10-K

2006 FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended	Commission File Number
February 3, 2007	0-19517

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

www.bonton.com

Incorporated in Pennsylvania IRS No. 23-2835229

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.01 par value

Securities registered pursuant to Section 12(g) of the Act:

None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o     No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o     No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

     As of the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $245.7 million, based upon the closing price of $24.78 per share.*

     As of April 2, 2007, there were 14,475,196 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement for the 2007 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference in Part III to the extent described in Part III.

*  Calculated by excluding all shares held in the treasury of the registrant or that may be deemed to be beneficially owned by executive officers and directors of the registrant, without conceding that all such persons are “affiliates” of the registrant for purposes of the federal securities laws.

The Bon-Ton Stores, Inc. operates on a fiscal year, which is the 52 or 53 week period ending on the Saturday nearer January 31 of the following calendar year. References to “2006,” “2005” and “2004” represent the fiscal 2006 year ended February 3, 2007, fiscal 2005 year ended January 28, 2006 and fiscal 2004 year ended January 29, 2005, respectively. References to “2007” represent the fiscal 2007 year ending February 2, 2008.

References to the “Company,” “we,” “us,” and “our” refer to The Bon-Ton Stores, Inc. and its subsidiaries. References to “Carson’s” are to the Northern Department Store Group acquired by the Company from Saks Incorporated (“Saks”) effective March 5, 2006. References to “Elder-Beerman” denote The Elder-Beerman Stores Corp. and its subsidiaries, which were acquired by the Company in October 2003. References to “Bon-Ton” refer to the Company’s stores operating under the Bon-Ton and Elder-Beerman nameplates. References to “Parisian” refer to the stores acquired from Belk, Inc. effective October 29, 2006.

PART I

Item 1.   Business

Overview

The Company was founded in 1898 and is one of the largest regional department store operators in terms of sales in the United States, offering a broad assortment of brand-name fashion apparel and accessories for women, men and children as well as cosmetics, home furnishings and other goods. We currently operate 279 stores in mid-size and metropolitan markets in 23 Northeastern, Midwestern and upper Great Plains states under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, under the Parisian nameplate, stores in the Detroit, Michigan area, encompassing a total of approximately 26 million square feet. Our management believes that we enjoy the #1 or #2 market position among traditional department stores in most of the markets in which we operate.

Industry Overview

We compete in the department store segment of the U.S. retail industry. Department stores have historically dominated apparel and accessories retailing, occupying a cornerstone in the U.S. retail landscape for more than 100 years. Over time, department stores have evolved from single unit, family owned, urban locations to regional and national chains serving communities of all sizes. The department store industry continues to evolve in response to ongoing consolidation among merchandise vendors as well as the evolution of competitive retail formats — mass merchandisers, national chain retailers, specialty retailers and online retailers.

Merchandise

Merchandise Mix

Our stores offer a broad assortment of quality, brand-name fashion apparel and accessories for women, men and children, as well as footwear, cosmetics, home furnishings and other goods at opening, moderate and better price points. We offer a distinct core merchandise assortment, including nationally distributed brands at competitive prices and unique product at compelling values through our private brands. We further differentiate our merchandise assortment with exclusive product from nationally distributed brands. The following table illustrates our net sales

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by product category for the last three years (2006 includes sales of Carson’s, which the Company acquired from Saks effective March 5, 2006):

Merchandise Category	2006			2005			2004
Women’s Apparel		26.4	%		25.4	%		25.8	%
Home		18.3			19.5			19.1
Men’s Apparel		13.2			14.0			14.2
Cosmetics		12.4			11.7			11.9
Accessories		8.2			8.8			8.7
Children’s Apparel		6.0			5.8			6.0
Footwear		7.6			6.6			5.8
Intimate Apparel		4.2			4.8			4.7
Juniors’ Apparel		3.7			3.4			3.8
Total		100.0	%		100.0	%		100.0	%

Nationally Distributed Brands

Our nationally distributed brand assortment includes many of the most well-known and popular labels in the apparel, accessories, footwear, cosmetics and home furnishings industries such as Calvin Klein, Chanel, Coach, Easy Spirit, Bandolino, Børn, Clarks, Estée Lauder, Jones New York, Liz Claiborne, Anne Klein II, Nautica, Columbia, Nine West, OshKosh, Ralph Lauren and Waterford. We believe these brands enable us to position our stores as headquarters for fashion, offering both newness and wardrobe staples at competitive prices. We believe that we maintain excellent relationships with our merchandise vendors, working collaboratively to select the most compelling assortments for our customers.

Private Brands

Our exclusive private brands complement our offering of nationally distributed brands and are a key component of our overall merchandising strategy. Our private brand portfolio includes popular brands such as Laura Ashley; Consensus; Cuddle Bear; Pursuits, Ltd.; Living Quarters; Relativity; Ruff Hewn; Statements; Studio Works; Breckenridge; and Karen Neuberger Home. By providing exclusive fashion products at price points that are more attractive than nationally distributed brand alternatives, our private brand program creates value for our customers and increases our brand exclusiveness, competitive differentiation and customer loyalty.

Since the acquisition of Carson’s, we have built a significant private brand organization to serve the entire Company. Our private brand program presents the opportunity to increase our overall gross margin by virtue of the more efficient cost structure inherent in the design and sourcing of in-house brands.

Vendor Relationships and Sourcing

Our highly experienced team of buyers has developed long-standing and strong relationships with many of the leading vendors in the marketplace. Our scale, geographic footprint and market leadership make us an important distribution channel for leading merchandise vendors to reach their target consumers. We believe that our status as a key account to many of our vendors serves to strengthen our ability to negotiate for exclusive merchandise as well as better pricing terms. We monitor and evaluate the sales and profitability performance of each vendor and adjust our purchasing decisions based upon the results of this analysis.

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Consistent with industry practice, we receive reimbursement allowances from certain of our vendors in support of the merchandise sold to us that was marked down or that did not allow us to achieve certain margins upon sale to our customers. Additionally, we receive advertising allowances and reimbursement of certain payroll expenses from some of our vendors, which primarily represent reimbursements of specific, incremental and identifiable costs incurred to promote and sell the vendors’ merchandise.

Marketing and Customer Service

We are committed to providing our customers with a satisfying shopping experience by offering trend-right fashions, differentiated product, value and convenience. Critical elements of our customer service approach are:

•   marketing programs designed to promote customer awareness of our fashion, quality and value;

•   proprietary credit card programs that facilitate ongoing communication with our customers;

•   loyalty programs that foster and strengthen mutually beneficial long-term relationships; and

•   knowledgeable, friendly and well-trained sales associates.

Marketing

Our strategic marketing initiatives develop and enhance our brand equity and support our position as a leading shopping destination among our target customers. We conduct a multi-faceted marketing program, including newspaper advertisements and inserts, broadcast advertisements, direct mail and in-store events. We use a combination of (i) advertising and sales promotion activities to reach and build brand image and traffic and (ii) customer-specific communications and purchase incentives to drive customer spending and loyalty. Both types of marketing efforts focus primarily on our target customer of women between the ages of 35 and 60 with annual household incomes of $55,000 to $125,000, with the intention of increasing visit frequency and purchases per visit. Additionally, our marketing activities attract a broader audience, including juniors, seniors and men. We seek to attract new customers and to maintain customer loyalty by actively communicating with our customers through the execution of targeted marketing facilitated by sophisticated customer relationship management capabilities.

Effective communication includes showcasing our “hometown store” tradition. We are focused on important, cause-related efforts and events to enhance our connection with the communities in which we operate and with the customers we serve. These strategic initiatives garner favorable publicity, drive traffic and generate incremental sales. Additionally, these efforts serve to differentiate us from our competitors.

We maintain an active calendar of in-store events to promote our sales efforts. These events include appearances by well-known designers and personalities, trunk shows, fashion shows, cooking demonstrations and cosmetic makeovers from leading makeup artists.

Proprietary Credit Card

Evidencing our customer satisfaction and loyalty is the high penetration rate of our proprietary credit card programs that are administered by HSBC Bank Nevada, N.A. (“HSBC”). We have over 4.9 million active proprietary credit card holders.

Our proprietary credit card loyalty programs are designed to cultivate long-term relationships with our customers. Loyalty programs offer rewards and privileges to all members meeting annual purchase requirements. Our targeted loyalty programs focus on our most active customers,

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which we refer to as our “loyalty club customers,” and include marketing features such as coupon pricing without coupons, advanced sales notices and extra savings events.

On July 8, 2005, HSBC purchased the Bon-Ton proprietary credit card accounts and the related outstanding balances associated with those accounts (we refer to this transaction as the “Credit Card Sale”). As part of the Credit Card Sale, Bon-Ton entered into a seven-year marketing and servicing agreement with HSBC. Under the terms of the agreement, Bon-Ton entered into an Interim Servicing Agreement (the “ISA”) and a Credit Card Program Agreement (the “CCPA”). Under the terms of the ISA, Bon-Ton continued to service the credit card receivables from July 8, 2005 through October 31, 2005, for which Bon-Ton was compensated. The CCPA sets forth the terms and conditions under which HSBC will issue credit cards to Bon-Ton’s customers. Under the CCPA, Bon-Ton is paid a percentage of net credit sales for credit card sales generated after July 7, 2005. Prior to our acquisition of Carson’s, HSBC had acquired Carson’s proprietary credit card program, and the servicing and marketing agreement we have with HSBC was amended to include the Carson’s proprietary credit card program within the Bon-Ton program.

Customer Service

We maintain a sales force of knowledgeable and well-trained sales associates who deliver excellent service to our customers. Sales associates are trained in the areas of customer service, selling skills and product knowledge. We employ a two-tiered strategy to achieve effective customer service. In selected areas, we offer one-on-one selling with dedicated associates to assist customers with merchandise selections. Our customers also appreciate the convenience of self-service formats in many departments and efficient service centers to expedite their purchases. Our new associates receive computer-based training for effective, efficient and uniform training. We actively monitor and analyze, through our scheduling program, the service levels in our stores in order to maximize sales associate productivity and store profitability.

Integration of Carson’s

Effective March 5, 2006, the Company purchased Carson’s, adding approximately 15 million square feet of retail space.

We began the process of integrating Carson’s into Bon-Ton, which we anticipate will span two years. The Company’s senior management team, which includes a number of former Carson’s executives, adopted best business practices and defined opportunities for profitable growth. One of our goals was and is to implement strategic initiatives to drive sales growth. We targeted several business categories for incremental sales opportunities, building on the merchandising strengths of Bon-Ton and Carson’s. Moreover, by increasing our importance to vendors as a high-volume purchaser, we are better able to differentiate ourselves from competitors via improved access to exclusive merchandise from nationally distributed brands.

We achieved a common merchandise assortment of both nationally distributed and private brands and a common marketing and sales promotion calendar for all of our stores. A significant portion of the Carson’s merchandising staff remained with us, which allowed us to enhance the merchandise offerings at Bon-Ton stores. Additionally, the acquisition of Carson’s included a significant private brand program upon which we built a private brand organization to serve the Company as a whole.

Of equal importance is enhancing our systems while maintaining a steady flow of merchandise and appropriate levels of inventory to minimize business disruption and ensure customer satisfaction. During 2006, we successfully integrated the Carson’s and Bon-Ton systems. We will continue to evaluate our technology infrastructure to ensure it is positioned to serve our needs efficiently.

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Competition

The retail industry is highly competitive and fragmented. We face competition for customers from traditional department store operators such as Belk, Inc., Dillard’s, Inc. and Federated Department Stores, Inc.; national chain retailers such as J. C. Penney Company, Inc., Kohl’s Corporation and Sears Holdings Corporation; mass merchandisers such as Target Corporation and Wal-Mart Stores, Inc.; specialty stores and, to a lesser extent, catalogue and online retailers. In addition, we face competition for suitable store locations from other department stores, national chain retailers, mass merchandisers and other large-format retailers. In a number of our markets, we compete for customers with national department store chains which offer a similar mix of branded merchandise as we do. In other markets, we face potential competition from national chains that, to date, have not entered such markets and from national chains that have stores in our markets but currently do not carry similar branded goods. In all markets, we generally compete for customers with stores offering moderately priced goods. Many of our competitors have substantially greater financial and other resources than we do, and many of those competitors have significantly less debt than we do and may thus have greater flexibility to respond to changes in our industry.

We believe that we compare favorably with our competitors with respect to quality, depth and breadth of merchandise, prices for comparable quality merchandise, customer service and store environment. We also believe our knowledge of and focus on mid-size markets, developed over our many years of operation, give us an advantage in these markets that cannot be readily duplicated. In markets in which we face traditional department store competition, we believe that we compete effectively.

Trademarks

We own or license various trademarks, including our store nameplates and private brands. We believe our trademarks and service marks are important and that the loss of certain of our trademarks or trade names, particularly the store nameplates, could have a material adverse effect on us. Many of our trademarks are registered in the United States Patent and Trademark Office. The terms of these registrations are generally ten years, and they are renewable for additional ten-year periods indefinitely so long as the marks are in use at the time of renewal. We are not aware of any claims of infringement or other challenges to our right to register or use our marks in the United States that would have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

Information Technology and Systems

Systems

During 2006, we substantially completed the integration of Carson’s systems to allow the Company to operate in the fourth quarter as one company. Substantially all mainframe, midrange, server computing systems, and central storage systems were replaced with new advanced technologies to support the expanded business and provide the foundation for future growth. Data processing facilities in York, Pennsylvania and Dayton, Ohio were upgraded and equipped with standby diesel generators to provide back-up electrical service. The Company is increasing its technology staff to support and enhance the new systems infrastructure. Work to optimize both business and systems processes will continue into 2007 with continued focus on achieving synergy goals, and we will begin a three-year program to install Bon-Ton’s advanced point-of-sale system in all Carson’s stores.

Inventory Management

Our merchandising function is centralized, with a staff of buyers and a planning and allocation team that have responsibility for determining the merchandise assortment, quantities to be purchased and allocation of merchandise to each store.

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The majority of the merchandise we purchase is initially received at one of our four distribution facilities.

We primarily operate on a pre-distribution model through which we allocate merchandise on our initial purchase orders to each store. This merchandise is shipped from our vendors to our distribution facilities for delivery to designated stores. We then have the ability to direct replenishment merchandise to the stores that demonstrate the highest customer demand. This reactive distribution technique helps minimize excess inventory and affords us timely and accurate replenishment.

Our distribution facilities are electronically monitored by our merchandising staff to facilitate the distribution of goods to our stores. We utilize electronic data interchange (EDI) technology with most vendors, which is designed to move merchandise onto the selling floor quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. In addition, we utilize high-speed automated conveyor systems to scan bar coded labels on incoming cartons of merchandise and direct cartons to the proper processing areas. Many types of merchandise are processed in the receiving area and immediately “cross-docked” to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor’s bar code and transmit the necessary information to a computer to record merchandise on hand. We utilize third-party carriers to distribute our merchandise to individual stores.

The majority of our merchandise is held in our stores. We closely monitor the inventory levels and assortments in our stores to facilitate reorder and replenishment decisions, satisfy customer demand and maximize sales.

Seasonality

Our business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the second half of each year, which includes the back-to-school and holiday seasons. Due to the fixed nature of certain costs, our selling, general and administrative (“SG&A”) expenses are typically higher as a percentage of net sales during the first half of each year. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full year. In addition, quarterly results of operations depend upon the timing and amount of revenues and costs associated with the opening, closing and remodeling of existing stores.

Capital Investments

We make capital investments to support our long-term business goals and objectives. We invest capital in new and existing stores, distribution and support facilities and information technology.

In 2007, we anticipate total capital expenditures, net of landlord contributions, of approximately $106.0 million. As part of our focus on continually improving our store base, significant capital will be employed for major remodels and expansions, as well as on-going upgrades in other stores. We are focused on maintaining the quality of our stores and, consequently, our brand equity. With respect to our major remodels, we expand only after extensive analysis of our projected returns on capital. We generally experience an increase in both total sales and profitability at stores that undergo a remodel or expansion.

In 2007, we plan to open two new stores, expand three stores and renovate and reconfigure several existing stores.

We believe capital investments for information technology in our stores, distribution facilities and support functions are necessary to support our business strategies. We are continually

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upgrading our information systems to improve efficiency and productivity. Included in the 2007 capital budget are significant expenditures for information technology projects.

Associates

As of April 2, 2007, we had approximately 33,000 full-time and part-time associates. We employ additional part-time associates during peak selling periods. We believe that our relationship with our associates is good.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available without charge on our website, www.bonton.com, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (“SEC”).

We also make available on our website, free of charge, the following documents:

•   Audit Committee Charter

•   Compensation and Human Resources Committee Charter

•   Governance and Nominating Committee Charter

•   Code of Ethical Standards and Business Practices

Executive Officers

The following table sets forth certain information regarding our executive officers as of April 2, 2007:

NAME	AGE		POSITION
Tim Grumbacher		67	Executive Chairman of the Board of Directors
Byron L. Bergren		60	President and Chief Executive Officer and Director
Anthony J. Buccina		56	Vice Chairman, President — Merchandising
Stephen R. Byers		53	Vice Chairman — Stores, Operations, Private Brand, Planning & Allocation
David B. Zant		50	Vice Chairman — Private Brand and Planning & Allocation
Edward P. Carroll, Jr.		60	Executive Vice President — Sales Promotion and Marketing
Dennis R. Clouser		54	Executive Vice President — Human Resources
Keith E. Plowman		49	Executive Vice President — Chief Financial Officer and Principal Accounting Officer
James M. Zamberlan		60	Executive Vice President — Stores and Visual

Mr. Grumbacher has been Executive Chairman of the Board of Directors since February 2005. He served as Chairman of the Board of Directors from August 1991 to February 2005. He was Chief Executive Officer from 1985 to 1995 and from June 2000 to August 2004. From 1977 to 1989 he was President.

Mr. Bergren has been President and Chief Executive Officer since August 2004. Mr. Bergren, who joined us in November 2003 as Vice Chairman and served as President and Chief Executive Officer of Elder-Beerman from February 2002 through August 2004, served as Chairman of the Southern Division of Belk, Inc. from 1999 to February 2002, as Partner of the Florida Division of Belk, Inc. from 1992 to 1999, and in senior executive positions at Belk, Inc. from 1985 to 1992.

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Mr. Buccina was appointed Vice Chairman, President — Merchandising on June 1, 2006. He had been President and Chief Merchandising Officer of Carson’s from April 2006 to June 2006. Prior to that time, he had served as President — Head Merchant of the Northern Department Store Group of Saks (“NDSG”) for more than five years.

