS Gurnee Mills Schaumburg MASSACHUSETTS Worcester Wrentham MICHIGAN Auburn Dearborn MINNESOTA Minneapolis NEVADA Las Vegas NEW JERSEY Paramus NEW YORK Niagara Falls Riverhead Westbury Central Valley NORTH CAROLINA Morrisville OHIO Aurora PENNSYLVANIA Philadelphia (2) Grove City SOUTH CAROLINA Myrtle Beach TENNESSEE Nashville

TEXAS Grapevine Stafford San Marcos VIRGINIA
Leesburg Woodbridge Sales Release Dates for 1999 Sales Period February 1999 March 1999 April 1999 May 1999 June 1999 July 1999 August 1999 September 1999 October 1999 November 1999 December 1999 January 2000 Earnings Release Dates for 1999 Quarter First Second Third Fourth Release Date 3/4/99 4/8/99 5/6/99 6/3/99 7/8/99 8/5/99 9/2/99 10/7/99 11/4/99 12/2/99 1/6/00 2/4/00

Release Date 5/18/99 8/17/99 11/16/99 To be announced

Annual Meeting The Annual Meeting of Shareholders of Saks Incorporated will be held at 8:30 a.m., June 16, 1999, at Proffitt's Foothills Mall Store (store for women), 173 Foothills Mall, Maryville, Tennessee 37801. Shareholders are cordially invited to attend. Inquiries Regarding Your Stock Holdings Registered shareholders (shares held by you in your name) should address communications regarding address changes, lost certificates and other administrative matters to the Company's Transfer Agent and Registrar: Union Planters National Bank P.O. Box 387 Memphis, Tennessee 38147 (901) 580-5513 (telephone) (901) 580-5411 (facsimile) In all correspondence or telephone inquiries, please mention Saks

Incorporated, your name as printed on your stock certificate, your Social Security number, your address and your phone number. Beneficial shareholders (shares held by your broker in the name of the brokerage house) should direct communications on all administrative matters to your stockbroker. Financial and Other Information Copies of financial documents and other company information such as Saks Incorporated's Form 10-K and 10Q reports as filed with the SEC are available free of charge by contacting: Investor Relations Saks Incorporated P.O. Box 9388 Alcoa, Tennessee 37701 (423) 981-6342 Security analysts, portfolio managers, representatives of financial institutions and other individuals with questions regarding Saks Incorporated are invited to contact: Julia Bentley Senior Vice President of Investor Relations and Communications P.O. Box 9388 Alcoa, Tennessee 37701 (423) 981-6243 (telephone) (423) 981-6325 (facsimile) jbentley@saksinc.com (e-mail) Financial results, corporate news and other Company information are available on Saks Incorporated's web site: http://www.saksincorporated.com Corporate Headquarters 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000 Saks Fifth Avenue Headquarters 12 East 49th Street New York, New York 10017 (212) 940-4048 Parisian Headquarters 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000

Proffitt's Headquarters 115 North Calderwood Alcoa, Tennessee 37701 (423) 983-7000 McRae's Headquarters 3455 Highway 80 West Jackson, Mississippi 39209 (601) 968-4400 Younkers Headquarters 701 Walnut Street Des Moines, Iowa 50397 (515) 244-1112 Herberger's Headquarters 600 Mall Germain St. Cloud, Minnesota 56301 (320) 251-5351 Carson Pirie Scott, Boston Store and Bergner's Headquarters 331 West Wisconsin Avenue Milwaukee, Wisconsin 53203 (414) 347-4141 Independent Accountants PriceWaterhouseCoopers LLP Birmingham, Alabama 1999 Saks Incorporated

EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT SAKS INCORPORATED AND SUBSIDIARIES
Name of Subsidiary -----------------Carson Pirie Holdings, Inc. Carson Pirie Scott Insurance Services, Inc. CPS Acquisition Corp. Herberger's Department Stores, LLC McRae's, Inc. McRae's of Alabama, Inc. McRae's Stores Partnership, G.P. McRae's Stores Services, Inc. National Bank of the Great Lakes P.A. Bergner & Co. Parisian, Inc. Proffitt's Credit Corporation Saks & Company Saks Distribution Centers, Inc. Saks Fifth Avenue - Louisiana, Inc. Saks Fifth Avenue - Stamford, Inc. Saks Fifth Avenue, Atlanta, Inc. Saks Fifth Avenue Distribution Company Saks Fifth Avenue, Inc. Saks Fifth Avenue of Missouri, Inc. Saks Fifth Avenue of Ohio, Inc. Saks Fifth Avenue of Texas, Inc. Saks Holdings, Inc. Saks Shipping Company, Inc. Saks Specialty Stores, Inc. Saks Stores Partnership L.P. Saks Wholesalers, Inc. S.F.A. Data Processing, Inc. SFA Folio Collections, Inc. State of Organization --------------------Delaware Delaware Delaware Minnesota Mississippi Alabama Mississippi Illinois United States Illinois Alabama Nevada New York Illinois Delaware Connecticut Georgia Delaware Massachusetts Missouri Delaware Delaware Delaware Illinois Delaware Tennessee Alabama Delaware New York

SFA Real Estate Company

Delaware

CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Saks Incorporated (formerly Proffitt's, Inc.) listed below of our report dated March 16, 1999, on our audits of the consolidated financial statements of Saks Incorporated and Subsidiaries as of January 30, 1999 and January 31, 1998 and for each of the three years in the period ended January 30, 1999 which report is incorporated by reference in this Annual Report on Form 10-K for the years ended January 30, 1999. Registration Statements on Form S-3 Registration Numbers 333-66755 333-71933 Registration Statements on Form S-4 Registration Numbers 333-09043 333-41563 333-60123 Registration Statements on Form S-8 Registration Numbers 33-46306 33-88390 333-00695 333-25213 33347535 333-66759 Birmingham, Alabama April ____, 1999

ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS PRESENTED IN SAKS INCORPORATED 1998 ANNUAL REPORT AS OF JANUARY 30, 1999 AND JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

PERIOD TYPE FISCAL YEAR END PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED

12 MOS JAN 30 1999 JAN 30 1999 32,752,000 0 159,596,000 0 1,406,182,000 1,792,914,000 2,118,555,000 0 5,188,981,00 905,039,000 2,125,918,000 0 0 14,401,000 1,993,174,000 5,188,981,000 6,219,893,000 6,219,893,000 4,093,467,000 0 1,949,289,000 0 110,971,000 66,166,000 41,181,000 24,985,000 0 25,881,000 0 (896,000) (0.01) (0.01)

12 MOS JAN 31 1998 JAN 31 1998 50,864,000 0 412,209,000 0 1,244,682,000 1,897,245,000 1,725,979,000 0 4,270,253,000 800,886,000 1,393,828,000 0 0 14,148,000 1,930,381,000 4,270,253,000 5,726,346,000 5,726,346,000 3,731,293,000 0 1,659,557,000 0 113,685,000 221,811,000 (194,426,000) 416,237,000 0 11,323,000 0 404,914,000 2.94 2.79

 at which any action is taken, shall be presumed to have concurred in the action, unless his dissent thereto shall be entered in the Minutes of the meeting, or unless he shall submit his written dissent to the person acting as the Secretary of the meeting before the adjournment thereof, or shall deliver or send such dissent to the Secretary of the Corporation promptly after the adjournment of the meeting. Such rights to dissent shall not apply to a director who voted in favor of any such action. A director who is absent from a meeting at which such action is taken shall be presumed to have concurred in the action unless he shall deliver or send by registered or certified mail his dissent thereto to the Secretary of the Corporation or shall cause such dissent to be filed with the Minutes of the proceedings of the Board within 10 days after learning of such action. Section 9. Action without Meeting. Unless otherwise restricted by the Charter or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing setting forth the actions so taken, signed by all of the persons entitled to vote thereon, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 10. Board Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, but no such committee shall have the power or authority in reference to amending the Charter, adopting an agreement of merger or 7

consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the shareholders a dissolution of the Corporation or a revocation of the dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Charter expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 11. Compensation of Directors. Unless otherwise restricted by the Charter, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 12. Indemnification. The Corporation shall indemnify, to the full extent authorized or permitted by the Tennessee Business Corporation Act, any person made, or threatened to be made, a party to any threatened,

consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the shareholders a dissolution of the Corporation or a revocation of the dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Charter expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 11. Compensation of Directors. Unless otherwise restricted by the Charter, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 12. Indemnification. The Corporation shall indemnify, to the full extent authorized or permitted by the Tennessee Business Corporation Act, any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (whether civil, administrative or investigative) by reason of the fact that he, his testator or intestate is or was a director of the Corporation or serves or served as a director of any other enterprise at the request of the Corporation. Section 13. Mandatory Resignation. Directors who are also officers of the Corporation shall submit a letter of resignation as such to the Board of Directors upon any termination of employment as an officer of the Corporation, and directors who are not officers of the Corporation shall likewise submit a letter of resignation upon any change in that director's principal business or other activity in which the director was engaged at the time of his or her election. ARTICLE V OFFICERS Section 1. Appointment. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board, a Chief Executive Officer, a President, an Executive Vice President, a Chief Operating Officer, a Chief Financial Officer, a Treasurer, and a Secretary. The Board of Directors may also choose additional vice presidents and one or more assistant secretaries and assistant treasurers. Any two of the aforementioned offices may be filled by the same person, except that no one person may be Secretary and also President. No person shall purport to execute or attest any document or instrument on behalf of the Corporation in more than one capacity. 8

Section 2. Term. The officers of the Corporation shall hold office for one year or until their successors are chosen and qualified subject, however, to the removal of any officer pursuant to these Bylaws. Section 3. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 4. Removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 5. Duties. All officers shall have such authority to perform such duties in the management of the Corporation as are normally incident to their offices and as the directors from time to time provide. Section 6. The Chairman of the Board and Chief Executive Officer. The Chairman of the Board and Chief Executive Officer of the Corporation shall preside at all meetings of the shareholders and the Board of Directors, shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect.

Section 2. Term. The officers of the Corporation shall hold office for one year or until their successors are chosen and qualified subject, however, to the removal of any officer pursuant to these Bylaws. Section 3. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 4. Removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 5. Duties. All officers shall have such authority to perform such duties in the management of the Corporation as are normally incident to their offices and as the directors from time to time provide. Section 6. The Chairman of the Board and Chief Executive Officer. The Chairman of the Board and Chief Executive Officer of the Corporation shall preside at all meetings of the shareholders and the Board of Directors, shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 7. Other Duties of the Chairman of the Board. He shall execute bonds, mortgages and other contracts, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 8. The President. The President shall perform such duties as shall be prescribed to him from time to time by the Board of Directors. Section 9. Duties of the President and the Vice President(s). In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, the President shall perform the duties of the Chief Executive Officer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The Vice President(s) shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 10. The Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. 9

Section 11. Assistant Secretary. The Assistant Secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 12. The Chief Financial Officer and Treasurer. The Chief Financial Officer and the Treasurer, in his capacity as such officers, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. Section 13. Duties of the Chief Financial Officer and Treasurer. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as the Treasurer and of the financial condition of the Corporation.

Section 11. Assistant Secretary. The Assistant Secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 12. The Chief Financial Officer and Treasurer. The Chief Financial Officer and the Treasurer, in his capacity as such officers, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. Section 13. Duties of the Chief Financial Officer and Treasurer. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as the Treasurer and of the financial condition of the Corporation. Section 14. Bond. If required by the Board of Directors, the Chief Financial Officer and the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 15. Assistant Treasurer(s). The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 16. Indemnification. The Corporation shall indemnify, to the full extent authorized or permitted by the Tennessee Business Corporation Act, any person made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he, his testator or intestate is or was an officer of the Corporation or serves or served as a director or officer of any other enterprise at the request of the Corporation. 10

ARTICLE VI CAPITAL STOCK Section 1. Certificate. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the Chief Executive Officer or the President and the Chief Operating Officer, a Vice President, the Treasurer (or an Assistant Treasurer), or the Secretary (or an Assistant Secretary) of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Facsimile Signatures. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issuance. Section 3. Notice of Restrictions. Each certificate of stock which is restricted or limited as to its transferability or voting rights, or which is callable under the Charter, which is preferred or limited as to dividends or rights upon voluntary or involuntary dissolution, shall have a notice of such restriction, limitation or preference conspicuously stated on the face or back of the certificate. Upon the removal of expiration of any such restriction or limitation,

ARTICLE VI CAPITAL STOCK Section 1. Certificate. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the Chief Executive Officer or the President and the Chief Operating Officer, a Vice President, the Treasurer (or an Assistant Treasurer), or the Secretary (or an Assistant Secretary) of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Facsimile Signatures. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issuance. Section 3. Notice of Restrictions. Each certificate of stock which is restricted or limited as to its transferability or voting rights, or which is callable under the Charter, which is preferred or limited as to dividends or rights upon voluntary or involuntary dissolution, shall have a notice of such restriction, limitation or preference conspicuously stated on the face or back of the certificate. Upon the removal of expiration of any such restriction or limitation, the holder of such certificate shall be entitled to receive a new certificate upon the surrender of the old restricted or limited certificates, and the payment of the reasonable expenses of the Corporation incurred in connection therewith. Section 4. Reissuance of Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 5. Transfer of Shares. The Corporation shall register a transfer of a stock certificate presented to it for transfer if: (a) the certificate is endorsed by the appropriate person or persons; 11

(b) the signature of the appropriate person or persons has been guaranteed by a national banking association, a bank organized and operating under the statutes of the State of Tennessee, or a member of the National Association of Security Dealers, and reasonable assurance is given that the endorsements are effective, unless the Secretary of the Corporation waives such requirements; (c) there has been compliance with any applicable law relating to the collection of taxes; and (d) the transfer is in fact rightful or is to a bona fide purchaser. Section 6. Endorsements. An endorsement of the stock certificate in registered form is made when an appropriate person signs on it or on a separate document an assignment or transfer of it, or a power to assign or transfer it, or when the signature of this person is written without more upon the back of the certificate. An endorsement may be in blank, which includes an endorsement to bearer, or special, which specifies the person to whom the stock is to be transferred, or who has the power to transfer it. The Corporation may elect to require reasonable assurance beyond that specified in this Section. Section 7. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person

(b) the signature of the appropriate person or persons has been guaranteed by a national banking association, a bank organized and operating under the statutes of the State of Tennessee, or a member of the National Association of Security Dealers, and reasonable assurance is given that the endorsements are effective, unless the Secretary of the Corporation waives such requirements; (c) there has been compliance with any applicable law relating to the collection of taxes; and (d) the transfer is in fact rightful or is to a bona fide purchaser. Section 6. Endorsements. An endorsement of the stock certificate in registered form is made when an appropriate person signs on it or on a separate document an assignment or transfer of it, or a power to assign or transfer it, or when the signature of this person is written without more upon the back of the certificate. An endorsement may be in blank, which includes an endorsement to bearer, or special, which specifies the person to whom the stock is to be transferred, or who has the power to transfer it. The Corporation may elect to require reasonable assurance beyond that specified in this Section. Section 7. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Tennessee. ARTICLE VII DIVIDENDS, SURPLUS AND RESERVE Section 1. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in cash, property or its own shares, except where the Corporation is insolvent, as that term is defined in Section 48-1-102 (14), Tennessee Code Annotated, or when the payment thereof would render the Corporation insolvent, or when the declaration of payment thereof would be contrary to any restrictions contained in the Charter, these Bylaws, or in any applicable valid contract. The declaration and payment of any such dividend shall be in accordance with Section 48-1-511, Tennessee Code Annotated, as it may be amended from time to time. Section 2. Capital Distributions. The Board of Directors may distribute to the shareholders of the Corporation out of capital surplus, a portion of its assets, in cash or property, subject to the following provisions: 12

(a) no such distribution shall be made at a time when the Corporation is insolvent or when such distribution would render the Corporation insolvent; (b) no such distribution shall be made unless such distribution is authorized by the affirmative vote of the holders of the majority of all of the outstanding shares of stock entitled to vote thereon; (c) no such distribution shall be made to the holders of any class of shares unless all cumulative dividends accrued on all preferred or special classes of shares entitled to preferential dividends shall have been fully paid; (d) no such distribution shall be made to the holders of any class of shares which would reduce the remaining net assets of the Corporation below the aggregate preferential amount payable in the event of voluntary liquidation to the holders of shares having preferential rights to the assets of the Corporation in the event of liquidation; and (e) each such distribution, when made, shall be identified as a distribution from capital surplus and the amount per share shall be disclosed to the shareholders receiving the same, concurrently with the distribution thereof. Section 3. Increases of Capital Surplus. The capital surplus of the Corporation may be increased from time to time by resolution of the Board, directing that all or part of the earned surplus of the Corporation be transferred

(a) no such distribution shall be made at a time when the Corporation is insolvent or when such distribution would render the Corporation insolvent; (b) no such distribution shall be made unless such distribution is authorized by the affirmative vote of the holders of the majority of all of the outstanding shares of stock entitled to vote thereon; (c) no such distribution shall be made to the holders of any class of shares unless all cumulative dividends accrued on all preferred or special classes of shares entitled to preferential dividends shall have been fully paid; (d) no such distribution shall be made to the holders of any class of shares which would reduce the remaining net assets of the Corporation below the aggregate preferential amount payable in the event of voluntary liquidation to the holders of shares having preferential rights to the assets of the Corporation in the event of liquidation; and (e) each such distribution, when made, shall be identified as a distribution from capital surplus and the amount per share shall be disclosed to the shareholders receiving the same, concurrently with the distribution thereof. Section 3. Increases of Capital Surplus. The capital surplus of the Corporation may be increased from time to time by resolution of the Board, directing that all or part of the earned surplus of the Corporation be transferred to capital surplus. The Board of Directors may, by resolution, apply any part or all of the capital surplus of the Corporation to the reduction or elimination of any deficit arising from losses however incurred; provided, however, that the earned surplus has first been exhausted by charging such losses to earned surplus and then only to the extent that such losses exceed the earned surplus. Each such application of capital surplus shall, to the extent thereof, effect a reduction of capital surplus. Section 4. Seal. The Corporation shall have a corporate seal. The presence or absence of a seal on any instrument shall not affect the character, validity, or legal effect thereof in any respect. The affixing of a seal shall not be necessary for the execution of any instrument or document by the Corporation. ARTICLE VIII AMENDMENTS Subject to the provisions of the Charter of the Corporation, these Bylaws may be altered, amended, or repealed or new bylaws may be adopted by the vote of a majority of all of the shareholders or by the majority vote of the entire Board of Directors, when such power is conferred upon the Board of Directors by the Charter, at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. 13

ARTICLE IX MISCELLANEOUS PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 2. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors. Section 3. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation may nevertheless indemnify each director or officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative,

ARTICLE IX MISCELLANEOUS PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 2. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors. Section 3. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation may nevertheless indemnify each director or officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. Section 4. Notices. Whenever, under the provisions of the statutes, the Charter or these Bylaws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or electronic facsimile, in which event it shall be deemed to have been given when deposited with a telegraph or electronic facsimile office for transmission. Section 5. Indemnification. Notwithstanding anything in the Charter to the contrary, the Corporation shall be permitted, but shall not be required, to indemnify and hold harmless any employee or agent of the Corporation made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. 14

EXHIBIT 13.11 Saks Incorporated is one of the country's premier retail enterprises, operating 352 stores in 38 states, with over $6 billion in annual revenues, and more than 60,000 associates. The Company is well positioned to capitalize on a most promising future. With the retail authority of the Saks Fifth Avenue brand and the stability and strength of our core department store businesses and infrastructure, we believe the growth prospects of this company are extraordinary.
Saks Fifth Avenue Stores Full-Line Resort Main Street Parisian Specialty Department Stores Traditional Department Stores Proffitt's McRae's Younkers Herberger's Carson Pirie Scott Boston Store Bergner's Off 5th Stores Bullock & Jones Men's Store Contents Financial Highlights

43 9 7 44

stores stores stores stores

31 stores 29 stores 52 stores 38 stores 30 stores 12 stores 14 stores 42 stores 1 store

1

EXHIBIT 13.11 Saks Incorporated is one of the country's premier retail enterprises, operating 352 stores in 38 states, with over $6 billion in annual revenues, and more than 60,000 associates. The Company is well positioned to capitalize on a most promising future. With the retail authority of the Saks Fifth Avenue brand and the stability and strength of our core department store businesses and infrastructure, we believe the growth prospects of this company are extraordinary.
Saks Fifth Avenue Stores Full-Line Resort Main Street Parisian Specialty Department Stores Traditional Department Stores Proffitt's McRae's Younkers Herberger's Carson Pirie Scott Boston Store Bergner's Off 5th Stores Bullock & Jones Men's Store Contents Financial Highlights Letter to Our Shareholders Five-Year Financial Summary Management's Discussion and Analysis Consolidated Financial Statements Notes to Consolidated Financial Statements Report of Independent Accountants Report of Management Market Information Directors and Certain Officers Store Locations Shareholder Information Corporate Information

43 9 7 44

stores stores stores stores

31 stores 29 stores 52 stores 38 stores 30 stores 12 stores 14 stores 42 stores 1 store

1 2 13 14 23 27 57 57 58 59 60 62 63

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales Income before non-routine items Diluted earnings per common share before non-routine items Income before extraordinary items Diluted earnings per common share before extraordinary items Diluted weighted average common shares Total assets Shareholders' equity

FISCAL YEAR ENDED ------------------------------------January 30, January 31, February 1, 1999 1998 1997 ----------------------------$6,219,893 $5,726,346 $4,926,862 $ 153,525 $ 166,222 $ 109,364 $ $ $ 1.05 24,985 0.17 $ $ $ 1.17 416,237 2.86 $ $ $ 0.81 93,578 0.70

146,383 $5,188,981 $2,007,575

149,085 $4,270,253 $1,944,529

132,583 $3,630,276 $1,397,934

Note: Non-routine items include extraordinary items, gains or losses from long-lived assets, merger and integration charges, year 2000 expenses, ESOP expenses and the 1997 recognition of a $294,846 deferred tax asset. A Distinctive Approach 1998 was another great year in your Company's history. Excluding merger-related and other charges, we again posted record operating results while continuing the integration process of our recent acquisitions.

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales Income before non-routine items Diluted earnings per common share before non-routine items Income before extraordinary items Diluted earnings per common share before extraordinary items Diluted weighted average common shares Total assets Shareholders' equity

FISCAL YEAR ENDED ------------------------------------January 30, January 31, February 1, 1999 1998 1997 ----------------------------$6,219,893 $5,726,346 $4,926,862 $ 153,525 $ 166,222 $ 109,364 $ $ $ 1.05 24,985 0.17 $ $ $ 1.17 416,237 2.86 $ $ $ 0.81 93,578 0.70

146,383 $5,188,981 $2,007,575

149,085 $4,270,253 $1,944,529

132,583 $3,630,276 $1,397,934

Note: Non-routine items include extraordinary items, gains or losses from long-lived assets, merger and integration charges, year 2000 expenses, ESOP expenses and the 1997 recognition of a $294,846 deferred tax asset. A Distinctive Approach 1998 was another great year in your Company's history. Excluding merger-related and other charges, we again posted record operating results while continuing the integration process of our recent acquisitions. The biggest news during 1998 was our September merger with Saks Holdings, Inc. and our corporate name change from Proffitt's, Inc. to Saks Incorporated. Saks Fifth Avenue holds a top-tier position in one of the most attractive and fastest growing segments in retailing, an undisputed reputation for style leadership and customer service and numerous brand extension opportunities. Our merger strategy is clear. We acquire companies at a fair value that have a strong franchise and customer loyalty, quality real estate in attractive markets, solid financial performance and meaningful synergy opportunities. The Saks Holdings transaction was consistent with that strategy. This merger combined two of the most compelling growth companies in retailing today. Our operating strength and support infrastructure are allowing Saks Fifth Avenue's management team to focus on merchandising, marketing and customer relationships. Our financial capacity will provide the resources to fund the extraordinary growth opportunities for this premier global brand. In our past transactions, we have successfully integrated the acquired companies as a result of a systematic process which includes retaining and incenting the key management personnel of the acquired company, maintaining the store identity and store level associates to assure the transaction is transparent to our customers, retaining the merchandising organization to tailor assortments to customer preferences, engaging in processes of benchmarking and best practices to improve performance across all operations and centralizing certain support functions to reduce the expense structure and improve efficiency and productivity. The same integration process is well underway for Saks Fifth Avenue. We continue to execute our merchandising synergy plans. We believe substantial opportunities remain to improve the Company's merchandising operations as we realize scale opportunities and purchasing power, improve merchandising execution and inventory management, recognize additional synergies in distribution and logistics and further intensify private brand offerings. We have demonstrated our ability to deliver substantial cost savings and other synergies as a part of our acquisition processes. We remain on schedule regarding the synergies process with our Younkers, Parisian, Herberger's and Carson Pirie Scott transactions. During 1998, we achieved our targeted $39 million of cost savings related to these previous mergers and expect to achieve an incremental $10 million of savings in 1999 and another $20 million in 2000. In conjunction with the Saks Holdings transaction, we realized approximately $12 million of cost synergies in 1998 and expect incremental synergies related to this merger of

approximately $50 million to $60 million in 1999 and $13 million in 2000. We will continue to focus on other opportunities to improve productivity throughout our organization. We remain focused on the quality and size of our proprietary credit card portfolio, as we continue to benefit from the operating efficiencies and credit card term changes made possible by our national credit card bank. During the year, we further refined the Company's capital structure to strengthen the balance sheet. Our capital structure objectives are to maintain appropriate leverage, diversified funding sources, an appropriate fixed/floating

Note: Non-routine items include extraordinary items, gains or losses from long-lived assets, merger and integration charges, year 2000 expenses, ESOP expenses and the 1997 recognition of a $294,846 deferred tax asset. A Distinctive Approach 1998 was another great year in your Company's history. Excluding merger-related and other charges, we again posted record operating results while continuing the integration process of our recent acquisitions. The biggest news during 1998 was our September merger with Saks Holdings, Inc. and our corporate name change from Proffitt's, Inc. to Saks Incorporated. Saks Fifth Avenue holds a top-tier position in one of the most attractive and fastest growing segments in retailing, an undisputed reputation for style leadership and customer service and numerous brand extension opportunities. Our merger strategy is clear. We acquire companies at a fair value that have a strong franchise and customer loyalty, quality real estate in attractive markets, solid financial performance and meaningful synergy opportunities. The Saks Holdings transaction was consistent with that strategy. This merger combined two of the most compelling growth companies in retailing today. Our operating strength and support infrastructure are allowing Saks Fifth Avenue's management team to focus on merchandising, marketing and customer relationships. Our financial capacity will provide the resources to fund the extraordinary growth opportunities for this premier global brand. In our past transactions, we have successfully integrated the acquired companies as a result of a systematic process which includes retaining and incenting the key management personnel of the acquired company, maintaining the store identity and store level associates to assure the transaction is transparent to our customers, retaining the merchandising organization to tailor assortments to customer preferences, engaging in processes of benchmarking and best practices to improve performance across all operations and centralizing certain support functions to reduce the expense structure and improve efficiency and productivity. The same integration process is well underway for Saks Fifth Avenue. We continue to execute our merchandising synergy plans. We believe substantial opportunities remain to improve the Company's merchandising operations as we realize scale opportunities and purchasing power, improve merchandising execution and inventory management, recognize additional synergies in distribution and logistics and further intensify private brand offerings. We have demonstrated our ability to deliver substantial cost savings and other synergies as a part of our acquisition processes. We remain on schedule regarding the synergies process with our Younkers, Parisian, Herberger's and Carson Pirie Scott transactions. During 1998, we achieved our targeted $39 million of cost savings related to these previous mergers and expect to achieve an incremental $10 million of savings in 1999 and another $20 million in 2000. In conjunction with the Saks Holdings transaction, we realized approximately $12 million of cost synergies in 1998 and expect incremental synergies related to this merger of

approximately $50 million to $60 million in 1999 and $13 million in 2000. We will continue to focus on other opportunities to improve productivity throughout our organization. We remain focused on the quality and size of our proprietary credit card portfolio, as we continue to benefit from the operating efficiencies and credit card term changes made possible by our national credit card bank. During the year, we further refined the Company's capital structure to strengthen the balance sheet. Our capital structure objectives are to maintain appropriate leverage, diversified funding sources, an appropriate fixed/floating interest rate mix and adequate liquidity to fund operations and expansion. 1998 was a year of outstanding new unit growth. We acquired four stores from North Carolina-based Brody's and 15 former Mercantile stores from Dillard's, along with opening, expanding and remodeling additional properties. These activities added approximately 3.6 million square feet to our store base, an increase of 11 percent. This performance was double the rate of quality annual square footage growth we previously targeted. Our future internal growth plans call for an average of 12 to 15 new units annually. To date, we have commitments for 13 new stores in 1999, totaling 1.2 million square feet of space, and we continue to negotiate for other new unit, expansion and renovation opportunities that meet our stringent return criteria. Through the scale associated with our corporate store development activities and certain re-engineering processes, we intend to reduce the fixed investment associated with our new square footage growth. This will result in improved returns on these future investments, while maintaining the unique design and quality associated with our store brands. We have an exceptional ten-year record of shareholder value creation which ranks among the top performances of all American businesses. I believe we can maintain this relative performance in our core business through a relentless focus on improving returns and execution, while developing new distribution strategies to leverage the power of our franchises, our brands and our customer relationships.