Mr. Byers was appointed Vice Chairman — Stores, Operations, Private Brand, Planning & Allocation on October 9, 2006. He had been Executive Vice President — Stores and Visual Merchandising from April 2006 to October 2006. Prior to that time, he had served as Executive Vice President of Stores and Visual Merchandising of NDSG since August 2004. He held the post of Senior Vice President / Territory Director of Stores for Kohl’s Corporation between 2000 and August 2004.

Mr. Zant was named Vice Chairman — Private Brand and Planning & Allocation on August 1, 2006. He had been Vice Chairman and Chief Merchandising Officer from January 2005 to July 2006. From July 2002 to December 2004, he was Executive Vice President — General Merchandise Manager for Belk, Inc. and from June 2001 to July 2002, he was President of the Central Division of Belk, Inc. Prior to that, Mr. Zant was with the Parisian Division of Saks, serving as Executive Vice President of Merchandising.

Mr. Carroll became Executive Vice President — Sales Promotion and Marketing effective April 3, 2006. Prior to that time, he had served as Executive Vice President of Sales Promotion and Marketing of NDSG for more than five years.

Mr. Clouser has been Executive Vice President — Human Resources since April 3, 2006. He served as Senior Vice President — Human Resources from February 2005 to April 2006 and Vice President — Employment and Training from April 2004 to February 2005. For more than four years prior to that time, he was Senior Vice President — Human Resources at Elder-Beerman.

Mr. Plowman has been Executive Vice President — Finance since April 3, 2006, Chief Financial Officer since May 2005 and Principal Accounting Officer since June 2003. He served as Senior Vice President — Finance from September 2001 to April 2006. Mr. Plowman joined us in 1997 as Divisional Vice President — Controller and from May 1999 to September 2001 he was our Vice President — Controller.

Mr. Zamberlan has been Executive Vice President — Stores and Visual since November 2004. Prior to that time, he served as Executive Vice President — Stores for Elder-Beerman for more than five years.

Item 1A.   Risk Factors

Cautionary Statements Relating to Forward-Looking Information

We have made, in this Annual Report on Form 10-K, forward-looking statements relating to developments, results, conditions or other events we expect or anticipate will occur. These statements may relate to revenues, earnings, store openings, business strategy, market conditions and the competitive environment. The words “believe,” “may,” “will,” “estimate,” “intend,” “expect,” “anticipate,” “plan” and similar expressions as they relate to the Company, or future or conditional verbs, such as “will,” “should,” “would,” “may” and “could,” are intended to identify forward-looking statements. Forward-looking statements are based on management’s then-current views and assumptions and we undertake no obligation to update them. Forward-looking statements are subject to risks and uncertainties and actual results may differ materially from those projected.

An investment in our securities carries certain risks. Investors should carefully consider the risks described below and other risks which may be disclosed in our filings with the SEC before investing in our securities.

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Our substantial debt could adversely affect our financial condition and prevent us from fulfilling our debt obligations.

We have a substantial amount of debt. As of April 2, 2007, we had total debt of approximately $1.2 billion. This could have important consequences to our investors. For example, it could:

•   make it more difficult for us to satisfy our debt obligations;

•   cause our failure to comply with the financial and restrictive covenants contained in the indenture governing our senior unsecured notes and the agreements governing our senior secured credit facility and mortgage loan facility, which could cause a default under those instruments and which, if not cured or waived, could have a material adverse effect on us;

•   increase our vulnerability to general adverse economic and industry conditions;

•   limit our ability to borrow money or sell equity to fund future working capital requirements, capital expenditures, debt service requirements and other general corporate requirements;

•   require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing our ability to use our cash flow for other purposes, including capital expenditures;

•   limit our flexibility in planning for, or reacting to, changes in our business and the retail industry;

•   make it more difficult for us to meet our debt service obligations in the event that there is a substantial increase in interest rates because the debt under our senior secured credit facility bears interest at fluctuating rates; and

•   place us at a competitive disadvantage compared to our competitors that have less debt.

Our ability to service our debt depends upon, among other things, our ability to replenish inventory, generate sales and maintain our stores. If we do not generate sufficient cash from our operations to service our debt obligations, we will need to take one or more actions, including refinancing our debt, obtaining additional financing, selling assets, obtaining additional equity capital, or reducing or delaying capital expenditures. We cannot be certain that our earnings will be sufficient to allow us to pay the principal and interest on our debt and meet our other obligations. Debt under our senior secured credit facility bears interest at a floating rate, a portion of which is offset by fixed-rate swap derivatives. Accordingly, changes in prevailing interest rates may affect our ability to meet our debt service obligations. A higher interest rate on our debt would adversely affect our operating results. If we are unable to meet our debt service obligations or if we default in some other manner under our credit facilities, our lenders could elect to declare all borrowings outstanding, together with accumulated and unpaid interest and other fees, immediately due and payable, which would have a material adverse effect on our business, financial condition and results of operations.

Our discretion in some matters is limited by the restrictions contained in our senior secured credit facility and mortgage loan facility agreements and in the indenture that governs our senior unsecured notes, and any default on our senior secured credit facility, mortgage loan facility or the indenture that governs the senior unsecured notes could harm our business, profitability and growth prospects.

The agreements that govern our senior secured credit facility and mortgage loan facility, and the indenture that governs our senior unsecured notes, contain a number of covenants that limit the discretion of our management with respect to certain business matters and may impair our ability to

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respond to changing business and economic conditions. The senior secured credit facility, the mortgage loan facility and the indenture, among other things, restrict our ability to:

•   incur additional debt or issue guarantees of debt;

•   sell preferred stock;

•   create liens;

•   make restricted payments (including the payment of dividends or the repurchase of our capital stock);

•   make certain types of investments;

•   sell stock in our restricted subsidiaries;

•   pay dividends or make payments from subsidiaries;

•   enter into transactions with affiliates; and

•   sell all or substantially all of our assets or merge or consolidate with another company.

Our senior secured credit facility contains financial covenants that require us to comply with a minimum excess availability requirement. Our ability to borrow funds for any purpose depends on our satisfying this requirement.

If we fail to comply with any of the financial covenants or the other restrictions contained in our senior secured credit facility or any future financing agreements, an event of default could occur. An event of default could result in the acceleration of some or all of our debt. If the debt is accelerated, we would not have, and may not be able to obtain, sufficient funds to repay our debt, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to attract or retain a sufficient number of customers in a highly competitive retail environment, which would have an adverse effect on our business, financial condition and results of operations.

We compete with other department stores and many other retailers, including store-based, mail-order and internet retailers. Many of our competitors have significant financial and marketing resources. The principal competitive factors in our business are price, quality and selection of merchandise, reputation, store location, advertising and customer service. We cannot assure you that we will be able to compete successfully against existing or future competitors. Our expansion into new markets served by our competitors and the entry of new competitors into, or expansion of existing competitors in, our markets could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to accurately predict customer-based trends and effectively manage our inventory levels, which could reduce our revenues and adversely affect our business, financial condition and results of operations.

It is difficult to predict what merchandise consumers will want. A substantial part of our business is dependent on our ability to make correct trend decisions for a wide variety of goods and services. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions, particularly given the long lead times for ordering much of our merchandise, could adversely affect our long-term relationships with our customers. Our managers focus on inventory levels and balance these levels with inventory plans and reviews of trends; however, if our inventories become too large, we may have to “mark down” or decrease our sales price, and we may be required to sell a significant amount of unsold inventory at discounted prices or even below cost, which could have a material adverse effect on our business, financial condition and results of operations.

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We may not be able to obtain adequate capital to support our operations and growth strategies.

Our operations and growth strategies require adequate capital, the availability of which depends on our ability to generate cash flow from operations, borrow funds on satisfactory terms and raise funds in the capital markets. We may need seasonal borrowing capacity in addition to the funds available under our senior secured credit facility to fund our working capital requirements. The inability to obtain adequate capital could have a material adverse effect on our business, financial condition and results of operations.

Our operating results fluctuate from season to season.

Our stores experience seasonal fluctuations in net sales and consequently in operating income, with peak sales occurring during the back-to-school and holiday seasons. Any decrease in net sales or margins during our peak selling periods, decrease in the availability of working capital needed in the months before these periods or reduction in vendor allowances could have a material adverse effect on our business. We usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the peak selling periods. If we are not successful in selling our inventory, especially during our peak selling periods, we may be forced to rely on markdowns or promotional sales to dispose of the inventory or we may not be able to sell the inventory at all, which could have a material adverse effect on our business, financial condition and results of operations.

Weather conditions could adversely affect our results of operations.

Because a significant portion of our business is apparel sales and subject to weather conditions in our markets, our operating results may be unexpectedly and adversely affected by inclement weather. Frequent or unusually heavy snow, ice or rain storms might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Extended periods of unseasonable temperatures in our markets, potentially during our peak seasons, could render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions could adversely affect our business, financial condition and results of operations.

We may pursue strategic acquisitions of businesses which may not be completed or, if completed, may not be successfully integrated into our existing business.

We may pursue increased market penetration through strategic acquisitions. If we are unable to successfully complete acquisitions or to effectively integrate acquired businesses, our ability to grow our business or to operate our business effectively could be reduced, and our business, financial condition and operating results could suffer. We also cannot assure you that we will be able to integrate the operations of any future completed strategic acquisitions without encountering difficulty regarding different business strategies with respect to marketing, integration of personnel with disparate business backgrounds and corporate cultures, integration of different point-of-sale systems and other technology and managing relationships with other business partners.

The consummation and integration of any future acquisition involve many risks, including the risks of:

•   diverting management’s attention from our ongoing business concerns;

•   being unable to obtain financing on terms favorable to us;

•   entering markets in which we have no direct prior experience;

•   improperly evaluating new services, products and markets;

•   being unable to maintain uniform standards, controls, procedures and policies;

11

•   being unable to integrate new technologies or personnel;

•   incurring the expenses of any undisclosed or potential liabilities; and

•   the departure of key management and employees.

Failure to maintain our current key vendor relationships may adversely affect our business, financial condition and results of operations.

Our business is dependent to a significant degree upon close relationships with our vendors and our ability to purchase brand name merchandise at competitive prices. The loss of key vendor support could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that we will be able to acquire brand name merchandise at competitive prices or on competitive terms in the future. For example, certain merchandise that is high profile and in high demand may be allocated by vendors based upon the vendors’ internal criteria, which are beyond our control.

An inability to find qualified domestic and international vendors and fluctuations in the exchange rate with countries in which our international vendors are located could adversely affect our business.

The products we sell are sourced from a wide variety of domestic and international vendors. Our ability to find qualified vendors and source products in a timely and cost-effective manner, including obtaining vendor allowances in support of our advertising and promotional programs, represents a significant challenge. The availability of products and the ultimate costs of buying and selling these products, including advertising and promotional costs, are not completely within our control and could increase our merchandise and operating costs and adversely affect our business. Additionally, costs and other factors specific to imported merchandise, such as trade restrictions, tariffs, currency exchange rates and transport capacity and costs, are beyond our control and could restrict the availability of imported merchandise or significantly increase the costs of our merchandise sales and adversely affect our business, financial condition and results of operations.

The loss of the outside vendor that operates our proprietary credit card programs could have an adverse effect on our operations and financial results.

Our proprietary credit card programs are operated, under agreements, by HSBC. Under these agreements, HSBC issues our proprietary credit cards to our customers and we receive a percentage of the net credit sales thereunder. If for any reason HSBC is unable to provide the services comprising our proprietary credit card programs, or our agreements with HSBC are terminated, in either case under circumstances in which we are unable to quickly and adequately contract with a comparable replacement vendor of such services, our customers who have accounts under our proprietary credit card programs will be unable to use their cards, which would likely result in a certain decrease in sales to such customers, a loss of the revenues attributable to the payments from HSBC, and an adverse effect on customer goodwill, any or all of which could have a material adverse effect on our business, financial condition and results of operations.

Conditions in, and the United States’ relationship with, the foreign countries where we source our merchandise could adversely affect our business.

A majority of our merchandise is manufactured outside of the United States, primarily in India and the Far East. Political instability or other events resulting in the disruption of trade from the countries where our merchandise is manufactured or the imposition of additional regulations relating to, or duties upon, the merchandise we import could cause significant delays or interruptions in the supply of our merchandise or increase our costs, either of which could have a material adverse effect on our business. If we are forced to source merchandise from other countries, those goods may be more expensive or of a different or inferior quality from the merchandise we now sell. If we are

12

unable to adequately replace the merchandise we currently source with merchandise produced elsewhere, our business, financial condition and results of operations could be adversely affected.

Our business could be significantly disrupted if we cannot retain or replace members of our management team.

Our success depends to a significant degree upon the continued contributions of our executive officers and other key personnel, both individually and as a group. Our future performance will be substantially dependent on our ability to retain or replace our key personnel and the inability to retain or replace our key personnel could prevent us from executing our business strategy.

Labor conditions could adversely affect our results of operations.

Our performance is dependent on attracting and retaining a large number of quality sales associates. Many of those sales associates are in entry level or part-time positions with historically high rates of turnover. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. Changes that adversely impact our ability to attract and retain quality sales associates could adversely affect our performance.

Inflation may adversely affect our business operations in the future.

In recent years, we have experienced certain inflationary conditions in our cost base due primarily to (1) changes in foreign currency exchange rates that have reduced the purchasing power of the U.S. dollar and (2) increases in SG&A expenses, particularly with regard to employee benefits. Inflation can harm our margins and profitability if we are unable to increase prices or cut costs enough to offset the effects of inflation in our cost base. If inflation in these or other costs worsens, we cannot assure you that our attempts to offset the effects of inflation through control of expenses, passing cost increases to our customers or any other method will be successful. Any future inflation could adversely affect our business, financial condition and results of operations.

If we are unable to effectively market our business or if our advertising campaigns are ineffective, our revenues may decline and our results of operations could be adversely affected.

We spend extensively on advertising and marketing. Our business depends on effective marketing to generate customer traffic in our stores. If our advertising and marketing efforts are not effective, our business, financial condition and results of operations could be negatively affected.

Failure to successfully maintain and update information technology systems and enhance existing systems may adversely affect our business.

To keep pace with changing technology, we must continuously provide for the design and implementation of new information technology systems as well as enhancements of our existing systems. Any failure to adequately maintain and update the information technology systems supporting our sales operations or inventory control could prevent us from processing and delivering merchandise, which could adversely affect our business, financial condition and results of operations.

Our stock price has been and may continue to be volatile.

The market price of our common stock has been and may continue to be volatile and may be significantly affected by:

•   actual or anticipated fluctuations in our operating results;

•   announcements of new services by us or our competitors;

13

•   developments with respect to conditions and trends in our industry;

•   governmental regulation;

•   general market conditions; and

•   other factors, many of which are beyond our control.

In addition, the stock market has recently, and from time to time, experienced significant price and volume fluctuations that have adversely affected the market prices of securities of companies without regard to their operating performances.

Tim Grumbacher beneficially owns shares of our capital stock giving him voting control over matters submitted to a vote of the shareholders, and he may take actions that conflict with the interests of our other shareholders and holders of our debt securities.

Collectively, as of April 2, 2007, Tim Grumbacher, trusts for the benefit of members of Mr. Grumbacher’s family and The Grumbacher Family Foundation beneficially own shares of our outstanding common stock (which is entitled to one vote per share) and shares of our Class A common stock (which is entitled to ten votes per share) representing, in the aggregate, approximately 63% of the votes eligible to be cast by shareholders in the election of directors and generally. Accordingly, Mr. Grumbacher has the power to control all matters requiring the approval of our shareholders, including the election of directors and the approval of mergers and other significant corporate transactions. The interests of Mr. Grumbacher and certain other stockholders may conflict with the interests of our other shareholders and holders of our debt securities.

In addition to Mr. Grumbacher’s voting control, certain provisions of our charter documents and Pennsylvania law could discourage potential acquisition proposals and could deter, delay or prevent a change in control of the Company that our other shareholders consider favorable and could depress the market value of our common stock.

Certain provisions of our articles of incorporation and by-laws, as well as provisions of the Pennsylvania Business Corporation Law, could have the effect of deterring takeovers or delaying or preventing changes in control or management of the Company that our shareholders consider favorable and could depress the market value of our common stock.

Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, which is applicable to us, may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the Company’s shares. In general, Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law could delay for five years and impose conditions upon “business combinations” between an “interested shareholder” and us, unless prior approval by our Board of Directors is given. The term “business combination” is defined broadly to include various merger, consolidation, division, exchange or sale transactions, including transactions using our assets for purchase price amortization or refinancing purposes. An “interested shareholder,” in general, would be a beneficial owner of shares entitling that person to cast at least 20% of the votes that all shareholders would be entitled to cast in an election of directors.

Item 1B.  Unresolved Staff Comments

None.

Item 2.   Properties

We currently operate 279 stores in 23 states, encompassing approximately 26 million square feet. We have, however, announced we will be closing two underperforming stores in May 2007. We own 33 stores, have ground leases on seven stores, and lease 239 stores.

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We operate under eight nameplates, as follows:

Nameplate	Stores		States
Bon-Ton		71	Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont, West Virginia
Elder-Beerman		66	Illinois, Indiana, Iowa, Kentucky, Michigan, Ohio, West Virginia, Wisconsin
Younkers		46	Illinois, Iowa, Michigan, Minnesota, Nebraska, South Dakota, Wisconsin
Herberger’s		40	Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin, Wyoming
Carson Pirie Scott		31	Illinois, Indiana
Bergner’s		13	Illinois
Boston Store		10	Wisconsin
Parisian		2	Michigan

Our corporate headquarters is located in York, Pennsylvania where our administrative and sales support functions reside. Merchandising and marketing functions are located in Milwaukee, Wisconsin. We own two distribution centers which are located in Rockford, Illinois and Green Bay, Wisconsin, and we lease our other two distribution centers which are located in Allentown, Pennsylvania and Fairborn, Ohio.

Item 3.   Legal Proceedings

In connection with the acquisition of Carson’s, the Company assumed liability for the following matter but only to the extent it applies to the entities acquired from Saks: On October 25, 2005 the Chapter 7 trustee for the bankruptcy estate of Kleinert’s Inc. filed a complaint against Saks and several of its subsidiaries in the United States Bankruptcy Court for the Southern District of New York. In its initial complaint the plaintiff, as assignee, alleged breach of contract, fraud, and unjust enrichment, among other causes of action, and seeks compensatory and punitive damages due to Saks assessment of alleged improper chargebacks against Kleinert’s Inc. totaling approximately $4.0 million which wrongful acts the plaintiff alleges caused the insolvency and bankruptcy of Kleinert’s Inc. On August 15, 2006 the plaintiff, as assignee, filed an amended complaint in which it asserts the following claims, among others: (1) defendants applied improper chargebacks to the accounts payable of Kleinert’s, which led to the extreme financial distress and Kleinert’s eventual bankruptcy and Kleinert’s incurred liabilities and lost profits of at least $100.0 million and plaintiff requests punitive damages of no less than $50.0 million (conversion claim); (2) from 1998- 2003 defendants charged back an amount not less than $4.0 million to Kleinert’s and these chargebacks improperly benefited the defendants, and plaintiff requests $4.0 million on this claim (unjust enrichment claim); (3) defendants falsely represented that its $4.0 million in chargebacks were proper and Kleinert’s reliance on defendants’ misrepresentations caused Kleinert’s to lose not less than $4.0 million and caused it to file for bankruptcy resulting in liabilities and lost profits of $100.0 million, and plaintiff requests punitive damages of no less than $50.0 million (fraud claim); (4) defendants wrongfully charged back at least $4.0 million and these unwarranted chargebacks assisted Kleinert’s officers and directors in booking fictitious sales revenue and accounts receivable and perpetrating a fraud on Kleinert’s lenders in excess of $25.0 million, and plaintiff requests punitive damages of no less than $50.0 million (fraud claim); (5) defendants used dishonest, improper and unfair means in conducting business with Kleinert’s and interfered with Kleinert’s relationship with its lenders (tortious interference with prospective economic advantage claim); (6) defendants assisted officers of Kleinert’s in breaching their fiduciary duties to Kleinert’s and to its creditors by falsifying borrowing base certificates given to the lenders, and defendants knew that their improper chargeback scheme was assisting these breaches of fiduciary duty by Kleinert’s officers, with respect to which plaintiff requests $100.0 million plus $50.0 million in punitive

15

damages (aiding and abetting breach of fiduciary duty claim); (7) defendants knew that their improper chargeback scheme was assisting the perpetration of fraud by Kleinert’s officers, and plaintiff requests $100.0 million plus $50.0 million in punitive damages (aiding and abetting fraud claim); and (8) various fraudulent conveyance claims with respect to which plaintiff requests damages of $4.0 million.

On December 8, 2005 Adamson Apparel, Inc. filed a purported class action lawsuit against Saks in the United States District Court for the Northern District of Alabama. In its complaint the plaintiff asserts breach of contract claims and alleges that Saks improperly assessed chargebacks, timely payment discounts, and deductions for merchandise returns against members of the plaintiff class. The lawsuit seeks compensatory and incidental damages and restitution. Under the terms of the purchase agreement relating to the acquisition of Carson’s from Saks, the Company may have an obligation to indemnify Saks for any damages incurred by Saks under this lawsuit by Adamson Apparel solely to the extent that such damages relate to the business acquired from Saks.

In addition, the Company is party to legal proceedings and claims that arise during the ordinary course of business.

In the opinion of management, the ultimate outcome of any such litigation and claims, including the two matters detailed above, will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on The Nasdaq Global Select Stock Market (symbol: BONT). There is no established public trading market for our Class A common stock. The Class A common stock is convertible on a share-for-share basis into common stock at the option of the holder. The following table sets forth the high and low sales price of our common stock for the periods indicated as furnished by Nasdaq:

	2006				2005
	High		Low		High		Low
1st Quarter	$	34.14	$	18.88	$	19.78	$	15.41
2nd Quarter		29.36		20.22		21.90		16.75
3rd Quarter		38.60		24.02		23.22		15.55
4th Quarter		39.36		31.84		22.73		17.71

On April 2, 2007, we had approximately 198 shareholders of record of common stock and four shareholders of record of Class A common stock.

We have paid quarterly cash dividends, each at $0.025 per share, on Class A common stock and common stock beginning April 15, 2004. Pursuant to our senior secured credit facility agreement, entered into on March 6, 2006, any dividends paid may not exceed $4.0 million in any year or $15.0 million during the term of the agreement, which expires March 2011. In addition, pursuant to the indenture that governs our senior unsecured notes, any dividends paid may not exceed $0.24 per share in any year. We declared a quarterly cash dividend of $0.05 per share, payable May 1, 2007 to shareholders of record as of April 16, 2007. Our Board of Directors will consider dividends in subsequent periods as it deems appropriate.

16

STOCK PERFORMANCE GRAPH

The following graph compares the yearly percentage change in the cumulative total shareholder return on common stock from February 2, 2002 through February 3, 2007, the cumulative total return on the CRSP Total Return Index for The Nasdaq Stock Market (U.S. Companies) and the Nasdaq Retail Trade Stocks Index during such period. The comparison assumes $100 was invested on February 2, 2002 in the Company’s common stock and in each of the foregoing indices and assumes the reinvestment of any dividends.

DATE		NASDAQ		NASDAQ RETAIL		BON-TON
	2/2/02		100.00		100.00		100.00
	2/1/03		69.85		81.48		165.60
	1/31/04		108.59		119.47		497.60
	1/29/05		107.43		143.10		627.60
	1/28/06		122.38		155.17		864.80
	2/3/07		131.92		170.49		1,528.40

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Item 6.   Selected Financial Data

	2006					2005					2004					2003					2002
	(In thousands except share, per share, comparable stores data and number of stores)
Statement of Operations Data (1) (2) (3):				%					%					%					%					%
Net sales	$	3,362,279			100.0	$	1,287,170			100.0	$	1,310,372			100.0	$	926,409			100.0	$	713,230			100.0
Other income		93,531			2.8		20,425			1.6		9,251			0.7		5,917			0.6		3,805			0.5
Gross profit		1,243,517			37.0		464,999			36.1		479,958			36.6		335,153			36.2		261,158			36.6
Selling, general and administrative expenses		1,056,472			31.4		407,145			31.6		415,921			31.7		273,426			29.5		217,375			30.5
Depreciation and amortization		103,189			3.1		27,245			2.1		27,278			2.1		25,634			2.8		22,783			3.2
Amortization of lease-related interests		3,720			0.1		839			0.1		531			0.0		—			—		—			—
Income from operations		173,667			5.2		50,195			3.9		45,479			3.5		42,010			4.5		24,805			3.5
Interest expense, net		107,143			3.2		12,052			0.9		13,437			1.0		9,049			1.0		9,436			1.3
Income before taxes		66,524			2.0		38,143			3.0		32,042			2.4		32,961			3.6		15,369			2.2
Income tax provision		19,641			0.6		12,129			0.9		11,880			0.9		12,360			1.3		5,764			0.8
Net income		46,883			1.4		26,014			2.0		20,162			1.5		20,601			2.2		9,605			1.3
Per share amounts -
Basic:
Net income	$	2.85				$	1.61				$	1.27				$	1.36				$	0.63
Weighted average shares outstanding		16,430,554					16,204,414					15,918,650					15,161,406					15,192,471
Diluted:
Net income	$	2.78				$	1.57				$	1.24				$	1.33				$	0.62
Weighted average shares outstanding		16,841,183					16,518,268					16,253,254					15,508,560					15,394,231
Cash dividends declared per share	$	0.100				$	0.100				$	0.100				$	0.075				$	—
Balance Sheet Data (at end of period)(3):
Working capital	$	402,414				$	143,119				$	251,122				$	221,497				$	127,618
Total assets		2,134,799					561,343					646,156					629,900					400,817
Long-term debt, including capital leases		1,189,625					42,515					178,355					171,716					64,662
Shareholders’ equity		346,396					292,094					262,557					239,484					212,346
Selected Operating Data:
Total sales change		161.0	%				(1.8	)%				41.4	%				29.9	%				(1.2	)%
Comparable stores sales change(4)		(2.7	)%				(1.6	)%				0.9	%				(2.0	)%				(1.2	)%
Comparable stores data(4):
Sales per selling square foot	$	125				$	128				$	135				$	132				$	133
Selling square footage		9,819,000					10,069,000					5,155,000					5,278,000					5,382,000
Capital expenditures	$	100,977				$	29,179				$	31,523				$	20,257				$	14,806
Number of stores:
Beginning of year		137					141					142					72					73
Additions(5)		147					—					—					70					—
Closings		(1	)				(4	)				(1	)		—							(1	)
End of year		283					137					141					142					72

(1)	2006 includes operations of Carson’s for the period from March 5, 2006 through February 3, 2007. 2003 includes operations of Elder-Beerman for the period from October 24, 2003 through January 31, 2004.
(2)	2006 reflects the 53 weeks ended February 3, 2007. All other periods presented include 52 weeks.
(3)	Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications did not impact the Company’s net income for any of the years presented.
(4)	Comparable stores data (sales change, sales per selling square foot and selling square footage) reflects stores open for the entire current and prior fiscal year. 2006 comparable stores data does not include Carson’s stores. 2005 comparable stores data includes stores of Elder-Beerman.
(5)	Includes the addition of 142 stores pursuant to the acquisition of Carson’s and four stores from Belk, Inc. during 2006. Includes the addition of 69 stores pursuant to the acquisition of Elder-Beerman during 2003.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

The Company was founded in 1898 and is one of the largest regional department store operators in terms of sales in the United States, offering a broad assortment of brand-name fashion apparel and accessories for women, men and children as well as cosmetics, home furnishings and other goods. At February 3, 2007, we operated 283 stores in 23 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, under the Parisian nameplate, stores in the Detroit, Michigan area, encompassing a total of approximately 26 million square feet. Our management believes we hold the #1 or #2 market position among traditional department stores in most of the markets in which we operate. The Company had net sales of $3.4 billion in 2006.

Effective March 5, 2006, we purchased all of the outstanding securities of two subsidiaries of Saks that were solely related to the business of owning and operating 142 retail department stores. The stores are located in 12 states in the Midwest and upper Great Plains regions and operate under the names Carson Pirie Scott, Younkers, Herberger’s, Boston Store and Bergner’s. Under the terms of the purchase agreement, we paid approximately $1.0 billion in cash for Carson’s. Carson’s stores encompass a total of approximately 15 million square feet in mid-size and metropolitan markets.

To finance the acquisition and the payoff of our previous revolving credit facility, we entered into a new revolving credit facility which provides for up to $1.0 billion in borrowings, issued $510.0 million in senior unsecured notes, and entered into a new mortgage loan facility in the aggregate principal amount of $260.0 million.

On October 25, 2006, we entered into an asset purchase agreement with Belk, Inc. (“Belk”), pursuant to which we agreed to purchase assets in connection with four department stores, all operated under the Parisian nameplate and the rights to construct a new Parisian store. The purchase price was $22.0 million in cash, subject to certain closing revisions. In addition, we agreed to assume specific liabilities and obligations of Belk and its affiliates with respect to the acquired Parisian stores. The acquisition of Parisian was effective as of October 29, 2006.

We achieved significant progress with the integration of Bon-Ton and Carson’s operations in 2006, completing scheduled phases of the systems integration and permitting a single management view of the consolidated operations. In so doing, we substantially reduced our dependency on Saks for transition services support. Our merchant and marketing staff successfully introduced a common merchandise assortment across all locations, including new private brand offerings, and implemented a common marketing/advertising calendar in the second half of 2006. The private brand organization, established in Milwaukee in 2006, became an integral part of our merchandise organization. We established and expanded the Planning and Allocation division to advance inventory productivity.

Operational areas integrated in the first quarter of 2007 principally include the remaining aspects of internationally-sourced merchandise purchasing and information systems technical support, effectively eliminating our dependency on Saks for transition services support.

We compete in the department store segment of the U.S. retail industry. The department store industry continues to evolve in response to ongoing consolidation among merchandise vendors as well as the evolution of competitive retail formats — mass merchandisers, national chain retailers, specialty retailers and online retailers. Our segment of the retail industry is highly competitive, and we foresee competitive pressures and challenges continuing in the future. As such, we anticipate minimal comparable store sales growth in 2007, with a gross margin rate consistent with 2006 results.

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Results of Operations

The following table summarizes changes in our selected operating indicators, illustrating the relationship of various income and expense items to net sales for each year presented (components may not add or subtract to totals because of rounding):

	Percent of Net Sales
	2006			2005			2004
Net sales		100.0	%		100.0	%		100.0	%
Other income		2.8			1.6			0.7
		102.8			101.6			100.7
Costs and expenses:
Costs of merchandise sold		63.0			63.9			63.4
Selling, general and administrative		31.4			31.6			31.7
Depreciation and amortization		3.1			2.1			2.1
Amortization of lease-related interests		0.1			0.1			—
Income from operations		5.2			3.9			3.5
Interest expense, net		3.2			0.9			1.0
Income before income taxes		2.0			3.0			2.4
Income tax provision		0.6			0.9			0.9
Net income		1.4	%		2.0	%		1.5	%

2006 Compared to 2005

Net sales:  Net sales for 2006 increased 161% to $3,362.3 million compared to $1,287.2 million in the prior year. Net sales include $2,119.1 million from Carson’s stores for the period March 5, 2006 through February 3, 2007 and Parisian stores for the period October 29, 2006 through February 3, 2007. Bon-Ton comparable store net sales for the fifty-two week period ended January 27, 2007 decreased 2.7% compared to the prior year fifty-two week period. We believe that the comparable store net sales decline was the result of several factors including, among others:

•   The introduction of a common merchandise assortment across all locations, which resulted in significant changes to the merchandise mix at the Bon-Ton stores.

•   The implementation of a common marketing/advertising calendar in the second half of 2006, which resulted in less aggressive discounting in promotional activity at the Bon-Ton stores. This strategy negatively impacted sales while improving the gross margin rate.

•   Events in the automobile industry, which affected sales trends in our markets in Ohio, Michigan and Indiana.

•   Unseasonably warm weather in December, which negatively affected apparel sales.

Carson’s sales are not included in the Company’s reported comparable store sales; therefore, the following is provided for informational purposes only: For the period March 5, 2006 through January 27, 2007, Carson’s comparable store sales increased 4.3%.

The best performing merchandise categories in 2006 were Women’s Special Size and Misses Outerwear (both included in Women’s Apparel), Footwear, Home and Children’s Apparel. Sales for Women’s Special Size reflect increased inventory investment. Misses Outerwear sales increased as a

20

result of expanded offerings of updated branded product and aggressive marketing efforts. Footwear sales increased as customers responded favorably to our new and expanded offerings in branded casual footwear. The performance in the Home area in 2006 reflects approximately $17.5 million of incremental sales due primarily to the liquidation of merchandise we no longer intend to carry. Children’s apparel benefited from narrowed merchandise assortments, increased emphasis on stronger national brands and improved penetration of unique brands. The poorest performing merchandise categories in 2006 were Dresses (included in Women’s Apparel) and Accessories. Sales in Dresses continue to trend downward, and we have reduced our inventory investment in this area. Sales decreases in Accessories reflected a lack of clearance merchandise as compared to the prior year and warm weather in our markets during December 2006.

Other income:  Other income, which includes income from revenues received under the CCPA, leased departments and other customer revenues, was $93.5 million, or 2.8% of net sales, in 2006 as compared $20.4, or 1.6% of net sales, in 2005. The increase was due to the addition of the Carson’s operations and, commencing in November 2005, revenues received under the CCPA recorded in other income rather than SG&A.

Costs and expenses:  Gross margin dollars in 2006 were $1,243.5 million as compared to $465.0 million in 2005, an increase of $778.5 million. The increase in gross margin dollars reflects the addition of the Carson’s stores and an increased gross margin rate, partially offset by reduced sales volume attributable to the comparable store sales decrease and to the four Bon-Ton stores closed in January 2006. Gross margin as a percentage of sales increased 0.9 percentage point to 37.0% in the current year from 36.1% in the prior year. The increase in the gross margin rate reflects a 1.6 percentage point decrease, at cost, in the net markdown rate, the result of improved sales of regular priced goods and less aggressive discounting in our promotional activity, partially offset by increased distribution costs.

SG&A expense in 2006 was $1,056.5 million as compared to $407.1 million in 2005, an increase of $649.3 million. The principle factors in the increase in SG&A expenses were the addition of the Carson’s stores and support costs, including the costs associated with the transition services agreement with Saks, and integration expenses. Integration expenses approximated $15.6 million in 2006. The current year expense rate decreased 0.2 percentage point to 31.4% due to the increased sales volume.

Depreciation and amortization expense and amortization of lease-related interests increased $78.8 million, to $106.9 million, in 2006 from $28.1 million in 2005, primarily reflecting the addition of depreciation and amortization associated with the acquired Carson’s operations. In addition, in 2006 we recorded $2.9 million of asset impairment charges related to the reduction in the estimated net realizable value of a store property and a reduction in the value of duplicate information systems software, as compared to $0.9 million of accelerated charges on software associated with our credit operation in 2005.

Income from operations:  Income from operations in 2006 was $173.7 million, or 5.2% of net sales, as compared to $50.2 million, or 3.9% of net sales, in 2005.

Interest expense, net:  Net interest expense in 2006 was $107.1 million, or 3.2% of net sales, as compared to $12.1 million, or 0.9% of net sales, in 2005. The $95.1 million net increase is principally due to the increased debt required to fund the acquisition of Carson’s. Included in the 2006 expense are charges of $2.3 million for the write-off of fees associated with the Company’s previous credit agreement and $4.5 million for fees associated with a bridge facility required in connection with the financing for the acquisition of Carson’s.

Income tax provision:  The income tax provision reflects an effective tax rate of 29.5% in 2006 as compared to 31.8% in 2005. Included in the provision is an income tax benefit adjustment of $4.1 million and approximately $2.2 million in 2006 and 2005, respectively, principally associated with a net reduction in income tax valuation allowances.

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Net income:  Net income in 2006 was $46.9 million, or 1.4% of net sales, as compared to $26.0 million, or 2.0% of net sales, in 2005.

2005 Compared to 2004

Net sales:  Net sales were $1,287.2 million in 2005, a decrease of $23.2 million, or 1.8%, as compared to 2004. Comparable store sales decreased 1.6% in 2005. The best performing merchandise categories in 2005 were Women’s Special Size (included in Women’s Apparel), Footwear, Home and Intimate Apparel. Sales for Women’s Special Size reflect increased inventory, additional space in stores and increased advertising exposure. Footwear sales increased as customers responded favorably to our focus on maximizing key casual vendors, store intensifications and increased advertising exposure. The Home sales increase resulted from key item maximization in soft home and new product offerings in hard home. Intimate Apparel sales benefited from a narrowed assortment that ensured size availability. The poorest performing merchandise categories in 2005 were Dresses and Coats (included in Women’s Apparel) and Juniors’ Apparel. Apparel sales in 2005 were hampered by unseasonably cold weather during the spring season and unseasonably warm weather in the third quarter.

Other income:  Other income, which includes income from program revenue received under the CCPA, leased departments and other customer revenues, increased $11.2 million in 2005 over 2004 primarily because of the revenue received under the CCPA in the fourth quarter of 2005. After the July 8, 2005 Credit Card Sale, we continued to service the credit card receivables through October 31, 2005; proceeds earned pursuant to the CCPA during this period were recorded within SG&A expense.