approximately $50 million to $60 million in 1999 and $13 million in 2000. We will continue to focus on other opportunities to improve productivity throughout our organization. We remain focused on the quality and size of our proprietary credit card portfolio, as we continue to benefit from the operating efficiencies and credit card term changes made possible by our national credit card bank. During the year, we further refined the Company's capital structure to strengthen the balance sheet. Our capital structure objectives are to maintain appropriate leverage, diversified funding sources, an appropriate fixed/floating interest rate mix and adequate liquidity to fund operations and expansion. 1998 was a year of outstanding new unit growth. We acquired four stores from North Carolina-based Brody's and 15 former Mercantile stores from Dillard's, along with opening, expanding and remodeling additional properties. These activities added approximately 3.6 million square feet to our store base, an increase of 11 percent. This performance was double the rate of quality annual square footage growth we previously targeted. Our future internal growth plans call for an average of 12 to 15 new units annually. To date, we have commitments for 13 new stores in 1999, totaling 1.2 million square feet of space, and we continue to negotiate for other new unit, expansion and renovation opportunities that meet our stringent return criteria. Through the scale associated with our corporate store development activities and certain re-engineering processes, we intend to reduce the fixed investment associated with our new square footage growth. This will result in improved returns on these future investments, while maintaining the unique design and quality associated with our store brands. We have an exceptional ten-year record of shareholder value creation which ranks among the top performances of all American businesses. I believe we can maintain this relative performance in our core business through a relentless focus on improving returns and execution, while developing new distribution strategies to leverage the power of our franchises, our brands and our customer relationships. It is a fascinating time to be in the retail business. Sincerely,
/s/ R. Brad Martin Chairman of the Board and Chief Executive Officer Saks Incorporated

Luxury stores 59 Speciality department stores 44 Traditional department stores 206 Particular attention to detail Our stores exceed expectations, because we listen to our customers. Then we simply deliver more. We analyze information on customer preferences, purchasing patterns and lifestyle requirements. We know what works, on a market to market basis, as well as why and when. At each of our stores, we thoughtfully build and nurture long-term

customer relationships. With a customer's initial store visit, our sales associates begin the clienteling process by tracking personal customer preferences. This process has become key to growing these valued relationships. We foster a culture of superior service, designed to personalize each customer encounter. Customers are greeted and thanked by name. Sales are followed with notes of appreciation. Individual communication with our customers also builds interest in new merchandise arrivals, special promotions and unique events like trunk shows, fashion shows and designer appearances. This communication increases store visits, creates additional transactions and strengthens customer loyalty. Building loyalty builds business. Our host of successful, value-added affinity programs, like SaksFirst, Parisian Platinum and Younkers Gold, are designed to reward customers for their loyalty to our stores. At Saks Incorporated, when it comes to our customers, details make the difference. Individual Style The store nameplates associated with Saks Incorporated--Saks Fifth Avenue, Parisian, Proffitt's, McRae's, Younkers, Herberger's, Carson Pirie Scott, Bergner's and Boston Store--have distinct and valuable identities as style leaders in their markets. Our customers look to us as early indicators of fashion trends. They count on our ability to address individual needs of style at every level. And because we tailor the merchandise assortments to meet the preferences and lifestyles of each customer group and each marketplace, our product assortments are

customer relationships. With a customer's initial store visit, our sales associates begin the clienteling process by tracking personal customer preferences. This process has become key to growing these valued relationships. We foster a culture of superior service, designed to personalize each customer encounter. Customers are greeted and thanked by name. Sales are followed with notes of appreciation. Individual communication with our customers also builds interest in new merchandise arrivals, special promotions and unique events like trunk shows, fashion shows and designer appearances. This communication increases store visits, creates additional transactions and strengthens customer loyalty. Building loyalty builds business. Our host of successful, value-added affinity programs, like SaksFirst, Parisian Platinum and Younkers Gold, are designed to reward customers for their loyalty to our stores. At Saks Incorporated, when it comes to our customers, details make the difference. Individual Style The store nameplates associated with Saks Incorporated--Saks Fifth Avenue, Parisian, Proffitt's, McRae's, Younkers, Herberger's, Carson Pirie Scott, Bergner's and Boston Store--have distinct and valuable identities as style leaders in their markets. Our customers look to us as early indicators of fashion trends. They count on our ability to address individual needs of style at every level. And because we tailor the merchandise assortments to meet the preferences and lifestyles of each customer group and each marketplace, our product assortments are as distinctive as our geographic reach. The global power of our name, our reputation, our focus on style and our attention to customer relationships have allowed Saks Incorporated to forge strong partner-ships with key vendors and prestigious designers. These valued partnerships enable us consistently to offer our customers a stylish array of exceptional merchandise, attractively priced. Opportunities to Standout Our style leadership and customer relationships provide a great foundation for developing additional opportunities for Saks Incorporated. Our proprietary brands are becoming increasingly important in our overall merchandise assortments. We have developed and introduced high quality product offerings which are ours exclusively. These brands will allow us to deliver exceptional value and style to our customers. Our private brands stand out in style that's ours alone. Another source for potential growth is our catalog businesses. With Folio and Bullock & Jones combined, we distributed 55 catalogs to nearly 30 million customers in 1998. We have in place the direct response infrastructure to expand this business in order to further leverage the power of our brands in this fast changing, out-of-store arena. Building on our direct response infrastructure, we are also in the early stages of developing our Internet strategies and applications, including business process improvements and more effective communication

and marketing to customers. In addition, there are specific Internet-related retailing strategies that are appropriate for our Company. We believe that the long-term viability of an Internet-based retail concept will rely on the power of its brand. Because of the unique authority and global appeal of the Saks Fifth Avenue brand, developing electronic commerce opportunities is an important focus for Saks Incorporated. Unique Properties Saks Incorporated operates more than 35 million square feet of premium real estate across the country, including some of the most prestigious addresses in fashion retailing today. Our customers know our stores for their unique design elements. The lighting, fixturing, decor, aisle-width and special amenities in each of our stores provide an extraordinary and exciting shopping experience. Our distinct shopping environments beautifully showcase our outstanding merchandise assortments. Our strong balance sheet positions us to further fund new store growth. We see many opportunities to cultivate this growth across all of our store formats. New store locations, remodels and expansions are carefully selected and executed to assure that our stringent return criteria are achieved. We remain focused on increasing existing store productivity and improving the efficiency of every asset employed in this business. The orchestration of lighting, traffic patterns and visual presentation creates an environment that is both beautiful and accessible.

SAKS INCORPORATED & SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY

and marketing to customers. In addition, there are specific Internet-related retailing strategies that are appropriate for our Company. We believe that the long-term viability of an Internet-based retail concept will rely on the power of its brand. Because of the unique authority and global appeal of the Saks Fifth Avenue brand, developing electronic commerce opportunities is an important focus for Saks Incorporated. Unique Properties Saks Incorporated operates more than 35 million square feet of premium real estate across the country, including some of the most prestigious addresses in fashion retailing today. Our customers know our stores for their unique design elements. The lighting, fixturing, decor, aisle-width and special amenities in each of our stores provide an extraordinary and exciting shopping experience. Our distinct shopping environments beautifully showcase our outstanding merchandise assortments. Our strong balance sheet positions us to further fund new store growth. We see many opportunities to cultivate this growth across all of our store formats. New store locations, remodels and expansions are carefully selected and executed to assure that our stringent return criteria are achieved. We remain focused on increasing existing store productivity and improving the efficiency of every asset employed in this business. The orchestration of lighting, traffic patterns and visual presentation creates an environment that is both beautiful and accessible.

SAKS INCORPORATED & SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY
52 Weeks Ended January 30, 1999 ----------6,219,893 4,093,467 -----------21,126,426 1,289,228 498,733 $ 52 Weeks Ended January 31, 1998 ----------5,726,346 3,731,293 -----------1,995,053 1,165,118 444,276 $ 52 Weeks Ended February 1, 1997 ----------4,926,862 3,208,989 -----------1,717,873 1,057,144 367,247 $ 53 Weeks Ended February 3, 1996 ----------4,422,107 2,900,026 -----------1,522,081 961,407 330,634 10,017 (36,058) 64,237 2,931 -----------188,913 (141,725) 4,051 -----------51,239 48,914 -----------2,325 (8,051) -----------$ (5,726) ============ $ $ 0.00 (0.07) $

(In Thousands, Except Per share Amounts) Consolidated Income Statement Data: Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Expenses related to attempted Younkers takeover (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items

61,785 111,307 10,437 -----------154,936 (110,971) 22,201 -----------66,166 41,181 -----------24,985 (25,881) -----------$ (896) ============ $ $ 0.17 (0.01)

(134) 36,524 6,590 9,513 -----------333,166 (113,685) 2,330 -----------221,811 (194,426) -----------416,237 (11,323) -----------$ 404,914 ============ $ $ 3.03 2.94

1,406 16,929 3,910 -----------271,237 (114,881) (11,780) -----------144,576 50,998 -----------93,578 (12,746) -----------$ 80,832 ============ $ $ 0.72 0.62

Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Weighted average common shares Basic Diluted

$ $

0.17 (0.01)

$ $

2.86 2.79

$ $

0.70 0.60

$ $

0.00 (0.07)

142,856 146,383

137,588 149,085

125,056 132,583

111,974 113,309

SAKS INCORPORATED & SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY
52 Weeks Ended January 30, 1999 ----------6,219,893 4,093,467 -----------21,126,426 1,289,228 498,733 $ 52 Weeks Ended January 31, 1998 ----------5,726,346 3,731,293 -----------1,995,053 1,165,118 444,276 $ 52 Weeks Ended February 1, 1997 ----------4,926,862 3,208,989 -----------1,717,873 1,057,144 367,247 $ 53 Weeks Ended February 3, 1996 ----------4,422,107 2,900,026 -----------1,522,081 961,407 330,634 10,017 (36,058) 64,237 2,931 -----------188,913 (141,725) 4,051 -----------51,239 48,914 -----------2,325 (8,051) -----------$ (5,726) ============ $ $ 0.00 (0.07) $

(In Thousands, Except Per share Amounts) Consolidated Income Statement Data: Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Expenses related to attempted Younkers takeover (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items

61,785 111,307 10,437 -----------154,936 (110,971) 22,201 -----------66,166 41,181 -----------24,985 (25,881) -----------$ (896) ============ $ $ 0.17 (0.01)

(134) 36,524 6,590 9,513 -----------333,166 (113,685) 2,330 -----------221,811 (194,426) -----------416,237 (11,323) -----------$ 404,914 ============ $ $ 3.03 2.94

1,406 16,929 3,910 -----------271,237 (114,881) (11,780) -----------144,576 50,998 -----------93,578 (12,746) -----------$ 80,832 ============ $ $ 0.72 0.62

Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Weighted average common shares Basic Diluted Consolidated Balance Sheet Data: Working capital Total assets Senior long-term debt, less current portion Subordinated debt Shareholders' equity

$ $

0.17 (0.01)

$ $

2.86 2.79

$ $

0.70 0.60

$ $

0.00 (0.07)

142,856 146,383

137,588 149,085

125,056 132,583

111,974 113,309

$ 887,875 $ 5,188,981 $ 2,110,395 $ 4,252 $ 2,007,575

$ 1,096,359 $ 4,270,253 $ 1,093,806 $ 286,964 $ 1,944,529

$ 951,752 $ 3,630,276 $ 863,475 $ 501,767 $ 1,397,934

$ 710,468 $ 2,899,565 $ 1,256,349 $ 150,505 $ 691,059

MANAGEMENT'S DISCUSSION AND ANALYSIS Saks Incorporated (formerly Proffitt's, Inc. and hereinafter the "Company") is a national retailer currently operating 352 premier and traditional department stores under the following names: Saks Fifth Avenue (59 stores), Proffitt's (31 stores), McRae's (29 stores), Younkers (52 stores), Parisian (44 stores), Herberger's (38 stores), Carson Pirie Scott ("Carson's") (30 stores), Bergner's (14 stores), Boston Store (12 stores), Off 5th (42 stores), and Bullock & Jones (1 store). The Company also operates a direct mail business under the Folio and Bullock & Jones names. The Company has experienced significant growth since 1994, principally through a series of acquisitions. The Company's major acquisitions are outlined below:

Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Weighted average common shares Basic Diluted Consolidated Balance Sheet Data: Working capital Total assets Senior long-term debt, less current portion Subordinated debt Shareholders' equity

$ $

0.17 (0.01)

$ $

2.86 2.79

$ $

0.70 0.60

$ $

0.00 (0.07)

142,856 146,383

137,588 149,085

125,056 132,583

111,974 113,309

$ 887,875 $ 5,188,981 $ 2,110,395 $ 4,252 $ 2,007,575

$ 1,096,359 $ 4,270,253 $ 1,093,806 $ 286,964 $ 1,944,529

$ 951,752 $ 3,630,276 $ 863,475 $ 501,767 $ 1,397,934

$ 710,468 $ 2,899,565 $ 1,256,349 $ 150,505 $ 691,059

MANAGEMENT'S DISCUSSION AND ANALYSIS Saks Incorporated (formerly Proffitt's, Inc. and hereinafter the "Company") is a national retailer currently operating 352 premier and traditional department stores under the following names: Saks Fifth Avenue (59 stores), Proffitt's (31 stores), McRae's (29 stores), Younkers (52 stores), Parisian (44 stores), Herberger's (38 stores), Carson Pirie Scott ("Carson's") (30 stores), Bergner's (14 stores), Boston Store (12 stores), Off 5th (42 stores), and Bullock & Jones (1 store). The Company also operates a direct mail business under the Folio and Bullock & Jones names. The Company has experienced significant growth since 1994, principally through a series of acquisitions. The Company's major acquisitions are outlined below:

Name ----------McRae's Younkers Parisian Herberger's Carson Pirie Scott, Boston Store, and Bergner's Saks Fifth Avenue and Off 5th ("SFA")

Headquarters ------------Jackson, MS Des Moines, IA Birmingham, AL St. Cloud, MN Milwaukee, WI

Number of Stores Acquired --------31 50 40 37 55

Locations ----------Southeast Midwest Southeast/Midwest Midwest Midwest

Date Acquired ------------March 31, 1994 February 3, 1996 October 11, 1996 February 1, 1997 January 31, 1998

New York, NY

95

National

September 17, 1998

Additionally, the Company has grown through the construction of new units as well as through the acquisition of store locations such as the purchase of 15 former Mercantile stores from Dillard's in late 1998. Merchandising, sales promotion and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit administration, store planning and information technology, are centralized. Income statement information for each year presented has been restated to reflect the Younkers, Herberger's, Carson Pirie Scott, and SFA mergers, which were accounted for as poolings of interests. The operations of Parisian and the 15 stores purchased from Dillard's, which were accounted for using the purchase method of accounting, have been included in the income statements subsequent to their respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding):
52 Weeks Ended January 30, 1999 ("1998") -----------100.0% 65.8 -------34.2 52 Weeks Ended January 31, 1998 ("1997") -----------100.0% 65.2 -------34.8

Net sales Cost of sales Gross margin

MANAGEMENT'S DISCUSSION AND ANALYSIS Saks Incorporated (formerly Proffitt's, Inc. and hereinafter the "Company") is a national retailer currently operating 352 premier and traditional department stores under the following names: Saks Fifth Avenue (59 stores), Proffitt's (31 stores), McRae's (29 stores), Younkers (52 stores), Parisian (44 stores), Herberger's (38 stores), Carson Pirie Scott ("Carson's") (30 stores), Bergner's (14 stores), Boston Store (12 stores), Off 5th (42 stores), and Bullock & Jones (1 store). The Company also operates a direct mail business under the Folio and Bullock & Jones names. The Company has experienced significant growth since 1994, principally through a series of acquisitions. The Company's major acquisitions are outlined below:

Name ----------McRae's Younkers Parisian Herberger's Carson Pirie Scott, Boston Store, and Bergner's Saks Fifth Avenue and Off 5th ("SFA")

Headquarters ------------Jackson, MS Des Moines, IA Birmingham, AL St. Cloud, MN Milwaukee, WI

Number of Stores Acquired --------31 50 40 37 55

Locations ----------Southeast Midwest Southeast/Midwest Midwest Midwest

Date Acquired ------------March 31, 1994 February 3, 1996 October 11, 1996 February 1, 1997 January 31, 1998

New York, NY

95

National

September 17, 1998

Additionally, the Company has grown through the construction of new units as well as through the acquisition of store locations such as the purchase of 15 former Mercantile stores from Dillard's in late 1998. Merchandising, sales promotion and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit administration, store planning and information technology, are centralized. Income statement information for each year presented has been restated to reflect the Younkers, Herberger's, Carson Pirie Scott, and SFA mergers, which were accounted for as poolings of interests. The operations of Parisian and the 15 stores purchased from Dillard's, which were accounted for using the purchase method of accounting, have been included in the income statements subsequent to their respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding):
52 Weeks Ended January 30, 1999 ("1998") -----------100.0% 65.8 -------34.2 20.7 8.0 1.0 1.8 0.2 -------2.5 (1.8) 0.4 -------52 Weeks Ended January 31, 1998 ("1997") -----------100.0% 65.2 -------34.8 20.3 7.7

Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes

0.6 0.1 0.2 -------5.8 (2.0) --------

1.1 0.7 --------

3.9 (3.3) --------

Name ----------McRae's Younkers Parisian Herberger's Carson Pirie Scott, Boston Store, and Bergner's Saks Fifth Avenue and Off 5th ("SFA")

Headquarters ------------Jackson, MS Des Moines, IA Birmingham, AL St. Cloud, MN Milwaukee, WI

Number of Stores Acquired --------31 50 40 37 55

Locations ----------Southeast Midwest Southeast/Midwest Midwest Midwest

Date Acquired ------------March 31, 1994 February 3, 1996 October 11, 1996 February 1, 1997 January 31, 1998

New York, NY

95

National

September 17, 1998

Additionally, the Company has grown through the construction of new units as well as through the acquisition of store locations such as the purchase of 15 former Mercantile stores from Dillard's in late 1998. Merchandising, sales promotion and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit administration, store planning and information technology, are centralized. Income statement information for each year presented has been restated to reflect the Younkers, Herberger's, Carson Pirie Scott, and SFA mergers, which were accounted for as poolings of interests. The operations of Parisian and the 15 stores purchased from Dillard's, which were accounted for using the purchase method of accounting, have been included in the income statements subsequent to their respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding):
52 Weeks Ended January 30, 1999 ("1998") -----------100.0% 65.8 -------34.2 20.7 8.0 1.0 1.8 0.2 -------2.5 (1.8) 0.4 -------52 Weeks Ended January 31, 1998 ("1997") -----------100.0% 65.2 -------34.8 20.3 7.7

Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes Net income (loss)

0.6 0.1 0.2 -------5.8 (2.0) --------

1.1 0.7 -------0.4

3.9 (3.3) -------7.3

(0.4) -------0.0% ========

(0.2) -------7.1% ========

Net Sales Total Company net sales increased by 9.0%, 16.0% and 11.0% in 1998, 1997 and 1996, respectively. The 1998 increase was primarily due to a comparable store sales increase of 4.0% and incremental revenues

Additionally, the Company has grown through the construction of new units as well as through the acquisition of store locations such as the purchase of 15 former Mercantile stores from Dillard's in late 1998. Merchandising, sales promotion and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit administration, store planning and information technology, are centralized. Income statement information for each year presented has been restated to reflect the Younkers, Herberger's, Carson Pirie Scott, and SFA mergers, which were accounted for as poolings of interests. The operations of Parisian and the 15 stores purchased from Dillard's, which were accounted for using the purchase method of accounting, have been included in the income statements subsequent to their respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding):
52 Weeks Ended January 30, 1999 ("1998") -----------100.0% 65.8 -------34.2 20.7 8.0 1.0 1.8 0.2 -------2.5 (1.8) 0.4 -------52 Weeks Ended January 31, 1998 ("1997") -----------100.0% 65.2 -------34.8 20.3 7.7

Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes Net income (loss)

0.6 0.1 0.2 -------5.8 (2.0) --------

1.1 0.7 -------0.4

3.9 (3.3) -------7.3

(0.4) -------0.0% ========

(0.2) -------7.1% ========

Net Sales Total Company net sales increased by 9.0%, 16.0% and 11.0% in 1998, 1997 and 1996, respectively. The 1998 increase was primarily due to a comparable store sales increase of 4.0% and incremental revenues generated from new store additions during 1998 and 1997 including the third and fourth quarter sales from the 15 stores purchased from Dillard's. The 1997 increase was primarily due to a comparable store sales increase of 5.0% and new store additions during 1997, combined with the full year inclusion of Parisian which was acquired in October 1996. The 1996 increase was primarily due to a comparable store sales increase of 6.0%, new store additions during 1996 and 1995 and a partial year of revenues generated from the Parisian stores. Gross Margins Gross margins were 34.2%, 34.8% and 34.9% of net sales in 1998, 1997 and 1996, respectively. The Company's cost of sales includes certain purchasing and distribution costs. The decrease in gross margin percent from 1997 to 1998 was primarily due to markdowns associated with the aged and excessive quantities of inventory at SFA recognized contemporaneous with the SFA acquisition. These markdowns at SFA negatively affected gross margin by approximately 1.5% and were partially offset by margin improvement resulting from enhanced buying power with core vendors due to the Company's increased scale.

Net Sales Total Company net sales increased by 9.0%, 16.0% and 11.0% in 1998, 1997 and 1996, respectively. The 1998 increase was primarily due to a comparable store sales increase of 4.0% and incremental revenues generated from new store additions during 1998 and 1997 including the third and fourth quarter sales from the 15 stores purchased from Dillard's. The 1997 increase was primarily due to a comparable store sales increase of 5.0% and new store additions during 1997, combined with the full year inclusion of Parisian which was acquired in October 1996. The 1996 increase was primarily due to a comparable store sales increase of 6.0%, new store additions during 1996 and 1995 and a partial year of revenues generated from the Parisian stores. Gross Margins Gross margins were 34.2%, 34.8% and 34.9% of net sales in 1998, 1997 and 1996, respectively. The Company's cost of sales includes certain purchasing and distribution costs. The decrease in gross margin percent from 1997 to 1998 was primarily due to markdowns associated with the aged and excessive quantities of inventory at SFA recognized contemporaneous with the SFA acquisition. These markdowns at SFA negatively affected gross margin by approximately 1.5% and were partially offset by margin improvement resulting from enhanced buying power with core vendors due to the Company's increased scale. The decrease in gross margin percent from 1996 to 1997 was primarily due to increased penetration in certain lower margin merchandise categories, sales shortfalls in bridge apparel in the spring of 1997 resulting in higher markdowns and higher inventory shortage and processing costs associated with a new SFA distribution center offset by enhanced buying power with core vendors due to the Company's increased scale, expansion of key brands and benchmarking of operations. Management believes the merchandising operations of the business can be further enhanced through continued execution of the Company's best practices and benchmarking process, more effective controls and disciplines, through the introduction of a new private brand program in its non-SFA stores, which began in the fall of 1998, and the expansion of existing private brand offerings in the SFA stores. While the Company anticipates that it will continue to emphasize premier national brands and exclusive designer labels in its stores, management's goal is to increase the private brand business from approximately 8.0% of sales to approximately 12.0% of sales by 2000. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were 20.7%, 20.3% and

21.5% of net sales in 1998, 1997 and 1996, respectively. The increase in the SG&A percentage from 1997 to 1998 was primarily due to SFA legal claims and self insurance liabilities, expenses related to real estate realignments and store closings and a $23.4 million loss recognized from conforming the delinquent accounts policies of SFA's proprietary credit card receivables to those of the Company. The reduction of the SG&A percentage from 1996 to 1997 was due to increased economies of scale and realization of synergies associated with the Company's acquisitions, targeted cost savings programs, increases in net finance charge income and implementation of cost reduction initiatives during 1997. Management identified synergies in conjunction with the Younkers, Parisian, Herberger's, Carson's and SFA business combinations. The implementation of these synergies reduced operating expenses by a total of $20.0 million in 1997 and $51.0 million in 1998. Incremental savings relating to these mergers of approximately $60.0 million are planned in 1999. Cost reductions are being achieved through the elimination of duplicate corporate expenses, economies of scale, implementation of best practices, and consolidation of certain administrative support functions. These changes are expected to deliver additional leverage on expenses in the future. Finance charge income and securitization gains derived from the Company's proprietary credit cards is included as a component of SG&A. Gross finance charge income (before allocation of finance charges to the third party purchasers of accounts receivable [see "Liquidity"]), was $261,500, $213,500 and $170,900 in 1998, 1997 and 1996, respectively. The increase since 1996 is due primarily to the increase in sales, the increase in the number of proprietary accounts, the increased utilization of the receivables securitization program and changes in certain credit card terms. The allocation of finance charges to the third party purchasers of accounts receivable totaled approximately $66,900 in 1998, $47,300 in 1997 and $40,700 in 1996. Utilization of the Company's accounts receivable securitization programs increased each year presented (see "Liquidity") commensurate with the Company's growth in proprietary credit card sales and the securitization of Carson's accounts receivable beginning in February 1998. Effective February 1998 (and September 1998 for SFA), all of the Company's proprietary credit cards are issued by National Bank of the Great Lakes (the "Bank"), a wholly owned subsidiary of the Company (see

21.5% of net sales in 1998, 1997 and 1996, respectively. The increase in the SG&A percentage from 1997 to 1998 was primarily due to SFA legal claims and self insurance liabilities, expenses related to real estate realignments and store closings and a $23.4 million loss recognized from conforming the delinquent accounts policies of SFA's proprietary credit card receivables to those of the Company. The reduction of the SG&A percentage from 1996 to 1997 was due to increased economies of scale and realization of synergies associated with the Company's acquisitions, targeted cost savings programs, increases in net finance charge income and implementation of cost reduction initiatives during 1997. Management identified synergies in conjunction with the Younkers, Parisian, Herberger's, Carson's and SFA business combinations. The implementation of these synergies reduced operating expenses by a total of $20.0 million in 1997 and $51.0 million in 1998. Incremental savings relating to these mergers of approximately $60.0 million are planned in 1999. Cost reductions are being achieved through the elimination of duplicate corporate expenses, economies of scale, implementation of best practices, and consolidation of certain administrative support functions. These changes are expected to deliver additional leverage on expenses in the future. Finance charge income and securitization gains derived from the Company's proprietary credit cards is included as a component of SG&A. Gross finance charge income (before allocation of finance charges to the third party purchasers of accounts receivable [see "Liquidity"]), was $261,500, $213,500 and $170,900 in 1998, 1997 and 1996, respectively. The increase since 1996 is due primarily to the increase in sales, the increase in the number of proprietary accounts, the increased utilization of the receivables securitization program and changes in certain credit card terms. The allocation of finance charges to the third party purchasers of accounts receivable totaled approximately $66,900 in 1998, $47,300 in 1997 and $40,700 in 1996. Utilization of the Company's accounts receivable securitization programs increased each year presented (see "Liquidity") commensurate with the Company's growth in proprietary credit card sales and the securitization of Carson's accounts receivable beginning in February 1998. Effective February 1998 (and September 1998 for SFA), all of the Company's proprietary credit cards are issued by National Bank of the Great Lakes (the "Bank"), a wholly owned subsidiary of the Company (see "Liquidity"). The Bank has the ability to assess uniform finance charges (including late fees) in all 38 states in which the Company operates. Other Operating Expenses Other operating expenses were 8.0%, 7.7% and 7.4% of net sales in 1998, 1997 and 1996, respectively. The increase in 1998 over 1997 was primarily due to the additional amortization of approximately $270.0 million in goodwill and intangibles recorded with the 1998 purchases of Brody Brothers Dry Goods Company, Inc. ("Brody's"), Bullock & Jones (a direct mail business and one retail store) and the 15 stores from Dillard's.

In addition to the incremental goodwill and intangibles amortization, the 1998 rate was negatively affected by incremental depreciation expense and rental expense from 20 new stores opened and acquired in the third and fourth quarters of 1998. (Gains) Losses from Long-Lived Assets Losses from long-lived assets in 1998 of $61.8 million are principally comprised of the write-off of the carrying amount of several relocated or closed stores, costs associated with terminating certain new store projects which did not meet the Company's investment return criteria and impairment charges related to several abandoned or under-performing store locations and a distribution facility. These charges were primarily the result of the Company's review of the SFA real estate portfolio subsequent to the SFA merger. Merger and Integration Charges In connection with the Company's mergers with SFA, Carson's, Herberger's and Younkers and the acquisition of Parisian and the former Mercantile stores from Dillard's, the Company incurred certain costs to effect the transactions and other costs to integrate and combine the operations of the companies. For 1998, these costs totaled $111.3 million, or 1.8% of net sales. The 1998 costs were comprised of (1) $44.8 million of SFA merger transaction costs related principally to investment banking, legal and accounting fees, transfer taxes and other direct merger costs; (2) $42.4 million of integration charges associated with the SFA merger related principally to such items as severance, the consolidation of administrative operations and the write-off of redundant information technology systems and certain development projects; and (3) $24.1 million of continuing integration costs related to mergers and acquisitions from the prior two years, including the acquisition of the 15 Dillard's stores in the third and fourth fiscal quarters of 1998.

In addition to the incremental goodwill and intangibles amortization, the 1998 rate was negatively affected by incremental depreciation expense and rental expense from 20 new stores opened and acquired in the third and fourth quarters of 1998. (Gains) Losses from Long-Lived Assets Losses from long-lived assets in 1998 of $61.8 million are principally comprised of the write-off of the carrying amount of several relocated or closed stores, costs associated with terminating certain new store projects which did not meet the Company's investment return criteria and impairment charges related to several abandoned or under-performing store locations and a distribution facility. These charges were primarily the result of the Company's review of the SFA real estate portfolio subsequent to the SFA merger. Merger and Integration Charges In connection with the Company's mergers with SFA, Carson's, Herberger's and Younkers and the acquisition of Parisian and the former Mercantile stores from Dillard's, the Company incurred certain costs to effect the transactions and other costs to integrate and combine the operations of the companies. For 1998, these costs totaled $111.3 million, or 1.8% of net sales. The 1998 costs were comprised of (1) $44.8 million of SFA merger transaction costs related principally to investment banking, legal and accounting fees, transfer taxes and other direct merger costs; (2) $42.4 million of integration charges associated with the SFA merger related principally to such items as severance, the consolidation of administrative operations and the write-off of redundant information technology systems and certain development projects; and (3) $24.1 million of continuing integration costs related to mergers and acquisitions from the prior two years, including the acquisition of the 15 Dillard's stores in the third and fourth fiscal quarters of 1998. For 1997, these costs totaled $36.5 million, or 0.6% of net sales. The 1997 charges were comprised of (1) $13.8 million of Carson's merger transaction costs related principally to investment banking, legal and accounting fees and other direct merger costs; (2) $17.3 million of integration charges associated with the Carson's merger related principally to such items as severance, the consolidation of administrative operations, and the write-off of duplicate assets; and (3) $12.4 million of continuing integration costs related to mergers and acquisitions from the prior two years offset by a $7.0 million decrease in the estimated costs to exit a SFA distribution facility. For 1996, these costs totaled $16.9 million, or 0.3% of net sales. The 1996 charges were comprised of (1) $2.6 million of Herberger's merger transaction costs related principally to investment banking, legal and accounting fees and other direct merger costs; (2) $7.4 million of integration charges associated with the Herberger's merger related principally to such items as severance, the consolidation of administrative operations, and the write-off of duplicate assets; (3) $5.9 million related

to the continuing integration of Younkers' operations; and (4) $1.0 million relating to consulting and advisory fees paid to a shareholder of SFA. Management also expects to incur certain additional integration costs in 1999, primarily related to the integration of duplicate systems and assets accumulated through the series of acquisitions described above. These expenses are expected to total approximately $30.0 to $35.0 million. Year 2000 Expenses The Year 2000 ("Y2K") issue is the result of computer programs being written using two digits rather than four to define the applicable year. Some of the Company's computer programs that have date-sensitive software may potentially recognize a date using "00" as the year 1900 rather than the Year 2000 or may not recognize a date indicated as "00". This incorrect or lack of recognition could result in a system failure or miscalculations causing disruptions of operations, including among other things a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company's management has recognized the need to address the Y2K issue within its internal operational systems as well as with suppliers and other third parties. As with many other companies, a significant number of the Company's information systems have required and will require modification over the next year in order to render these systems Y2K compliant. The Company recognizes that failure to timely resolve internal Y2K issues could result in an inability of the Company to order merchandise, receive and distribute merchandise to its stores, pay for merchandise received (which could delay delivery of merchandise), process purchases and payments made with the Company's proprietary credit cards, and, in the worst case, sell merchandise and otherwise process its daily business for an indeterminate period of time (which could result in default or other events permitting the Company's lenders to terminate and/or accelerate the Company's credit and accounts receivable

to the continuing integration of Younkers' operations; and (4) $1.0 million relating to consulting and advisory fees paid to a shareholder of SFA. Management also expects to incur certain additional integration costs in 1999, primarily related to the integration of duplicate systems and assets accumulated through the series of acquisitions described above. These expenses are expected to total approximately $30.0 to $35.0 million. Year 2000 Expenses The Year 2000 ("Y2K") issue is the result of computer programs being written using two digits rather than four to define the applicable year. Some of the Company's computer programs that have date-sensitive software may potentially recognize a date using "00" as the year 1900 rather than the Year 2000 or may not recognize a date indicated as "00". This incorrect or lack of recognition could result in a system failure or miscalculations causing disruptions of operations, including among other things a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company's management has recognized the need to address the Y2K issue within its internal operational systems as well as with suppliers and other third parties. As with many other companies, a significant number of the Company's information systems have required and will require modification over the next year in order to render these systems Y2K compliant. The Company recognizes that failure to timely resolve internal Y2K issues could result in an inability of the Company to order merchandise, receive and distribute merchandise to its stores, pay for merchandise received (which could delay delivery of merchandise), process purchases and payments made with the Company's proprietary credit cards, and, in the worst case, sell merchandise and otherwise process its daily business for an indeterminate period of time (which could result in default or other events permitting the Company's lenders to terminate and/or accelerate the Company's credit and accounts receivable facilities), each of which could materially and adversely affect the Company's financial condition and results of operations. However, Company management believes these scenarios are unlikely based on the progress the Company has made in its Y2K compliance process. The Company is modifying or replacing significant portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company believes that with modifications to existing software, conversions to new software, and changes to non-information technology systems, the Y2K issue can be mitigated. The Company has initiated formal communications with its material merchandise suppliers, service suppliers, store landlords and shopping mall owners to determine the extent to which the Company is vulnerable to failure of those third parties to remediate their own Y2K issues. The Company believes that its program to identify supplier and other third party compliance efforts will minimize the Company's Y2K exposure. However, the Company cannot control the conduct of its suppliers and other third parties, and it is possible the Company will experience significant Y2K problems as a result of third party non-compliance. The Company is also

addressing the Y2K issue with its non-information technology systems ("Non-IT"). Non-IT systems, include among other things security, fire prevention and climate control. The review of the Non-IT systems is ongoing, and a plan is in place for resolving Non-IT Y2K issues by mid-1999. The Company is in the process of developing Y2K contingency plans for its critical business processes; however, based on the Company's Y2K compliance efforts and project status to date, the Company does not expect to use these plans. The Company will continue to evaluate the need for contingency plans as the Y2K project continues and will develop and implement additional plans if such need is identified. The Company is utilizing both internal and external resources to reprogram, replace and test software for Y2K modifications. During 1997 and 1998, the Company substantially completed its assessment of the Y2K issue and began systems modifications, resulting in charges of $10.4 million in 1998, or 0.2% of net sales. During 1997, the Company incurred $6.6 million of Y2K related charges, or 0.1% of net sales. The Company expects to incur additional Y2K charges estimated to be $6.0 million in 1999. The Company is meeting its internal modification schedule and expects to complete compliance and testing of Y2K modifications by September 1999. The costs of the project and the date on which the Company plans to complete the modifications are based on management's best estimates, which were derived utilizing assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. Specific factors that might cause such differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties.

addressing the Y2K issue with its non-information technology systems ("Non-IT"). Non-IT systems, include among other things security, fire prevention and climate control. The review of the Non-IT systems is ongoing, and a plan is in place for resolving Non-IT Y2K issues by mid-1999. The Company is in the process of developing Y2K contingency plans for its critical business processes; however, based on the Company's Y2K compliance efforts and project status to date, the Company does not expect to use these plans. The Company will continue to evaluate the need for contingency plans as the Y2K project continues and will develop and implement additional plans if such need is identified. The Company is utilizing both internal and external resources to reprogram, replace and test software for Y2K modifications. During 1997 and 1998, the Company substantially completed its assessment of the Y2K issue and began systems modifications, resulting in charges of $10.4 million in 1998, or 0.2% of net sales. During 1997, the Company incurred $6.6 million of Y2K related charges, or 0.1% of net sales. The Company expects to incur additional Y2K charges estimated to be $6.0 million in 1999. The Company is meeting its internal modification schedule and expects to complete compliance and testing of Y2K modifications by September 1999. The costs of the project and the date on which the Company plans to complete the modifications are based on management's best estimates, which were derived utilizing assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. Specific factors that might cause such differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. ESOP Expenses Herberger's had an Employee Stock Ownership Plan ("ESOP") which was terminated on December 31, 1997. Charges related to the ESOP totaled $9.5 million, or 0.2% of net sales, in 1997. Of this total, $7.9 million related to the termination of the plan. ESOP charges totaled $3.9 million, or 0.1% of net sales in 1996. Interest Expense Total interest expense was $111.0 million, $113.7 million and $114.9 million in 1998, 1997 and 1996, respectively. Interest expense as a percentage of net sales was 1.8%, 2.0% and 2.3% for 1998, 1997 and 1996, respectively. The decrease in interest expense in 1998 compared to 1997 was primarily the result of (1) exchanging high interest rate debt of SFA (REMIC certificates, SFA revolver) with lower interest rate debt of the Company; (2) replacing the Carson's accounts receivable debt facility with the Company's accounts receivable securitization program; and (3) lower interest rates on the Company's revolving credit facilities, offset by increased borrowing costs associated with the third and fourth quarter acquisition of 15 stores from Dillard's, increased capital and inventory

investments throughout 1998 and the Company's election to issue long-term fixed rate securities in the public debt markets with the proceeds utilized to pay down outstandings under the revolving credit facility which was being assessed interest at short-term floating interest rates. The decrease in interest expense in 1997 compared to 1996 was primarily due to (1) the use of proceeds from SFA's May 1996 initial public offering (IPO) to repay outstanding indebtedness; (2) the use of proceeds from SFA's convertible notes offering in September 1996 to pay down higher cost debt; (3) improved cash flow from operations; and (4) lower interest rates on the revolving credit facilities, offset by increased borrowing costs associated with the October 1996 acquisition of Parisian and increased capital and inventory investments. Other Income (Expense), Net In 1998, the Company recorded other income of $22.2 million, or 0.4% of net sales, which is principally comprised of $42.5 million for the favorable settlement of pending litigation between Carson's and Bank One, Wisconsin related to the Carson's 1991 Chapter 11 bankruptcy filing, offset by charges of $17.4 million related to the termination of certain interest rate hedging agreements. In 1996, the Company recorded a loss of $10.5 million, or 0.2% of net sales, related to the write-down of the Carson's County Seat Debentures (the "Debentures"). Carson's received the Debentures in 1993 when County Seat Holdings, Inc. exercised its option to exchange the Debentures for other securities that had been issued to Carson's as part of the sale price for Carson's 1989 divestiture of County Seat Stores, Inc. to a management-led buyout group. Income Taxes

investments throughout 1998 and the Company's election to issue long-term fixed rate securities in the public debt markets with the proceeds utilized to pay down outstandings under the revolving credit facility which was being assessed interest at short-term floating interest rates. The decrease in interest expense in 1997 compared to 1996 was primarily due to (1) the use of proceeds from SFA's May 1996 initial public offering (IPO) to repay outstanding indebtedness; (2) the use of proceeds from SFA's convertible notes offering in September 1996 to pay down higher cost debt; (3) improved cash flow from operations; and (4) lower interest rates on the revolving credit facilities, offset by increased borrowing costs associated with the October 1996 acquisition of Parisian and increased capital and inventory investments. Other Income (Expense), Net In 1998, the Company recorded other income of $22.2 million, or 0.4% of net sales, which is principally comprised of $42.5 million for the favorable settlement of pending litigation between Carson's and Bank One, Wisconsin related to the Carson's 1991 Chapter 11 bankruptcy filing, offset by charges of $17.4 million related to the termination of certain interest rate hedging agreements. In 1996, the Company recorded a loss of $10.5 million, or 0.2% of net sales, related to the write-down of the Carson's County Seat Debentures (the "Debentures"). Carson's received the Debentures in 1993 when County Seat Holdings, Inc. exercised its option to exchange the Debentures for other securities that had been issued to Carson's as part of the sale price for Carson's 1989 divestiture of County Seat Stores, Inc. to a management-led buyout group. Income Taxes In 1998, 1997 and 1996 the effective income tax rates differ from the statutory tax rates principally due to nondeductible goodwill amortization, ESOP charges, and merger related costs. In 1997, the Company recognized a $294.8 million deferred income tax benefit in the fourth quarter. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this income tax benefit also enabled SFA to reduce goodwill by $34.5 million due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. Income Before Extraordinary Items Income before extraordinary loss on early extinguishment of debt was $25.0 million in 1998, or 0.4% of net sales, $416.2 million in 1997, or 7.3% of net sales and $93.6 million in 1996, or 1.9% of net sales. Extraordinary Items In 1998, primarily as a result of the SFA merger, the Company completed various balance sheet restructuring transactions that were designed to enhance liquidity, strengthen the Company's balance sheet and position the Company for future growth. These transactions included (1) the repurchase

of the Company's $125.0 million, 8.125% senior notes, due 2004; (2) the replacement of the $600.0 million revolving credit facility with a $750.0 million five-year revolving credit facility and a $750.0 million 364 day revolving credit facility that includes a four-year term-out option; (3) the repurchase of approximately $272.0 million of the SFA 5.50% convertible subordinated notes; (4) the repayment and subsequent cancellation of the SFA revolving credit facility and some other property leases; and (5) the repurchase of $65.0 million of SFA REMIC certificates. As a result of these five transactions, the Company incurred an extraordinary loss on early extinguishment of debt of $25.9 million, net of income taxes. The Company replaced the majority of this cancelled debt with fixed term senior notes (see Liquidity and Capital Resources for discussion of debt issued in 1998). Subsequent to the fiscal year end, the Company prepaid the remaining $236.0 million in SFA REMIC certificates, which will result in an extraordinary loss in 1999 of approximately $9.5 million, net of income taxes. During 1997, the Company made certain modifications to its capital structure, including retiring approximately $114.0 million of 9.875% Parisian Senior Subordinated Notes due 2003, prepaying approximately $15.0 million of 11.0% Junior Subordinated Notes, prepaying certain mortgages and replacing the Company's existing revolving credit and working capital facilities with a new revolving credit facility. As a result of this early extinguishment of debt, certain deferred costs and premiums associated with the debt facilities, such as loan origination costs, were written off resulting in a loss of $11.3 million, net of income taxes. In 1996, the Company recognized $12.7 million of extraordinary charges, net of income taxes, associated with the prepayment of term borrowings under the SFA credit facility, the repayment of outstanding balances on the revolving credit portion of the SFA credit facility and the prepayment of certain mortgages.

of the Company's $125.0 million, 8.125% senior notes, due 2004; (2) the replacement of the $600.0 million revolving credit facility with a $750.0 million five-year revolving credit facility and a $750.0 million 364 day revolving credit facility that includes a four-year term-out option; (3) the repurchase of approximately $272.0 million of the SFA 5.50% convertible subordinated notes; (4) the repayment and subsequent cancellation of the SFA revolving credit facility and some other property leases; and (5) the repurchase of $65.0 million of SFA REMIC certificates. As a result of these five transactions, the Company incurred an extraordinary loss on early extinguishment of debt of $25.9 million, net of income taxes. The Company replaced the majority of this cancelled debt with fixed term senior notes (see Liquidity and Capital Resources for discussion of debt issued in 1998). Subsequent to the fiscal year end, the Company prepaid the remaining $236.0 million in SFA REMIC certificates, which will result in an extraordinary loss in 1999 of approximately $9.5 million, net of income taxes. During 1997, the Company made certain modifications to its capital structure, including retiring approximately $114.0 million of 9.875% Parisian Senior Subordinated Notes due 2003, prepaying approximately $15.0 million of 11.0% Junior Subordinated Notes, prepaying certain mortgages and replacing the Company's existing revolving credit and working capital facilities with a new revolving credit facility. As a result of this early extinguishment of debt, certain deferred costs and premiums associated with the debt facilities, such as loan origination costs, were written off resulting in a loss of $11.3 million, net of income taxes. In 1996, the Company recognized $12.7 million of extraordinary charges, net of income taxes, associated with the prepayment of term borrowings under the SFA credit facility, the repayment of outstanding balances on the revolving credit portion of the SFA credit facility and the prepayment of certain mortgages. Inflation and Deflation Inflation and deflation affect the costs incurred by the Company in its purchase of merchandise and in certain components of its SG&A expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. The Company attempts to offset the effects of merchandise deflation through control of expenses. Seasonality The Company's business, like that of most retailers, is subject to seasonal influences, with a significant portion of net sales and net income realized during the fall season, which includes the Christmas selling season. In light of these patterns, SG&A expenses are typically higher as a percentage of net sales during the first three quarters of each year, and working capital needs are greater in the last two quarters of each year. The fall season increases in working capital needs have typically been financed with internally generated funds, the sale of interests in accounts receivable and borrowings under the Company's revolving credit facilities. Generally,

more than 30% of the Company's net sales and over 50% of net income are generated during the fourth quarter. Liquidity and Capital Resources Cash Flow The Company's primary needs for liquidity are to acquire, renovate or construct new stores and to provide working capital for new and existing stores. The Company anticipates that cash generated from operating activities will be sufficient to meet its financial commitments and to capitalize on opportunities for future new store growth. Cash provided by operating activities was $522.9 million in 1998, $209.3 million in 1997 and $140.7 million in 1996. Cash provided by operating activities principally represented income before depreciation and amortization charges, the non-cash portion of extraordinary losses and losses from long-lived assets and changes in working capital. The increase from 1997 to 1998 was primarily related to the sale of the Carson's receivables in February 1998 into the Company's accounts receivable securitization facility. Cash used in investing activities was $943.7 million in 1998, $319.0 million in 1997 and $330.6 million in 1996. Cash used in investing activities principally consists of business acquisitions, construction of new stores and the renovation and expansion of existing stores. The increase in 1998 is primarily due to the acquisition of former Mercantile stores from Dillard's. Cash provided by financing activities for 1998, 1997 and 1996 totaled $402.6 million, $83.6 million, and $186.7 million, respectively. The increase from 1997 to 1998 is principally comprised of the issuance of $1.1 billion in senior notes and an increase in the Company's revolving credit facilities balance to fund (1) the acquisition of the

more than 30% of the Company's net sales and over 50% of net income are generated during the fourth quarter. Liquidity and Capital Resources Cash Flow The Company's primary needs for liquidity are to acquire, renovate or construct new stores and to provide working capital for new and existing stores. The Company anticipates that cash generated from operating activities will be sufficient to meet its financial commitments and to capitalize on opportunities for future new store growth. Cash provided by operating activities was $522.9 million in 1998, $209.3 million in 1997 and $140.7 million in 1996. Cash provided by operating activities principally represented income before depreciation and amortization charges, the non-cash portion of extraordinary losses and losses from long-lived assets and changes in working capital. The increase from 1997 to 1998 was primarily related to the sale of the Carson's receivables in February 1998 into the Company's accounts receivable securitization facility. Cash used in investing activities was $943.7 million in 1998, $319.0 million in 1997 and $330.6 million in 1996. Cash used in investing activities principally consists of business acquisitions, construction of new stores and the renovation and expansion of existing stores. The increase in 1998 is primarily due to the acquisition of former Mercantile stores from Dillard's. Cash provided by financing activities for 1998, 1997 and 1996 totaled $402.6 million, $83.6 million, and $186.7 million, respectively. The increase from 1997 to 1998 is principally comprised of the issuance of $1.1 billion in senior notes and an increase in the Company's revolving credit facilities balance to fund (1) the acquisition of the 15 stores from Dillard's; (2) repayment of the Carson's $125.0 million receivables facility; (3) the repayment of the Company's $125.0 million, 8.125% senior notes; and (4) the repayment of $350.0 million of SFA convertible debenture and REMIC certificates (see Capital Structure discussion below). Cash provided by financing activities in 1996 was primarily due to proceeds of $457.5 million from the issuance of stock offset by repayments on the Company's credit and receivables facilities and long-term debt instruments. The availability of net operating loss carryforwards and other tax benefits generated in prior years by SFA and Carson's will enable the Company to reduce its cash requirements for income tax payments in the next several years. National Bank of the Great Lakes On January 31, 1998, in connection with the Company's acquisition of Carson's, the Company acquired National Bank of the Great Lakes (the "Bank"), which is a wholly owned subsidiary of the Company. Immediately after this acquisition, the Company contributed all of its proprietary credit card

accounts and account balances to the Bank. As a result, the Bank became the sole owner of the Company's proprietary credit card accounts maintained for customers of the Company and sells 100% of the accounts receivable generated by these accounts to the Company's special purpose subsidiaries. Accounts Receivable Securitization: Younkers Master Trust Facility In 1995, the Younkers Master Trust ("YMT") was established by Younkers Credit Corporation ("YCC"), a wholly owned, special purpose subsidiary of the Company. YMT has issued to third parties a total of $75.0 million of asset-backed securities in two separate classes. On May 6, 1998 YCC was merged into Proffitt's Credit Corporation. Accounts Receivable Securitization: Proffitt's Credit Card Master Trust Facility The Bank sells an undivided interest in its accounts receivable through a wholly owned special purpose subsidiary, Proffitt's Credit Corporation ("PCC") to Proffitt's Credit Card Master Trust ("PCCMT"). At January 31, 1998, the PCCMT funding capacity consisted of $221.0 million in fixed rate certificates and a variable funding certificate ("VFC") with a capacity of $150.0 million. During 1998, as a result of the initial sale of the Carson's proprietary credit card receivables into PCCMT, the merging of YCC with and into PCC, and the additional proprietary credit card sales from the Dillard's stores, PCCMT issued an additional $245.5 million in fixed rate asset backed securities and also increased the VFC to $300.0 million. Accounts Receivable Securitization: Saks Master Trust facility The Bank also sells an undivided interest in its accounts receivable through a second wholly owned special purpose subsidiary, Saks Finance Company ("SFC"), to Saks Master Trust ("SMT"). In 1996, the trust sold two series of certificates of beneficial interests

accounts and account balances to the Bank. As a result, the Bank became the sole owner of the Company's proprietary credit card accounts maintained for customers of the Company and sells 100% of the accounts receivable generated by these accounts to the Company's special purpose subsidiaries. Accounts Receivable Securitization: Younkers Master Trust Facility In 1995, the Younkers Master Trust ("YMT") was established by Younkers Credit Corporation ("YCC"), a wholly owned, special purpose subsidiary of the Company. YMT has issued to third parties a total of $75.0 million of asset-backed securities in two separate classes. On May 6, 1998 YCC was merged into Proffitt's Credit Corporation. Accounts Receivable Securitization: Proffitt's Credit Card Master Trust Facility The Bank sells an undivided interest in its accounts receivable through a wholly owned special purpose subsidiary, Proffitt's Credit Corporation ("PCC") to Proffitt's Credit Card Master Trust ("PCCMT"). At January 31, 1998, the PCCMT funding capacity consisted of $221.0 million in fixed rate certificates and a variable funding certificate ("VFC") with a capacity of $150.0 million. During 1998, as a result of the initial sale of the Carson's proprietary credit card receivables into PCCMT, the merging of YCC with and into PCC, and the additional proprietary credit card sales from the Dillard's stores, PCCMT issued an additional $245.5 million in fixed rate asset backed securities and also increased the VFC to $300.0 million. Accounts Receivable Securitization: Saks Master Trust facility The Bank also sells an undivided interest in its accounts receivable through a second wholly owned special purpose subsidiary, Saks Finance Company ("SFC"), to Saks Master Trust ("SMT"). In 1996, the trust sold two series of certificates of beneficial interests with subordinated structures. The first series is a term series with a capacity of $413.0 million. The second series is a variable series with a maximum capacity of $118.0 million. In August 1998, SFC executed a new $397.0 million receivables securitization facility to finance the monthly accumulation of cash required to repay the previously issued and outstanding term series. The SFA outstanding term series matures in April and June of 1999. The Company intends to merge the SFA accounts receivable securitization program into the Company's existing accounts receivable securitization programs after the accumulation period is completed and the outstanding certificates are repaid. Operating Lease Agreement In June 1997, SFA entered into a $100.5 million operating lease agreement, which was used to finance qualified properties and related fixtures and leasehold improvements. Under this agreement, the lessor agreed to acquire and construct new store sites in order to lease them to SFA. SFA had guaranteed a residual value of approximately $19.0 million at January 31, 1998 and had approximately $77.5 million available under this lease agreement to fund capital expenditures. On September 17, 1998, the Company terminated the operating lease agreement, which resulted in the purchase of

properties valued at approximately $30.0 million. Capital Structure During 1998, primarily resulting from the SFA merger and the acquisition of the stores from Dillard's, the Company implemented a comprehensive capital restructure designed to reduce the Company's level of secured indebtedness, create a more appropriate fixed to floating interest rate balance, lengthen the duration of debt capital and increase overall liquidity. The restructuring process included numerous capital transactions throughout 1998. In September 1998, the Company completed a tender offer for the $125.0 million, 8.125% senior notes, repurchased $65.0 million of the SFA REMIC certificates and replaced its $600.0 million revolving credit facility with two $750.0 million revolving credit facilities, with 364 day and five-year terms. In connection with the revolving credit facility restructuring, the Company terminated and repaid the SFA credit facility and the SFA real estate operating lease agreement. In November 1998, the Company issued $850.0 million in senior notes, which were comprised of $500.0 million, 8.25% notes, due 2008, and $350.0 million, 7.25% notes, due 2004, and repurchased $267.7 million of SFA's convertible subordinated notes, due 2006. In December 1998, the Company issued $250.0 million, 7.50% notes, due 2010. As of January 30, 1999, the Company's debt consisted of $608.0 million outstanding on its revolving credit facilities, $160.7 million of capital leases, $235.8 million of REMIC certificates, $17.1 million of mortgage debt and $1.1 billion in senior notes. On February 10, 1999, the Company prepaid all outstanding REMIC certificates. The prepayment terms of the REMIC certificates required the Company to fund an escrow account

properties valued at approximately $30.0 million. Capital Structure During 1998, primarily resulting from the SFA merger and the acquisition of the stores from Dillard's, the Company implemented a comprehensive capital restructure designed to reduce the Company's level of secured indebtedness, create a more appropriate fixed to floating interest rate balance, lengthen the duration of debt capital and increase overall liquidity. The restructuring process included numerous capital transactions throughout 1998. In September 1998, the Company completed a tender offer for the $125.0 million, 8.125% senior notes, repurchased $65.0 million of the SFA REMIC certificates and replaced its $600.0 million revolving credit facility with two $750.0 million revolving credit facilities, with 364 day and five-year terms. In connection with the revolving credit facility restructuring, the Company terminated and repaid the SFA credit facility and the SFA real estate operating lease agreement. In November 1998, the Company issued $850.0 million in senior notes, which were comprised of $500.0 million, 8.25% notes, due 2008, and $350.0 million, 7.25% notes, due 2004, and repurchased $267.7 million of SFA's convertible subordinated notes, due 2006. In December 1998, the Company issued $250.0 million, 7.50% notes, due 2010. As of January 30, 1999, the Company's debt consisted of $608.0 million outstanding on its revolving credit facilities, $160.7 million of capital leases, $235.8 million of REMIC certificates, $17.1 million of mortgage debt and $1.1 billion in senior notes. On February 10, 1999, the Company prepaid all outstanding REMIC certificates. The prepayment terms of the REMIC certificates required the Company to fund an escrow account with $363.8 million on January 29, 1999. The escrow account was funded through the Company's revolving credit facility. The escrow funds exceeded the amount required to extinguish the debt, including prepayment premiums and accrued interest, by $115.0 million. This amount represented the $95.0 million face amount of certificates previously repurchased by the Company and related prepayment premiums and accrued interest, and was therefore returned to the Company and used to reduce amounts outstanding under the revolving credit facility. After adjusting the Company's debt for this transaction, the Company's total outstanding debt was $1.8 billion, representing a debt to total capitalization percentage of 47.0% and a $378.3 million increase over outstanding debt in 1997. This increase over 1997 is principally due to the Dillard's stores purchase as well as 1998 capital expenditures. Capital Needs The Company estimates capital expenditures for 1999 will approximate $425.0 million, primarily for the construction of new store openings in 1999, initial construction work on stores expected to open in 2000, several store expansions and renovations, enhancements to management information systems and regular maintenance capital expenditures. The Company anticipates its capital expenditures and working capital requirements relating to planned new and existing stores will be funded