Costs and expenses:  Gross margin dollars for 2005 decreased $15.0 million, or 3.1%, as compared to 2004, reflecting lower sales volume and a reduced gross margin rate. Gross margin as a percentage of net sales was 36.1% in 2005, a decrease of 0.5 percentage point from 36.6% in 2004. The decrease in gross margin rate reflects a decreased markup rate and higher shrinkage partially offset by a lower markdown rate.

SG&A expense for 2005 was $407.1 million, or 31.6% of net sales, compared to $415.9 million, or 31.7% of net sales, in 2004. The decrease reflects reduced integration expenses and store payroll, partially offset by increased advertising expenses.

Depreciation and amortization expense and amortization of lease-related interests increased $0.3 million, to $28.1 million, in 2005 from $27.8 million in 2004. In 2005, we recognized approximately $0.9 million of accelerated charges on software associated with our credit operation. In 2004, we recorded asset impairment charges on the long-lived assets of certain stores of $0.9 million and a $0.5 million cumulative charge pursuant to a review of our historical lease accounting.

Income from operations:  Income from operations in 2005 was $50.2 million, or 3.9% of net sales, compared to $45.5 million, or 3.5% of net sales, in 2004.

Interest expense, net:  Net interest expense in 2005 decreased $1.4 million to $12.1 million, or 0.9% of net sales, from $13.4 million, or 1.0% of net sales, in 2004. Interest expense was positively impacted by a reduction in long-term debt as a result of applying the proceeds from the Credit Card Sale, partially offset by an increase in interest rates.

Income tax provision:  The effective income tax rate for 2005 was 31.8% compared to 37.1% for 2004. Included in the provision for 2005 was an income tax benefit adjustment of approximately $2.2 million principally associated with a net reduction of the income tax valuation allowances that were established in connection with the October 2003 purchase of Elder-Beerman.

Net income:  Net income in 2005 was $26.0 million, or 2.0% of net sales, compared to $20.2 million, or 1.5% of net sales, in 2004.

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Liquidity and Capital Resources

The following table summarizes material measures of our liquidity and capital resources:

	February 3,		January 28,		January 29,
(Dollars in millions)	2007		2006		2005
Working capital	$	402.4	$	143.1	$	251.1
Current ratio		1.79:1		1.77.1		2.40:1
Debt to total capitalization(1)		0.78:1		0.13:1		0.41:1
Unused availability under lines of credit(2)	$	341.3	$	173.8	$	64.3

(1)	Debt includes obligations under capital leases. Total capitalization includes shareholders’ equity, debt and obligations under capital leases.
(2)	Before taking into account the minimum borrowing availability covenant of $75, $10 and $10 as of February 3, 2007, January 28, 2006 and January 29, 2005, respectively.

Prior to March 6, 2006, our primary sources of working capital were cash flows from operations and borrowings under our revolving credit facility. On March 6, 2006, to finance the acquisition of Carson’s and the related payoff of our previous revolving credit facility, we entered into a new revolving credit facility which provides for up to $1.0 billion in borrowings, issued $510.0 million in senior unsecured notes and entered into a new mortgage loan facility in the aggregate principal amount of $260.0 million. Our business follows a seasonal pattern; working capital fluctuates with seasonal variations, reaching its highest level in October or November to fund the purchase of merchandise inventories prior to the holiday season.

Increases in working capital, current ratio, debt to total capitalization and unused availability under lines of credit in 2006, as compared to 2005, principally reflect the addition of Carson’s operations and the increase in debt to fund the acquisition. Decreases in working capital, current ratio and debt to total capitalization and the increase in unused lines of credit in 2005, as compared to 2004, are largely due to the sale of the credit card operation in July 2005 and associated debt reduction.

Net cash provided by operating activities amounted to $117.7 million in 2006, $153.8 million in 2005 and $28.7 million in 2004. The decrease in net cash provided in 2006 is principally due to the 2005 proceeds from the sale of the credit card operation. The increase in net cash provided by operating activities in 2005 as compared to 2004 primarily reflects net proceeds from the Credit Card Sale and decreases in merchandise inventories and retained interest in trade receivables.

Net cash used in investing activities amounted to $1,171.8 million in 2006, $28.7 million in 2005 and $31.4 million in 2004. The increase in cash outflow in 2006 reflects the acquisition costs of Carson’s and the Parisian stores as well as increased capital expenditures for the larger combined company. Capital expenditures in 2005 were $2.3 million lower than in 2004 largely because of reduced spending for systems integration, partially offset by increased spending for store remodels. Additionally, proceeds from the sale of property, fixtures and equipment in 2005 were $2.2 million higher than in 2004.

Net cash provided by financing activities amounted to $1,069.1 million in 2006 and $7.8 million in 2004. Net cash used in financing activities amounted to $138.2 million in 2005. 2006 cash inflow reflects the increased borrowings to fund the acquisitions of Carson’s and Parisian stores. The increase in net cash used in 2005 primarily reflects payments made to reduce long-term debt as a result of the Credit Card Sale.

Prior to March 6, 2006, our amended and restated revolving credit facility agreement (the “Credit Agreement”) provided a revolving line of credit of $300.0 million. In connection with the acquisition of Carson’s and the related financing arrangements, discussed below, the Credit Agreement was terminated and simultaneously replaced by a new senior secured credit facility

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on March 6, 2006. There were no prepayment or early termination premiums or penalties in connection with the termination of the Credit Agreement. All deferred financing costs as of March 6, 2006 associated with the Credit Agreement, which totaled $2.3 million, were expensed immediately upon termination of the Credit Agreement.

On March 6, 2006, The Bon-Ton Department Stores, Inc., a wholly owned subsidiary of The Bon-Ton Stores, Inc., and certain of its subsidiaries, Bank of America, N.A. (“Bank of America”) and certain other lenders entered into a Loan and Security Agreement (“New Senior Secured Credit Facility”) which provides for up to $1.0 billion of revolver borrowings. The New Senior Secured Credit Facility includes a last-in, first-out revolving credit facility of up to $900.0 million and a first-in, last-out revolving credit facility of up to $100.0 million, and has a sub-limit of $150.0 million for the issuance of standby and documentary letters of credit. All borrowings under the New Senior Secured Credit Facility are limited by amounts available pursuant to a borrowing base calculation, which is based on percentages of eligible inventory, real estate and fixed assets, with a reduction for applicable reserves. The New Senior Secured Credit Facility is guaranteed by The Bon-Ton Stores, Inc. and certain of its subsidiaries. The New Senior Secured Credit Facility is secured by substantially all the assets of the Company, except for certain mortgaged real property. As part of the New Senior Secured Credit Facility, Bank of America and the other lenders will make available certain swing line loans in an aggregate amount not to exceed $75.0 million outstanding at any one time. Borrowings under the New Senior Secured Credit Facility bear interest at either (i) the prime rate established by Bank of America, from time to time, plus the applicable margin (the “Prime Rate”) or (ii) the LIBOR rate from time to time plus the applicable margin. The applicable margin is determined based upon the excess availability under the New Senior Secured Credit Facility. The swing line loans bear interest at the same rate applicable to last-in, first-out Prime Rate loans. We are required to pay a commitment fee to the lenders for unused commitments at a rate of 0.25% to 0.30% per annum, based upon the unused portion of the total commitment under the New Senior Secured Credit Facility. The New Senior Secured Credit Facility expires March 6, 2011. Financial covenants contained in the New Senior Secured Credit Facility require that the minimum excess availability be greater than $75.0 million at all times. In addition, there are certain restrictions against the incurrence of additional indebtedness, pledge or sale of assets, payment of dividends and distributions, and other similar restrictions. Dividends paid may not exceed $15.0 million over the life of the agreement, or $4.0 million in any single year. Capital expenditures are limited to $125.0 million per year, with a one-year carryover of any prior year unused amount. As of February 3, 2007, the Company had borrowings of $342.3 million, with $341.3 million of borrowing availability (before taking into account the minimum borrowing availability covenant of $75.0 million) and letter-of-credit commitments of $47.9 million.

On March 6, 2006, The Bon-Ton Department Stores, Inc. entered into an Indenture (the “Indenture”) with The Bank of New York, as trustee, under which The Bon-Ton Department Stores, Inc. issued $510.0 million aggregate principal amount of its 101/4% Senior Notes due 2014 (the “Notes”). The Notes are guaranteed on a senior unsecured basis by The Bon-Ton Stores, Inc. and certain of its subsidiaries. The Notes mature on March 15, 2014. The Notes may not be redeemed prior to March 15, 2010, except that we may redeem up to 35% of the Notes prior to March 15, 2009 through the proceeds of an equity offering. The interest rate of the Notes is fixed at 101/4% per year. Interest on the Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2006. The Indenture includes covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional debt, pay dividends and make distributions, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions, and sell certain assets or merge with or into other companies.

On March 6, 2006, certain bankruptcy-remote special purpose entities (each an “SPE” and, collectively, the “SPEs”) that are indirect wholly owned subsidiaries of The Bon-Ton Stores, Inc. entered into loan agreements with Bank of America, pursuant to which Bank of America provided a new mortgage loan facility in the aggregate principal amount of $260.0 million (the “New Mortgage

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Loan Facility”). The New Mortgage Loan Facility has a term of ten years and is secured by mortgages on twenty-three retail stores and one distribution center owned by the SPEs. Each SPE entered into a lease with each of The Bon-Ton Stores, Inc. subsidiaries operating on such SPE’s properties. A portion of the rental income received under these leases will be used to pay the debt service under the New Mortgage Loan Facility. The New Mortgage Loan Facility requires level monthly payments of principal and interest based on an amortization period of twenty-five years and the balance outstanding at the end of ten years will then become due and payable. The interest rate for the New Mortgage Loan Facility is fixed at 6.2125%. Financial covenants contained in the New Mortgage Loan Facility require that the SPEs maintain certain financial thresholds, as defined in the agreements.

We used the net proceeds of the Notes offering and New Mortgage Loan Facility, along with borrowings under the New Senior Secured Credit Facility, to finance the acquisition of Carson’s, refinance our previous revolving credit agreement, and pay related fees and expenses in connection with the acquisition and related financing transactions.

Aside from planned capital expenditures, our primary cash requirements will be to service debt and finance working capital increases during peak selling seasons.

We paid a quarterly cash dividend of $0.025 per share on shares of Class A common stock and common stock to shareholders on May 1, 2006, August 1, 2006, October 16, 2006 and January 16, 2007 to shareholders of record as of April 15, 2006, July 14, 2006, October 2, 2006, and January 2, 2007, respectively. Additionally, we declared a quarterly cash dividend of $0.05 per share, payable May 1, 2007 to shareholders of record as of April 16, 2007. Our Board of Directors will consider dividends in subsequent periods as it deems appropriate.

Capital expenditures for 2006, which do not reflect landlord contributions, totaled $101.0 million. Capital expenditures for 2007, net of landlord contributions, are planned at approximately $106.0 million. Included in these planned amounts are expenditures relating to the opening of two new stores, expansions of three stores and the renovation and reconfiguration of several existing stores.

We anticipate that cash flows from operations, supplemented by borrowings under the New Senior Secured Credit Facility, will be sufficient to satisfy operating cash requirements for at least the next twelve months.

Cash flows from operations are impacted by consumer confidence, weather in the geographic markets served by the Company, and economic and competitive conditions existing in the retail industry. A downturn in any single factor or a combination of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate our business.

We have not identified any probable circumstances that would likely impair our ability to meet our cash requirements or trigger a default or acceleration of payment of our debt.

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Contractual Obligations and Commitments

The following tables reflect our contractual obligations and commitments as of February 3, 2007:

Contractual Obligations

	Payment due by period
(Dollars in thousands)	Total		Within 1 Year		1-3 Years		3-5 Years		After 5 Years
Long-term debt(1)	$	1,659,997	$	75,475	$	150,950	$	494,200	$	939,372
Capital leases		126,474		7,224		14,875		15,000		89,375
Service agreements		9,135		5,042		3,647		446		—
Operating leases		636,367		89,472		168,074		131,454		247,367
Private Brand agreements		15,875		7,762		5,455		2,658		—
Totals	$	2,447,848	$	184,975	$	343,001	$	643,758	$	1,276,114

(1) Excludes interest under long-term debt obligations where such interest is calculated on a variable basis. Debt within the “3-5 Years” category includes $342.3 million in variable rate debt under the New Senior Secured Credit Facility, which is scheduled to expire in March 2011.

In addition, we expect to make cash contributions to our supplementary pension plans and the Carson Retiree Health plan in the amount of $1.9 million, $2.4 million, $3.0 million, $1.9 million and $1.6 million in 2007, 2008, 2009, 2010 and 2011, respectively, and $11.5 million in the aggregate for the five years thereafter.

We currently do not anticipate making payments to the Carson defined benefit pension plan within the next ten years; however, the impact of The Pension Protection Act of 2006 on this plan’s future funding requirements have not been finalized because certain required assumptions have not yet been made available by the Internal Revenue Service.

Note 9 in the Notes to Consolidated Financial Statements provides a more complete description of our benefit plans.

Commitments

	Amount of expiration per period
(Dollars in thousands)	Total		Within 1 Year		1-3 Years		3-5 Years		After 5 Years
Documentary letters of credit	$	4,870	$	4,870	$	—	$	—	$	—
Standby letters of credit		42,985		42,985		—		—		—
Surety bonds		2,552		2,552		—		—		—
Totals	$	50,407	$	50,407	$	—	$	—	$	—

Documentary letters of credit are primarily issued to support the importing of merchandise, which includes our private brand goods. Standby letters of credit are primarily issued to support the importing of merchandise and as collateral for obligations related to general liability and workers’ compensation insurance. Surety bonds are primarily for previously incurred and expensed obligations related to workers’ compensation.

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In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise up to twelve months in advance of expected delivery. These purchase orders do not contain any significant termination payments or other penalties if cancelled.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements required us to make estimates and judgments that affected reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. On an ongoing basis, we evaluate our estimates, including those related to merchandise returns, bad debts, inventories, goodwill, intangible assets, income taxes, financings, contingencies, insurance reserves, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially lead to materially different results under different assumptions and conditions. We believe our critical accounting policies are as described below. For a discussion of the application of these and other accounting policies, see the Notes to Consolidated Financial Statements.

Inventory Valuation

Inventories are stated at the lower of cost or market with cost determined by the retail inventory method. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margin is derived by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail inventory method is an averaging method that has been widely used in the retail industry. Use of the retail inventory method will result in valuing inventories at the lower of cost or market if markdowns are taken timely as a reduction of the retail value of inventories.

Inherent in the retail inventory method calculation are certain significant management judgments and estimates including, among others, merchandise markups, markdowns and shrinkage, which significantly impact both the ending inventory valuation at cost and the resulting gross margin. These significant estimates, coupled with the fact that the retail inventory method is an averaging process, can, under certain circumstances, result in individual inventory components with cost above related net realizable value. Factors that can lead to this result include applying the retail inventory method to a group of products that is not fairly uniform in terms of its cost, selling price relationship and turnover; or applying the retail inventory method to transactions over a period of time that include different rates of gross profit, such as those relating to seasonal merchandise. In addition, failure to take timely markdowns can result in an overstatement of inventory under the lower of cost or market principle. We believe that the retail inventory method we use provides an inventory valuation that approximates cost and results in carrying inventory in the aggregate at the lower of cost or market.

We regularly review inventory quantities on-hand and record an adjustment for excess or old inventory based primarily on an estimated forecast of merchandise demand for the selling season. Demand for merchandise can fluctuate greatly. A significant increase in the demand for merchandise could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand. Additionally, estimates of future merchandise demand may prove to be inaccurate, in which case we may have understated or overstated the adjustment required for excess or old inventory. If our inventory is

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determined to be overvalued in the future, we would be required to recognize such costs in costs of goods sold and reduce operating income at the time of such determination. Likewise, if inventory is later determined to be undervalued, we may have overstated the costs of goods sold in previous periods and would recognize additional operating income when such inventory is sold. Therefore, although every effort is made to ensure the accuracy of forecasts of future merchandise demand, any significant unanticipated changes in demand or in economic conditions within our markets could have a significant impact on the value of our inventory and reported operating results.

Prior to the Carson’s acquisition, we utilized the last-in, first-out (“LIFO”) cost basis for all of our inventories. In connection with the Carson’s acquisition, we evaluated the inventory costing for the acquired inventories and elected the first-in, first-out (“FIFO”) cost basis for the majority of the acquired Carson’s locations. As of February 3, 2007, approximately 30% of our inventories were valued using a FIFO cost basis and approximately 70% of our inventories were valued using a LIFO cost basis. As is currently the case with many companies in the retail industry, our LIFO calculations have yielded inventory increases in recent years due to deflation reflected in price indices used. The LIFO method values merchandise sold at the cost of more recent inventory purchases (which the deflationary indices indicate to be lower), resulting in the general inventory on-hand being carried at the older, higher costs. Given these higher values and the promotional retail environment, we have reduced the carrying value of our LIFO inventories to a net realizable value. These reductions totaled $38.9 million and $23.7 million as of February 3, 2007 and January 28, 2006. Inherent in the valuation of inventories are significant management judgments and estimates regarding future merchandise selling costs and pricing. Should these estimates prove to be inaccurate, we may have overstated or understated our inventory carrying value. In such cases, operating results would ultimately be impacted.

Vendor Allowances

As is standard industry practice, allowances from merchandise vendors are received as reimbursement for charges incurred on marked-down merchandise. Vendor allowances are generally credited to costs of goods sold, provided the allowance is: (1) collectable, (2) for merchandise either permanently marked down or sold, (3) not predicated on a future purchase, (4) not predicated on a future increase in the purchase price from the vendor, and (5) authorized by internal management. If the aforementioned criteria are not met, the allowances are reflected as an adjustment to the cost of merchandise capitalized in inventory.

Additionally, allowances are received from vendors in connection with cooperative advertising programs and for reimbursement of certain payroll expenses. These allowances received from each vendor are reviewed to ensure reimbursements are for specific, incremental and identifiable advertising or payroll costs incurred to sell the vendor’s products. If a vendor reimbursement exceeds the costs incurred, the excess reimbursement is recorded as a reduction of cost purchases from the vendor and reflected as a reduction of costs of merchandise sold when the related merchandise is sold. All other amounts are recognized as a reduction of the related advertising or payroll costs that have been incurred and reflected in SG&A expense.

Income Taxes

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax assets. The process involves summarizing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and, to the extent we do not believe recovery of the deferred tax asset is more-likely-than-not, a valuation allowance must be established. To the extent a valuation allowance is established in a period, an expense must be recorded within the income tax provision in the statement of income.