through cash provided by operations, ongoing sales of receivables under the securitization programs and additional borrowings. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations. The Company maintains favorable banking relations and anticipates that the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed. The Company also believes it has access to a variety of other capital markets. Segment Reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The objective of this statement is to provide users of financial statements information about the different types of business activities in which a company engages and the different economic environments in which it operates. The statement provides companies the opportunity to aggregate two or more operating segments into a single operating segment if the segments have similar characteristics. In applying SFAS No. 131, the Company identified three reportable segments, which are as follows: department stores, catalog, and furniture. The department store segment includes all department stores which the company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The catalog segment includes the Company's direct marketing catalogs of Folio and Bullock & Jones. The Company's furniture segment includes

through cash provided by operations, ongoing sales of receivables under the securitization programs and additional borrowings. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations. The Company maintains favorable banking relations and anticipates that the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed. The Company also believes it has access to a variety of other capital markets. Segment Reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The objective of this statement is to provide users of financial statements information about the different types of business activities in which a company engages and the different economic environments in which it operates. The statement provides companies the opportunity to aggregate two or more operating segments into a single operating segment if the segments have similar characteristics. In applying SFAS No. 131, the Company identified three reportable segments, which are as follows: department stores, catalog, and furniture. The department store segment includes all department stores which the company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The catalog segment includes the Company's direct marketing catalogs of Folio and Bullock & Jones. The Company's furniture segment includes the Company's four free-standing furniture stores as well as furniture departments within existing department stores. The combined operations of the catalog and furniture segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus the three identified segments are combined within the consolidated financial statements of the Company. New Accounting Pronouncements In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that all derivative financial instruments be recorded on the financial statements. SFAS No. 133 is effective for the Company in the first quarter of 2000, and the Company is in the process of ascertaining the impact this new standard will have on its financial statements. Forward-Looking Information This report contains "forward-looking" statements within the meaning of the federal securities laws. The forwardlooking information and statements contained throughout Management's Discussion and Analysis are premised on many factors, some of which are outlined below. Actual consolidated results might differ materially from projected forward-looking information if there

are any material changes in management's assumptions. The forward-looking information and statements are based on a series of projections and estimates that involve certain risks and uncertainties. Potential risks and uncertainties include such factors as the level of consumer spending for apparel and other merchandise carried by the Company; the competitive pricing environment within the department and specialty store industries; the effectiveness of planned advertising, marketing and promotional campaigns; appropriate inventory management; realization of planned synergies; effective cost containment; and solution of Year 2000 systems issues by the Company and its suppliers. For additional information regarding these and other risk factors, please refer to the Company's public filings with the Securities and Exchange Commission, which may be accessed via EDGAR through the Internet at www.sec.gov. When used in this report, words such as "believes," "estimates," "plans," "expects," "should," "may," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. Management undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures management makes on related subjects in its reports with the Securities and Exchange Commission.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

are any material changes in management's assumptions. The forward-looking information and statements are based on a series of projections and estimates that involve certain risks and uncertainties. Potential risks and uncertainties include such factors as the level of consumer spending for apparel and other merchandise carried by the Company; the competitive pricing environment within the department and specialty store industries; the effectiveness of planned advertising, marketing and promotional campaigns; appropriate inventory management; realization of planned synergies; effective cost containment; and solution of Year 2000 systems issues by the Company and its suppliers. For additional information regarding these and other risk factors, please refer to the Company's public filings with the Securities and Exchange Commission, which may be accessed via EDGAR through the Internet at www.sec.gov. When used in this report, words such as "believes," "estimates," "plans," "expects," "should," "may," "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. Management undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures management makes on related subjects in its reports with the Securities and Exchange Commission.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------$ 6,219,893 $ 5,726,346 $ 4,926,862 4,093,467 3,731,293 3,208,989 ------------------------------2,126,426 1,995,053 1,717,873 1,289,228 1,165,118 1,057,144 181,966 155,361 150,839 10,567 61,785 111,307 10,437 ----------154,936 (110,971) 22,201 ----------66,166 41,181 ----------24,985 (25,881) ----------157,018 136,119 134,121 17,018 (134) 36,524 6,590 9,513 ----------333,166 (113,685) 2,330 ----------221,811 (194,426) ----------416,237 (11,323) ----------114,714 123,533 117,355 11,645 1,406 16,929 3,910 ----------271,237 (114,881) (11,780) ----------144,576 50,998 ----------93,578 (12,746) -----------

(In thousands, except per share amounts) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Property and equipment rentals Depreciation and amortization Taxes other than income taxes Store pre-opening costs (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes

Net income (loss) Preferred stock payments Net income (loss) available to common shareholders Earnings per common share: Basic earnings per common share before extraordinary loss Extraordinary loss Basic earnings (loss) per common share

(896) ----------$ (896) -----------

404,914 ----------$ 404,914 -----------

80,832 (3,828) ----------$ 77,004 -----------

$

0.17 (0.18) ----------$ (0.01) ===========

3.03 (0.09) ----------$ 2.94 ===========

$

$

0.72 (0.10) ----------$ 0.62 ===========

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------$ 6,219,893 $ 5,726,346 $ 4,926,862 4,093,467 3,731,293 3,208,989 ------------------------------2,126,426 1,995,053 1,717,873 1,289,228 1,165,118 1,057,144 181,966 155,361 150,839 10,567 61,785 111,307 10,437 ----------154,936 (110,971) 22,201 ----------66,166 41,181 ----------24,985 (25,881) ----------157,018 136,119 134,121 17,018 (134) 36,524 6,590 9,513 ----------333,166 (113,685) 2,330 ----------221,811 (194,426) ----------416,237 (11,323) ----------114,714 123,533 117,355 11,645 1,406 16,929 3,910 ----------271,237 (114,881) (11,780) ----------144,576 50,998 ----------93,578 (12,746) -----------

(In thousands, except per share amounts) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Property and equipment rentals Depreciation and amortization Taxes other than income taxes Store pre-opening costs (Gains) losses from long-lived assets Merger and integration charges Year 2000 expenses ESOP expenses Operating income Other income (expense) Interest expense Other income (expense), net Income before provision (benefit) for income taxes and extraordinary items Provision (benefit) for income taxes Income before extraordinary items Extraordinary loss on early extinguishment of debt, net of taxes

Net income (loss) Preferred stock payments Net income (loss) available to common shareholders Earnings per common share: Basic earnings per common share before extraordinary loss Extraordinary loss Basic earnings (loss) per common share Diluted earnings per common share before extraordinary loss Extraordinary loss Diluted earnings (loss) per common share Weighted average common shares Basic Diluted

(896) ----------$ (896) -----------

404,914 ----------$ 404,914 -----------

80,832 (3,828) ----------$ 77,004 -----------

$

0.17 (0.18) ----------$ (0.01) =========== 0.17 (0.18) ----------$ (0.01) =========== 142,856 146,383 $

3.03 (0.09) ----------$ 2.94 =========== $ 2.86 (0.07) ----------$ 2.79 =========== 137,588 149,085

$

$

0.72 (0.10) ----------$ 0.62 =========== 0.70 (0.10) ----------$ 0.60 =========== 125,056 132,583 $

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 30, 1999 January 31, 1998

(In thousands)

Net income (loss) Preferred stock payments Net income (loss) available to common shareholders Earnings per common share: Basic earnings per common share before extraordinary loss Extraordinary loss Basic earnings (loss) per common share Diluted earnings per common share before extraordinary loss Extraordinary loss Diluted earnings (loss) per common share Weighted average common shares Basic Diluted

(896) ----------$ (896) -----------

404,914 ----------$ 404,914 -----------

80,832 (3,828) ----------$ 77,004 -----------

0.17 (0.18) ----------$ (0.01) =========== 0.17 (0.18) ----------$ (0.01) =========== 142,856 146,383 $

$

3.03 (0.09) ----------$ 2.94 =========== 2.86 (0.07) ----------$ 2.79 =========== 137,588 149,085 $

$

$

0.72 (0.10) ----------$ 0.62 =========== $ 0.70 (0.10) ----------$ 0.60 =========== 125,056 132,583

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 30, 1999 ----------January 31, 1998 -----------

(In thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Other current assets Deferred income taxes Total Current Assets Property and Equipment, net of depreciation Goodwill and Intangibles, net of amortization Deferred Income Taxes Cash Placed in Escrow for Debt Redemption Other Assets Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses Accrued compensation and related items Sales taxes payable Current portion of long-term debt Total Current Liabilities Senior Debt Other Long-Term Liabilities Subordinated Debt Shareholders' Equity Common stock Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total Shareholders' Equity Total Liabilities and Shareholders' Equity

$

32,752 159,596 1,406,182 110,426 83,958 ----------1,792,914

$

50,864 412,209 1,244,682 111,621 77,869 ----------1,897,245 1,725,979 327,307 251,793

2,118,555 586,297 249,816 363,753 77,646 ----------$ 5,188,981 ===========

67,929 ----------$ 4,270,253 ===========

$

360,388 411,505 78,009 39,614 15,523 ----------905,039 2,110,395 165,972

$

333,794 342,576 69,286 42,172 13,058 ----------800,886 1,093,806 144,068 286,964 14,148 2,028,067

14,401 2,099,243 (7,487) (98,582) ----------2,007,575 ----------$ 5,188,981

(97,686) ----------1,944,529 ----------$ 4,270,253

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 30, 1999 ----------January 31, 1998 -----------

(In thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Other current assets Deferred income taxes Total Current Assets Property and Equipment, net of depreciation Goodwill and Intangibles, net of amortization Deferred Income Taxes Cash Placed in Escrow for Debt Redemption Other Assets Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses Accrued compensation and related items Sales taxes payable Current portion of long-term debt Total Current Liabilities Senior Debt Other Long-Term Liabilities Subordinated Debt Shareholders' Equity Common stock Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total Shareholders' Equity Total Liabilities and Shareholders' Equity

$

32,752 159,596 1,406,182 110,426 83,958 ----------1,792,914

$

50,864 412,209 1,244,682 111,621 77,869 ----------1,897,245 1,725,979 327,307 251,793

2,118,555 586,297 249,816 363,753 77,646 ----------$ 5,188,981 ===========

67,929 ----------$ 4,270,253 ===========

$

360,388 411,505 78,009 39,614 15,523 ----------905,039 2,110,395 165,972

$

333,794 342,576 69,286 42,172 13,058 ----------800,886 1,093,806 144,068 286,964 14,148 2,028,067

14,401 2,099,243 (7,487) (98,582) ----------2,007,575 ----------$ 5,188,981 ===========

(97,686) ----------1,944,529 ----------$ 4,270,253 ===========

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Paid-In Capital ---------$1,332,495 536,733 4,633 (27,973) 8,809 (57) 16,000 278 Accumulated Deficit --------$(641,421) 80,832

Balance at February 3, 1996 Net income Issuance of common stock Income tax benefits related to exercised stock options Purchases and retirements of stock Sale of treasury stock Reclassification of ESOP stock Preferred stock dividends Decrease in tax valuation allowance Stock compensation

Preferred Stock --------$ 28,850

Common Stock ------$ 9,271 1,849

(776) 290

(7,060) 69,907 (796)

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Paid-In Capital ---------$1,332,495 536,733 4,633 (27,973) 8,809 (57) 16,000 278 122 28,663 Accumulated Deficit --------$(641,421) 80,832

Balance at February 3, 1996 Net income Issuance of common stock Income tax benefits related to exercised stock options Purchases and retirements of stock Sale of treasury stock Reclassification of ESOP stock Preferred stock dividends Decrease in tax valuation allowance Stock compensation Unrealized gain on ESOP shares Conversion of preferred stock Common stock dividends, $.28 per Herberger's share Balance at February 1, 1997 Net income Issuance of common stock Income tax benefits related to exercised stock options 2-for-1 stock split Purchases and retirements of stock Decrease in tax valuation allowance Stock compensation Conversion of 4.75% subordinated debentures Termination of ESOP Balance at January 31, 1998 Net loss Minimum pension liability (net of taxes of $4,787 ) Comprehensive income

Preferred Stock --------$ 28,850

Common Stock ------$ 9,271 1,849

(776) 290

(7,060) 69,907 (796)

(28,850)

142

(3,032) (1,030) --------(502,600) 404,914

---------

------10,776 144

---------1,899,703 24,839 7,319 (3,070) (13,043) 16,000 1,451 86,082 8,786 ---------2,028,067

3,070 (53) 9 202 --------------14,148

--------(97,686) (896)

--------------Issuance of common stock Income tax benefits related to exercised stock options Decrease in tax valuation allowance Stock compensation Stock repurchase Balance at January 30, 1999 -------$ -========

------------228

------------------37,481 16,444 16,000 1,723 (472) ---------$2,099,243 ==========

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

27 (2) ------$14,401 =======

--------$ (98,582) =========

The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------$ (896) $ 404,914 $ 80,832

(In thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss on extinguishment of debt Depreciation and amortization Recognition of NOL carryforwards

14,599 155,361

8,356 136,119 (283,675)

12,746 123,533

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------$ (896) $ 404,914 $ 80,832

(In thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss on extinguishment of debt Depreciation and amortization Recognition of NOL carryforwards Deferred income taxes Write-offs of long-lived assets, merger and integration items Loss on County Seat debentures ESOP expenses Restructuring items Changes in operating assets and liabilities: Retained interest in accounts receivable Merchandise inventories Other current assets Accounts payable and accrued liabilities Other operating assets and liabilities Net Cash Provided By Operating Activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Acquisitions of Dillard's stores, Brody's and Bullock & Jones Acquisition of Parisian Net Cash Used In Investing Activities

14,599 155,361 14,926 79,617

8,356 136,119 (283,675) 23,050 (134) 8,786 (800)

12,746 123,533 31,628 1,406 10,525 1,481 885 (38,706) (90,829) (13,533) 18,831 1,896 ----------140,695 ----------(247,814) 36,282

293,948 (127,203) (8,112) 97,302 3,397 ----------522,939 ----------(421,062) 2,500 (525,117) ----------(943,679) -----------

(18,327) (175,912) 27,704 99,352 (20,128) ----------209,305 ----------(346,876) 27,851

----------(319,025) ----------175,546 (258,802)

(119,070) ----------(330,602) ----------380,837 (394,256)

Financing Activities Proceeds from long-term borrowings Payments on long-term debt and capital lease obligations Cash placed in escrow for debt redemption Net borrowings (repayments) under credit and receivables facilities Proceeds from issuance of stock Purchase of treasury stock ESOP loan repayment Payments to preferred and common shareholders Other Net Cash Provided By Financing Activities Decrease In Cash and Cash Equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

1,100,000 (506,960) (363,753) 136,250 37,565 (474)

148,142 23,185 (13,096) 9,778 (1,124) ----------83,629 ----------(26,091) 76,955 ----------$ 50,864 ===========

(237,457) 457,532 (14,383) (4,858) (742) ----------186,673 ----------(3,234) 80,189 ----------$ 76,955 ===========

----------402,628 ----------(18,112) 50,864 ----------$ 32,752 ===========

Noncash investing and financing activities are further described in the accompanying notes. The accompanying notes are an integral part of these consolidated financial statements.

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Summary of Significant Accounting Policies

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Summary of Significant Accounting Policies Saks Incorporated (formerly Proffitt's, Inc.) (the "Company"), is a national retailer operating department stores under the following names: Saks Fifth Avenue, Proffitt's, McRae's, Younkers, Parisian, Herberger's, Carson Pirie Scott ("Carson's"), Bergner's, Boston Store and Off 5th. The Company also operates a direct mail business under the Folio and Bullock & Jones names. On September 17, 1998, Saks Holdings, Inc. ("SFA") merged with and into a wholly owned subsidiary of Proffitt's, Inc. SFA was the holding company of Saks & Company which did business as Saks Fifth Avenue, Off 5th and Folio. In connection with the merger, Proffitt's, Inc. changed its corporate name to Saks Incorporated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported financial statements to conform with the financial statement presentation of the current period. These reclassifications have no effect on previously reported net income and shareholders' equity. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. These consolidated financial statements have been restated to include the financial position and results of operations of SFA, which the Company acquired in 1998 and accounted for the acquisition under the pooling of interests method of accounting, as if SFA and the Company had operated as one entity since inception. See Note 3, Mergers and Acquisitions, for further discussion of this and other business combination transactions. Note 2 - Summary of Significant Accounting Policies Fiscal Year The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years 1998, 1997 and 1996 contain 52 weeks and ended on January 30, 1999, January 31, 1998 and February 1, 1997, respectively. Net Sales Net sales include sales of merchandise and services and sales of leased departments, net of returns and exclusive of sales tax. Retail sales are recorded on the accrual basis and profits on installment sales are recognized in full when the sales are recorded. Sales of leased departments were $259,615 in 1998, $255,365 in 1997 and $234,902 in 1996.

Cash and Cash Equivalents Cash and cash equivalents consist of deposits with banks and financial institutions that have maturities, when purchased, of three months or less. Cash equivalents are stated at cost, which approximates fair value. On February 10, 1999, the Company prepaid approximately $236,000 of SFA real estate indebtedness ("REMIC certificates"). The prepayment requirements of the REMIC certificates required the Company to fund an escrow account with the REMIC certificates' payoff funds ten days prior to repurchase. The Company funded $363,753 into the escrow account on January 29, 1999. The escrow funds are classified as cash placed in escrow for debt redemption on the consolidated balance sheet. The amount funded to the escrow account differs from the amount prepaid due to the requirement to fund REMIC certificates owned by outside parties as well as $95,000 of REMIC certificates owned by the Company, prepayment premiums and accrued interest. The escrow account was relieved on February 10, 1999 with the prepayment of the REMIC certificates. Approximately $95,000 was refunded to the Company and the remaining funds satisfied accrued interest and the prepayment premiums. Retained Interest in Accounts Receivable The Company's credit card bank provides credit to and performs ongoing credit evaluations of its customers. Concentration of credit risk is limited because of the large number of customers and their dispersion throughout the United States and other countries. The Company's credit card bank sells its proprietary credit card receivables to multiple special purpose

Cash and Cash Equivalents Cash and cash equivalents consist of deposits with banks and financial institutions that have maturities, when purchased, of three months or less. Cash equivalents are stated at cost, which approximates fair value. On February 10, 1999, the Company prepaid approximately $236,000 of SFA real estate indebtedness ("REMIC certificates"). The prepayment requirements of the REMIC certificates required the Company to fund an escrow account with the REMIC certificates' payoff funds ten days prior to repurchase. The Company funded $363,753 into the escrow account on January 29, 1999. The escrow funds are classified as cash placed in escrow for debt redemption on the consolidated balance sheet. The amount funded to the escrow account differs from the amount prepaid due to the requirement to fund REMIC certificates owned by outside parties as well as $95,000 of REMIC certificates owned by the Company, prepayment premiums and accrued interest. The escrow account was relieved on February 10, 1999 with the prepayment of the REMIC certificates. Approximately $95,000 was refunded to the Company and the remaining funds satisfied accrued interest and the prepayment premiums. Retained Interest in Accounts Receivable The Company's credit card bank provides credit to and performs ongoing credit evaluations of its customers. Concentration of credit risk is limited because of the large number of customers and their dispersion throughout the United States and other countries. The Company's credit card bank sells its proprietary credit card receivables to multiple special purpose subsidiaries and trusts in exchange for certificates representing undivided interest in such receivables. Gains or losses on the sale of the receivables depends in part on the previous carrying amount of retained interests allocated in proportion to their fair values. The Company estimates fair value based on the present value of future cash flows expected under management's best estimates of assumptions including credit losses, payment rates and discount rates commensurate with the risks involved. Due to the short-term nature of the proprietary credit card portfolio, the carrying value of the Company's retained interest approximates fair value. The Company retains the servicing rights to all receivables sold to the special purpose subsidiaries and trusts. Merchandise Inventories Merchandise inventories are stated at the lower of cost (last-in, first-out ["LIFO"] for non-SFA inventories and the retail method for SFA inventories) or market and include freight and certain purchasing and distribution costs. A substantial portion of the Company's non-SFA inventory was determined using LIFO cost. At January 30, 1999 and January 31, 1998, the LIFO value of the non-SFA inventory exceeded market value, and as a result, inventory was stated at the lower market amount. At January 30, 1999 and January 31, 1998, SFA inventory was $554,678 and $529,535, respectively, and was determined using the retail method. Consignment merchandise on hand of $105,536 and $103,759 at January

30, 1999 and January 31, 1998, respectively, is not reflected in the consolidated balance sheets. Advertising Direct response advertising relates primarily to the production and distribution of the Company's catalogs and is amortized over the estimated life of the catalog. Direct response advertising amounts included in other current assets in the consolidated balance sheets at January 30, 1999 and January 31, 1998 were $5,451 and $5,145, respectively. All other advertising and sales promotion costs are expensed in the period incurred. Advertising expenses were $190,143, $192,154 and $166,927 in fiscal years 1998, 1997 and 1996, respectively. Store Pre-Opening Costs Store pre-opening costs are expensed when incurred. Property and Equipment Property and equipment are stated at cost. For financial reporting purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over primarily 10 to 40 years while fixtures and equipment are depreciated over primarily 5 to 15 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or their related lease terms. Gains or losses on the sale of assets are recorded at disposal. Internally developed and purchased computer software is capitalized and amortized using the straight-line method over 5 to 15 years. Costs incurred for the Year 2000 assessment and resulting software modifications are expensed as incurred. The carrying value of property and equipment is periodically reviewed and adjusted by the Company whenever events or changes in

30, 1999 and January 31, 1998, respectively, is not reflected in the consolidated balance sheets. Advertising Direct response advertising relates primarily to the production and distribution of the Company's catalogs and is amortized over the estimated life of the catalog. Direct response advertising amounts included in other current assets in the consolidated balance sheets at January 30, 1999 and January 31, 1998 were $5,451 and $5,145, respectively. All other advertising and sales promotion costs are expensed in the period incurred. Advertising expenses were $190,143, $192,154 and $166,927 in fiscal years 1998, 1997 and 1996, respectively. Store Pre-Opening Costs Store pre-opening costs are expensed when incurred. Property and Equipment Property and equipment are stated at cost. For financial reporting purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over primarily 10 to 40 years while fixtures and equipment are depreciated over primarily 5 to 15 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or their related lease terms. Gains or losses on the sale of assets are recorded at disposal. Internally developed and purchased computer software is capitalized and amortized using the straight-line method over 5 to 15 years. Costs incurred for the Year 2000 assessment and resulting software modifications are expensed as incurred. The carrying value of property and equipment is periodically reviewed and adjusted by the Company whenever events or changes in circumstances indicate that the estimated fair value is less than the carrying amount. See Note 6 for fiscal 1998 adjustments to carrying values of property and equipment. Goodwill and Intangibles The Company has allocated the purchase price of purchase transactions first to identifiable tangible assets and liabilities based on estimates of their fair value, with the remainder allocated to goodwill and other intangible assets. Amortization of goodwill and intangibles is provided on a straight-line basis over the respective lives of the various intangible assets ranging from 10 to 40 years. In 1998, the Company completed three purchase transactions with resulting goodwill and intangibles additions. The Company's purchases of Brody Brothers Dry Goods (six department stores in North Carolina), Bullock & Jones (direct mail business and one retail store) and 15 store locations from Dillard's resulted in 1998 additions of approximately $270,000. In 1997, the Company recorded a net reduction of goodwill of $34,525 due to the recognition of the tax benefit generated from differences for financial statement purposes and income tax regulations in the recording of various assets and liabilities at acquisition. The Company recognized amortization expense of $11,601,

$10,064 and $6,075 in fiscal years 1998, 1997 and 1996, respectively. As of January 30, 1999 and January 31, 1998, the accumulated amortization of goodwill and intangible assets was $39,070 and $26,500, respectively. At each balance sheet date, the Company evaluates the recoverability of goodwill and intangible assets based upon utilization of the assets and expectations of related cash flows. Based upon its most recent analysis, the Company believes that no impairment of goodwill and intangibles exists at January 30, 1999. Derivatives Policy The Company uses financial derivatives only to reduce risk in conjunction with specific business transactions. The Company has purchased forward rate lock agreements and interest rate cap agreements to limit its exposure to adverse movements in interest rates related to planned debt issuances and floating rate debt costs associated with its various financing activities and accounts receivable securitization. In addition, the Company entered into interest rate swap agreements to fix a portion of the floating rate cost exposure related to the accounts receivable securitization. The financial institutions associated with these agreements are considered to be major, well-known institutions. In fiscal 1998, and as a result of the merger with SFA, the Company terminated two interest rate agreements. The interest rate agreements were (1) an interest rate hedging agreement which included an option feature related to the continuation of the SFA receivables securitization agreement and (2) an interest rate hedging agreement related to a planned long-term debt offering that was ultimately cancelled. As a result of terminating these two agreements, the Company recorded charges of $17,400, which are included in other income (expense) in the consolidated statements of income.

$10,064 and $6,075 in fiscal years 1998, 1997 and 1996, respectively. As of January 30, 1999 and January 31, 1998, the accumulated amortization of goodwill and intangible assets was $39,070 and $26,500, respectively. At each balance sheet date, the Company evaluates the recoverability of goodwill and intangible assets based upon utilization of the assets and expectations of related cash flows. Based upon its most recent analysis, the Company believes that no impairment of goodwill and intangibles exists at January 30, 1999. Derivatives Policy The Company uses financial derivatives only to reduce risk in conjunction with specific business transactions. The Company has purchased forward rate lock agreements and interest rate cap agreements to limit its exposure to adverse movements in interest rates related to planned debt issuances and floating rate debt costs associated with its various financing activities and accounts receivable securitization. In addition, the Company entered into interest rate swap agreements to fix a portion of the floating rate cost exposure related to the accounts receivable securitization. The financial institutions associated with these agreements are considered to be major, well-known institutions. In fiscal 1998, and as a result of the merger with SFA, the Company terminated two interest rate agreements. The interest rate agreements were (1) an interest rate hedging agreement which included an option feature related to the continuation of the SFA receivables securitization agreement and (2) an interest rate hedging agreement related to a planned long-term debt offering that was ultimately cancelled. As a result of terminating these two agreements, the Company recorded charges of $17,400, which are included in other income (expense) in the consolidated statements of income. Employee Stock Ownership Plans Shares acquired after January 30, 1994 were accounted for in accordance with Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans." All other unreleased shares were accounted for in accordance with SOP 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans." See Note 13 for discussion of the Herberger's Employee Stock Ownership Plan ("ESOP") termination during 1997. Stock-Based Compensation The Company records compensation expense for all stock-based compensation plans using the intrinsic value method. Compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price on the measurement date. Pro forma disclosures of net income and earnings per share are presented in Note 13, as if the fair value method had been applied. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are

determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Common Share Basic earnings per common share ("EPS") have been computed based on the weighted average number of common shares outstanding, after recognition of preferred stock payments of $3,828 for 1996. The Company's 4.75% and 5.50% convertible subordinated debentures were considered in diluted earnings per share, when dilutive. In the fourth quarter of 1998, the Company repurchased with cash approximately $272,000 of SFA's 5.50% convertible subordinated notes and during 1997, the Company converted $86,250 of the 4.75% convertible subordinated debentures into 4,040 shares of common stock. Common stock issued upon the conversion of the preferred stock in 1996, and the convertible subordinated debentures in 1997 have been included in the weighted average number of shares outstanding subsequent to the date of conversion for computing basic earnings per share. Computation of Per Share Earnings
FOR THE YEAR ENDED JANUARY 30, 1999 -------------------------------------Per

determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Common Share Basic earnings per common share ("EPS") have been computed based on the weighted average number of common shares outstanding, after recognition of preferred stock payments of $3,828 for 1996. The Company's 4.75% and 5.50% convertible subordinated debentures were considered in diluted earnings per share, when dilutive. In the fourth quarter of 1998, the Company repurchased with cash approximately $272,000 of SFA's 5.50% convertible subordinated notes and during 1997, the Company converted $86,250 of the 4.75% convertible subordinated debentures into 4,040 shares of common stock. Common stock issued upon the conversion of the preferred stock in 1996, and the convertible subordinated debentures in 1997 have been included in the weighted average number of shares outstanding subsequent to the date of conversion for computing basic earnings per share. Computation of Per Share Earnings
FOR THE YEAR ENDED JANUARY 30, 1999 -------------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures -------DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $24,985 142,856 $0.17

3,527

--------

--------

$24,985 ========

146,383 ========

$0.17 =======

FOR THE YEAR ENDED JANUARY 31, 1998 ---------------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $416,237 137,588 $3.03

3,438 10,664 -------8,059 --------

--------

$426,901 ========

149,085 ========

$2.86 =======

FOR THE YEAR ENDED FEBRUARY 1, 1997 -----------------------------------Per Share Income Shares Amount

FOR THE YEAR ENDED JANUARY 31, 1998 ---------------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $416,237 137,588 $3.03

3,438 10,664 -------8,059 --------

--------

$426,901 ========

149,085 ========

$2.86 =======

FOR THE YEAR ENDED FEBRUARY 1, 1997 -----------------------------------Per Share Income Shares Amount ------------------------BASIC EPS Income before extraordinary loss EFFECT OF DILUTIVE SECURITIES Stock options Convertible subordinated notes/ debentures DILUTED EPS Income before extraordinary loss available to common shareholders plus assumed conversions $89,750 125,056 $0.72

3,487 2,500 -------4,040 --------

--------

$92,250 ========

132,583 ========

$0.70 =======

Segment Reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The objective of this statement is to provide users of financial statements information about the different types of business activities in which a company engages and the different economic environments in which it operates. The statement provides companies the opportunity to aggregate two or more operating segments into a single operating segment if the segments have similar characteristics. In applying SFAS No. 131, the Company identified three reportable segments, which are as follows: department stores, catalog, and furniture. The department store segment includes all department stores which the company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of

the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The catalog segment includes the Company's direct marketing catalogs of Folio and Bullock & Jones. The Company's furniture segment includes the Company's four free-standing furniture stores as well as furniture departments within existing department stores. The combined operations of the catalog and furniture segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus the three identified segments are combined within the consolidated financial statements of the Company. New Accounting Pronouncements In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"

the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The catalog segment includes the Company's direct marketing catalogs of Folio and Bullock & Jones. The Company's furniture segment includes the Company's four free-standing furniture stores as well as furniture departments within existing department stores. The combined operations of the catalog and furniture segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus the three identified segments are combined within the consolidated financial statements of the Company. New Accounting Pronouncements In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that all derivative financial instruments be recorded on the financial statements. SFAS No. 133 is effective for the Company in the first quarter of 2000, and the Company is in the process of ascertaining the impact this new standard will have on its financial statements. The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998. Components of the Company's comprehensive income for 1998 include the net loss of $896 and a minimum pension liability adjustment of $7,487, net of taxes, as presented in the consolidated statements of shareholders' equity. The Company had no components of comprehensive income in 1997 and 1996. Note 3 - Mergers and Acquisitions The Company has experienced significant growth since 1994, primarily through a series of acquisitions. The Company's significant acquisitions are outlined below:
Date Acquired -----------March 31, 1994 February 3, 1996 October 11, 1996 February 1, 1997 January 31, 1998 September 17, 1998 Accounting Treatment ------------Purchase Pooling Purchase Pooling Pooling Pooling Shares Issued -------872 17,632 5,894 8,000 27,565 52,500 Purchase Price --------$ 256,000 $ 517,000

Acquired Company ----------------McRae's Younkers Parisian Herberger's Carson Pirie Scott Saks Holdings

Additionally, the Company acquired 15 former Mercantile stores, including inventories and proprietary credit card accounts and receivables, from Dillard's in the third and fourth quarters of 1998 for the aggregate purchase price of $482,000. The following unaudited pro forma summary presents the consolidated results of operations as if the 15 stores purchased from Dillard's had occurred at the beginning of the periods presented. The summary is neither indicative of what would have occurred had the acquisition been made as of

those dates nor indicative of results which may occur in the future.
Unaudited -----------------------------1998 1997 ------------------------Pro forma: Net sales Income before extraordinary items Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items $ 6,491,341 23,070 (2,811) $ 6,142,168 414,162 402,839

$ $ $ $

0.16 (0.02) 0.16 (0.02)

$ $ $ $

3.01 2.93 2.78 2.70

Separate results of the combined entities in the SFA pooling transaction were as follows:

those dates nor indicative of results which may occur in the future.
Unaudited -----------------------------1998 1997 ------------------------Pro forma: Net sales Income before extraordinary items Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items $ 6,491,341 23,070 (2,811) $ 6,142,168 414,162 402,839

$ $ $ $

0.16 (0.02) 0.16 (0.02)

$ $ $ $

3.01 2.93 2.78 2.70

Separate results of the combined entities in the SFA pooling transaction were as follows:
Year Ended ----------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------Revenue: Proffitt's SFA Consolidated Extraordinary item: Proffitt's SFA Consolidated Net income (loss): Proffitt's SFA Consolidated $ 3,801,879 2,418,014 ----------$ 6,219,893 =========== $ (12,319) (13,562) ----------$ (25,881) =========== 116,227 (117,123) ----------$ (896) =========== $ $ 3,544,656 2,181,690 ----------$ 5,726,346 =========== $ (9,345) (1,978) ----------$ (11,323) =========== $ 62,737 342,177 ----------$ 404,914 =========== $ 2,992,606 1,934,256 ----------$ 4,926,862 ===========

$ (12,746) ----------$ (12,746) =========== $ 67,080 13,752 ----------$ 80,832 ===========

SFA's financial statements have been restated to conform to the Company's accounting methods and financial statement presentation which included changing SFA's previously reported income and shareholders' equity. SFA

previously included certain store receiving costs in inventory, accrued certain estimated vendor rebates as receivables and deferred store preopening costs. The effect of the conformity restatement is to reduce previously reported net income by $1,627 in 1997 and $10,392 in 1996. Additionally, the Company has changed its presentation of net finance charge income to include such as a component of selling, general and administrative expenses with no effect on previously reported net income. Note 4 - Marketable Securities Investments in marketable securities are carried as available-for-sale securities at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from income and are reported as a component of shareholders' equity until realized. Carson's held $23,353 par value of 9.0% Junior Subordinated Exchange Debentures due 2004 of County Seat Holdings, Inc. In 1996, Carson's wrote down its entire interest in the County Seat Debentures and reflected such in other income (expense). In 1997, Carson's sold its County Seat Debentures for an insignificant amount.

previously included certain store receiving costs in inventory, accrued certain estimated vendor rebates as receivables and deferred store preopening costs. The effect of the conformity restatement is to reduce previously reported net income by $1,627 in 1997 and $10,392 in 1996. Additionally, the Company has changed its presentation of net finance charge income to include such as a component of selling, general and administrative expenses with no effect on previously reported net income. Note 4 - Marketable Securities Investments in marketable securities are carried as available-for-sale securities at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from income and are reported as a component of shareholders' equity until realized. Carson's held $23,353 par value of 9.0% Junior Subordinated Exchange Debentures due 2004 of County Seat Holdings, Inc. In 1996, Carson's wrote down its entire interest in the County Seat Debentures and reflected such in other income (expense). In 1997, Carson's sold its County Seat Debentures for an insignificant amount. Note 5 - Accounts Receivable Securitizations The Company has entered into agreements to securitize a majority of the proprietary credit card receivables of its credit card bank. The securitization of receivables involves the continual transfer of receivables with limited recourse from the Company's wholly owned special purpose subsidiaries to its credit card related trusts: Saks Master Trust ("SMT"), Proffitt's Credit Card Master Trust ("PCCMT") and Younkers Master Trust ("YMT") in exchange for cash and subordinated certificates representing undivided interests in the pool of receivables, and the subsequent issuance by the trusts of certificates of beneficial interest, also representing undivided interests in the pool of receivables, to investors. The Company has the ability to issue securities in fixed or variable denominations with fixed or variable implicit discount rates. At January 30, 1999, the Company had available the following funding sources:

Entity -------SMT SMT YMT PCCMT PCCMT

Funding Capacity ----------------Fixed at $413,000 Variable up to $118,000 Fixed at $75,000 Fixed at $466,500 Variable up to $300,000

Amount Outstanding January 30, 1999 ---------------$ 367,829 76,800 75,000 466,500 173,007 -----------$ 1,159,136

Average Implicit Discount Rate ------------Variable Variable 6.45% 6.20% Variable

Funding Basis ------Libor/C Libor

CP

At January 30, 1999, the weighted average variable rate for the commercial paper based facilities was 5.10%. The various agreements contain covenants requiring the maintenance of certain financial ratios and receivables portfolio performance measures. While the Company has no obligations to reimburse the trust or investors for credit losses, the Company is obligated to repurchase receivables related to customer credits such as merchandise returns and other receivables defects. Finance charges earned by the certificate investors were $66,930, $47,311 and $40,742 for 1998, 1997 and 1996, respectively. Net finance charge income included in selling, general and administrative expenses in the consolidated statements of income totaled $194,590 in 1998, $166,221 in 1997 and $130,178 in 1996. Gains on sales of accounts receivable included within net finance charge income were $36,400 and $15,000 in 1998 and 1997, respectively. The third party interest in the credit card related trusts was $1,159,136 and $842,394 at January 30, 1999 and January 31, 1998, respectively. The Company's retained interest was $159,596 and $412,209 at January 30, 1999 and January 31, 1998, respectively. In addition to these ownership interests transferred to the credit card related trusts, the Company entered into a stand alone facility to finance its acquisition of accounts receivable from the Dillard's stores. Under this facility, the Dillard's stores accounts receivable were purchased by Proffitt's Credit Corporation ("PCC"), one of the Company's special purpose subsidiaries and subsequently transferred to a third party commercial paper conduit. As of January 30, 1999, approximately $17,894 was outstanding under this facility. National Bank of the Great Lakes (the "Bank"), a wholly owned national credit card bank subsidiary, issues all proprietary credit cards to the Company's customers, extends all credit, and sells all accounts receivable

Entity -------SMT SMT YMT PCCMT PCCMT

Funding Capacity ----------------Fixed at $413,000 Variable up to $118,000 Fixed at $75,000 Fixed at $466,500 Variable up to $300,000

Amount Outstanding January 30, 1999 ---------------$ 367,829 76,800 75,000 466,500 173,007 -----------$ 1,159,136

Average Implicit Discount Rate ------------Variable Variable 6.45% 6.20% Variable

Funding Basis ------Libor/C Libor

CP

At January 30, 1999, the weighted average variable rate for the commercial paper based facilities was 5.10%. The various agreements contain covenants requiring the maintenance of certain financial ratios and receivables portfolio performance measures. While the Company has no obligations to reimburse the trust or investors for credit losses, the Company is obligated to repurchase receivables related to customer credits such as merchandise returns and other receivables defects. Finance charges earned by the certificate investors were $66,930, $47,311 and $40,742 for 1998, 1997 and 1996, respectively. Net finance charge income included in selling, general and administrative expenses in the consolidated statements of income totaled $194,590 in 1998, $166,221 in 1997 and $130,178 in 1996. Gains on sales of accounts receivable included within net finance charge income were $36,400 and $15,000 in 1998 and 1997, respectively. The third party interest in the credit card related trusts was $1,159,136 and $842,394 at January 30, 1999 and January 31, 1998, respectively. The Company's retained interest was $159,596 and $412,209 at January 30, 1999 and January 31, 1998, respectively. In addition to these ownership interests transferred to the credit card related trusts, the Company entered into a stand alone facility to finance its acquisition of accounts receivable from the Dillard's stores. Under this facility, the Dillard's stores accounts receivable were purchased by Proffitt's Credit Corporation ("PCC"), one of the Company's special purpose subsidiaries and subsequently transferred to a third party commercial paper conduit. As of January 30, 1999, approximately $17,894 was outstanding under this facility. National Bank of the Great Lakes (the "Bank"), a wholly owned national credit card bank subsidiary, issues all proprietary credit cards to the Company's customers, extends all credit, and sells all accounts receivable generated by the credit cards to the Company's special purpose subsidiaries, PCC and SFA Finance Company ("SFC"). Note 6 - Property and Equipment A summary of property and equipment is as follows:
January 30, 1999 ----------$ 286,193 1,137,562 193,849 1,020,443 162,296 ----------2,800,343 (697,288) ----------2,103,055 15,500 ----------$ 2,118,555 =========== January 31, 1998 ----------$ 260,862 955,981 155,643 823,769 55,361 ----------2,251,616 (544,637) ----------1,706,979 19,000 ----------$ 1,725,979 ===========

Land and land improvements Buildings Leasehold improvements Fixtures and equipment Construction in progress

Accumulated depreciation

Property held for sale, net of accumulated depreciation

As a part of the Company's merger with SFA, the Company commenced a process to determine the ongoing utility and value of its existing information technology systems hardware and software. The valuation process

At January 30, 1999, the weighted average variable rate for the commercial paper based facilities was 5.10%. The various agreements contain covenants requiring the maintenance of certain financial ratios and receivables portfolio performance measures. While the Company has no obligations to reimburse the trust or investors for credit losses, the Company is obligated to repurchase receivables related to customer credits such as merchandise returns and other receivables defects. Finance charges earned by the certificate investors were $66,930, $47,311 and $40,742 for 1998, 1997 and 1996, respectively. Net finance charge income included in selling, general and administrative expenses in the consolidated statements of income totaled $194,590 in 1998, $166,221 in 1997 and $130,178 in 1996. Gains on sales of accounts receivable included within net finance charge income were $36,400 and $15,000 in 1998 and 1997, respectively. The third party interest in the credit card related trusts was $1,159,136 and $842,394 at January 30, 1999 and January 31, 1998, respectively. The Company's retained interest was $159,596 and $412,209 at January 30, 1999 and January 31, 1998, respectively. In addition to these ownership interests transferred to the credit card related trusts, the Company entered into a stand alone facility to finance its acquisition of accounts receivable from the Dillard's stores. Under this facility, the Dillard's stores accounts receivable were purchased by Proffitt's Credit Corporation ("PCC"), one of the Company's special purpose subsidiaries and subsequently transferred to a third party commercial paper conduit. As of January 30, 1999, approximately $17,894 was outstanding under this facility. National Bank of the Great Lakes (the "Bank"), a wholly owned national credit card bank subsidiary, issues all proprietary credit cards to the Company's customers, extends all credit, and sells all accounts receivable generated by the credit cards to the Company's special purpose subsidiaries, PCC and SFA Finance Company ("SFC"). Note 6 - Property and Equipment A summary of property and equipment is as follows:
January 30, 1999 ----------$ 286,193 1,137,562 193,849 1,020,443 162,296 ----------2,800,343 (697,288) ----------2,103,055 15,500 ----------$ 2,118,555 =========== January 31, 1998 ----------$ 260,862 955,981 155,643 823,769 55,361 ----------2,251,616 (544,637) ----------1,706,979 19,000 ----------$ 1,725,979 ===========

Land and land improvements Buildings Leasehold improvements Fixtures and equipment Construction in progress

Accumulated depreciation

Property held for sale, net of accumulated depreciation

As a part of the Company's merger with SFA, the Company commenced a process to determine the ongoing utility and value of its existing information technology systems hardware and software. The valuation process included performing an inventory of the Company's in-process development projects and significant operating systems and hardware and determining the future use of the identified projects and systems. As a result, the Company wrote down its investment in capitalized information technology systems software and hardware by $23,000 in 1998. This charge, which is included in merger and integration charges in the consolidated statement of income, primarily represented the termination of SFA software development projects that were in process before SFA's merger with the Company. In 1998, primarily as a result of the merger with SFA, the Company reviewed the carrying value of several store locations not meeting the Company's minimum investment return criteria, closed and relocated stores, unused corporate office space and terminated planned store projects. This process resulted in an impairment charge comprised of: store closings/relocations, $28,900; termination of new store projects, $12,600; non-cash flowing store locations, $12,700; other miscellaneous assets, $1,800; and accrued closure costs of $6,000. Approximately $42,000 of this aggregate $62,000 charge was recognized in the fourth quarter.

As a part of the Company's merger with SFA, the Company commenced a process to determine the ongoing utility and value of its existing information technology systems hardware and software. The valuation process included performing an inventory of the Company's in-process development projects and significant operating systems and hardware and determining the future use of the identified projects and systems. As a result, the Company wrote down its investment in capitalized information technology systems software and hardware by $23,000 in 1998. This charge, which is included in merger and integration charges in the consolidated statement of income, primarily represented the termination of SFA software development projects that were in process before SFA's merger with the Company. In 1998, primarily as a result of the merger with SFA, the Company reviewed the carrying value of several store locations not meeting the Company's minimum investment return criteria, closed and relocated stores, unused corporate office space and terminated planned store projects. This process resulted in an impairment charge comprised of: store closings/relocations, $28,900; termination of new store projects, $12,600; non-cash flowing store locations, $12,700; other miscellaneous assets, $1,800; and accrued closure costs of $6,000. Approximately $42,000 of this aggregate $62,000 charge was recognized in the fourth quarter. Note 7 - Income Taxes The components of income tax expense (benefit) are as follows:
Year Ended -------------------------------------------January 30, January 31, February 1, 1999 1998 1997 ------------------------------Current: Federal State $8,574 1,134 ------9,708 14,724 202 ------14,926 ------$24,634 ========= $51,562 8,845 ------60,407 (239,397) (22,598) ------(261,995) ------$(201,588) ========= $14,522 4,848 ------19,370 27,572 4,056 ------31,628 ------$50,998 =========

Deferred: Federal State

Total expense (benefit)

The tax effect for extraordinary losses on early extinguishment of debt was a benefit of $16,547, $7,162, and $0 for fiscal years 1998, 1997 and 1996, respectively. Components of the net deferred tax asset or liability recognized in the consolidated balance sheets are as follows:
January 30, 1999 --------Current: Deferred tax assets: Trade accounts receivable Accrued expenses AMT credit NOL carryforwards Valuation allowance January 31, 1998 ---------

$

-56,844 800 32,999 (6,155) --------84,488

$

6,123 49,198 704 32,999 (6,155) --------82,869

Deferred tax liabilities: Inventory Other

Net current deferred tax asset Non-current:

-(530) --------(530) --------$ 83,958 =========

(3,788) (1,212) --------(5,000) --------$ 77,869 =========

The tax effect for extraordinary losses on early extinguishment of debt was a benefit of $16,547, $7,162, and $0 for fiscal years 1998, 1997 and 1996, respectively. Components of the net deferred tax asset or liability recognized in the consolidated balance sheets are as follows:
January 30, 1999 --------Current: Deferred tax assets: Trade accounts receivable Accrued expenses AMT credit NOL carryforwards Valuation allowance January 31, 1998 ---------

$

-56,844 800 32,999 (6,155) --------84,488

$

6,123 49,198 704 32,999 (6,155) --------82,869

Deferred tax liabilities: Inventory Other

Net current deferred tax asset Non-current: Deferred tax assets: Capital leases Other long-term liabilities Deferred compensation NOL carryforwards Valuation allowance

-(530) --------(530) --------$ 83,958 =========

(3,788) (1,212) --------(5,000) --------$ 77,869 =========

$

20,567 44,476 2,657 294,906 (25,251) --------337,355

$

19,205 44,644 1,908 291,552 (41,251) --------316,058

Deferred tax liabilities: Property and equipment Deferred gain Other assets

Net non-current deferred tax asset

(53,387) (6,265) (27,887) --------(87,539) --------$ 249,816 =========

(40,134) (6,491) (17,640) --------(64,265) --------$ 251,793 =========

At January 30, 1999, the Company has $734,782 and $106,000 in federal and state tax net operating loss carryforwards related to losses incurred by

SFA and Carson's. The carryforwards will expire between 2003 and 2017. The future utilization of these carryforwards is restricted under federal income tax change-in-ownership rules and SFA's and Carson's ability to generate sufficient taxable income. The continued improvement in SFA's operating income in fiscal 1997, as well as estimates of SFA's future profitability, enabled the Company to recognize a $294,846 deferred tax asset in the fourth quarter of 1997. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this tax benefit also enabled SFA to reduce goodwill by $34,525 due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. The valuation allowance attributable to Carson's losses and tax basis differences was reduced by $16,000 for each of the years ended January 30, 1999 and January 31, 1998, based on management's reassessment of the realizability of the related deferred tax asset in future years. The tax benefit resulting from the reduction in the valuation allowance is credited directly to shareholders' equity. The Company believes it is more likely than not that the benefit of the net deferred tax assets will be realized. Income tax expense varies from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference are as follows:

SFA and Carson's. The carryforwards will expire between 2003 and 2017. The future utilization of these carryforwards is restricted under federal income tax change-in-ownership rules and SFA's and Carson's ability to generate sufficient taxable income. The continued improvement in SFA's operating income in fiscal 1997, as well as estimates of SFA's future profitability, enabled the Company to recognize a $294,846 deferred tax asset in the fourth quarter of 1997. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this tax benefit also enabled SFA to reduce goodwill by $34,525 due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. The valuation allowance attributable to Carson's losses and tax basis differences was reduced by $16,000 for each of the years ended January 30, 1999 and January 31, 1998, based on management's reassessment of the realizability of the related deferred tax asset in future years. The tax benefit resulting from the reduction in the valuation allowance is credited directly to shareholders' equity. The Company believes it is more likely than not that the benefit of the net deferred tax assets will be realized. Income tax expense varies from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference are as follows:
1998 --------$ 8,308 857 14,887 3,100 (3,000) 1997 --------$ 71,164 7,015 7,004 3,475 (294,846) 4,415 185 --------$(201,588) ========= 1996 --------$ 50,602 6,474 1,860 1,308 (10,880) 1,634 --------$ 50,998 =========

Expected income taxes at 35% State income taxes, net of federal benefit Nondeductible merger related costs Amortization of goodwill Favorable settlement of tax examination Recognition of NOL carryforward Non-deductible ESOP expenses Other items, net Actual income taxes

482 --------$ 24,634 =========

The Company made income tax payments, net of refunds received, of $19,852, $12,664 and $34,172 during 1998, 1997 and 1996, respectively. Note 8 - Senior Debt A summary of senior debt is as follows:

SFA real estate financing -- REMIC certificates Revolving credit agreements Carson's receivables facility Notes, 8.25%, maturing 2008 Notes, 7.50%, maturing 2010 Notes, 7.25%, maturing 2004 Notes, 8.125%, maturing 2004 Real estate notes, mortgage notes and industrial revenue bonds Capital lease obligations

January 30, 1999 ----------$ 235,841 608,000 500,000 250,000 350,000

January 31, 1998 ----------$ 300,841 346,750 125,000

125,000 17,144 160,681 ----------2,121,666 (11,271) ----------$ 2,110,395 =========== 39,865 169,408 ----------1,106,864 (13,058) ----------$ 1,093,806 ===========

Current portion

Real Estate Financing In May 1995, SFA, through a subsidiary trust, completed a real estate financing aggregating $335,000 through the issuance of mortgage loans collateralized by intercompany leases. Mortgage certificates in the principal amount of $175,000 bore interest at variable rates based on three-month LIBOR, payable quarterly. The

SFA real estate financing -- REMIC certificates Revolving credit agreements Carson's receivables facility Notes, 8.25%, maturing 2008 Notes, 7.50%, maturing 2010 Notes, 7.25%, maturing 2004 Notes, 8.125%, maturing 2004 Real estate notes, mortgage notes and industrial revenue bonds Capital lease obligations

January 30, 1999 ----------$ 235,841 608,000 500,000 250,000 350,000

January 31, 1998 ----------$ 300,841 346,750 125,000

125,000 17,144 160,681 ----------2,121,666 (11,271) ----------$ 2,110,395 =========== 39,865 169,408 ----------1,106,864 (13,058) ----------$ 1,093,806 ===========

Current portion

Real Estate Financing In May 1995, SFA, through a subsidiary trust, completed a real estate financing aggregating $335,000 through the issuance of mortgage loans collateralized by intercompany leases. Mortgage certificates in the principal amount of $175,000 bore interest at variable rates based on three-month LIBOR, payable quarterly. The remaining $160,000 in certificates, which were subordinated to the other certificates, bore interest at annual fixed rates ranging from 8.98% to 12.36%, payable semiannually. In fiscal years 1995, 1996, 1997 and 1998, the Company repurchased $4,159, $15,000, $15,000 and $65,000, respectively, of its outstanding REMIC certificates. The Company recorded extraordinary charges of $2,951, $3,352 and $8,174 in fiscal years 1996, 1997 and 1998, respectively, associated with the repurchase premium and accelerated write-off of deferred financing costs related to these repurchases. On February 10, 1999, subsequent to the Company's 1998 fiscal year-end, the Company prepaid the remaining $235,841 in outstanding REMIC certificates. The Company's fiscal 1999 first quarter will reflect an extraordinary charge of approximately $9,500 associated with the prepayment premium and accelerated write-off of deferred financing costs related to this prepayment. Revolving Credit Facilities In 1998, the Company twice replaced its revolving credit agreement. The first occurred in conjunction with the Carson's merger in which the Company replaced its revolving credit agreement and Carson's revolver with a new $600,000 revolving credit facility. Previously unamortized debt issuance costs associated with the replaced revolver were written off and reflected in the extraordinary loss on early extinguishment of debt in 1998. The second replacement was made in conjunction with the SFA merger, in which the Company replaced its $600,000 revolving credit facility and the SFA credit facility with a $750,000 five-year term revolving credit facility, and a $750,000 364 day revolving credit facility (reduced to $500,000 in

March 1999) that includes a four-year term-out option. Previously unamortized debt issuance costs associated with the replaced revolver and SFA credit facility were written off and reflected in the extraordinary loss on early extinguishment of debt in 1998. Interest on the two remaining credit facilities is variable and the weighted average interest rate at January 30, 1999 was 5.76%. Prior to the merger with the Company, Carson's financed its credit card receivables with a $200,000 facility ("Receivables Facility"). In connection with the merger, the Receivables Facility was terminated and the $125,000 outstanding balance under the Receivables Facility was repaid on February 2, 1998 with proceeds from the sale of receivables under the Company's receivables securitization agreements (see Note 5). Other Senior Debt In connection with the SFA merger, the Company, in the third and fourth quarters of fiscal 1998, initiated a series of refinancing activities related to other senior debt designed to enhance liquidity, strengthen its balance sheet and position the Company for future growth. The refinancing activities included completing a tender offer for the $125,000, 8.125% notes resulting in an extraordinary charge on early extinguishment of debt of $11,625 and also issuing and selling $1,100,000 of unsecured notes with interest rates ranging from 7.25% to 8.25% and maturities ranging from 2004 to 2010. The Company utilized the revolving credit agreements to fund the

March 1999) that includes a four-year term-out option. Previously unamortized debt issuance costs associated with the replaced revolver and SFA credit facility were written off and reflected in the extraordinary loss on early extinguishment of debt in 1998. Interest on the two remaining credit facilities is variable and the weighted average interest rate at January 30, 1999 was 5.76%. Prior to the merger with the Company, Carson's financed its credit card receivables with a $200,000 facility ("Receivables Facility"). In connection with the merger, the Receivables Facility was terminated and the $125,000 outstanding balance under the Receivables Facility was repaid on February 2, 1998 with proceeds from the sale of receivables under the Company's receivables securitization agreements (see Note 5). Other Senior Debt In connection with the SFA merger, the Company, in the third and fourth quarters of fiscal 1998, initiated a series of refinancing activities related to other senior debt designed to enhance liquidity, strengthen its balance sheet and position the Company for future growth. The refinancing activities included completing a tender offer for the $125,000, 8.125% notes resulting in an extraordinary charge on early extinguishment of debt of $11,625 and also issuing and selling $1,100,000 of unsecured notes with interest rates ranging from 7.25% to 8.25% and maturities ranging from 2004 to 2010. The Company utilized the revolving credit agreements to fund the repurchase of the 8.125% notes and utilized the proceeds from the $1,100,000 in unsecured notes to pay down the revolving credit agreements. On February 17, 1999, subsequent to the Company's fiscal year-end, the Company issued $200,000 in 7.375% notes, due 2019. The net proceeds of the notes were used to reduce outstanding amounts on the Company's revolving credit facilities. In May 1996, SFA completed an initial public offering with net proceeds of $417,769. The proceeds from the offering were primarily used to prepay term loan borrowings and outstanding revolving credit balances under SFA's existing credit facility. The Company recorded an extraordinary loss of $3,340 associated with the accelerated write-off of deferred financing costs related to these payments. Maturities At January 30, 1999, maturities of senior and subordinated debt for the next five years and thereafter, giving consideration to lenders' call privileges and the Company's option to term-out the revolving credit facility, are as follows:
Year -------1999 2000 2001 2002 2003 Maturities -----------$15,523 7,558 5,609 240,938 616,276

Thereafter

1,240,014 ----------$2,125,918 ===========

The Company made interest payments, net of capitalized interest, of $93,999, $97,745 and $94,848 during 1998, 1997 and 1996, respectively. Note 9 - Subordinated Debt Subordinated debt represents uncollateralized obligations subordinated in right of payment to all senior debt and is composed of the following:
January 30, 1999 ---------$4,252 -------$4,252 January 31, 1998 ----------$276,000 10,964 --------$ 286,964

Convertible debentures, interest at 5.50% Notes, interest at 9.875%

Thereafter

1,240,014 ----------$2,125,918 ===========

The Company made interest payments, net of capitalized interest, of $93,999, $97,745 and $94,848 during 1998, 1997 and 1996, respectively. Note 9 - Subordinated Debt Subordinated debt represents uncollateralized obligations subordinated in right of payment to all senior debt and is composed of the following:
January 30, 1999 ---------$4,252 -------$4,252 ======== January 31, 1998 ----------$276,000 10,964 --------$ 286,964 =========

Convertible debentures, interest at 5.50% Notes, interest at 9.875%

In September 1996, SFA issued $276,000 aggregate principal amount of 5.50% convertible debentures for net cash proceeds, after offering expenses and financing costs, of $267,500. During the fourth quarter of 1998, the Company repurchased $271,748 of the 5.50% convertible subordinated notes and expects to redeem the remaining notes in 1999. During 1998, the Company recorded an extraordinary loss of $6,175 relating to the accelerated write-off of deferred financing costs related to the prepayments. In October 1997, the Company converted its 4.75% convertible debentures into 4,040 shares of the Company's common stock. As a result of this conversion, certain deferred debt issuance costs aggregating $600 were written off as an extraordinary item. Effective with the Parisian acquisition, the Company assumed $125,000 of existing Parisian subordinated notes. In 1997, the Company purchased approximately 90% of these notes which resulted in an extraordinary loss from the extinguishment of debt of approximately $7,900. In July 1998, the remaining outstanding notes were repurchased. Note 10 - Leases The Company leases certain land and buildings under various non-cancelable capital and operating leases. The leases generally provide for contingent rentals based upon sales in excess of stated amounts and require the Company to pay real estate taxes, insurance and occupancy costs. Generally, the leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 5 to 20 years. At January 30, 1999, future minimum rental commitments under capital leases and non-cancelable operating leases consisted of the following:

Operating Leases ------------1999 $ 122,339 2000 117,961 2001 115,286 2002 112,975 2003 111,118 Thereafter 917,166 ---------$1,496,845 =========== Amounts representing interest Capital lease obligations

Capital Leases ------------$ 25,059 25,151 23,481 22,784 22,586 342,511 --------$461,572 ======== (300,891) -------$160,681 ========

Total rental expense for operating leases was $181,966, $157,018 and $114,714 during 1998, 1997 and 1996, respectively, including contingent rents of approximately $22,806, $20,733 and $17,762, respectively.