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Our net deferred tax assets were $94.4 million and $53.6 million at February 3, 2007 and January 28, 2006, respectively. In assessing the realizability of the deferred tax assets, we considered whether it was more-likely-than-not that the deferred tax assets, or a portion thereof, will not be realized. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and limitations pursuant to Section 382 of the Internal Revenue Code. As a result, we concluded that a valuation allowance against a portion of the net deferred tax assets was appropriate. A total valuation allowance of $25.4 million and $43.9 million was recorded at February 3, 2007 and January 28, 2006, respectively. If actual results differ from these estimates or these estimates are adjusted in future periods, the valuation allowance may need to be adjusted, which could materially impact our financial position and results of operations.

Long-lived Assets

Property, fixtures and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in our business model or capital strategy can result in the actual useful lives differing from estimates. In cases where we determined that the useful life of property, fixtures and equipment should be shortened, we depreciated the net book value in excess of the salvage value over the revised remaining useful life, thereby increasing depreciation expense. Factors such as changes in the planned use of fixtures or leasehold improvements could also result in shortened useful lives. Our net property, fixtures and equipment amounted to $897.9 million and $167.7 million at February 3, 2007 and January 28, 2006, respectively.

Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), requires the Company to test a long-lived asset for recoverability whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Factors that could trigger an impairment review include the following:

•   Significant under-performance of stores relative to historical or projected future operating results,

•   Significant changes in the manner of our use of assets or overall business strategy, and

•   Significant negative industry or economic trends for a sustained period.

If the undiscounted cash flows associated with the asset are insufficient to support the recorded asset, an impairment loss is recognized for the amount (if any) by which the carrying amount of the asset exceeds the fair value of the asset. Cash flow estimates are based on historical results, adjusted to reflect our best estimate of future market and operating conditions. Estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions, if available. Should cash flow estimates differ significantly from actual results, an impairment could arise and materially impact our financial position and results of operations. Given the seasonality of operations, impairment is not conclusive, in many cases, until after the holiday period in the fourth quarter is concluded.

Newly opened stores may take time to generate positive operating and cash flow results. Factors such as store type, store location, current marketplace awareness of private label brands, local customer demographic data and current fashion trends are all considered in determining the time-frame required for a store to achieve positive financial results. If conditions prove to be substantially different from expectations, the carrying value of new stores’ long-lived assets may ultimately become impaired.

We evaluated the recoverability of our long-lived assets in accordance with SFAS No. 144. As a result, in 2006 we recorded $2.9 million of asset impairment charges related to the reduction in the estimated net realizable value of a store property and a reduction in the value of duplicate information systems software resulting from the acquisition of Carson’s. No impairment loss was recorded in 2005 and an impairment loss of $0.9 million was recorded in depreciation and

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amortization expense in 2004. Included in the impairment loss in 2004 is $0.3 million related to the write-down of an intangible asset at one store location.

Goodwill and Intangible Assets

Our goodwill was $27.4 million and $3.0 million at February 3, 2007 and January 28, 2006, respectively. The increase in goodwill reflects the purchase accounting for the acquisition of Carson’s.

Net intangible assets totaled $176.7 million and $5.0 million at February 3, 2007 and January 28, 2006, respectively. Our intangible assets are principally comprised of $91.1 million of lease interests that relate to below-market-rate leases and $85.6 million associated with trademarks and customer lists. The lease-related interests and the portion of trademarks subject to amortization are being amortized using a straight-line method. The customer lists are being amortized using a declining-balance method. At February 3, 2007, lease-related interests, customer lists and trademarks had average remaining lives of sixteen years, twelve years and two years, respectively, for amortization purposes. Trademarks of $63.5 million have been deemed as having indefinite lives as part of the purchase accounting for Carson’s.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), goodwill and other intangible assets that have indefinite lives are reviewed for impairment at least annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Fair value is determined using a discounted cash flow analysis methodology, which requires certain assumptions and estimates regarding industry economic factors and future profitability of acquired businesses. Our policy is to conduct impairment testing based on our most current business plans, which reflect anticipated changes in the economy and the industry. If actual results prove inconsistent with our assumptions and judgments, we could be exposed to a material impairment charge. For 2006, we completed a review of the carrying value of goodwill, in accordance with SFAS No. 142, and determined that goodwill was not impaired.

Insurance Reserve Estimates

We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability and employee-related health care benefits, a portion of which is paid by our associates. We determine the estimates for the liabilities associated with these risks by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. A change in claims frequency and severity of claims from historical experience as well as changes in state statutes and the mix of states in which we operate could result in a change to the required reserve levels.

Purchase Accounting

We have accounted for the acquisition of Carson’s in accordance with the provisions of SFAS No. 141, “Business Combinations,” whereby the purchase price paid to effect the acquisition was allocated to the acquired assets and assumed liabilities at their estimated fair value as of the acquisition date. The acquisition of Carson’s was effective as of March 5, 2006. In connection with purchase price allocations, we made estimates of the fair values of our long-lived and intangible assets based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information. We have recorded preliminary purchase accounting adjustments to record the property and equipment and inventory at their estimated fair values, to establish intangible assets for trade names, customer lists and favorable lease interests and to revalue long-term benefit plan obligations, among other things.

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Future Accounting Changes

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”). FIN No. 48 requires applying a more-likely-than-not threshold to the recognition and de-recognition of tax positions. The new guidance will become effective for the Company beginning in the first quarter of 2007. We have not yet determined the impact of FIN No. 48 on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating what effect, if any, adoption of SFAS No. 157 may have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to measure many financial instruments and certain other assets and liabilities at fair value on an instrument by instrument basis. SFAS No. 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that select different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating what effect, if any, adoption of SFAS No. 159 may have on our financial statements.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Financial Instruments

We are exposed to market risk associated with changes in interest rates. To provide some protection against potential rate increases associated with our variable-rate facilities, we enter into derivative financial transactions in the form of interest rate swaps. The interest rate swaps are used to hedge a portion of the underlying variable-rate facilities. The swaps are qualifying hedges and the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps.

At February 3, 2007, we held two “variable-to-fixed” rate swaps with a notional amount of $50.0 million each. The notional amount does not represent amounts exchanged by the parties; rather, it is used as the basis to calculate amounts due and to be received under the rate swap. During 2006 and 2005, we did not enter into or hold derivative financial instruments for trading purposes.

The following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including debt obligations and the interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates at February 3, 2007. For the interest rate swaps, the table presents the notional amount and weighted average pay and receive interest rates by

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expected maturity date. For additional discussion of our interest rate swaps, see Note 11 in the Notes to Consolidated Financial Statements.

	Expected Maturity Date By Year
(Dollars in																There-
thousands)	2007			2008			2009			2010			2011			After			Total			Fair Value
Debt:
Fixed-rate debt	$	5,555		$	5,915		$	6,394		$	7,864		$	7,370		$	750,326		$	783,424		$	807,657
Average fixed rate		6.87	%		6.90	%		6.91	%		6.69	%		6.96	%		9.00	%		8.91	%
Variable-rate debt		—			—			—			—		$	342,300			—		$	342,300		$	342,300
Average variable rate		—			—			—			—			7.16	%		—			7.16	%
Interest Rate Derivatives:
Interest rate swap Variable-to-fixed		—			—			—			—		$	100,000			—		$	100,000		$	(1,444	)
Average pay rate		—			—			—			—			5.49	%		—			5.49	%
Average receive rate		—			—			—			—			5.43	%		—			5.43	%

Seasonality and Inflation

Our business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the second half of each fiscal year, which includes the back-to-school and holiday seasons. See Note 19 in the Notes to Consolidated Financial Statements for the Company’s quarterly results for 2006 and 2005. Due to the fixed nature of certain costs, SG&A expense is typically higher as a percentage of net sales during the first half of each year.

Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved for a full year. In addition, quarterly operating results are impacted by the timing and amount of revenues and costs associated with the opening of new stores and the closing and remodeling of existing stores.

We do not believe inflation had a material effect on operating results during the past three years. However, there can be no assurance that our business will not be affected by inflationary adjustments in the future.

Item 8.   Consolidated Financial Statements and Supplementary Data

Information called for by this item is set forth in the Consolidated Financial Statements and Financial Statement Schedule contained in this report and is incorporated herein by this reference. See index at page F-1.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Attached as exhibits to this Form 10-K are certifications of the Company’s Chief Executive Officer and Chief Financial Officer, which are required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications. This section should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed pursuant to the Exchange Act is recorded, processed,

32

summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report and, based on this evaluation, concluded that our disclosure controls and procedures are effective.

Management Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of its assets that could have a material effect on the financial statements.

Management assessed the Company’s internal control over financial reporting as of February 3, 2007, the end of the 2006 year. Management based its assessment on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and the Company’s overall control environment.

Based on its assessment, management has concluded that the Company’s internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. The results of management’s assessment were reviewed with the Audit Committee of the Company’s Board of Directors.

KPMG LLP audited management’s assessment and independently assessed the effectiveness of the Company’s internal control over financial reporting. KPMG LLP has issued an attestation report concurring with management’s assessment, which is included below.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Bon-Ton Stores, Inc.:

We have audited management’s assessment, included in the accompanying Management Report on Internal Control over Financial Reporting presented above, that The Bon-Ton Stores, Inc. maintained effective internal control over financial reporting as of February 3, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bon-Ton Stores, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that The Bon-Ton Stores, Inc. maintained effective internal control over financial reporting as of February 3, 2007, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, The Bon-Ton Stores, Inc. maintained, in all material respects, effective internal control over financial reporting as of February 3, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Bon-Ton Stores, Inc. and subsidiaries as of February 3, 2007 and January 28, 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February 3, 2007, and the related financial statement schedule, and our report dated April 17, 2007 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.

/s/  KPMG LLP

Philadelphia, Pennsylvania

April 17, 2007

Inherent Limitations on Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a

34

control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements because of error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control Over Financial Reporting

There were no changes to the Company’s internal control over financial reporting that occurred during the fourteen weeks ended February 3, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.   Other Information

None.

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PART III

Item 10.   Directors, Executive Officers and Corporate Governance

As part of our system of corporate governance, our Board of Directors has adopted a Code of Ethical Standards and Business Practices applicable to all directors, officers and associates. This Code is available on our website at www.bonton.com.

The information regarding executive officers is included in Part I under the heading “Executive Officers.” The remainder of the information called for by this Item is incorporated by reference to the sections entitled “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance and Board of Directors Information” in the Proxy Statement.

Item 11.   Executive Compensation

The information called for by this Item is incorporated by reference to the section entitled “Executive Compensation” of the Proxy Statement.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by this Item is incorporated by reference to the sections entitled “Security Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” of the Proxy Statement.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information called for by this Item is incorporated by reference to the sections entitled “Related Party Transactions” and “Director Independence” of the Proxy Statement.

Item 14.   Principal Accountant Fees and Services

The information called for by this Item is incorporated by reference to the section entitled “Fees Paid to KPMG” of the Proxy Statement.

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PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statements — See the Index to Consolidated Financial Statements and Financial Statement Schedule on page F-1.

2. Financial Statement Schedule — See the Index to Consolidated Financial Statements and Financial Statement Schedule on page F-1.

(b) The following are exhibits to this Form 10-K and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.

Exhibit No				Description	Document Location
	2	.1	(a)	Purchase Agreement between The Bon-Ton Stores, Inc. and Saks Incorporated	Exhibit 2.1 to the Current Report on Form 8-K filed on October 31, 2005
			(b)	Amendment No. 1 to Purchase Agreement	Exhibit 2.1 to the Current Report on Form 8-K filed on February 17, 2006
	3	.1		Articles of Incorporation	Exhibit 3.1 to the Report on Form 8-B, File No. 0-19517 (‘‘Form 8-B”)
	3	.2		Bylaws	Exhibit 3.2 to Form 8-B
	4	.1		Indenture with The Bank of New York	Exhibit 4.1 to the Current Report on Form 8-K filed on March 10, 2006 (‘‘3/10/06 Form 8-K”)
	10	.1		Shareholders’ Agreement among The Bon-Ton Stores, Inc. and the shareholders named therein	Exhibit 10.3 to Amendment No. 2 to the Registration Statement on Form S-1, File No. 33-42142 (‘‘1991 Form S-1”)
	10	.2*	(a)	Employment Agreement with David B. Zant	Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended January 29, 2005 (“2004 Form 10-K”)
			(b)	First Amendment to Employment Agreement with David B. Zant	Filed Herewith
	10	.3*		Employment Agreement with James M. Zamberlan	Exhibit 10.1 to the Current Report on Form 8-K filed on September 19, 2006
	10	.4*		Employment Agreement with Anthony Buccina	Exhibit 10.1 to the Current Report on Form 8-K filed on June 6, 2006
	10	.5*	(a)	Employment Agreement with Byron L. Bergren	Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended July 31, 2004 (“7/31/04 Form 10-Q”)
			(b)	Amendment No. 1 to Employment Agreement with Byron L. Bergren	Exhibit 10.5(b) to the 2004 Form 10-K
			(c)	Amendment No. 2 to Employment Agreement with Byron L. Bergren	Exhibit 99.1 to the Current Report on Form 8-K filed on May 26, 2006
	10	.6*		Restricted Stock Unit Agreement with Byron L. Bergren	Exhibit 10.2 to the Current Report on Form 8-K filed on June 26, 2006
	10	.7*		Executive Transition Agreement with M. Thomas Grumbacher	Exhibit 10.1 to the Current Report on Form 8-K filed on March 11, 2005
	10	.8*		Form of severance agreement with certain executive officers	Exhibit 10.14 to Form 8-B

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Exhibit No				Description	Document Location
	10	.9*		Supplemental Executive Retirement Plan	Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended August 4, 2001
	10	.10*		Amended and Restated 1991 Stock Option and Restricted Stock Plan	Exhibit 4.1 to the Registration Statement on Form S-8, File No. 333-36633
	10	.11*	(a)	Amended and Restated 2000 Stock Incentive and Performance-Based Award Plan	Exhibit 10.1 to the Current Report on Form 8-K filed on June 26, 2006
			(b)	Form of Stock Option Agreement	Exhibit 10.2 to the Current Report on Form 8-K filed on November 25, 2005 (“11/25/05 Form 8-K”)
			(c)	Form of Restricted Stock Agreement	Exhibit 10.3 to the 11/25/05 Form 8-K
			(d)	Form of Restricted Stock Unit Agreement	Exhibit 10.4 to the 11/25/05 Form 8-K
	10	.12*		Phantom Equity Replacement Stock Option Plan	Exhibit 10.18 to the 1991 Form S-1
	10	.13*		The Bon-Ton Stores, Inc. Cash Bonus Plan	Exhibit 10.1 to the Current Report on Form 8-K filed on November 25, 2005
	10	.14*		The Bon-Ton Stores, Inc. Deferred Compensation Plan	Filed Herewith
	10	.15*		The Bon-Ton Stores, Inc. Severance Pay Plan	Exhibit 10.1 to the Current Report on Form 8-K filed on August 8, 2006
	10	.16*		The Bon-Ton Stores, Inc. Change of Control and Material Transaction Severance Plan for Certain Employees of Acquired Employers	Filed Herewith
	10	.17		Registration Rights Agreement between The Bon-Ton Stores, Inc. and Tim Grumbacher	Exhibit 99.3 to the 11/7/03 Form 8-K
	10	.18		Summary of Consulting Arrangement with Michael L. Gleim	Exhibit 10.1 to the Current Report on Form 8-K filed on December 1, 2005
	10	.19	(a)	Sublease of Oil City, Pennsylvania store between The Bon-Ton Stores, Inc. and Nancy T. Grumbacher, Trustee	Exhibit 10.16 to the 1991 Form S-1
			(b)	First Amendment to Oil City, Pennsylvania sublease	Exhibit 10.22 to Amendment No. 1 to the 1991 Form S-1
			(c)	Corporate Guarantee with respect to Oil City, Pennsylvania lease	Exhibit 10.26 to Amendment No. 1 to the 1991 Form S-1
	10	.20		Purchase and Sale Agreement between The Bon-Ton Stores, Inc. and HSBC Bank Nevada, N.A.	Exhibit 10.1 to the Current Report on Form 8-K filed on June 23, 2005 (“6/23/05 Form 8-K”)
	10	.21		Interim Servicing Agreement between The Bon-Ton Stores, Inc. and HSBC Bank Nevada, N.A.	Exhibit 10.2 to the 6/23/05 Form 8-K
	10	.22	(a)	Credit Card Program Agreement between The Bon-Ton Stores, Inc. and HSBC Bank Nevada, N.A.	Exhibit 10.3 to the 6/23/05 Form 8-K
			(b)	First Amendment to the Credit Card Program Agreement	Exhibit 10.5 to the 3/10/06 Form 8-K

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Exhibit No				Description	Document Location
			(c)	Second Amendment to the Credit Card Program Agreement	Filed Herewith
	10	.23		Registration Rights Agreement between The Bon-Ton Department Stores, Inc., The Bon-Ton Stores, Inc., other guarantors listed on Schedule I of the Agreement, Banc of America Securities LLC and Citigroup Global Markets Inc.	Exhibit 10.1 to the 3/10/06 Form 8-K
	10	.24		Loan and Security Agreement among Bank of America, N.A., The Bon-Ton Department Stores, Inc., The Elder-Beerman Stores Corp., Carson Pirie Scott, Inc. (f/k/a Parisian, Inc.), Herberger’s Department Stores, LLC and the other credit parties and lenders parties thereto.	Exhibit 10.2 to the 3/10/06 Form 8-K
	10	.25		Loan Agreement between Bonstores Realty One, LLP and Bank of America, N.A.	Exhibit 10.3 to the 3/10/06 Form 8-K
	10	.26		Loan Agreement between Bonstores Realty Two, LLP and Bank of America, N.A.	Exhibit 10.4 to the 3/10/06 Form 8-K
	10	.27		Private Brands Agreement among Saks Incorporated, The Bon-Ton Stores, Inc., Herberger’s Department Stores, LLC and Carson Pirie Scott, Inc. (f/k/a Parisian, Inc.)	Exhibit 10.6 to the 3/10/06 Form 8-K
	10	.28	(a)	Amended and Restated Transition Services Agreement between Saks Incorporated and The Bon-Ton Stores, Inc.	Exhibit 10.7 to the 3/10/06 Form 8-K
			(b)	Amendment No. 1 to Amended and Restated Transition Services Agreement between Saks Incorporated and The Bon-Ton Stores, Inc.	Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended July 29, 2006
			(c)	Amendment No. 2 to Amended and Restated Transition Services Agreement between Saks Incorporated and The Bon-Ton Stores, Inc.	Filed Herewith
	10	.29*	(a)	Carson Pirie Scott & Co. Supplemental Executive Retirement Plan	Filed Herewith
			(b)	First Amendment to the Carson Pirie Scott & Co. Supplemental Executive Retirement Plan	Filed Herewith
	10	.30		Asset Purchase Agreement between The Bon-Ton Stores, Inc. and Belk, Inc.	Exhibit 10.1 to the Current Report on Form 8-K filed on October 31, 2006
	10	.31	(a)	Private Brands Agreement between The Bon-Ton Stores, Inc. and Belk, Inc.	Filed Herewith
			(b)	Amendment No. 1 to the Private Brands Agreement between The Bon-Ton Stores, Inc. and Belk, Inc.	Filed Herewith

39

Exhibit No			Description	Document Location
	21		Subsidiaries of the Registrant	Filed Herewith
	23		Consent of KPMG LLP	Filed Herewith
	31	.1	Certification of Byron L. Bergren	Filed Herewith
	31	.2	Certification of Keith E. Plowman	Filed Herewith
	32		Certifications Pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934	Filed Herewith

* Constitutes a management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE BON-TON STORES, INC.