Operating Leases ------------1999 $ 122,339 2000 117,961 2001 115,286 2002 112,975 2003 111,118 Thereafter 917,166 ---------$1,496,845 =========== Amounts representing interest Capital lease obligations

Capital Leases ------------$ 25,059 25,151 23,481 22,784 22,586 342,511 --------$461,572 ======== (300,891) -------$160,681 ========

Total rental expense for operating leases was $181,966, $157,018 and $114,714 during 1998, 1997 and 1996, respectively, including contingent rents of approximately $22,806, $20,733 and $17,762, respectively. In June 1997, SFA entered into a $100,500 operating lease agreement, which was used to finance qualified properties. Under the agreement, the lessor agreed to construct new store sites in order to lease them to the Company. At January 31, 1998, the Company guaranteed a residual value of approximately $18,869 and had approximately $77,500 available under the agreement to fund capital expenditures. On September 17, 1998, the Company terminated the operating lease agreement which resulted in the purchase of properties valued at approximately $30,000. The Company leases certain selling space within its stores to other specialty retailers under contingent rental agreements. Rental income related to these agreements was $12,633, $13,024 and $11,846, in 1998, 1997 and 1996, respectively. During 1997 and 1996, the Company consummated the sale and sale-leaseback of certain property and equipment with proceeds of $4,630 and $30,269, respectively. Note 11 - Employee Benefit Plans Employee Savings Plans The Company sponsors various qualified savings plans that cover substantially all full-time employees. Company contributions charged to expense under these plans, or similar predecessor plans, for 1998, 1997 and 1996 were $8,667, $6,509 and $5,133, respectively. Defined Benefit Plans The Company sponsors two noncontributory defined benefit pension plans for substantially all employees of Carson's and SFA. Benefits are principally based upon years of service and compensation prior to retirement. The Company generally funds pension costs currently, subject to regulatory funding limitations. In 1998, the SFA defined benefit plan was amended and converted to a cash balance plan.

1998 -------Net periodic pension expense: Service cost Interest cost Expected return on plan assets Net amortization and deferral of prior service costs Net pension expense $ 10,401 18,989 (20,707) 90 -------$ 8,773 ========

1997 -------$ 10,652 17,839 (18,699) (61) -------$ 9,731 ========

1996 -------$ 10,978 16,937 (16,827) 68 -------$ 11,156 ========

January 30, 1999 --------Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan amendment

January 31, 1998 ---------

$ 265,753 10,401 18,989 2,228

$ 232,402 10,652 17,839

1998 -------Net periodic pension expense: Service cost Interest cost Expected return on plan assets Net amortization and deferral of prior service costs Net pension expense $ 10,401 18,989 (20,707) 90 -------$ 8,773 ========

1997 -------$ 10,652 17,839 (18,699) (61) -------$ 9,731 ========

1996 -------$ 10,978 16,937 (16,827) 68 -------$ 11,156 ========

January 30, 1999 --------Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan amendment Actuarial gain Benefits paid Benefit obligation at end of year

January 31, 1998 ---------

$ 265,753 10,401 18,989 2,228 17,025 (17,819) --------$ 296,577 =========

$ 232,402 10,652 17,839 19,840 (14,980) --------$ 265,753 =========

January 30, 1999 --------Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year Pension plans' funding status: Accumulated benefit obligation Effect of projected salary increases Projected benefit obligation Fair value of plan assets Funded status Unrecognized actuarial loss (gain) Unrecognized prior service cost

January 31, 1998 ---------

$ 230,422 11,992 15,142 (17,819) --------$ 239,737 ========= $(282,041) (14,536) --------(296,577) 239,737 --------(56,840) 17,843 1,955

$ 204,877 35,208 5,317 (14,980) --------$ 230,422 ========= $(249,830) (15,923) --------(265,753) 230,422 --------(35,331) (7,312) (173)

Contributions subsequent to measurement date Accrued pension cost classified in other liabilities

4,549 --------$ (32,493) =========

159 --------$ (42,657) =========

Amounts recognized in the consolidated balance sheet: Accrued benefit liability Intangible asset Additional minimum pension liability (reflected in equity net of tax) Net amount recognized Assumptions: Discount rate Expected long-term rate of return on assets

$ (46,890) 2,123 12,274 --------$ (32,493) ========= 7.00% 9.50%

$ (42,657)

--------$ (42,657) ========= 7.39% 9.50%

Contributions subsequent to measurement date Accrued pension cost classified in other liabilities

4,549 --------$ (32,493) =========

159 --------$ (42,657) =========

Amounts recognized in the consolidated balance sheet: Accrued benefit liability Intangible asset Additional minimum pension liability (reflected in equity net of tax) Net amount recognized Assumptions: Discount rate Expected long-term rate Average assumed rate of Measurement date -- CPS Measurement date -- SFA

$ (46,890) 2,123 12,274 --------$ (32,493) ========= 7.00% 9.50% 3.66% 11/1/98 11/1/98

$ (42,657)

--------$ (42,657) ========= 7.39% 9.50% 3.66% 11/1/97 1/31/98

of return on assets compensation increase plan plan

Retiree Health Care Plans The Company provides health care benefits for certain groups of employees who retired before 1997. The plans were contributory with the Company providing a frozen annual credit of varying amounts per year of service. The net annual expense and liabilities for the unfunded plans reflected in the Company's consolidated balance sheets are as follows:
1998 ----Net periodic pension expense: Interest cost Net amortization of (gain) loss Net pension expense $ 749 (196) ----$ 553 ===== 1997 ----$ 783 (188) ----$ 595 ===== 1996 ----$ 815 (112) ----$ 703 =====

January 30, 1999 ---------Change in benefit obligation: Benefit obligation at beginning of year Interest cost Actuarial gain Benefits paid Benefit obligation at end of year $ 10,530 749 (1,186) (690) -------$ 9,403 ========

January 31, 1998 ----------$ 10,649 783 (282) (620) -------$ 10,530 ========

Plan funding status: Accumulated postretirement benefit obligation Fair value of plan assets Funded status Unrecognized actuarial loss (gain) Contributions subsequent to measurement date Accrued pension cost classified in other liabilities Sensitivity Analysis: Effect of a 1.0% increase in health cost trend assumption on total of cost and interest cost components Effect on benefit obligations Effect of a 1.0% decrease in health

$ (9,403) --------(9,403) (4,644) 181 -------$(13,866) ========

$(10,530) --------(10,530) (3,653) 149 -------$(14,034) ========

care service in 1998 care

$ $

37 526

$ $

37 560

Plan funding status: Accumulated postretirement benefit obligation Fair value of plan assets Funded status Unrecognized actuarial loss (gain) Contributions subsequent to measurement date Accrued pension cost classified in other liabilities Sensitivity Analysis: Effect of a 1.0% increase in health cost trend assumption on total of cost and interest cost components Effect on benefit obligations Effect of a 1.0% decrease in health cost trend assumption on total of cost and interest cost components Effect on benefit obligation Assumptions: Discount rate Pre-medicare medical inflation Post-medicare medical inflation Ultimate medical inflation (2001) Measurement date

$ (9,403) --------(9,403) (4,644) 181 -------$(13,866) ========

$(10,530) --------(10,530) (3,653) 149 -------$(14,034) ========

care service in 1998 care service in 1998

$ $

37 526

$ $

37 560

$ $

(33) (473)

$ $

(33) (504)

7.00% 7.00% 6.25% 5.00% 11/1/98

7.50% 8.00% 7.00% 5.00% 11/1/97

Note 12 - Shareholders' Equity Preferred Stock In 1994, the Company issued 600 shares of series A Cumulative Convertible Exchangeable Preferred Stock in a private offering (10,000 total shares authorized). Net proceeds to the Company were approximately $28,900 after offering expenses. Dividends were cumulative and were paid at $3.25 per annum per share. On June 28, 1996, the holder converted the preferred stock into 2,844 shares of the Company's common stock. The Company paid $3,032 to the holder of the preferred stock to induce early conversion. Common Stock The Company has 500,000 shares of $.10 par value common shares authorized of which 142,856 and 141,461 shares were issued and outstanding at January 30, 1999 and January 31, 1998, respectively. In August 1997, the Company's Board of Directors approved a 2-for-1 stock split of the outstanding shares of the Company's common stock. The split was effected in the form of a stock dividend; each shareholder received one additional share for each outstanding share of common stock held of record as of the close of business on October 15, 1997. The per share amounts presented in the Company's consolidated financial statements are reflective of the 2-for-1 stock split. Each outstanding share of common stock has one preferred stock

purchase right attached. The rights (which were revised in March 1998) generally become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the common stock. Each right entitles its holder to buy 1/200 share of Series C Junior Preferred Stock at an exercise price of $278 per 1/100 of a share, subject to adjustment in certain cases. The rights expire in March 2008. Once exercisable, if the Company is involved in a merger or other business combination or an outside party acquires 20% or more of the common stock, each right will be modified to entitle its holder (other than the acquirer) to purchase common stock of the acquiring company or, in certain circumstances, common stock having a market value of twice the exercise price of the right. Other Previously, Herberger's was required to repurchase shares from inactive participants of its ESOP at fair value. Treasury stock transactions were accounted for under the cost method with gains or losses on transactions credited or charged to additional paid-in-capital. No shares were purchased in 1998, and 3 and 170 shares were purchased in 1997 and 1996, respectively. In connection with the rescission of the put option on the ESOP shares (see Note 13), the Company retired all 13,794 shares of the Company's common stock held in Treasury.

purchase right attached. The rights (which were revised in March 1998) generally become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the common stock. Each right entitles its holder to buy 1/200 share of Series C Junior Preferred Stock at an exercise price of $278 per 1/100 of a share, subject to adjustment in certain cases. The rights expire in March 2008. Once exercisable, if the Company is involved in a merger or other business combination or an outside party acquires 20% or more of the common stock, each right will be modified to entitle its holder (other than the acquirer) to purchase common stock of the acquiring company or, in certain circumstances, common stock having a market value of twice the exercise price of the right. Other Previously, Herberger's was required to repurchase shares from inactive participants of its ESOP at fair value. Treasury stock transactions were accounted for under the cost method with gains or losses on transactions credited or charged to additional paid-in-capital. No shares were purchased in 1998, and 3 and 170 shares were purchased in 1997 and 1996, respectively. In connection with the rescission of the put option on the ESOP shares (see Note 13), the Company retired all 13,794 shares of the Company's common stock held in Treasury. Prior to the merger with the Company, Carson's purchased and retired 700 common shares for $13,096 during the year ended January 31, 1998. Information regarding other changes in shareholders' equity is summarized below:

Balance at February 3, 1996 Reclassification of ESOP stock Stock compensation Purchase and retirement of stock Sale of treasury stock Balance at February 1, 1997 Stock compensation Termination of ESOP Balance at January 31, 1998 Minimum pension liability Balance at January 30, 1999

Treasury Stock --------$(37,683)

Deferred ESOP Compensation -----------$ -(9,778)

Unamortized Stock Compensation -----------$ (453) 286

Other Comprehensive Income ------------$ --

21,481 16,202 ----------

--------(9,778) 9,778 -----------------$ -=========

--------(167) 167 -----------------$ -=========

----------

-----------------$ -=========

---------(7,487) --------$(7,487) =========

Note 13 - Employee Stock Plans ESOP Herberger's sponsored an employee stock ownership plan for the benefit of its employees. Contributions to the ESOP were made at the discretion of the Board of Directors and were $3,670 in 1996. At various times, the ESOP purchased shares of the Company's common stock using the proceeds of ESOP loans. These shares were initially held in a suspense account by the Plan trustee. As contributions were made and dividends were paid and the ESOP debt was repaid, shares were released from suspense and allocated to the accounts of participants, and the Company recognized compensation expense. For shares acquired after January 30, 1994, ESOP expense was recorded equal to the estimated fair value of shares allocated and those shares became outstanding for earnings per share computations. For all other shares, ESOP expense was recorded equal to the cost of the shares released. All shares acquired prior to January 30, 1994 were considered outstanding for earnings per share calculations. Prior to the merger, Herberger's shares distributed from the ESOP could be put to Herberger's at fair value for cash under certain conditions. As such, the shares were carried at fair value and not reflected on the balance sheet in shareholders' equity. Effective with the merger, the put option was rescinded, and accordingly, the ESOP shares are reflected in shareholders' equity. During 1997, the ESOP was terminated. As a result, the Company received approximately $10,000 in cash representing payment of a $9,000 note receivable from the ESOP. All previously unallocated common shares of the Company held by the ESOP were allocated to the ESOP participants, resulting in a primarily non-cash charge of $7,900.

Balance at February 3, 1996 Reclassification of ESOP stock Stock compensation Purchase and retirement of stock Sale of treasury stock Balance at February 1, 1997 Stock compensation Termination of ESOP Balance at January 31, 1998 Minimum pension liability Balance at January 30, 1999

Treasury Stock --------$(37,683)

Deferred ESOP Compensation -----------$ -(9,778)

Unamortized Stock Compensation -----------$ (453) 286

Other Comprehensive Income ------------$ --

21,481 16,202 ----------

--------(9,778) 9,778 -----------------$ -=========

--------(167) 167 -----------------$ -=========

----------

-----------------$ -=========

---------(7,487) --------$(7,487) =========

Note 13 - Employee Stock Plans ESOP Herberger's sponsored an employee stock ownership plan for the benefit of its employees. Contributions to the ESOP were made at the discretion of the Board of Directors and were $3,670 in 1996. At various times, the ESOP purchased shares of the Company's common stock using the proceeds of ESOP loans. These shares were initially held in a suspense account by the Plan trustee. As contributions were made and dividends were paid and the ESOP debt was repaid, shares were released from suspense and allocated to the accounts of participants, and the Company recognized compensation expense. For shares acquired after January 30, 1994, ESOP expense was recorded equal to the estimated fair value of shares allocated and those shares became outstanding for earnings per share computations. For all other shares, ESOP expense was recorded equal to the cost of the shares released. All shares acquired prior to January 30, 1994 were considered outstanding for earnings per share calculations. Prior to the merger, Herberger's shares distributed from the ESOP could be put to Herberger's at fair value for cash under certain conditions. As such, the shares were carried at fair value and not reflected on the balance sheet in shareholders' equity. Effective with the merger, the put option was rescinded, and accordingly, the ESOP shares are reflected in shareholders' equity. During 1997, the ESOP was terminated. As a result, the Company received approximately $10,000 in cash representing payment of a $9,000 note receivable from the ESOP. All previously unallocated common shares of the Company held by the ESOP were allocated to the ESOP participants, resulting in a primarily non-cash charge of $7,900. Stock Options and Grants The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to or above fair value of the common shares at the date of the option grant, no compensation cost is recognized. Had compensation cost for the Company's stock-based compensation plans been determined under the fair value method, using the Black-Scholes option-pricing model, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below.

Net income (loss) Basic earnings (loss) per common share Diluted earnings (loss) per common share

January 30, 1999 --------------------------As Reported Pro Forma ------------------$ (896) $(21,127) $(0.01) $(0.01) $ $ (0.15) (0.14)

January 31, 1998 -----------------------As Reported Pro Forma ------------------$ 404,914 $395,237 $ $ 2.94 2.79 $ $ 2.87 2.72

Februa --------As Report --------$ 80,83 $ $ 0.6 0.6

Note 13 - Employee Stock Plans ESOP Herberger's sponsored an employee stock ownership plan for the benefit of its employees. Contributions to the ESOP were made at the discretion of the Board of Directors and were $3,670 in 1996. At various times, the ESOP purchased shares of the Company's common stock using the proceeds of ESOP loans. These shares were initially held in a suspense account by the Plan trustee. As contributions were made and dividends were paid and the ESOP debt was repaid, shares were released from suspense and allocated to the accounts of participants, and the Company recognized compensation expense. For shares acquired after January 30, 1994, ESOP expense was recorded equal to the estimated fair value of shares allocated and those shares became outstanding for earnings per share computations. For all other shares, ESOP expense was recorded equal to the cost of the shares released. All shares acquired prior to January 30, 1994 were considered outstanding for earnings per share calculations. Prior to the merger, Herberger's shares distributed from the ESOP could be put to Herberger's at fair value for cash under certain conditions. As such, the shares were carried at fair value and not reflected on the balance sheet in shareholders' equity. Effective with the merger, the put option was rescinded, and accordingly, the ESOP shares are reflected in shareholders' equity. During 1997, the ESOP was terminated. As a result, the Company received approximately $10,000 in cash representing payment of a $9,000 note receivable from the ESOP. All previously unallocated common shares of the Company held by the ESOP were allocated to the ESOP participants, resulting in a primarily non-cash charge of $7,900. Stock Options and Grants The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to or above fair value of the common shares at the date of the option grant, no compensation cost is recognized. Had compensation cost for the Company's stock-based compensation plans been determined under the fair value method, using the Black-Scholes option-pricing model, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below.

Net income (loss) Basic earnings (loss) per common share Diluted earnings (loss) per common share

January 30, 1999 --------------------------As Reported Pro Forma ------------------$ (896) $(21,127) $(0.01) $(0.01) $ $ (0.15) (0.14)

January 31, 1998 -----------------------As Reported Pro Forma ------------------$ 404,914 $395,237 $ $ 2.94 2.79 $ $ 2.87 2.72

Februa --------As Report --------$ 80,83 $ $ 0.6 0.6

The four assumptions for determining compensation costs under the fair value method include (1) a risk-free interest rate based on zero-coupon government issues on each grant date with the maturity equal to the expected term of the option (5.22%, 6.22% and 6.15% for 1998, 1997 and 1996, respectively), (2) an expected term of five years, (3) an expected volatility of 32.7%, 39.7% and 34.4% for 1998, 1997 and 1996, respectively, and (4) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, employees and directors. At January 30, 1999 the Company has available for grant 1,000 shares of common stock. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest ten years after grant date with accelerated vesting at the discretion of the Company's Board of Directors if the Company meets certain performance objectives. A summary of the stock option plans for 1998, 1997 and 1996 is presented below:

1998 ----------------------

1997 -----------------------

-----

Net income (loss) Basic earnings (loss) per common share Diluted earnings (loss) per common share

January 30, 1999 --------------------------As Reported Pro Forma ------------------$ (896) $(21,127) $(0.01) $(0.01) $ $ (0.15) (0.14)

January 31, 1998 -----------------------As Reported Pro Forma ------------------$ 404,914 $395,237 $ $ 2.94 2.79 $ $ 2.87 2.72

Februa --------As Report --------$ 80,83 $ $ 0.6 0.6

The four assumptions for determining compensation costs under the fair value method include (1) a risk-free interest rate based on zero-coupon government issues on each grant date with the maturity equal to the expected term of the option (5.22%, 6.22% and 6.15% for 1998, 1997 and 1996, respectively), (2) an expected term of five years, (3) an expected volatility of 32.7%, 39.7% and 34.4% for 1998, 1997 and 1996, respectively, and (4) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, employees and directors. At January 30, 1999 the Company has available for grant 1,000 shares of common stock. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest ten years after grant date with accelerated vesting at the discretion of the Company's Board of Directors if the Company meets certain performance objectives. A summary of the stock option plans for 1998, 1997 and 1996 is presented below:

Range of Exercise Price Outstanding at beginning of year Granted Converted in acquisition Exercised Forfeited Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year

1998 ---------------------Weighted Average Exercise Shares Price --------------9,567 4,111 (2,568) (592) ------10,518 $ 4,885 ------$18.17 25.78 14.06 27.41 -----$21.63 $16.89 ------

1997 ----------------------Weighted Average Exercise Shares Price ---------------8,780 3,519 (2,027) (705) ------9,567 5,929 ------$ 14.07 25.90 11.37 25.27 ------$ 18.17 $ 13.88 -------

-----

Sh ---

( -

-

$ 9.83 =======

$ 10.80 =======

$ =

The following table summarizes information about stock options outstanding at January 30, 1999:
OPTIONS OUTSTANDING ---------------------------------------------Weighted Number Average Weighted Outstanding at Remaining Average January 30, Contractual Exercise 1999 Life (Years) Price -----------------------------89 2 $ 4.67 311 5 5.86 2,099 5 11.58 1,513 8 17.89 4,069 10 23.43 2,361 9 31.72 76 9 47.72 -------------10,518 $ 21.63 ======= ======== OPTIONS EXE ------------------Number Exercisable at January 30, 1999 --------------89 311 1,953 923 805 782 22 ------4,885 =======

Range of Exercise Prices $3.75 to $5.63 $5.64 to $8.45 $8.46 to $12.69 $12.70 to $19.06 $19.07 to $28.60 $28.61 to $42.91 $42.92 to $48.78

The four assumptions for determining compensation costs under the fair value method include (1) a risk-free interest rate based on zero-coupon government issues on each grant date with the maturity equal to the expected term of the option (5.22%, 6.22% and 6.15% for 1998, 1997 and 1996, respectively), (2) an expected term of five years, (3) an expected volatility of 32.7%, 39.7% and 34.4% for 1998, 1997 and 1996, respectively, and (4) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, employees and directors. At January 30, 1999 the Company has available for grant 1,000 shares of common stock. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest ten years after grant date with accelerated vesting at the discretion of the Company's Board of Directors if the Company meets certain performance objectives. A summary of the stock option plans for 1998, 1997 and 1996 is presented below:

Range of Exercise Price Outstanding at beginning of year Granted Converted in acquisition Exercised Forfeited Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year

1998 ---------------------Weighted Average Exercise Shares Price --------------9,567 4,111 (2,568) (592) ------10,518 $ 4,885 ------$18.17 25.78 14.06 27.41 -----$21.63 $16.89 ------

1997 ----------------------Weighted Average Exercise Shares Price ---------------8,780 3,519 (2,027) (705) ------9,567 5,929 ------$ 14.07 25.90 11.37 25.27 ------$ 18.17 $ 13.88 -------

-----

Sh ---

( -

-

$ 9.83 =======

$ 10.80 =======

$ =

The following table summarizes information about stock options outstanding at January 30, 1999:
OPTIONS OUTSTANDING ---------------------------------------------Weighted Number Average Weighted Outstanding at Remaining Average January 30, Contractual Exercise 1999 Life (Years) Price -----------------------------89 2 $ 4.67 311 5 5.86 2,099 5 11.58 1,513 8 17.89 4,069 10 23.43 2,361 9 31.72 76 9 47.72 -------------10,518 $ 21.63 ======= ======== OPTIONS EXE ------------------Number Exercisable at January 30, 1999 --------------89 311 1,953 923 805 782 22 ------4,885 =======

Range of Exercise Prices $3.75 to $5.63 $5.64 to $8.45 $8.46 to $12.69 $12.70 to $19.06 $19.07 to $28.60 $28.61 to $42.91 $42.92 to $48.78

The Company also granted restricted stock awards of 383, 176 and 298 shares to certain employees in 1998, 1997 and 1996, respectively. The fair value of these awards on the dates of grants was $7,284, $4,600 and $3,763 for 1998, 1997 and 1996, respectively. During 1998, 1997 and 1996, compensation cost of $2,870, $5,700 and $2,239, respectively, has been recognized in connection with these awards.

Range of Exercise Price Outstanding at beginning of year Granted Converted in acquisition Exercised Forfeited Outstanding at end of year Options exercisable at year end Weighted average fair value of options granted during the year

1998 ---------------------Weighted Average Exercise Shares Price --------------9,567 4,111 (2,568) (592) ------10,518 $ 4,885 ------$18.17 25.78 14.06 27.41 -----$21.63 $16.89 ------

1997 ----------------------Weighted Average Exercise Shares Price ---------------8,780 3,519 (2,027) (705) ------9,567 5,929 ------$ 14.07 25.90 11.37 25.27 ------$ 18.17 $ 13.88 -------

-----

Sh ---

( -

-

$ 9.83 =======

$ 10.80 =======

$ =

The following table summarizes information about stock options outstanding at January 30, 1999:
OPTIONS OUTSTANDING ---------------------------------------------Weighted Number Average Weighted Outstanding at Remaining Average January 30, Contractual Exercise 1999 Life (Years) Price -----------------------------89 2 $ 4.67 311 5 5.86 2,099 5 11.58 1,513 8 17.89 4,069 10 23.43 2,361 9 31.72 76 9 47.72 -------------10,518 $ 21.63 ======= ======== OPTIONS EXE ------------------Number Exercisable at January 30, 1999 --------------89 311 1,953 923 805 782 22 ------4,885 =======

Range of Exercise Prices $3.75 to $5.63 $5.64 to $8.45 $8.46 to $12.69 $12.70 to $19.06 $19.07 to $28.60 $28.61 to $42.91 $42.92 to $48.78

The Company also granted restricted stock awards of 383, 176 and 298 shares to certain employees in 1998, 1997 and 1996, respectively. The fair value of these awards on the dates of grants was $7,284, $4,600 and $3,763 for 1998, 1997 and 1996, respectively. During 1998, 1997 and 1996, compensation cost of $2,870, $5,700 and $2,239, respectively, has been recognized in connection with these awards. Stock Purchase Plan The stock purchase plan (the "Plan") provides that an aggregate of 700 shares of the Company's common stock is available for purchase. Under the Plan, an eligible employee may elect to participate by authorizing limited payroll deductions to be applied toward the purchase of common stock at a 15.0% discount to market value. Under the Plan, 73 and 62 shares of the Company's common stock were purchased by employees in 1998 and 1997, respectively. At January 30, 1999, the Plan has available for future offerings 510 shares. Note 14 - Commitments and Contingencies Carson's and its subsidiaries emerged from Chapter 11 bankruptcy in 1993. The Company recognized $1,350, $680 and $1,280 in 1998, 1997 and 1996, respectively, to reflect the favorable resolution of claims. Management believes Carson's has adequately provided for the resolution of all bankruptcy claims and other matters related to the Plan of Reorganization remaining at January 30, 1999. In the fourth quarter of 1998, pending litigation between Carson's and Bank One, Wisconsin, related to the Chapter 11 bankruptcy filing was settled resulting in the Company receiving a settlement payment of $42,500, which is included in other income (expense) in the 1998 consolidated statement of income. The Company is involved in several legal proceedings arising from its normal business activities, and accruals for such claims have been established where appropriate. Management believes that none of these legal proceedings

The Company also granted restricted stock awards of 383, 176 and 298 shares to certain employees in 1998, 1997 and 1996, respectively. The fair value of these awards on the dates of grants was $7,284, $4,600 and $3,763 for 1998, 1997 and 1996, respectively. During 1998, 1997 and 1996, compensation cost of $2,870, $5,700 and $2,239, respectively, has been recognized in connection with these awards. Stock Purchase Plan The stock purchase plan (the "Plan") provides that an aggregate of 700 shares of the Company's common stock is available for purchase. Under the Plan, an eligible employee may elect to participate by authorizing limited payroll deductions to be applied toward the purchase of common stock at a 15.0% discount to market value. Under the Plan, 73 and 62 shares of the Company's common stock were purchased by employees in 1998 and 1997, respectively. At January 30, 1999, the Plan has available for future offerings 510 shares. Note 14 - Commitments and Contingencies Carson's and its subsidiaries emerged from Chapter 11 bankruptcy in 1993. The Company recognized $1,350, $680 and $1,280 in 1998, 1997 and 1996, respectively, to reflect the favorable resolution of claims. Management believes Carson's has adequately provided for the resolution of all bankruptcy claims and other matters related to the Plan of Reorganization remaining at January 30, 1999. In the fourth quarter of 1998, pending litigation between Carson's and Bank One, Wisconsin, related to the Chapter 11 bankruptcy filing was settled resulting in the Company receiving a settlement payment of $42,500, which is included in other income (expense) in the 1998 consolidated statement of income. The Company is involved in several legal proceedings arising from its normal business activities, and accruals for such claims have been established where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. Note 15 - Related Party Transactions During 1996, the Company paid $796 of preferred stock dividends and a $3,032 payment for early conversion of the preferred stock to an investment group in which a Director is a partner. Prior to the merger of Proffitt's and SFA, a shareholder of SFA provided various consulting and advisory services to SFA under an agreement which expired in July 1996. The fees paid or payable for such services were approximately $1,000 in 1996. Note 16 - Fair Values of Financial Instruments The Company has entered into interest rate cap agreements to reduce the effect of increases in interest rates on real estate financing. The Company is also an indirect beneficiary of interest rate cap agreements relating to the accounts receivable securitization. At January 30, 1999, there were

five interest rate cap agreements outstanding. Accordingly, the Company is entitled to receive from various financial institutions the amount, if any, by which the Company's interest payments on its debt are recorded as a reduction of interest expense. Two of the interest rate cap agreements serve to cap $175,000 of SFA's real estate financing at 9.70% through May 2002. Three of the interest rate cap agreements serve to cap a decreasing notional amount of the SFA receivables securitization at 10.0% through May 1999. The combined fair value of the Company's interest rate agreements were $0 and $124 as of January 30, 1999 and January 31, 1998, respectively. During 1996, SFA entered into a financial fixed-rate swap agreement, which was renegotiated in 1997. SFA used this interest rate swap solely as a risk management tool with an objective of managing the level of interest rate risk relating to its accounts receivable securitization. In 1998, as a result of SFA's merger with the Company and the planned 1999 merger of the SFA accounts receivable securitization with that of the Company's, the Company terminated the fixed rate swap agreement resulting in a charge of $7,900, which is included in other income (expense) in the 1998 consolidated statement of income. The fair values of the Company's cash and cash equivalents, retained interest in accounts receivable and accounts payable approximate their carrying amounts reported in the consolidated balance sheets, due to the immediate or short-term maturity of these instruments. For variable rate notes that reprice frequently, such as the revolving credit facilities, fair value approximates carrying value. The fair value of fixed rate real estate and mortgage notes is estimated using discounted cash flow analyses with interest rates currently offered for loans with similar terms

five interest rate cap agreements outstanding. Accordingly, the Company is entitled to receive from various financial institutions the amount, if any, by which the Company's interest payments on its debt are recorded as a reduction of interest expense. Two of the interest rate cap agreements serve to cap $175,000 of SFA's real estate financing at 9.70% through May 2002. Three of the interest rate cap agreements serve to cap a decreasing notional amount of the SFA receivables securitization at 10.0% through May 1999. The combined fair value of the Company's interest rate agreements were $0 and $124 as of January 30, 1999 and January 31, 1998, respectively. During 1996, SFA entered into a financial fixed-rate swap agreement, which was renegotiated in 1997. SFA used this interest rate swap solely as a risk management tool with an objective of managing the level of interest rate risk relating to its accounts receivable securitization. In 1998, as a result of SFA's merger with the Company and the planned 1999 merger of the SFA accounts receivable securitization with that of the Company's, the Company terminated the fixed rate swap agreement resulting in a charge of $7,900, which is included in other income (expense) in the 1998 consolidated statement of income. The fair values of the Company's cash and cash equivalents, retained interest in accounts receivable and accounts payable approximate their carrying amounts reported in the consolidated balance sheets, due to the immediate or short-term maturity of these instruments. For variable rate notes that reprice frequently, such as the revolving credit facilities, fair value approximates carrying value. The fair value of fixed rate real estate and mortgage notes is estimated using discounted cash flow analyses with interest rates currently offered for loans with similar terms and credit risk, and as of January 30, 1999 and January 31, 1998 the fair value of these notes approximated the carrying value. The fair value of publicly-held REMIC certificates, notes and subordinated debentures is based on quoted market prices. The fair values of the Company's financial instruments other than the instruments considered short-term in nature at January 30, 1999 and January 31, 1998 were as follows:
Carrying Amount --------------January REMIC 8.25% 7.25% 7.50% 5.50% 30, 1999 certificates senior notes senior notes senior notes convertible debentures $235,841 $500,000 $350,000 $250,000 $4,252 Estimated Fair Value -------------------$238,841 $547,095 $359,195 $259,768 $4,243

January 31, 1998 REMIC certificates 8.125% senior notes 9.875% notes 5.50% convertible debentures

$300,841 $125,000 $10,964 $276,000

$315,700 $132,700 $11,731 $246,081

The fair value of the long-term debt and interest rate cap agreements were estimated based on quotes obtained from financial institutions for those or similar instruments or on the basis of quoted market prices. Note 17 - Merger and Integration Charges Merger and integration charges incurred in fiscal years 1998, 1997 and 1996 (before income taxes) were as follows:
1998 ------Related to corresponding year's merger: Merger transaction costs, principally investment banking, legal and other direct merger costs Severance and related benefits Conversion and consolidation of systems and administrative operations Abandonment and write-down of information technology software, hardware and other assets Related to all other mergers and acquisitions: 1997 ------1996 -------

$44,848 11,096 8,327

$13,800 11,100

$2,649 3,129 3,355

23,000

6,200

885

The fair value of the long-term debt and interest rate cap agreements were estimated based on quotes obtained from financial institutions for those or similar instruments or on the basis of quoted market prices. Note 17 - Merger and Integration Charges Merger and integration charges incurred in fiscal years 1998, 1997 and 1996 (before income taxes) were as follows:
1998 ------Related to corresponding year's merger: Merger transaction costs, principally investment banking, legal and other direct merger costs Severance and related benefits Conversion and consolidation of systems and administrative operations Abandonment and write-down of information technology software, hardware and other assets Related to all other mergers and acquisitions: Termination of Younkers' benefit plan Conversion and consolidation of systems Termination of merchandise purchasing agreements Severance, relocation and other integration costs associated with all mergers and acquisitions and consulting fees Revisions to prior year estimates: 1995 charges associated with exit of a SFA distribution center 1997 ------1996 -------

$44,848 11,096 8,327

$13,800 11,100

$2,649 3,129 3,355

23,000

6,200

885 1,362 4,549

11,564

2,600 3,900

12,472

5,924

1,000

-------$111,307 ========

(7,000) -------$36,524 ========

-------$16,929 ========

A reconciliation of the aforementioned charges to the amounts of merger and integration costs remaining unpaid at the applicable balance sheet date is as follows:
1998 -------Amounts unpaid at beginning of year related to prior merger and integration events Merger and integration charges Amounts paid Amounts representing non-cash charges Amounts unpaid at end of year 1997 -------1996 --------

$ 25,994 111,307 (76,728) (28,622) -------$ 31,951 ========

$ 10,291 43,524 (13,321) (14,500) -------$ 25,994 ========

$ 16,000 16,929 (20,221) (2,417) -------$ 10,291 ========

The components of the aforementioned amounts unpaid are as follows:
January 30, 1999 ---------$17,530 6,638 5,900 January 31, 1998 ---------$ 5,750 12,795

Direct merger costs* Severance Contractual obligations to be paid within one year of merger Contractual obligations with extended payment terms (such as rents for abandoned leases and payments on abandoned contracts) Other (includes all merger and integration efforts)

348 1,535 -------

4,500 2,949 -------

The components of the aforementioned amounts unpaid are as follows:
January 30, 1999 ---------$17,530 6,638 5,900 January 31, 1998 ---------$ 5,750 12,795

Direct merger costs* Severance Contractual obligations to be paid within one year of merger Contractual obligations with extended payment terms (such as rents for abandoned leases and payments on abandoned contracts) Other (includes all merger and integration efforts) Totals

348 1,535 ------$31,951 =======

4,500 2,949 ------$25,994 =======

*Principally consists of investment banker fees paid subsequent to year end.

Note 18 - Quarterly Financial Information (Unaudited)
First Quarter --------Fiscal year ended January 30, 1999 Net sales Gross margin Income (loss) before extraordinary loss Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Fiscal year ended January 31, 1998 Net sales Gross margin Income (loss) before extraordinary loss Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items $1,412,602 $ 490,032 $ 28,124 $ 28,124 $ $ $ $ 0.20 0.20 0.19 0.19 Second Quarter --------$1,283,744 $ 444,894 $ 2,982 $ 2,648 $ $ $ $ 0.02 0.02 0.02 0.02 Third Quarter --------$1,472,817 $ 484,048 $ (106,154) $ (127,710) $ $ $ $ (0.74) (0.89) (0.74) (0.89)

$1,302,118 $ 451,103 $ 25,198 $ 21,846 $ $ $ $ 0.19 0.16 0.18 0.16

$1,188,351 $ 402,557 $ (4,734) $ (5,854) $ $ $ $ (0.03) (0.04) (0.03) (0.04)

$1,417,041 $ 513,844 $ 39,606 $ 38,994 $ $ $ $ 0.29 0.28 0.28 0.27

Note 19 - Condensed Consolidating Financial Information The following tables present condensed consolidating financial information for 1998, 1997 and 1996 for (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated Senior Notes (which are all of the wholly owned subsidiaries of Saks Incorporated), except for PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts; and (3) on a combined basis, PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts, the only non-guarantor subsidiaries of the Senior Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements are more meaningful in understanding the financial position of the guarantor subsidiaries. Saks Incorporated is comprised of substantially all of the Proffitt's and Younkers stores and certain corporate management and financing functions. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guaranty subsidiaries under an informal lending arrangement. There are also management and royalty fee

Note 18 - Quarterly Financial Information (Unaudited)
First Quarter --------Fiscal year ended January 30, 1999 Net sales Gross margin Income (loss) before extraordinary loss Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items Fiscal year ended January 31, 1998 Net sales Gross margin Income (loss) before extraordinary loss Net income (loss) Basic earnings (loss) per common share: Before extraordinary items After extraordinary items Diluted earnings (loss) per common share: Before extraordinary items After extraordinary items $1,412,602 $ 490,032 $ 28,124 $ 28,124 $ $ $ $ 0.20 0.20 0.19 0.19 Second Quarter --------$1,283,744 $ 444,894 $ 2,982 $ 2,648 $ $ $ $ 0.02 0.02 0.02 0.02 Third Quarter --------$1,472,817 $ 484,048 $ (106,154) $ (127,710) $ $ $ $ (0.74) (0.89) (0.74) (0.89)

$1,302,118 $ 451,103 $ 25,198 $ 21,846 $ $ $ $ 0.19 0.16 0.18 0.16

$1,188,351 $ 402,557 $ (4,734) $ (5,854) $ $ $ $ (0.03) (0.04) (0.03) (0.04)

$1,417,041 $ 513,844 $ 39,606 $ 38,994 $ $ $ $ 0.29 0.28 0.28 0.27

Note 19 - Condensed Consolidating Financial Information The following tables present condensed consolidating financial information for 1998, 1997 and 1996 for (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated Senior Notes (which are all of the wholly owned subsidiaries of Saks Incorporated), except for PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts; and (3) on a combined basis, PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts, the only non-guarantor subsidiaries of the Senior Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements are more meaningful in understanding the financial position of the guarantor subsidiaries. Saks Incorporated is comprised of substantially all of the Proffitt's and Younkers stores and certain corporate management and financing functions. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guaranty subsidiaries under an informal lending arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. On January 31, 1999, immediately following the Company's fiscal year end, the Company restructured its legal entity composition. This restructuring changed the composition of Saks Incorporated to include only the operations of a small group of corporate employees and all of the Company's long-term debt. The Proffitt's and Younkers stores, corporate management and financing functions previously included within the operations of Saks Incorporated were moved to guarantor subsidiary entities. On February 10, 1999 (subsequent to the 1998 year end), the Company prepaid the outstanding REMIC certificates that were held by the REMIC subsidiaries. The condensed financial statements presented do not reflect the restructured legal entity composition.

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended January 30, 1999
(dollars in thousands) Net sales Cost of sales Gross margin Saks Incorporated -----------$800,592 494,355 -------306,237 Guarantor Subsidiaries -----------$5,419,301 3,599,112 ---------1,820,189 Non-Guarantor Subsidiaries ------------Elimina -------

--------

----

Note 19 - Condensed Consolidating Financial Information The following tables present condensed consolidating financial information for 1998, 1997 and 1996 for (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated Senior Notes (which are all of the wholly owned subsidiaries of Saks Incorporated), except for PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts; and (3) on a combined basis, PCC, YCC, NBGL, SFC and the REMIC subsidiaries and trusts, the only non-guarantor subsidiaries of the Senior Notes. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements are more meaningful in understanding the financial position of the guarantor subsidiaries. Saks Incorporated is comprised of substantially all of the Proffitt's and Younkers stores and certain corporate management and financing functions. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guaranty subsidiaries under an informal lending arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. On January 31, 1999, immediately following the Company's fiscal year end, the Company restructured its legal entity composition. This restructuring changed the composition of Saks Incorporated to include only the operations of a small group of corporate employees and all of the Company's long-term debt. The Proffitt's and Younkers stores, corporate management and financing functions previously included within the operations of Saks Incorporated were moved to guarantor subsidiary entities. On February 10, 1999 (subsequent to the 1998 year end), the Company prepaid the outstanding REMIC certificates that were held by the REMIC subsidiaries. The condensed financial statements presented do not reflect the restructured legal entity composition.

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended January 30, 1999
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs Losses from long-lived assets Year 2000 expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income (loss) before provision (benefit) for income taxes and extraordinary item Provision (benefit) for income taxes Income (loss) before extraordinary item Extraordinary item, net of taxes Net income (loss) Saks Incorporated -----------$800,592 494,355 -------306,237 155,531 59,597 1,448 31,952 331 884 -------56,494 Guarantor Subsidiaries -----------$5,419,301 3,599,112 ---------1,820,189 1,239,310 469,700 9,119 79,355 41,005 9,553 ---------(27,853) Non-Guarantor Subsidiaries ------------Elimina -------

--------

----

$ 88,977 (41,131)

$(19

20,449 -------(68,295) ---19

(7,000)

(19,909) 30,412 19,775 (64,983) 33,737 ----------

194,590 26,909 (30,412)

(19

14,321 (18,466) (11,536) --------

(3 (27,522) -----------

33,813 22,724 -------11,089 (11,985) -------$ (896) ========

(28,821) (15,389) ---------(13,432) (6,994) ---------$ (20,426) ==========

95,270 33,846 -------61,424 (6,902) -------$ 54,522 ========

(3

---(3 ---$ (3 ====

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended January 30, 1999
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs Losses from long-lived assets Year 2000 expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income (loss) before provision (benefit) for income taxes and extraordinary item Provision (benefit) for income taxes Income (loss) before extraordinary item Extraordinary item, net of taxes Net income (loss) Saks Incorporated -----------$800,592 494,355 -------306,237 155,531 59,597 1,448 31,952 331 884 -------56,494 Guarantor Subsidiaries -----------$5,419,301 3,599,112 ---------1,820,189 1,239,310 469,700 9,119 79,355 41,005 9,553 ---------(27,853) Non-Guarantor Subsidiaries ------------Elimina -------

--------

----

$ 88,977 (41,131)

$(19

20,449 -------(68,295) ---19

(7,000)

(19,909) 30,412 19,775 (64,983) 33,737 ----------

194,590 26,909 (30,412)

(19

14,321 (18,466) (11,536) --------

(3 (27,522) -----------

33,813 22,724 -------11,089 (11,985) -------$ (896) ========

(28,821) (15,389) ---------(13,432) (6,994) ---------$ (20,426) ==========

95,270 33,846 -------61,424 (6,902) -------$ 54,522 ========

(3

---(3 ---$ (3 ====

SAKS INCORPORATED & SUBSIDIARIES CONDENSED BALANCE SHEETS As of January 30, 1999
(dollars in thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Deferred income taxes Intercompany borrowings Other current assets Total Current Assets Property and Equipment, net Goodwill and Intangibles, net Other Assets Deferred Income Taxes Cash Placed in Escrow for Debt Redemption Investment in and Advances to Subsidiaries Total Assets Saks Incorporated -----------Guarantor Subsidiaries -----------Non-guarantor Subsidiaries -----------Eliminations ------------

$

20,366

$(26,751) 220 1,184,597 87,175 90,810 ---------1,336,051 1,270,766 460,580 55,592 249,816 363,753

$ 39,137 159,322

54 221,585 (3,217) 11,070 19,471 ---------269,329 342,355 125,717 1,196

$(11,070) 145 -------198,604 505,434 20,858 ----------(11,070)

3,112,552 ---------$3,851,149

1,350,621 ---------$5,087,179

-------$724,896

(4,463,173) ----------$(4,474,243)

SAKS INCORPORATED & SUBSIDIARIES CONDENSED BALANCE SHEETS As of January 30, 1999
(dollars in thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Deferred income taxes Intercompany borrowings Other current assets Total Current Assets Property and Equipment, net Goodwill and Intangibles, net Other Assets Deferred Income Taxes Cash Placed in Escrow for Debt Redemption Investment in and Advances to Subsidiaries Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses and other current liabilities Intercompany borrowings Current portion of long-term debt Total Current Liabilities Senior Debt Deferred income taxes Other Long-term Liabilities Investment by and Advances from Parent Shareholders' Equity Total Liabilities and Shareholders' Equity Saks Incorporated -----------Guarantor Subsidiaries -----------Non-guarantor Subsidiaries -----------Eliminations ------------

$

20,366

$(26,751) 220 1,184,597 87,175 90,810 ---------1,336,051 1,270,766 460,580 55,592 249,816 363,753

$ 39,137 159,322

54 221,585 (3,217) 11,070 19,471 ---------269,329 342,355 125,717 1,196

$(11,070) 145 -------198,604 505,434 20,858 ----------(11,070)

3,112,552 ---------$3,851,149 ==========

1,350,621 ---------$5,087,179 ==========

-------$724,896 ========

(4,463,173) ----------$(4,474,243) ===========

$48,768 39,118

$311,620 452,000 $ 38,010 11,070

$

(11,070)

452 ---------88,338 1,709,093 18,893 27,250

15,071 ---------778,691 165,461 (27,045) 136,992 4,033,080

-------49,080 235,841 8,152 1,730 430,093 -------$724,896 ========

----------(11,070)

(4,463,173) ----------$(4,474,243) ===========

2,007,575 ---------$3,851,149 ==========

---------$5,087,179 ==========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW For the Year Ended January 30, 1999
(dollars in thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Extraordinary loss on extinguishment of debt Write-offs of long lived Saks Incorporated -----------$ (896) Guarantor Subsidiaries -----------$ (20,426) Non-guarantor Subsidiaries -----------$ 54,522 Elimina ------$(34,

(14,321) 15,263 20,224

(19,775) 126,159 (19,897) 14,599

34, 13,939 14,599

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW For the Year Ended January 30, 1999
(dollars in thousands) Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Extraordinary loss on extinguishment of debt Write-offs of long lived assets, merger and integration items Changes in operating assets and liabilities, net Net cash provided by operating activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Acquisition of Dillard's stores, Brody's and Bullock & Jones Net cash used in investing activities Financing activities Intercompany borrowings, contributions and distributions Proceeds from long-term borrowings Payments on long-term debt Net borrowings under credit and receivables facility Cash placed in escrow for debt redemption Proceeds from issuance of stock Purchase of treasury stock Net cash provided by (used in) financing activities Decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Saks Incorporated -----------$ (896) Guarantor Subsidiaries -----------$ (20,426) Non-guarantor Subsidiaries -----------$ 54,522 Elimina ------$(34,

(14,321) 15,263 20,224

(19,775) 126,159 (19,897) 14,599

34, 13,939 14,599

59,086 (15,373) ----------4,897 514 ---------140,260

20,531 274,191 ---------377,782

(48,277) 2,500

(327,785)

(45,000)

(248,196) ----------(293,973)

(276,921) ---------(604,706)

---------(45,000)

(1,212,694) 1,100,000 (10,320) 398,000

1,375,413

(162,719)

(450,661) (136,750) (363,753)

(45,979) (125,000)

19,525 (474) ----------294,037 4,961 15,405 ----------$ 20,366 ===========

18,040 ---------442,289 (22,157) (4,594) ---------$ (26,751) ========== ---------(333,698) (916) 40,053 ---------$ 39,137 ==========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED STATEMENTS OF INCOME For the Year Ended January 31, 1998
(dollars in thousands) Saks Incorporated Guarantor Subsidiaries Non-guarantor Subsidiaries Eliminati

SAKS INCORPORATED & SUBSIDIARIES CONDENSED STATEMENTS OF INCOME For the Year Ended January 31, 1998
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs (Gains) from long-lived assets Year 2000 expenses ESOP expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income before provision for income taxes and etraordinary item Provision (benefit) for income taxes Income before extraordinary item Extraordinary item, net of taxes Net income Saks Incorporated -----------$746,896 480,435 -------266,461 156,787 56,343 412 11,500 (8) 357 -------41,070 Guarantor Subsidiaries -----------$4,979,450 3,250,858 ---------1,728,592 1,111,830 405,979 16,606 25,024 (126) 6,233 9,513 ---------153,533 Non-guarantor Subsidiaries -----------Eliminati ---------

--------

-------

$ 62,722 (35,064)

$(166,2

-------(27,658)

------166,2

(4,627)

(20,503) 13,372 58,804 (59,373) 2,279 ----------

166,221 25,130 (13,372)

(166,2

397,357 (10,612) (178) --------

(456,1 (43,700) 229 --------

-------

423,010 14,753 -------408,257 (3,343) -------$404,914 ========

148,112 (242,283) ---------390,395 (6,424) ---------$ 383,971 ==========

106,850 33,104 -------73,746 (1,556) -------$ 72,190 ========

(456,1

------(456,1

------$(456,1 =======

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS As Of January 31, 1998
(dollars in thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Deferred income taxes Intercompany borrowings Other current assets Total Current Assets Property and Equipment, net Goodwill and Intangibles, net Other Assets Deferred Income Taxes Investment in and Advances to Subsidiaries Saks Incorporated -----------Guarantor Subsidiaries -----------Non-guarantor Subsidiaries -----------Eli ---

$15,405 113 171,212 6,797 30,715 6,777 ---------231,019 186,266 7,340 2,297 (8,683) 1,959,326 ----------

$(4,594) 273 1,073,470 64,625 90,293 98,292 ---------1,322,359 953,642 319,967 39,731 260,476 1,352,541 ----------

$40,053 411,823 6,447 $ 6,552 ---------464,875 586,071 25,901 ---

----------

(3 ---

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS As Of January 31, 1998
(dollars in thousands) Assets Current Assets Cash and cash equivalents Retained interest in accounts receivable Merchandise inventories Deferred income taxes Intercompany borrowings Other current assets Total Current Assets Property and Equipment, net Goodwill and Intangibles, net Other Assets Deferred Income Taxes Investment in and Advances to Subsidiaries Total Assets Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable Accrued expenses and other current liabilities Intercompany borrowings Current portion of long-term debt Total Current Liabilities Senior Debt Other Long-term Liabilities Subordinated Debt Investment by and Advances from Parent Shareholders' Equity Total Liabilities and Shareholders' Equity Saks Incorporated -----------Guarantor Subsidiaries -----------Non-guarantor Subsidiaries -----------Eli ---

$15,405 113 171,212 6,797 30,715 6,777 ---------231,019 186,266 7,340 2,297 (8,683) 1,959,326 ---------$2,377,565

$(4,594) 273 1,073,470 64,625 90,293 98,292 ---------1,322,359 953,642 319,967 39,731 260,476 1,352,541 ---------$4,248,716

$40,053 411,823 6,447 $ 6,552 ---------464,875 586,071 25,901 ---

---------$1,076,847

(3 --$(3

$39,713 45,563

$294,081 380,800 $27,671 121,008

$

452 ---------85,728 336,545 10,763

12,606 ---------687,487 331,420 131,476 286,964 2,811,369

---------148,679 425,841 1,829

---

500,498 ---------$1,076,847 ==========

(3 --$(3 ===

1,944,529 ---------$2,377,565 ==========

---------$4,248,716 ==========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOW For the Year Ended January 31, 1998
(dollars in thousands) Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Recognition of NOL carry-forwards Extraordinary loss on extinguishment of debt (Gains) from long-lived assets ESOP expenses Restructuring items Saks Incorporated -----------$404,914 Guarantor Subsidiaries -----------$383,971 Non-guarantor Subsidiaries -----------$72,190 Eliminations -----------$(456,161)

(397,357) 12,874 222

(58,804) 103,240 24,397 (283,675) 20,005 (1,569)

456,161

1,425 (8)

5,375 (126) 8,786 (800)

1,556

SAKS INCORPORATED & SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOW For the Year Ended January 31, 1998
(dollars in thousands) Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Recognition of NOL carry-forwards Extraordinary loss on extinguishment of debt (Gains) from long-lived assets ESOP expenses Restructuring items Changes in operating assets and liabilities, net Net cash provided by operating activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Net cash provided by (used in) investing activities Financing Activities Intercompany borrowings, contributions and distributions Proceeds from long-term borrowings Payments on long-term debt Net borrowings under credit and receivables facility Proceeds from issuance of stock Purchase of treasury stock ESOP loan repayment Payments to preferred and common shareholders Net cash provided by (used in) financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Saks Incorporated -----------$404,914 Guarantor Subsidiaries -----------$383,971 Non-guarantor Subsidiaries -----------$72,190 Eliminations -----------$(456,161)

(397,357) 12,874 222

(58,804) 103,240 24,397 (283,675) 20,005 (1,569)

456,161

1,425 (8)

5,375 (126) 8,786 (800) (124,864) -------57,500

1,556

52,575 -------74,645

(15,022) ------77,160

---------

(13,349) 23,221 -------9,872

(253,807) 4,630 -------(249,177)

(79,720) ------(79,720) ---------

(226,093) 175,546 (32,720)

184,610

41,483

(196,082) 136,750

(30,000) 11,392

15,762 (13,096)