By:  /s/  Keith E. Plowman

Keith E. Plowman

Executive Vice President, Chief

Financial Officer and Principal

Accounting Officer

Dated: April 17, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/  Tim Grumbacher Tim Grumbacher	Executive Chairman of the Board	April 17, 2007
/s/  Byron L. Bergren Byron L. Bergren	President and Chief Executive Officer and Director	April 17, 2007
/s/  Keith E. Plowman Keith E. Plowman	Executive Vice President, Chief Financial Officer and Principal Accounting Officer	April 17, 2007
/s/  Robert B. Bank Robert B. Bank	Director	April 17, 2007
/s/  Philip M. Browne Philip M. Browne	Director	April 17, 2007
/s/  Shirley A. Dawe Shirley A. Dawe	Director	April 17, 2007
/s/  Marsha M. Everton Marsha M. Everton	Director	April 17, 2007
/s/  Michael L. Gleim Michael L. Gleim	Director	April 17, 2007
/s/  Robert E. Salerno Robert E. Salerno	Director	April 17, 2007

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Income	F-4
Consolidated Statements of Shareholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7
Schedule II — Valuation and Qualifying Accounts	F-56
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT W/DAVID B.ZANT
THE BON-TON STORES,INC.DEFERRED COMPENSATION PLAN
CHANGE OF CONTROL AND MATERIAL TRANSACTION SEVERANCE PLAN
SECOND AMENDMENT TO THE CREDIT CARD PROGRAM AGREEMENT
AMENDMENT NO.2 TO AMENDED AND RESTATED TRANSITION AGREEMENT
CARSON PIRIE SCOTT & CO.SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FIRST AMENDMENT TO CARSON PIRIE SCOTT & CO.RETIREMENT PLAN
PRIVATE BRANDS AGREEMENT
AMENDMENT N0.1 TO PRIVATE BRANDS AGREEMENT
SUBSIDIARIES OF THE REGISTRANT
CONSENT OF KPMG
CERTIFICATION OF BYRON L.BERGREN
CERTIFICATION OF KEITH E.PLOWMAN
CERTIFICATION PURSANT TO RULES 13a-14(b) and 15d-14(b)

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

The Bon-Ton Stores, Inc.:

We have audited the accompanying consolidated balance sheets of The Bon-Ton Stores, Inc. and subsidiaries as of February 3, 2007 and January 28, 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February 3, 2007. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule, Valuation and Qualifying Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Bon-Ton Stores, Inc. and subsidiaries as of February 3, 2007 and January 28, 2006, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended February 3, 2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in notes 1, 9 and 17 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” effective January 29, 2006, using the modified prospective method, and Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” effective February 3, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Bon-Ton Stores, Inc.’s internal control over financial reporting as of February 3, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 17, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/  KPMG LLP

Philadelphia, Pennsylvania

April 17, 2007

F-2

THE BON-TON STORES, INC.
CONSOLIDATED BALANCE SHEETS

	February 3,			January 28,
(In thousands except share and per share data)	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	24,733		$	9,771
Merchandise inventories		787,487			284,584
Prepaid expenses and other current assets		84,731			28,412
Deferred income taxes		17,858			7,126
Total current assets		914,809			329,893
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $311,160 and $216,740 at February 3, 2007 and January 28, 2006, respectively		897,886			167,679
Deferred income taxes		76,586			46,453
Goodwill		27,377			2,965
Intangible assets, net of accumulated amortization of $12,087 and $5,776 at February 3, 2007 and January 28, 2006, respectively		176,700			5,013
Other long-term assets		41,441			9,340
Total assets	$	2,134,799		$	561,343
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	209,742		$	87,318
Accrued payroll and benefits		68,434			18,986
Accrued expenses		178,642			52,692
Current maturities of long-term debt		5,555			961
Current maturities of obligations under capital leases		1,936			74
Income taxes payable		48,086			26,743
Total current liabilities		512,395			186,774
Long-term debt, less current maturities		1,120,169			42,491
Obligations under capital leases, less current maturities		69,456			24
Other long-term liabilities		86,383			39,960
Total liabilities		1,788,403			269,249
Commitments and contingencies (Note 14)
Shareholders’ equity
Preferred Stock — authorized 5,000,000 shares at $0.01 par value; no shares issued		—			—
Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 14,469,196 and 14,195,664 at February 3, 2007 and January 28, 2006, respectively		145			142
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at February 3, 2007 and January 28, 2006		30			30
Treasury stock, at cost — shares of 337,800 at February 3, 2007 and January 28, 2006		(1,387	)		(1,387	)
Additional paid-in capital		130,875			129,614
Deferred compensation		—			(6,663	)
Accumulated other comprehensive income (loss)		1,189			(5	)
Retained earnings		215,544			170,363
Total shareholders’ equity		346,396			292,094
Total liabilities and shareholders’ equity	$	2,134,799		$	561,343

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

F-3

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME

	Fiscal Year Ended
	February 3,		January 28,		January 29,
(In thousands except share and per share data)	2007		2006		2005
Net sales	$	3,362,279	$	1,287,170	$	1,310,372
Other income		93,531		20,425		9,251
		3,455,810		1,307,595		1,319,623
Costs and expenses:
Costs of merchandise sold		2,118,762		822,171		830,414
Selling, general and administrative		1,056,472		407,145		415,921
Depreciation and amortization		103,189		27,245		27,278
Amortization of lease-related interests		3,720		839		531
Income from operations		173,667		50,195		45,479
Interest expense, net		107,143		12,052		13,437
Income before income taxes		66,524		38,143		32,042
Income tax provision		19,641		12,129		11,880
Net income	$	46,883	$	26,014	$	20,162
Per share amounts —
Basic:
Net income	$	2.85	$	1.61	$	1.27
Basic weighted average shares outstanding		16,430,554		16,204,414		15,918,650
Diluted:
Net income	$	2.78	$	1.57	$	1.24
Diluted weighted average shares outstanding		16,841,183		16,518,268		16,253,254

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

F-4

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

															Accumulated
															Other
				Class A					Additional			Deferred			Compre-
	Common			Common		Treasury			Paid-in			Compen-			hensive			Retained
(In thousands except per share data)	Stock			Stock		Stock			Capital			sation			Income (Loss)			Earnings			Total
BALANCE AT JANUARY 31, 2004	$	131		$	30	$	(1,387	)	$	114,687		$	(136	)	$	(1,298	)	$	127,457		$	239,484
Comprehensive income (Note 16):
Net income		—			—		—			—			—			—			20,162			20,162
Amounts amortized into interest expense from accumulated other comprehensive loss, net of tax		—			—		—			—			—			53			—			53
Change in fair value of cash flow hedges, net of tax		—			—		—			—			—			818			—			818
Total comprehensive income																						21,033
Dividends to shareholders, $0.10 per share		—			—		—			—			—			—			(1,602	)		(1,602	)
Stock options exercised		4			—		—			2,308			—			—			—			2,312
Issuance of stock under stock award plans		1			—		—			1,540			(1,541	)		—			—			—
Stock-based compensation expense		—			—		—			—			450			—			—			450
Tax benefit of stock options and restricted shares		—			—		—			889			—			—			—			889
Cancellation of restricted shares		—			—		—			(140	)		131			—			—			(9	)
BALANCE AT JANUARY 29, 2005		136			30		(1,387	)		119,284			(1,096	)		(427	)		146,017			262,557
Comprehensive income (Note 16):
Net income		—			—		—			—			—			—			26,014			26,014
Change in fair value of cash flow hedges, net of tax		—			—		—			—			—			422			—			422
Total comprehensive income																						26,436
Dividends to shareholders, $0.10 per share		—			—		—			—			—			—			(1,668	)		(1,668	)
Stock options exercised		2			—		—			1,440			—			—			—			1,442
Issuance of stock under stock award plans		4			—		—			7,756			(7,760	)		—			—			—
Stock-based compensation expense		—			—		—			114			2,193			—			—			2,307
Tax benefit of stock options and restricted shares		—			—		—			1,022			—			—			—			1,022
Cancellation of restricted shares		—			—		—			(2	)		—			—			—			(2	)
BALANCE AT JANUARY 28, 2006		142			30		(1,387	)		129,614			(6,663	)		(5	)		170,363			292,094
Comprehensive income (Note 16):
Net income		—			—		—			—			—			—			46,883			46,883
Pension and postretirement benefit plans, net of tax		—			—		—			—			—			(313	)		—			(313	)
Change in fair value of cash flow hedges, net of tax		—			—		—			—			—			(839	)		—			(839	)
Total comprehensive income																						45,731
Cumulative adjustment to adopt SFAS No. 158 (Note 9), net of $1,386 tax effect		—			—		—			—			—			2,346			—			2,346
Adoption of SFAS No. 123R (Note 17)		(5	)		—		—			(6,658	)		6,663			—			—			—
Dividends to shareholders, $0.10 per share		—			—		—			—			—			—			(1,702	)		(1,702	)
Stock options exercised		1			—		—			1,085			—			—			—			1,086
Stock-based compensation expense		7			—		—			5,772			—			—			—			5,779
Tax benefit of stock options and restricted shares		—			—		—			1,062			—			—			—			1,062
BALANCE AT FEBRUARY 3, 2007	$	145		$	30	$	(1,387	)	$	130,875		$	—		$	1,189		$	215,544		$	346,396

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

F-5

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended
	February 3,			January 28,			January 29,
(In thousands)	2007			2006			2005
Cash flows from operating activities:
Net income	$	46,883		$	26,014		$	20,162
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		103,189			27,245			27,278
Amortization of lease-related interests		3,720			839			531
Bad debt provision		—			1,510			3,339
Stock compensation expense		5,779			2,307			450
Excess tax benefit from share-based compensation		(1,062	)		—			—
(Gain) loss on sale of property, fixtures and equipment		(1,373	)		237			(148	)
Amortization of deferred financing costs		5,984			1,523			3,446
Amortization of deferred gain on sale of proprietary credit card portfolio		(2,460	)		(1,346	)		—
Deferred income tax (benefit) provision		(16,004	)		(20,986	)		7,315
Net transfers of receivables to accounts receivable facility		—			(244,000	)		15,512
Proceeds from sale of proprietary credit card portfolio		—			315,445			—
Loss on sale of proprietary credit card portfolio		—			596			—
Changes in operating assets and liabilities, net of effect of acquisitions:
(Increase) decrease in merchandise inventories		(28,902	)		11,798			(38,474	)
(Increase) decrease in prepaid expenses and other current assets		(22,632	)		23,751			(3,911	)
(Increase) decrease in other long-term assets		(3,077	)		134			(1,348	)
(Decrease) increase in accounts payable		(47,180	)		(12,882	)		10,197
Increase (decrease) in accrued expenses		54,234			(2,714	)		(5,237	)
Increase (decrease) in income taxes payable		18,889			22,990			(9,877	)
Increase (decrease) in other long-term liabilities		1,675			1,363			(582	)
Net cash provided by operating activities		117,663			153,824			28,653
Cash flows from investing activities:
Capital expenditures		(100,977	)		(29,179	)		(31,523	)
Acquisitions, net of cash acquired		(1,073,295	)		(2,054	)		(185	)
Proceeds from sale of property, fixtures and equipment		2,516			2,514			290
Net cash used in investing activities		(1,171,756	)		(28,719	)		(31,418	)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		(967,788	)		(449,313	)		(383,364	)
Proceeds from issuance of long-term debt		2,048,355			312,700			388,900
Cash dividends paid		(1,702	)		(1,668	)		(1,602	)
Proceeds from stock options exercised		1,086			1,442			2,312
Excess tax benefit from share-based compensation		1,062			—			—
Deferred financing costs paid		(27,839	)		(336	)		(526	)
Increase (decrease) in bank overdraft balances		15,881			(1,067	)		2,118
Net cash provided by (used in) financing activities		1,069,055			(138,242	)		7,838
Net increase (decrease) in cash and cash equivalents		14,962			(13,137	)		5,073
Cash and cash equivalents at beginning of period		9,771			22,908			17,835
Cash and cash equivalents at end of period	$	24,733		$	9,771		$	22,908

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

F-6

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc. is a Pennsylvania corporation incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929. As of February 3, 2007, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 283 stores, which includes eight furniture galleries, in 23 states from the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, under the Parisian nameplate, stores in the Detroit, Michigan area.

The Company’s fiscal year ends on the Saturday nearer January 31, and consisted of fifty-three weeks for 2006 and fifty-two weeks for 2005 and 2004. References to “2006,” “2005” and “2004” represent the Company’s fiscal 2006 year ended February 3, 2007, fiscal 2005 year ended January 28, 2006 and fiscal 2004 year ended January 29, 2005, respectively. References to “2007” represent the Company’s fiscal 2007 year ending February 2, 2008.

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. and its wholly owned subsidiaries (the “Company”). All intercompany transactions have been eliminated in consolidation.

Results of operations for the year ended February 3, 2007 include the Northern Department Store Group of Saks Incorporated (“Carson’s”) from the March 5, 2006 acquisition date through February 3, 2007 (see Note 2) and four Parisian stores (“Parisian”) from the October 29, 2006 acquisition date through February 3, 2007. The Company conducts its operations through one business segment.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions which affect the reported amounts of assets and liabilities, the 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 those estimates.

Reclassifications

Certain prior year balances presented in the consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. These reclassifications did not impact the Company’s net income for 2006, 2005 or 2004.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents are generally overnight money market investments.

Merchandise Inventories

For financial reporting and tax purposes, merchandise inventories are determined by the retail method. Prior to the Carson’s acquisition, the last-in, first-out (“LIFO”) cost basis was utilized for all inventories. In connection with the Carson’s acquisition, the Company adopted the first-in, first-out (“FIFO”) cost basis for the majority of the acquired Carson’s locations. As of February 3, 2007,

F-7

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

approximately 30% of the Company’s merchandise inventories were valued using a FIFO cost basis and approximately 70% of merchandise inventories were valued using a LIFO cost basis. There were no adjustments to costs of merchandise sold for LIFO valuations in 2006 and 2005. 2004 reflects income of $200 for LIFO valuations, after net realizable value assessments. If the FIFO method of inventory valuation had been used for all inventories, the Company’s merchandise inventories would have been lower by $6,837 at February 3, 2007 and January 28, 2006.

Costs for merchandise purchases, product development and distribution are included in costs of merchandise sold. Inventories are pledged as collateral under certain debt agreements (see Note 10).

Property, Fixtures and Equipment: Depreciation and Amortization

Depreciation and amortization of property, fixtures and equipment is computed using the straight-line method based upon the shorter of the remaining accounting lease term, if applicable, or the economic life reflected in the following ranges:

Buildings	20 to 40 years
Leasehold improvements	2 to 15 years
Fixtures and equipment	3 to 10 years

No depreciation is recorded until property, fixtures and equipment are placed into service. The Company capitalizes interest incurred during the construction of new facilities or major improvements to existing facilities. The amount of interest costs capitalized is limited to the costs incurred during the construction period. Interest of $71, $88 and $7 was capitalized in 2006, 2005 and 2004, respectively.

Repair and maintenance costs are charged to operations as incurred. Property retired or sold is removed from asset and accumulated depreciation accounts and the resulting gain or loss is reflected in selling, general and administrative expense.

Costs of major remodeling and improvements on leased stores are capitalized as leasehold improvements. Leasehold improvements are amortized over the shorter of the accounting lease term or the useful life of the asset. Capital leases are recorded at the lower of fair market value or the present value of future minimum lease payments. Capital leases are amortized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases.”

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), requires the Company to test a long-lived asset for recoverability whenever events or changes in circumstances indicate that its carrying value may not be recoverable. If the undiscounted cash flows associated with the asset are insufficient to support the recorded asset, an impairment loss is recognized for the amount (if any) by which the carrying amount of the asset exceeds the fair value of the asset. Cash flow estimates are based on historical results, adjusted to reflect the Company’s best estimate of future market and operating conditions. Estimates of fair value represent the Company’s best estimate based on industry trends and reference to market rates and transactions, if available. As a result of this evaluation, $2,923 of asset impairment charges related to the reduction in the estimated net realizable value of a store property and a reduction in the value of duplicate information systems software, resulting from the acquisition of Carson’s, were recorded in 2006. No impairment loss was recorded in 2005; impairment losses of approximately $900 were recorded in 2004. Included in the impairment loss in 2004 was $295 related to the write-down of an intangible asset at one store location. The charges are included in depreciation and amortization expense.

F-8

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Goodwill and Intangible Assets

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company periodically reviews goodwill and intangible assets not subject to amortization for impairment. Intangible assets subject to amortization are reviewed for impairment in accordance with SFAS No. 144. These reviews are performed at least annually and may be performed more frequently if events or changes in circumstances indicate the carrying value of goodwill or intangible assets might exceed their fair value. The Company completed its reviews of the carrying values of goodwill and intangible assets for 2006 and determined they were not impaired.

Deferred Financing Fees

Amounts paid by the Company to secure financing agreements are reflected in other long-term assets and are amortized over the term of the related facility. Amortization of credit facility costs and accounts receivable securitization facility costs are classified as interest expense and selling, general and administrative expense, respectively. Unamortized amounts at February 3, 2007 and January 28, 2006 were $25,561 and $3,317, respectively. Deferred financing fees amortized to expense for 2006, 2005 and 2004 were $5,984, $1,523 and $3,446, respectively.

Income Taxes

The Company accounts for income taxes according to SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109, deferred tax assets and liabilities are recognized for the expected future tax consequences of the difference between the financial statement and income tax basis of assets and liabilities and from net operating losses and credit carryforwards (see Note 18). The effect on deferred tax assets and liabilities of a change in tax rates is recognized within income in the period that includes the enactment date.

Revenue Recognition

The Company recognizes revenue, which excludes sales tax, at either the point-of-sale or at the time merchandise is delivered to the customer and all significant obligations have been satisfied. The Company has a customer return policy allowing customers to return merchandise with proper documentation. A reserve is provided for estimated merchandise returns, based on historical returns experience, and is reflected as an adjustment to sales and costs of merchandise sold.

Other Income

The Company licenses space to third parties in its stores and receives compensation based on a percentage of sales made in these departments, receives revenues from customers for delivery of certain items and services (primarily associated with its furniture operations) and, commencing November 2005, receives revenues under a Credit Card Program Agreement (see Note 3), all of which are recorded within other income. In addition, the Company recovers a portion of its cost from the disposal of damaged or otherwise distressed merchandise; this recovery is recorded within other income.

Advertising

Advertising production costs are expensed the first time the advertisement is run. Media placement costs are expensed in the period the advertising appears. Total advertising expenses, net of vendor allowances, included in selling, general and administrative expense for 2006, 2005 and 2004 were $139,842, $76,015 and $63,496, respectively. Prepaid expenses and other current

F-9

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

assets include prepaid advertising costs of $5,346 and $1,634 at February 3, 2007 and January 28, 2006, respectively.

Vendor Allowances

As is standard industry practice, the Company receives allowances from merchandise vendors as reimbursement for charges incurred on marked-down merchandise. Vendor allowances are credited to cost of merchandise sold, provided the allowance is: (1) collectable, (2) for merchandise either permanently marked down or sold, (3) not predicated on a future purchase, (4) not predicated on a future increase in the purchase price from the vendor, and (5) authorized by internal management. If the aforementioned criteria are not met, the Company reflects the allowance dollars as an adjustment to the cost of merchandise capitalized in inventory.

Additionally, the Company receives allowances from vendors in connection with cooperative advertising programs and for reimbursement of certain payroll expenses. These amounts are recognized by the Company as a reduction of the related advertising or payroll costs that have been incurred and reflected in selling, general and administrative expense. The Company reviews these allowances received from each vendor to ensure reimbursements are for specific, incremental and identifiable advertising or payroll costs incurred by the Company to sell the vendor’s products. If a vendor reimbursement exceeds the costs incurred by the Company, the excess reimbursement is recorded as a reduction of cost purchases from the vendor and reflected as a reduction of costs of merchandise sold when the related merchandise is sold.

Purchase Order Violations

The Company, consistent with industry practice, mandates that vendor merchandise shipments conform to certain standards. These standards are usually defined in the purchase order and include items such as proper ticketing, security tagging, quantity, packaging, on-time delivery, etc. Failure by vendors to conform to these standards increases the Company’s merchandise handling costs. Accordingly, various purchase order violation charges are billed to vendors; these charges are reflected by the Company as a reduction of cost of merchandise sold in the period in which the respective violations occur. The Company establishes reserves for purchase order violations that may become uncollectable.

Self-Insurance Liabilities

The Company is self-insured for certain losses related to workers’ compensation and health insurance, although it maintains stop-loss coverage with third party insurers to limit exposures. The estimate of its self-insurance liability contains uncertainty since the Company must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and claims for incidents incurred but not reported as of the balance sheet date. When estimating its self-insurance liability, the Company considers a number of factors which include, but are not limited to, historical claim experience, demographic factors, severity factors and information provided by independent third-party advisors.

Revolving Charge Accounts

Prior to the July 8, 2005 sale of the Company’s proprietary credit card accounts and related accounts receivable to HSBC Bank Nevada, N.A. (“HSBC”) (see Note 3), the Company reflected finance charge income and late fees on customer revolving charge accounts as a reduction of selling, general and administrative expense. Finance charge income and late fees earned by the Company for

F-10

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

2005 and 2004, before considering costs of administering and servicing revolving charge accounts, were $27,504 and $59,491, respectively.

Fair Value of Financial Instruments

The carrying values of the Company’s cash and cash equivalents, accounts payable and obligations under capital leases approximate fair value. The Company discloses the fair value of its long-term debt and derivative financial instruments in Notes 10 and 11, respectively. Fair value estimates of the Company’s long-term debt and derivative financial instruments are based on market prices, when available, or are derived from discounted cash flow analyses.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company manages the credit risk associated with cash and cash equivalents by maintaining cash accounts and investing with high-quality institutions. The Company maintains cash accounts, primarily on an overnight basis, which may exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. The Company believes that it is not exposed to any significant risks related to its cash accounts.

Operating Leases

The Company leases a majority of its retail stores under operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses and contingent rent provisions — or some combination of these items. The Company recognizes rent expense on a straight-line basis over the accounting lease term, which includes cancelable option periods where failure to exercise such options would result in an economic penalty. In calculating straight-line rent expense, the Company utilizes an accounting lease term that equals or exceeds the time period used for depreciation. Additionally, the commencement date of the accounting lease term reflects the earlier of the date the Company becomes legally obligated for the rent payments or the date the Company takes possession of the building for initial construction and setup. The excess of rent expense over the actual cash paid is recorded as deferred rent.

In a February 2005 letter to the American Institute of Certified Public Accountants, the Securities and Exchange Commission (the “SEC”) clarified its position regarding certain lease accounting practices. The SEC’s letter specifically addressed the depreciable life of leasehold improvements, rent holidays and landlord-tenant incentives. Similar to other retailers, the Company reviewed its historical treatment of these lease issues. After assessing its findings using the guidelines in SEC Staff Accounting Bulletin No. 99, the Company recorded a cumulative pre-tax expense of $465 in the fourth quarter of 2004.

Stock-Based Compensation

Prior to 2006, the Company applied the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations, in accounting for stock options granted under the Company’s stock option plans. Under the intrinsic value method, no compensation cost is recognized if the exercise price of the Company’s stock options was equal to or greater than the market price of the underlying stock on the date of grant. Accordingly, no compensation cost was recognized in the accompanying consolidated statements of income prior to 2006 on stock options granted, since all options granted under

F-11

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

the Company’s stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective January 29, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123R”). This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and supersedes APB No. 25. SFAS No. 123R requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. SFAS No. 123R was adopted using the modified prospective method of application, which requires the Company to recognize compensation cost on a prospective basis. Therefore, prior years’ financial statements have not been restated. Under this method, the Company recorded stock-based compensation expense for awards granted prior to, but not yet vested as of, January 28, 2006 using the fair value amounts determined for pro forma disclosures under SFAS No. 123. For stock-based awards granted after January 28, 2006, the Company recognizes compensation expense based on estimated grant date fair value using the Black-Scholes option-pricing model.

The Company has elected to adopt the shortcut method provided in Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” for determining the initial pool of excess tax benefits available to absorb tax deficiencies related to stock-based compensation subsequent to the adoption of SFAS No. 123R. The shortcut method includes simplified procedures for establishing the beginning balance of the pool of excess tax benefits (the “APIC Tax Pool”) and for determining the subsequent effect on the APIC Tax Pool and the Company’s Consolidated Statements of Cash Flows of the tax effects of share-based compensation awards.

Excess tax benefits related to share-based compensation in 2005 and 2004 are reflected in operating activities. In a change from previous standards, SFAS No. 123R requires that excess tax benefits related to share-based compensation be reflected as financing cash inflows.

Earnings Per Share

The presentation of earnings per share (“EPS”) requires a reconciliation of the numerators and denominators used in basic and diluted EPS calculations. The numerator, net income, is identical in both calculations. The following table presents a reconciliation of the weighted average shares outstanding used in EPS calculations for each of 2006, 2005 and 2004:

	2006				2005				2004
	Shares		EPS		Shares		EPS		Shares		EPS
Basic Calculation		16,430,554	$	2.85		16,204,414	$	1.61		15,918,650	$	1.27
Effect of dilutive shares — Restricted shares		279,401				132,430				63,170
Stock options		131,228				181,424				271,434
Diluted Calculation		16,841,183	$	2.78		16,518,268	$	1.57		16,253,254	$	1.24

F-12

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The following average potential shares of Common Stock were excluded from diluted EPS because their effect would have been antidilutive:

	2006		2005		2004
Restricted shares		9,591		—		—
Stock options		144,642		64,787		72,790

Future Accounting Changes

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”). FIN No. 48 requires applying a “more likely than not” threshold to the recognition and de-recognition of tax positions. The new guidance will become effective for the Company for the first quarter of 2007. The Company has not yet determined the impact of FIN No. 48 on the consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but does not require any new fair value measurements. SFAS No. 157 is effective for years beginning after November 15, 2007. The Company is in the process of evaluating what effect, if any, adoption of SFAS No. 157 may have on the consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to measure many financial instruments and certain other assets and liabilities at fair value on an instrument by instrument basis. SFAS No. 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that select different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for years beginning after November 15, 2007. The Company is in the process of evaluating what effect, if any, adoption of SFAS No. 159 may have on the consolidated financial statements.

2.   CARSON’S ACQUISITION

Effective March 5, 2006, pursuant to the October 29, 2005 purchase agreement with Saks Incorporated (“Saks”), as amended, the Company acquired all of the outstanding securities of two subsidiaries of Saks that were solely related to the business of owning and operating the 142 retail department stores that operated under the names Carson Pirie Scott, Younkers, Herberger’s, Boston Store and Bergner’s. The stores are located in 12 states in the Midwest and upper Great Plains regions.

Under the terms of the purchase agreement, the Company paid $1,040,188 in cash. The Company financed the Carson’s acquisition, payment of related fees and expenses and the payoff of its existing indebtedness through the issuance of 101/4% Senior Notes due 2014 in the aggregate principal amount of $510,000, entry into a $1,000,000 senior secured revolving credit facility led by Bank of America, N.A. (“Bank of America”) as agent, and entry into a $260,000 mortgage loan facility with Bank of America as lender (see Note 10).

Company management believes the acquisition of Carson’s will continue to enable the Company to enhance its product offerings, strengthen its vendor and customer relationships and increase its profitability.

F-13

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Company’s consolidated financial statements for 2006 include Carson’s operations for the period from March 5, 2006 through February 3, 2007. Carson’s operations reflect purchase accounting in accordance with SFAS No. 141, “Business Combinations,” whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. The purchase price and purchase price allocation are reflected in the following table:

Purchase Price
Cash purchase	$	1,040,188
Carson’s severance		514
Professional fees incurred		11,812
Total	$	1,052,514
Purchase Price Allocation
Cash and cash equivalents	$	3,110
Merchandise inventories		455,207
Prepaid expenses and other current assets		33,687
Property, fixtures and equipment		724,844
Deferred income taxes		21,951
Goodwill		24,412
Intangible assets		178,180
Other long-term assets		9,040
Total assets acquired		1,450,431
Accounts payable		(158,860	)
Accrued payroll and benefits		(34,560	)
Other accrued expenses		(79,088	)
Obligations under capital leases		(73,000	)
Other long-term liabilities		(52,409	)
Total liabilities assumed		(397,917	)
Net assets acquired	$	1,052,514

The purchase price allocation is subject to refinement as Company management continues to receive additional information; however, Company management does not believe that the changes, if any, will have a material impact on the Company’s financial position or results of operations.

The Company has filed a section 338(h)(10) election under the Internal Revenue Code (“Section 338”). The Section 338 election essentially enables a buyer to account for a stock purchase as an asset purchase for income tax purposes.

Goodwill in the amount of $24,412 has been recorded in conjunction with the acquisition. The Company expects that substantially all goodwill will be deductible for income tax purposes.

F-14

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Intangible assets are comprised of lease-related interests of $91,580 that relate to below-market-rate leases; trade names and private label brand names totaling $64,000, of which $500 will be subject to a two-year amortization; and customer lists and relationships totaling $22,600. The lease-related interests and customer lists and relationships were assigned weighted-average amortization lives of seventeen years and thirteen years, respectively.

Deferred tax assets of $21,951 have been recorded as part of purchase accounting. This balance primarily represents a reduction in the Company’s pre-acquisition valuation allowances against certain net operating losses acquired as part of the October 2003 acquisition of The Elder-Beerman Stores Corp (“Elder-Beerman”) and the effect of certain tax temporary differences on the purchase price allocation. The valuation allowance reduction was a result of the projected additional net operating loss utilization based on the projected accretive impact from Carson’s on the Company’s long-term pre-tax income.

The Company obtained third-party valuations for certain acquired assets and assumed liabilities.

During 2006, $514 was paid for Carson’s-related severance.

The Company’s corporate headquarters is located in York, Pennsylvania and is comprised of corporate administrative and back-office functions. Merchandising and marketing functions for the combined operations are operated from Carson’s former headquarters in Milwaukee, Wisconsin.

In conjunction with this acquisition, the Company entered into a transition services agreement with Saks pursuant to which Saks provided the Company with various services related to Carson’s, including, among other things, credit operations, procurement, accounting, bank card processing, store planning, construction, facilities maintenance and energy, information technology and human resources activities. These services were provided by Saks for periods ranging from six months to 12 months from the date of the acquisition of Carson’s (subject to extension at the Company’s discretion).

F-15

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The following unaudited pro forma consolidated financial data give effect to the Carson’s acquisition as if it had occurred as of the beginning of the periods presented:

	2006		2005
Net sales	$	3,543,886	$	3,444,719
Other income		94,558		31,113
Costs and expenses:
Costs of merchandise sold		2,251,416		2,149,471
Selling, general and administrative		1,115,313		1,075,791
Depreciation and amortization		110,062		104,925
Amortization of lease-related interests		3,546		3,546
Income from operations		158,107		142,099
Interest expense, net		116,960		106,639
Income before income taxes		41,147		35,460
Income tax provision		12,155		13,548
Net income	$	28,992	$	21,912
Income per share:
Basic	$	1.76	$	1.35
Diluted	$	1.72	$	1.33

The pro forma information for 2006 includes the following non-recurring charges: $15,569 of integration costs recorded in selling, general and administrative expense, which includes severance and relocation expense related to the transition of the Company’s merchandising and marketing staff to Milwaukee, Wisconsin in the amount of $5,943; $2,319 of charges in interest expense related to the write-off of deferred financing fees associated with the Company’s previous revolving credit agreement; and $4,500 included in interest expense related to the write-off of commitment fees associated with a bridge loan in connection with the Carson’s acquisition.

The pro forma information does not purport to be indicative of the results that actually would have been achieved if the operations were combined during the periods presented and is not intended to be a projection of future results or trends.

3.   SALE OF THE PROPRIETARY CREDIT CARD PORTFOLIO

On July 8, 2005, pursuant to the terms of the June 20, 2005 Purchase and Sale Agreement between the Company and HSBC, the Company sold substantially all of its private label credit card accounts and the related accounts receivable to HSBC for cash consideration of $313,635. The Company received total cash of $315,445 at closing, with $296,664 allocated to the sale of credit card accounts and related accounts receivable, $16,971 allocated as deferred program revenue and $1,810 representing proceeds from the sale of related assets. The allocation between the sale of accounts receivable and the deferred program revenue was based on the relative fair values as determined by an independent valuation. A portion of the proceeds from the sale ($230,238) were used to pay all principal and accrued interest due note-holders under the Company’s accounts receivable securitization program plus any other payments in respect of the termination of that

F-16

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

program. The remaining proceeds of $85,207 from the sale were used to reduce outstanding borrowings under the Company’s revolving credit facility. Concurrently, the Company’s obligation to sell its accounts receivable to the securitization trust was terminated.

Selling, general and administrative expense for 2005 includes a net loss of $596 associated with the sale of the proprietary credit card portfolio. Proceeds allocated to deferred program revenue, net of certain related costs, of $16,895 were recorded as deferred revenue and will be amortized over a seven-year term. Deferred revenue amortization income of $2,460 and $1,346 was recognized within selling, general and administrative expense in 2006 and 2005, respectively. At February 3, 2007 and January 28, 2006, deferred program revenue of $2,414 was reported within accrued expenses. Deferred program revenue of $10,675 and $13,135 was reported within other long-term liabilities at February 3, 2007 and January 28, 2006, respectively.

In connection with the sale, the Company entered into two additional agreements with HSBC: an Interim Servicing Agreement (the “ISA”) and a Credit Card Program Agreement (the “CCPA”). Under the terms of the ISA, the Company continued to service the credit card receivables from July 8, 2005 through October 31, 2005. HSBC compensated the Company for providing these services during the interim servicing period. The CCPA sets forth the terms and conditions under which HSBC will issue credit cards to the Company’s customers. The Company will be paid a percentage of Net Credit Sales, as defined in the CCPA, for future credit card sales. Under the terms of the CCPA, the Company is required to perform certain duties, including receiving and remitting in-store customer payments on behalf of HSBC for which the Company will receive a fee. The CCPA has a term of seven years and is cancelable earlier by either party under certain circumstances. Under these agreements, the percentage of Net Credit Sales proceeds were recognized within other income in 2006 and the fourth quarter of 2005 and within selling, general and administrative expense in the second and third quarters of 2005. Proceeds received under these agreements as reimbursement of expenses incurred to perform the certain duties and servicing of the credit card receivables were recognized within selling, general and administrative expense. Prior to the sale of credit to HSBC, all proceeds of the credit operations were reflected within selling, general and administrative expense.

4.   PROPERTY, FIXTURES AND EQUIPMENT

Property, fixtures and equipment and related accumulated depreciation and amortization consisted of:

	February 3,			January 28,
	2007			2006
Land and improvements	$	120,521		$	2,801
Buildings and leasehold improvements		580,579			199,885
Furniture and equipment		440,383			181,402
Buildings and equipment under capital leases		67,563			331
		1,209,046			384,419
Less: Accumulated depreciation and amortization		(311,160	)		(216,740	)
Net property, fixtures and equipment	$	897,886		$	167,679

Property, fixtures and equipment with a net book value of $393,361 and $25,592 were pledged as collateral for secured loans (see Note 10) at February 3, 2007 and January 28, 2006, respectively.

F-17

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Accumulated depreciation and amortization includes $3,948 and $265 at February 3, 2007 and January 28, 2006, respectively, related to buildings and equipment under capital leases. Amortization of buildings and equipment under capital leases is included within depreciation and amortization expense.

Depreciation expense related to property, fixtures and equipment of $102,204, $26,940 and $27,117 was included in depreciation and amortization expense for 2006, 2005 and 2004, respectively.