7,423 9,778 (1,124) -------141,355 (50,322) 45,728 -------$(4,594) =======

-------(80,601) 3,916 11,489 -------$15,405 =======

------22,875 20,315 19,738 ------$40,053 =======

---------

---------

=========

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended February 1, 1997
(dollars in thousands) Net sales Saks Incorporated -----------$737,902 Guarantor Subsidiaries -----------$4,188,960 Non-guarantor Subsidiaries -----------Eliminati ---------

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME For the Year Ended February 1, 1997
(dollars in thousands) Net sales Cost of sales Gross margin Selling, general and administrative expenses Other operating expenses Store pre-opening costs Merger and integration costs Year 2000 expenses ESOP expenses Operating income (loss) Other income (expense) Finance charge income, net Intercompany exchange fees Intercompany servicer fees Equity in earnings of subsidiaries Interest expense, net Other income (expense), net Income before provision for income taxes and extraordinary item Provision for income taxes Income before extraordinary item Extraordinary item, net of taxes Net income Saks Incorporated -----------$737,902 461,117 -------276,785 172,219 57,026 8,729 Guarantor Subsidiaries -----------$4,188,960 2,747,872 ---------1,441,088 976,472 333,599 11,645 8,200 1,406 3,910 ---------105,856 Non-guarantor Subsidiaries -----------Eliminati ---------

--------

-------

$ 38,631 (35,023)

$(130,1

-------38,811

-------(3,608)

------130,1

8,500 (2,475)

12,691 (18,550) 6,749

108,987 21,025 (6,749)

(130,1

55,584 (6,404) 7,319 --------

58,868 (63,323) (19,186) ----------

(114,0 (45,154) 87 --------

-------

100,935 20,103 -------80,832 -------$ 80,832 ========

83,105 20,968 ---------62,137 (10,722) ---------$ 51,415 ==========

74,588 9,927 -------64,661 (2,024) -------$62,637 =======

(114,0 ------(114,0 ------$(114,0 =======

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW For the Year Ended February 1, 1997
(dollars in thousands) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Extraordinary loss on extinguishment of debt Losses on County Seat Debentures Losses from long-lived assets ESOP expenses Restructuring items Changes in operating assets and liabilities, net Net cash provided by operating activities Saks Incorporated -----------$ 80,832 Guarantor Subsidiaries -----------$ 51,415 Non-guarantor Subsidiaries -----------$ 62,637 Eli --$

(55,184) 14,123 8,901

(58,868) 89,545 22,679 10,722 10,525 1,406 1,481 885 19,865 48 2,024

(34,394) --------14,278

(61,574) --------68,216

(26,373) --------58,201

-

SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW For the Year Ended February 1, 1997
(dollars in thousands) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries Depreciation and amortization Deferred income taxes Extraordinary loss on extinguishment of debt Losses on County Seat Debentures Losses from long-lived assets ESOP expenses Restructuring items Changes in operating assets and liabilities, net Net cash provided by operating activities Investing Activities Purchases of property and equipment, net Proceeds from sale of assets Acquisition of Parisian Net cash used in investing activities Financing Activities Intercompany borrowings, contributions and distributions Proceeds from long-term borrowings Payments on long-term debt Net borrowings under credit and receivables facility Proceeds from issuance of stock Purchase of treasury stock ESOP loan repayment Payments to preferred and common shareholders Net cash provided by(used in) financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Saks Incorporated -----------$ 80,832 Guarantor Subsidiaries -----------$ 51,415 Non-guarantor Subsidiaries -----------$ 62,637 Eli --$

(55,184) 14,123 8,901

(58,868) 89,545 22,679 10,722 10,525 1,406 1,481 885 19,865 48 2,024

(34,394) --------14,278

(61,574) --------68,216

(26,373) --------58,201

-

(8,544) 5,410 --------(3,134)

(226,102) 30,872 (119,070) --------(314,300)

(13,168)

--------(13,168)

-

(121,314) 113,037 (19,727)

125,880 267,800 (370,370) (201,820)

(4,566)

(4,159) (35,637)

35,438 (14,383)

422,094 (742) (4,858) --------237,984 (8,100) 53,828 --------$ 45,728 =========

--------(6,949) 4,195 7,294 --------$ 11,489 =========

--------(44,362) 671 19,067 --------$ 19,738 =========

-

-

=

Report of Independent Accountants To the Board of Directors and Shareholders Saks Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Saks

Report of Independent Accountants To the Board of Directors and Shareholders Saks Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Saks Incorporated and Subsidiaries as of January 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above.
/s/ PricewaterhouseCoopers LLP Birmingham, Alabama March 16, 1999

Report of Management The accompanying consolidated financial statements, including the notes thereto, and the other financial information presented in the Annual Report have been prepared by management. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based upon our best estimates and judgments. Management is responsible for the consolidated financial statements, as well as the other financial information in this Annual Report. The Company maintains an effective system of internal accounting control. We believe that this system provides reasonable assurance that transactions are executed in accordance with management authorization and that they are appropriately recorded in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. Reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived. The consolidated financial statements and related notes have been audited by independent certified public accountants. Management has made

available to them all of the Company's financial records and related data and believes all representations made to them during their audits were valid and appropriate. Their report provides an independent opinion upon the fairness of the financial statements. The Audit Committee of the Board of Directors is composed of four independent Directors. The Committee is responsible for recommending the independent certified public accounting firm to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting control and financial reporting matters. The independent auditors have unrestricted access to the Audit Committee.
/s/ R. Brad Martin R. Brad Martin Chairman of the Board and Chief Executive Officer /s/ Douglas E. Coltharp Douglas E. Coltharp Executive Vice President and Chief Financial Officer

Effective July 7, 1997, the Company's common stock began trading on the New York Stock Exchange under the symbol PFT. Until that time, the Company's stock was traded on the NASDAQ National Market tier of The

available to them all of the Company's financial records and related data and believes all representations made to them during their audits were valid and appropriate. Their report provides an independent opinion upon the fairness of the financial statements. The Audit Committee of the Board of Directors is composed of four independent Directors. The Committee is responsible for recommending the independent certified public accounting firm to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting control and financial reporting matters. The independent auditors have unrestricted access to the Audit Committee.
/s/ R. Brad Martin R. Brad Martin Chairman of the Board and Chief Executive Officer /s/ Douglas E. Coltharp Douglas E. Coltharp Executive Vice President and Chief Financial Officer

Effective July 7, 1997, the Company's common stock began trading on the New York Stock Exchange under the symbol PFT. Until that time, the Company's stock was traded on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol PRFT. Effective September 18, 1998, the Company changed its corporate name from Proffitt's, Inc. to Saks Incorporated and its New York Stock Exchange Symbol from PFT to SKS. As of March 15, 1999, there were approximately 2,600 shareholders of record. The prices in the table below represent the high and low sales prices for the stock as reported by the New York Stock Exchange (beginning on July 7, 1997) and by the National Association of Securities Dealers, Inc. (prior to July 7, 1997). The prices have been adjusted to reflect a 2-for-1 stock split effected in the form of a stock dividend in October 1997. The Company presently follows the policy of retaining earnings to provide funds for the operation and expansion of the business and has no present intention to declare cash dividends in the foreseeable future. Future dividends, if any, will be determined by the Board of Directors of the Company in light of circumstances then existing, including the earnings of the Company, its financial requirements and general business conditions. The Company declared no dividends to common shareholders in either 1998 or 1997.
FISCAL YEAR ENDED ---------------------------------------------January 30, 1999 January 31, 1998 Price Range Price Range --------------------------------------High Low High Low -----------------------$ 40.75 $ 29.38 $ 20.69 $ 15.63 $ 44.44 $ 29.00 $ 26.67 $ 18.88 $ 34.50 $ 16.38 $ 30.63 $ 24.88 $ 36.94 $ 22.13 $ 32.44 $ 25.00

Quarter --------First Second Third Fourth

Board of Directors R. Brad Martin Chairman of the Board and Chief Executive Officer of Saks Incorporated Ronald de Waal Vice Chairman of the Board; Chairman of We International, B.V. Bernard E. Bernstein Partner in the law firm of Bernstein, Stair & McAdams LLP

Board of Directors R. Brad Martin Chairman of the Board and Chief Executive Officer of Saks Incorporated Ronald de Waal Vice Chairman of the Board; Chairman of We International, B.V. Bernard E. Bernstein Partner in the law firm of Bernstein, Stair & McAdams LLP Stanton J. Bluestone Retired Chairman and Chief Executive Officer of Carson Pirie Scott & Co. John W. Burden Retail Consultant; Retired Chairman and CEO of Federated Department Stores and Allied Stores Corporation Edmond D. Cicala President of Edmond Enterprises, Inc.; Retired Chairman of the Goldsmith's Division of Federated Department Stores James A. Coggin President and Chief Administrative Officer of Saks Incorporated Julius W. Erving President of The Erving Group; Executive Vice President of the Orlando Magic Michael S. Gross Vice President of Apollo Capital Management, L.P. Donald E. Hess Chairman Emeritus of Parisian; Chief Executive Officer of Southwood Partners

G. David Hurd Emeritus Chairman and retired Chief Executive Officer of Principal Financial Group Philip B. Miller Chairman and Chief Executive Officer of Saks Fifth Avenue Robert M. Mosco

G. David Hurd Emeritus Chairman and retired Chief Executive Officer of Principal Financial Group Philip B. Miller Chairman and Chief Executive Officer of Saks Fifth Avenue Robert M. Mosco President of Merchandising and Chief Operating Officer of Saks Incorporated C. Warren Neel Dean of the College of Business at the University of Tennessee Charles J. Philippin Member of the Management Committee of Investcorp Stephen I. Sadove President Bristol-Myers Squibb Co. Worldwide Beauty Care and Nutritionals Marguerite W. Sallee Chief Executive Officer of Bright Horizons Family Solutions Gerald Tsai, Jr. Private Investor Certain Corporate Officers R. Brad Martin Chairman of the Board and Chief Executive Officer James A. Coggin President and Chief Administrative Officer Robert M. Mosco President of Merchandising and Chief Operating Officer

Douglas E. Coltharp Executive Vice President and Chief Financial Officer Brian J. Martin Executive Vice President of Law and General Counsel

Douglas E. Coltharp Executive Vice President and Chief Financial Officer Brian J. Martin Executive Vice President of Law and General Counsel Dan C. Smith Executive Vice President and Chief Information Officer Store Officers Toni E. Browning President and Chief Executive Officer of Proffitt's Christina Johnson Vice Chairman of Saks Fifth Avenue Max W. Jones President and Chief Executive Officer of Herberger's Frank E. Kulp, III President and Chief Executive Officer of Younkers Michael R. MacDonald President and Chief Executive Officer of Carson Pirie Scott Philip B. Miller Chairman and Chief Executive Officer of Saks Fifth Avenue W. Travis Saucer President and Chief Executive Officer of McRae's John T. Wyatt President and Chief Executive Officer of Parisian SAKS FIFTH AVENUE FULL-LINE STORES

ARIZONA Phoenix CALIFORNIA Beverly Hills Costa Mesa San Diego

ARIZONA Phoenix CALIFORNIA Beverly Hills Costa Mesa San Diego San Francisco COLORADO Denver CONNECTICUT Stamford FLORIDA Bal Harbor Boca Raton Ft. Lauderdale Orlando Palm Beach Gardens South Miami Tampa GEORGIA Atlanta ILLINOIS Chicago Oakbrook Old Orchard LOUISIANA New Orleans MARYLAND Chevy Chase MASSACHUSETTS Boston MICHIGAN Dearborn Troy MINNESOTA Minneapolis MISSOURI Frontenac Kansas City

NEVADA Las Vegas NEW JERSEY

NEVADA Las Vegas NEW JERSEY Hackensack Short Hills NEW YORK Garden City Huntington New York City White Plains OHIO Beachwood Cincinnati OREGON Portland PENNSYLVANIA Bala Cynwyd Pittsburgh TEXAS Dallas Houston (2) San Antonio VIRGINIA McLean SAKS FIFTH AVENUE RESORT STORES CALIFORNIA Carmel Palm Springs Palm Desert FLORIDA Ft. Myers Naples Palm Beach Sarasota NEW YORK Southampton

SOUTH CAROLINA Hilton Head SAKS FIFTH AVENUE MAIN STREET STORES CALIFORNIA

SOUTH CAROLINA Hilton Head SAKS FIFTH AVENUE MAIN STREET STORES CALIFORNIA La Jolla Pasadena Santa Barbara CONNECTICUT Greenwich OKLAHOMA Tulsa SOUTH CAROLINA Charleston TEXAS Austin PARISIAN STORES ALABAMA Birmingham (5) Decatur Dothan Florence Huntsville (2) Mobile Montgomery (2) Tuscaloosa FLORIDA Jacksonville Orlando (4) Pensacola Tallahassee GEORGIA Atlanta (5) Columbus Macon Savannah INDIANA Indianapolis (2)

LOUISIANA Baton Rouge (2) Lafayette MICHIGAN Livonia

LOUISIANA Baton Rouge (2) Lafayette MICHIGAN Livonia MISSISSIPPI Tupelo OHIO Cincinnati (2) Dayton SOUTH CAROLINA Columbia (2) TENNESSEE Chattanooga Knoxville Nashville PROFFITT'S STORES GEORGIA Dalton Rome KENTUCKY Ashland Elizabethtown NORTH CAROLINA Asheville Goldsboro Greenville Kinston Rocky Mount SOUTH CAROLINA Greenville Spartanburg TENNESSEE Athens Chattanooga (2) Cleveland Greeneville Johnson City Kingsport

Nashville (5) Oak Ridge VIRGINIA Bristol

Nashville (5) Oak Ridge VIRGINIA Bristol WEST VIRGINIA Morgantown Parkersburg MCRAE'S STORES ALABAMA Birmingham (5) Dothan Gadsden Huntsville (2) Mobile Selma Tuscaloosa FLORIDA Mary Esther Pensacola LOUISIANA Baton Rouge Monroe MISSISSIPPI Biloxi Columbus Gautier Greenville Hattiesburg Jackson (3) Laurel Meridian Natchez Tupelo Vicksburg YOUNKERS STORES ILLINOIS Moline

IOWA Ames Bettendorf Cedar Falls Cedar Rapids (2) Davenport Des Moines (4) Dubuque Fort Dodge

IOWA Ames Bettendorf Cedar Falls Cedar Rapids (2) Davenport Des Moines (4) Dubuque Fort Dodge Iowa City (2) Marshalltown Mason City Sioux City (2) Waterloo West Burlington MICHIGAN Bay City Holland Marquette Port Huron Traverse City MINNESOTA Austin Duluth NEBRASKA Grand Island Lincoln Omaha (3) SOUTH DAKOTA Sioux Falls WISCONSIN Appleton (2) Eau Claire Fond du Lac Green Bay Madison (2) Manitowoc Marinette Marshfield Milwaukee (2) Racine Sheboygan Sturgeon Bay Superior Wausau Wisconsin Rapids HERBERGER'S STORES COLORADO Grand Junction IOWA

Ottumwa MINNESOTA Albert Lea Alexandria Bemidji Brainerd

Wausau Wisconsin Rapids HERBERGER'S STORES COLORADO Grand Junction IOWA Ottumwa MINNESOTA Albert Lea Alexandria Bemidji Brainerd

Fergus Falls Mankato Minneapolis Moorhead New Ulm St. Cloud St. Paul Stillwater Virginia Willmar MONTANA Billings Butte Great Falls Havre Kalispell Missoula NEBRASKA Hastings Kearney Norfolk North Platte Scottsbluff NORTH DAKOTA Dickinson Bismarck Fargo

Wausau Wisconsin Rapids HERBERGER'S STORES COLORADO Grand Junction IOWA Ottumwa MINNESOTA Albert Lea Alexandria Bemidji Brainerd

Fergus Falls Mankato Minneapolis Moorhead New Ulm St. Cloud St. Paul Stillwater Virginia Willmar MONTANA Billings Butte Great Falls Havre Kalispell Missoula NEBRASKA Hastings Kearney Norfolk North Platte Scottsbluff NORTH DAKOTA Dickinson Bismarck Fargo Minot

SOUTH DAKOTA Aberdeen Rapid City Watertown

Fergus Falls Mankato Minneapolis Moorhead New Ulm St. Cloud St. Paul Stillwater Virginia Willmar MONTANA Billings Butte Great Falls Havre Kalispell Missoula NEBRASKA Hastings Kearney Norfolk North Platte Scottsbluff NORTH DAKOTA Dickinson Bismarck Fargo Minot

SOUTH DAKOTA Aberdeen Rapid City Watertown WISCONSIN Beaver Dam LaCrosse Rice Lake WYOMING Rock Springs CARSON PIRIE SCOTT STORES ILLINOIS Aurora (2) Bloomingdale Bourbonnais Calumet City Chicago (3) Chicago Ridge Dundee

SOUTH DAKOTA Aberdeen Rapid City Watertown WISCONSIN Beaver Dam LaCrosse Rice Lake WYOMING Rock Springs CARSON PIRIE SCOTT STORES ILLINOIS Aurora (2) Bloomingdale Bourbonnais Calumet City Chicago (3) Chicago Ridge Dundee Evergreen Park Hammond Joliet Lincolnwood Lombard (2) Matteson Mount Prospect Norridge North Riverside Orland Park Schaumburg St. Charles Vernon Hills Waukegan Wilmette (2) INDIANA Michigan City Merrillville MINNESOTA Rochester BOSTON STORES WISCONSIN Brookfield (2)

Green Bay Janesville Madison (2) Milwaukee (5)

Green Bay Janesville Madison (2) Milwaukee (5) Racine BERGNER'S STORES ILLINOIS Bloomington Champaign Forsyth Galesburg Machesney Park Pekin Peoria Peru Quincy Rockford (2) Springfield Sterling Urbana OFF 5TH STORES ARIZONA Tempe Tucson CALIFORNIA Anaheim Cabazon Camarillo Folsom Milpitas Ontario Petaluma San Diego COLORADO Castle Rock CONNECTICUT Clinton FLORIDA Ellenton Orlando Sunrise

GEORGIA Dawsonville HAWAII Waipahu

GEORGIA Dawsonville HAWAII Waipahu ILLINOIS Gurnee Mills Schaumburg MASSACHUSETTS Worcester Wrentham MICHIGAN Auburn Dearborn MINNESOTA Minneapolis NEVADA Las Vegas NEW JERSEY Paramus NEW YORK Niagara Falls Riverhead Westbury Central Valley NORTH CAROLINA Morrisville OHIO Aurora PENNSYLVANIA Philadelphia (2) Grove City SOUTH CAROLINA Myrtle Beach TENNESSEE Nashville

TEXAS Grapevine Stafford San Marcos VIRGINIA

TEXAS Grapevine Stafford San Marcos VIRGINIA
Leesburg Woodbridge Sales Release Dates for 1999 Sales Period February 1999 March 1999 April 1999 May 1999 June 1999 July 1999 August 1999 September 1999 October 1999 November 1999 December 1999 January 2000 Earnings Release Dates for 1999 Quarter First Second Third Fourth Release Date 3/4/99 4/8/99 5/6/99 6/3/99 7/8/99 8/5/99 9/2/99 10/7/99 11/4/99 12/2/99 1/6/00 2/4/00

Release Date 5/18/99 8/17/99 11/16/99 To be announced

Annual Meeting The Annual Meeting of Shareholders of Saks Incorporated will be held at 8:30 a.m., June 16, 1999, at Proffitt's Foothills Mall Store (store for women), 173 Foothills Mall, Maryville, Tennessee 37801. Shareholders are cordially invited to attend. Inquiries Regarding Your Stock Holdings Registered shareholders (shares held by you in your name) should address communications regarding address changes, lost certificates and other administrative matters to the Company's Transfer Agent and Registrar: Union Planters National Bank P.O. Box 387 Memphis, Tennessee 38147 (901) 580-5513 (telephone) (901) 580-5411 (facsimile) In all correspondence or telephone inquiries, please mention Saks

Incorporated, your name as printed on your stock certificate, your Social Security number, your address and your phone number. Beneficial shareholders (shares held by your broker in the name of the brokerage house) should direct communications on all administrative matters to your stockbroker. Financial and Other Information Copies of financial documents and other company information such as Saks Incorporated's Form 10-K and 10Q reports as filed with the SEC are available free of charge by contacting:

Incorporated, your name as printed on your stock certificate, your Social Security number, your address and your phone number. Beneficial shareholders (shares held by your broker in the name of the brokerage house) should direct communications on all administrative matters to your stockbroker. Financial and Other Information Copies of financial documents and other company information such as Saks Incorporated's Form 10-K and 10Q reports as filed with the SEC are available free of charge by contacting: Investor Relations Saks Incorporated P.O. Box 9388 Alcoa, Tennessee 37701 (423) 981-6342 Security analysts, portfolio managers, representatives of financial institutions and other individuals with questions regarding Saks Incorporated are invited to contact: Julia Bentley Senior Vice President of Investor Relations and Communications P.O. Box 9388 Alcoa, Tennessee 37701 (423) 981-6243 (telephone) (423) 981-6325 (facsimile) jbentley@saksinc.com (e-mail) Financial results, corporate news and other Company information are available on Saks Incorporated's web site: http://www.saksincorporated.com Corporate Headquarters 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000 Saks Fifth Avenue Headquarters 12 East 49th Street New York, New York 10017 (212) 940-4048 Parisian Headquarters 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000

Proffitt's Headquarters 115 North Calderwood Alcoa, Tennessee 37701 (423) 983-7000 McRae's Headquarters 3455 Highway 80 West Jackson, Mississippi 39209 (601) 968-4400 Younkers Headquarters

Proffitt's Headquarters 115 North Calderwood Alcoa, Tennessee 37701 (423) 983-7000 McRae's Headquarters 3455 Highway 80 West Jackson, Mississippi 39209 (601) 968-4400 Younkers Headquarters 701 Walnut Street Des Moines, Iowa 50397 (515) 244-1112 Herberger's Headquarters 600 Mall Germain St. Cloud, Minnesota 56301 (320) 251-5351 Carson Pirie Scott, Boston Store and Bergner's Headquarters 331 West Wisconsin Avenue Milwaukee, Wisconsin 53203 (414) 347-4141 Independent Accountants PriceWaterhouseCoopers LLP Birmingham, Alabama 1999 Saks Incorporated

EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT SAKS INCORPORATED AND SUBSIDIARIES
Name of Subsidiary -----------------Carson Pirie Holdings, Inc. Carson Pirie Scott Insurance Services, Inc. CPS Acquisition Corp. Herberger's Department Stores, LLC McRae's, Inc. McRae's of Alabama, Inc. McRae's Stores Partnership, G.P. McRae's Stores Services, Inc. National Bank of the Great Lakes P.A. Bergner & Co. Parisian, Inc. Proffitt's Credit Corporation Saks & Company Saks Distribution Centers, Inc. Saks Fifth Avenue - Louisiana, Inc. Saks Fifth Avenue - Stamford, Inc. Saks Fifth Avenue, Atlanta, Inc. Saks Fifth Avenue Distribution Company Saks Fifth Avenue, Inc. Saks Fifth Avenue of Missouri, Inc. Saks Fifth Avenue of Ohio, Inc. Saks Fifth Avenue of Texas, Inc. State of Organization --------------------Delaware Delaware Delaware Minnesota Mississippi Alabama Mississippi Illinois United States Illinois Alabama Nevada New York Illinois Delaware Connecticut Georgia Delaware Massachusetts Missouri Delaware Delaware

EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT SAKS INCORPORATED AND SUBSIDIARIES
Name of Subsidiary -----------------Carson Pirie Holdings, Inc. Carson Pirie Scott Insurance Services, Inc. CPS Acquisition Corp. Herberger's Department Stores, LLC McRae's, Inc. McRae's of Alabama, Inc. McRae's Stores Partnership, G.P. McRae's Stores Services, Inc. National Bank of the Great Lakes P.A. Bergner & Co. Parisian, Inc. Proffitt's Credit Corporation Saks & Company Saks Distribution Centers, Inc. Saks Fifth Avenue - Louisiana, Inc. Saks Fifth Avenue - Stamford, Inc. Saks Fifth Avenue, Atlanta, Inc. Saks Fifth Avenue Distribution Company Saks Fifth Avenue, Inc. Saks Fifth Avenue of Missouri, Inc. Saks Fifth Avenue of Ohio, Inc. Saks Fifth Avenue of Texas, Inc. Saks Holdings, Inc. Saks Shipping Company, Inc. Saks Specialty Stores, Inc. Saks Stores Partnership L.P. Saks Wholesalers, Inc. S.F.A. Data Processing, Inc. SFA Folio Collections, Inc. State of Organization --------------------Delaware Delaware Delaware Minnesota Mississippi Alabama Mississippi Illinois United States Illinois Alabama Nevada New York Illinois Delaware Connecticut Georgia Delaware Massachusetts Missouri Delaware Delaware Delaware Illinois Delaware Tennessee Alabama Delaware New York

SFA Real Estate Company

Delaware

CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Saks Incorporated (formerly Proffitt's, Inc.) listed below of our report dated March 16, 1999, on our audits of the consolidated financial statements of Saks Incorporated and Subsidiaries as of January 30, 1999 and January 31, 1998 and for each of the three years in the period ended January 30, 1999 which report is incorporated by reference in this Annual Report on Form 10-K for the years ended January 30, 1999. Registration Statements on Form S-3 Registration Numbers 333-66755 333-71933 Registration Statements on Form S-4 Registration Numbers 333-09043 333-41563 333-60123 Registration Statements on Form S-8 Registration Numbers 33-46306 33-88390 333-00695 333-25213 33347535 333-66759 Birmingham, Alabama April ____, 1999

ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED

CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Saks Incorporated (formerly Proffitt's, Inc.) listed below of our report dated March 16, 1999, on our audits of the consolidated financial statements of Saks Incorporated and Subsidiaries as of January 30, 1999 and January 31, 1998 and for each of the three years in the period ended January 30, 1999 which report is incorporated by reference in this Annual Report on Form 10-K for the years ended January 30, 1999. Registration Statements on Form S-3 Registration Numbers 333-66755 333-71933 Registration Statements on Form S-4 Registration Numbers 333-09043 333-41563 333-60123 Registration Statements on Form S-8 Registration Numbers 33-46306 33-88390 333-00695 333-25213 33347535 333-66759 Birmingham, Alabama April ____, 1999

ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS PRESENTED IN SAKS INCORPORATED 1998 ANNUAL REPORT AS OF JANUARY 30, 1999 AND JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

PERIOD TYPE FISCAL YEAR END PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED

12 MOS JAN 30 1999 JAN 30 1999 32,752,000 0 159,596,000 0 1,406,182,000 1,792,914,000 2,118,555,000 0 5,188,981,00 905,039,000 2,125,918,000 0 0 14,401,000 1,993,174,000 5,188,981,000 6,219,893,000 6,219,893,000 4,093,467,000 0 1,949,289,000 0 110,971,000 66,166,000 41,181,000 24,985,000 0 25,881,000 0 (896,000) (0.01) (0.01)

12 MOS JAN 31 1998 JAN 31 1998 50,864,000 0 412,209,000 0 1,244,682,000 1,897,245,000 1,725,979,000 0 4,270,253,000 800,886,000 1,393,828,000 0 0 14,148,000 1,930,381,000 4,270,253,000 5,726,346,000 5,726,346,000 3,731,293,000 0 1,659,557,000 0 113,685,000 221,811,000 (194,426,000) 416,237,000 0 11,323,000 0 404,914,000 2.94 2.79

ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS PRESENTED IN SAKS INCORPORATED 1998 ANNUAL REPORT AS OF JANUARY 30, 1999 AND JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

PERIOD TYPE FISCAL YEAR END PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED

12 MOS JAN 30 1999 JAN 30 1999 32,752,000 0 159,596,000 0 1,406,182,000 1,792,914,000 2,118,555,000 0 5,188,981,00 905,039,000 2,125,918,000 0 0 14,401,000 1,993,174,000 5,188,981,000 6,219,893,000 6,219,893,000 4,093,467,000 0 1,949,289,000 0 110,971,000 66,166,000 41,181,000 24,985,000 0 25,881,000 0 (896,000) (0.01) (0.01)

12 MOS JAN 31 1998 JAN 31 1998 50,864,000 0 412,209,000 0 1,244,682,000 1,897,245,000 1,725,979,000 0 4,270,253,000 800,886,000 1,393,828,000 0 0 14,148,000 1,930,381,000 4,270,253,000 5,726,346,000 5,726,346,000 3,731,293,000 0 1,659,557,000 0 113,685,000 221,811,000 (194,426,000) 416,237,000 0 11,323,000 0 404,914,000 2.94 2.79