5.   GOODWILL AND INTANGIBLES

Goodwill and intangible assets consist of the following:

	February 3,			January 28,
	2007			2006
Goodwill	$	27,377		$	2,965
Intangible assets subject to amortization
Gross amount:
Lease-related interests	$	102,174		$	10,594
Customer lists and relationships		22,600			—
Private label brand names		500			—
Total gross amount		125,274			10,594
Accumulated amortization:
Lease-related interests		(11,102	)		(5,776	)
Customer lists and relationships		(848	)		—
Private label brand names		(137	)		—
Total accumulated amortization		(12,087	)		(5,776	)
Net intangible assets subject to amortization	$	113,187		$	4,818
Intangible assets not subject to amortization
Trade names	$	50,700		$	—
Private label brand names		12,800			—
Other intangibles		13			195
Total intangible assets not subject to amortization	$	63,513		$	195
Net intangible assets	$	176,700		$	5,013

The increase in goodwill, the gross amount of intangible assets subject to amortization, and trade names and private label brand names not subject to amortization are a result of the Carson’s acquisition (see Note 2). An other intangible not subject to amortization of $182 was sold during 2006 at a loss of $112, which was reflected within selling, general and administrative expense.

F-18

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Lease-related interests reflect below-market-rate leases purchased in store acquisitions completed in 1992 through 2006, which were adjusted to reflect fair market value. The lease-related interests, including the unfavorable lease-related interests included in other long-term liabilities (see Note 6), are being amortized on a straight-line method and reported as “amortization of lease-related interests” in the Consolidated Statements of Income. At February 3, 2007, these lease-related interests have weighted-average remaining lives of fifteen years for amortization purposes.

Customer lists and relationships are being amortized on a declining-balance method over the remaining lives of twelve years, and the private label brand names are being amortized on a straight-line method over the remaining lives of two years.

The amortization from the customer lists and relationships and private label brand names is included within depreciation and amortization expense.

Amortization of $985, $305 and $161 was recorded on customer lists and relationships and private label brand names during 2006, 2005 and 2004, respectively. Amortization of $3,720, $839 and $531 was recorded for favorable and unfavorable lease-related interests during 2006, 2005 and 2004, respectively. The Company anticipates amortization on customer lists and relationships and private label brand names of approximately $2,946 in 2007, $2,725 in 2008, $2,362 in 2009, $2,165 in 2010 and $1,998 in 2011. The Company anticipates amortization for favorable and unfavorable lease-related interests of approximately $4,917 in 2007, $4,949 in 2008, $4,949 in 2009, $4,750 in 2010 and $4,937 in 2011.

6.   SUPPLEMENTAL BALANCE SHEET INFORMATION

Prepaid expenses and other current assets were comprised of the following:

	February 3,		January 28,
	2007		2006
Landlord receivables	$	15,000	$	—
Prepaid expenses		29,527		11,955
Other		40,204		16,457
Total	$	84,731	$	28,412

Accrued expenses were comprised of the following:

	February 3,		January 28,
	2007		2006
Customer liabilities	$	42,966	$	14,457
Taxes		39,959		8,522
Other		95,717		29,713
Total	$	178,642	$	52,692

F-19

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Other long-term liabilities were comprised of the following:

	February 3,		January 28,
	2007		2006
Real estate lease related	$	25,490	$	18,610
Unfavorable lease-related interests		12,974		—
Deferred revenue		12,190		14,933
Other		35,729		6,417
Total	$	86,383	$	39,960

7.   INTEGRATION ACTIVITIES

In connection with the acquisition of Carson’s, the Company developed integration plans which included the transfer of Bon-Ton’s existing merchandising and marketing functions to Carson’s former headquarters in Milwaukee, Wisconsin. This plan resulted in involuntary associate termination charges of $4,760. These charges are reflected within selling, general and administrative expense. Payments in the amount of $4,427 were made during 2006. The Company expects to pay the balance of the involuntary termination costs by the second quarter of 2007.

In connection with the Elder-Beerman acquisition, the Company developed integration plans resulting in involuntary terminations, employee relocations, and lease and other contract terminations. Involuntary termination benefits and relocation expenses were fully paid as of January 28, 2006. The liability for terminated leases will be paid over the remaining contract periods ending in 2030, while the other contract terminations were fully paid as of January 29, 2005.

Liabilities recognized in connection with the acquisition and integration activities are as follows:

	Termination			Employee			Other Contract
	Benefits			Relocation			Termination			Total
Balance at January 31, 2004	$	4,470		$	1,611		$	3,053		$	9,134
Purchase accounting adjustments		(698	)		290			—			(408	)
Payments during 2004		(3,352	)		(1,513	)		(1,895	)		(6,760	)
Balance at January 29, 2005		420			388			1,158			1,966
Payments during 2005		(420	)		(264	)		(83	)		(767	)
Other adjustments		—			(124	)		—			(124	)
Balance at January 28, 2006		—			—			1,075			1,075
Charges during 2006		4,760			—			—			4,760
Payments during 2006		(4,427	)		—			(88	)		(4,515	)
Balance at February 3, 2007	$	333		$	—		$	987		$	1,320

Other adjustments represent refinements to anticipated liabilities established under provisions of Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection With a Purchase Business Combination,” and resulted in reductions in certain opening balance sheet assets in the Elder-Beerman acquisition that were recorded as part of purchase accounting.

F-20

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

8.   EXIT OR DISPOSAL ACTIVITIES

In conjunction with the Carson’s acquisition, the Company entered into a transition services agreement (“TSA”) with Saks pursuant to which Saks provided the Company with various services related to Carson’s (see Note 2). In the third quarter of 2006, the Company determined that, for the accounting and procurement services portion of the TSA, a benefit would no longer be received and the payments related to those services for the remaining term of the TSA should be accrued. Accordingly, the Company recorded a charge within selling, general and administrative expense of $1,155 during 2006, of which $924 was paid in 2006. The Company expects to pay the balance of $231 in the first quarter of 2007.

On January 9, 2007, the Company announced that it would close its distribution center located in Ankeny, Iowa in April 2007. In connection with the closing of this distribution center, the Company developed plans resulting in involuntary terminations with a total expected cost of $700. During 2006, the Company recognized $233 of the total expected costs, which was included within selling, general and administrative expense. The Company expects to record the remaining costs of $467 during the first quarter of 2007. The Company expects to pay the associate termination payments during the first quarter of 2007. The Company intends to assign the distribution center lease and anticipates that the income from such assignment will approximate the remaining rent obligation.

On December 28, 2006, the Company announced that it would close its Younkers store located in the Town Square Shopping Center in downtown Sioux City, Iowa in February 2007. In connection with the closing of this store, the Company developed plans resulting in involuntary terminations and other closing costs of $92 and $39, respectively. During 2006, the Company recognized $46 of the total expected costs, which was included within selling, general and administrative expense. The Company expects to record the remaining involuntary termination costs and other expected costs of $46 and $39, respectively, during the first quarter of 2007. The Company expects to pay the associate termination payments during the first quarter of 2007.

On August 25, 2006, the Company announced that it would close its Carson Pirie Scott store at One South State Street in Chicago, Illinois by March 2007. In connection with the closing of this store, the Company developed plans resulting in involuntary associate terminations and other closing costs of $2,838 and $560, respectively. During 2006, the Company recognized $2,436 of the total expected associate termination costs and $273 of other costs, which was included within selling, general and administrative expense. The Company expects to record the remaining associate termination costs and closing costs of $402 and $287, respectively, during the first quarter of 2007. The Company expects to pay the majority of the associate termination payments in the first quarter of 2007 with the balance to be paid by the third quarter of 2007.

On January 28, 2006, the Company closed its Great Northern and Shoppingtown stores in the Syracuse, New York area, its Walden Galleria store in Buffalo, New York and its Lebanon, Pennsylvania store. In connection with the closing of the four stores, the Company developed plans resulting in involuntary associate terminations and other closing costs of $274 and $461, respectively. In addition, the Company incurred a lease termination fee of $1,462, to be paid through February 1, 2008, related to the Walden Galleria store closing. These charges are reflected within selling, general and administrative expense.

In 2005, in connection with the sale of its credit card accounts, the Company developed plans resulting in involuntary associate terminations, contract termination and other costs, and incurred charges of $519, $200 and $10, respectively. These charges are included within selling, general and administrative expense. The Company recorded expense of $6 related to the associate terminations

F-21

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

in 2006. The liability for the contract termination will be paid over the remaining contract period through May 2007.

In July 2004, the Company closed its Pottstown, Pennsylvania store. Charges related to this store closure of $1,756, reflected within selling, general and administrative expense, were recorded during 2004. The Company incurred a fee of $1,600 related to the termination of the lease. The remaining costs related to severance and logistics.

In October 2002, the Company announced it would discontinue its York, Pennsylvania distribution operations in April 2003 and that all merchandise processing functions would be consolidated into the Company’s existing Allentown, Pennsylvania distribution center. In addition, the Company announced it would close its Red Bank, New Jersey store in January 2003. The activities were completed as scheduled. The Company recorded a net expense reduction of $4 in 2004 relating to the closures. These expenses related primarily to termination benefits for affected associates and other costs to consolidate the distribution centers. All reduction of expenses and charges were included within selling, general and administrative expense. During 2006, the Company sold its remaining lease interest in the distribution center. A gain of $275 was recorded as a result of this transaction.

Following is a reconciliation of accruals related to the Company’s closing activities:

	2006			2005			2004
Beginning balance	$	1,240		$	—		$	—
Provisions:
Lease termination fee		—			1,462			1,600
Contract termination		—			200			—
Associate termination benefits		2,721			793			29
Other closing costs		1,428			471			127
Total		4,149			2,926			1,756
Payments:
Lease termination fee		(439	)		(680	)		(1,600	)
Contract termination		(136	)		(32	)		—
Associate termination benefits		(233	)		(503	)		(29	)
Other closing costs		(1,197	)		(471	)		(127	)
Total		(2,005	)		(1,686	)		(1,756	)
Balance at year-end	$	3,384		$	1,240		$	—

9.   EMPLOYEE BENEFIT PLANS

The Company provides eligible employees with retirement benefits under a 401(k) salary reduction and retirement contribution plan (the “401(k) Plan”). Employees are eligible to receive a company contribution in the 401(k) Plan after they reach the age of 18, complete one year of service, are employed the last day of the plan year and work at least 1,000 hours in any calendar year. Under the 401(k) Plan provisions, the majority of eligible employees are permitted to contribute up to 50% of their compensation to the 401(k) Plan. Employees are permitted to begin non-matching contributions to the 401(k) Plan after three months of service in a benefit status position. Employees are

F-22

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

automatically enrolled to contribute 3% of pay unless the employee actively modifies or declines the election. Company matching contributions, not to exceed 6% of eligible employees’ compensation, are at the discretion of the Company’s Board of Directors. Company matching contributions under the 401(k) Plan become fully vested for eligible employees after three years of service. Contributions to the 401(k) Plan under the retirement contribution provisions are at the discretion of the Company’s Board of Directors. These retirement contributions become fully vested after five years of service.

Effective with the Carson’s acquisition (see Note 2), employees of Carson’s who met the eligibility requirements described above were immediately eligible to participate in the 401(k) Plan. Vesting credits under Saks’ plan earned prior to the acquisition were carried over to the 401(k) Plan. Loans and rollovers were also permitted. The Company’s matching contribution for Carson’s employees for 2006 was based on employee contributions to the 401(k) Plan and salary earned commencing March 5, 2006.

Elder-Beerman provided eligible employees with a defined contribution employee benefit plan (the “Elder-Beerman Plan”). Comparable plans in design, eligibility and company contribution were operated by the Company and Elder-Beerman during 2004. On January 1, 2005, the assets of the Company’s 401(k) Plan and the Elder-Beerman Plan were combined into a single plan. The Company’s 2006, 2005 and 2004 expense under both the 401(k) Plan and the Elder-Beerman Plan was $10,382, $3,995 and $4,525, respectively.

The Company provides a supplementary pension plan to certain key executives. Employees become 100% vested in the plan benefits after achieving a specific age as defined in each employee’s agreement. The benefits from this unfunded plan are paid upon retirement, providing the employee is age 60.

In addition, as a result of the acquisition of Elder-Beerman, the Company assumed a liability for a supplementary pension plan that covers one current and eleven former employees. The benefits from this unfunded plan are paid upon retirement, provided that the participant is age 65. All participants in this plan are fully vested.

As part of the Carson’s acquisition, the Company acquired a defined benefit pension plan and unfunded supplemental pension plans. In connection with the acquisition, all future benefit accruals in the defined benefit plan were frozen, the effect of which was treated as a purchase accounting adjustment. The defined benefit pension plan is also closed to new participants.

The Company also acquired a postretirement benefit plan as part of the Carson’s acquisition. The unfunded postretirement plan provides medical and life insurance benefits. The medical portion of the plan is contributory, and contains cost-sharing features such as deductibles and co-insurance. The life insurance benefits of this plan are noncontributory.

Effective February 3, 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires employers to recognize the funded status of defined benefit pension and other postretirement benefit plans on the balance sheet and to recognize, in other comprehensive income (loss), changes in the funded status that arise during the period but have not been recognized as a component of net periodic cost. SFAS No. 158 revises the disclosures required about pension and other postretirement plans. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end balance sheet. The Company has historically measured plan assets and benefit obligations as of its balance sheet date.

F-23

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Benefit obligations, fair value of plan assets and funded status of the plans are as follows:

							Medical and
							Life Insurance
	Pension Benefits						Benefits
	2006			2005			2006
Change in benefit obligation:
Benefit obligation at beginning of year	$	4,065		$	4,005		$	—
Carson’s acquisition		223,289			—			7,703
Service cost		125			91			—
Interest cost		11,329			213			378
Benefits paid		(17,380	)		(227	)		(719	)
Plan amendments		18			—			—
Actuarial loss (gain)		1,707			(17	)		237
Benefit obligation at end of year	$	223,153		$	4,065		$	7,599
Change in the fair value of plan assets:
Plan assets at beginning of year	$	—		$	—		$	—
Carson’s acquisition		200,679			—			—
Actual return on plan assets		18,272			—			—
Company contributions		2,582			227			719
Benefits paid		(17,380	)		(227	)		(719	)
Plan assets at end of year	$	204,153		$	—		$	—
Funded status	$	(19,000	)	$	(4,065	)	$	(7,599	)

Amounts recognized in the Consolidated Balance Sheets consist of:

							Medical and
							Life Insurance
	Pension Benefits						Benefits
	2006			2005			2006
Accrued expenses	$	(964	)	$	(273	)	$	(913	)
Other long-term liabilities		(18,036	)		(3,792	)		(6,686	)
Net amount recognized	$	(19,000	)	$	(4,065	)	$	(7,599	)

F-24

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Amounts recognized in accumulated other comprehensive (income) loss consist of:

						Medical and
						Life Insurance
	Pension Benefits					Benefits
	2006			2005		2006
Net prior service cost	$	18		$	—	$	—
Net actuarial (gain) loss		(3,489	)		—		237
Gross amount recognized		(3,471	)		—		237
Deferred tax expense (benefit)		1,289			—		(88	)
Net amount recognized	$	(2,182	)	$	—	$	149

The accumulated benefit obligation for all of the defined benefit and supplemental pension plans was $221,394 and $4,065 at February 3, 2007 and January 28, 2006, respectively. The accumulated benefit obligation for each of the pension plans exceeded its assets at February 3, 2007 and January 28, 2006.

The incremental effect of applying SFAS No. 158 on individual line items in the Consolidated Balance Sheet at February 3, 2007 is as follows:

	Before						After
	Application of						Application of
	SFAS No. 158			Adjustments			SFAS No. 158
Accrued expenses	$	(1,877	)	$	—		$	(1,877	)
Other long-term liabilities		(28,454	)		3,732			(24,722	)
Accumulated other comprehensive (income) loss		313			(2,346	)		(2,033	)
Deferred long-term income taxes		185			(1,386	)		(1,201	)

F-25

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Components of net periodic benefit (income) expense and other amounts recognized in other comprehensive (income) loss before income taxes are as follows:

										Medical and
										Life Insurance
	Pension Benefits									Benefits
	2006			2005			2004			2006
Net periodic benefit (income) expense:
Service cost	$	125		$	91		$	66		$	—
Interest cost		11,329			213			211			378
Expected return on plan assets		(13,074	)		—			—			—
Recognized gain		—			(17	)		(433	)		—
Net periodic benefit (income) expense	$	(1,620	)	$	287		$	(156	)	$	378
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss, before taxes:
Prior service cost	$	18		$	—		$	—		$	—
Actuarial net loss		480			—			—			—
Total recognized in other comprehensive (income) loss, before taxes	$	498		$	—		$	—		$	—
Total recognized in net periodic cost and other comprehensive (income) loss, before taxes	$	(1,122	)	$	287		$	(156	)	$	378

The Company estimates the following amounts will be amortized from accumulated other comprehensive (income) loss to net periodic cost during 2007:

			Medical and
	Pension		Life Insurance
	Benefits		Benefits
Net prior service cost	$	4	$	—
Net actuarial loss		316		—

Weighted average assumptions used to determine benefit obligations are as follows:

							Medical and
							Life Insurance
	Pension Benefits						Benefits
	2006			2005			2006
Discount rate		5.75	%		5.50	%		5.75	%
Rate of compensation increase		3.00	%		N/A			N/A

For measurement of the other benefits plan, the Company assumed a 10% annual rate of increase in the per capita cost of covered health care benefits for 2007, grading down to 5.50% by 2012.

F-26

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Weighted average assumptions used to determine net periodic benefit expense (income) are as follows:

									Medical and
									Life Insurance
	Pension Benefits								Benefits
	2006		2005			2004			2006
Discount rate		5.75%		5.50	%		5.50	%		5.75	%
Expected long-term return on plan assets		7.50%		N/A			N/A			N/A
Rate of compensation increase		3.00%		N/A			N/A			N/A

The Company’s discount rate assumption is evaluated annually. As a result of the Carson’s acquisition, the Company reevaluated the method for determining the discount rate. For the year ended February 3, 2007, the Company utilized the Citibank Pension Discount Curve (“CPDC”). The CPDC is developed by beginning with a U.S. Treasury par curve that reflects the Treasury Coupon and Strips market. Option-adjusted spreads drawn from the double-A corporate bond sector are layered in to develop a double-A corporate par curve, from which the CPDC spot rates are developed. The CPDC spot rates are applied to expected benefit payments, from which a single constant discount rate can then be developed. The Company believes that utilizing the CPDC to develop the discount rate is preferable because the developed discount rate is based on the expected timing of benefit payments. For the years ended January 28, 2006 and January 29, 2005, the discount rate was based on the Moody’s long-term AA corporate bond rate.

The Company bases its asset return assumption on current and expected allocations of assets, as well as a long-term view of expected returns on the plan asset categories. The Company assesses the appropriateness of the expected rate of return on an annual basis and, when necessary, revises the assumption.

In 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) became law. Among other things, the Act introduced a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company is currently evaluating whether the postretirement benefit plan drug benefit is at least actuarially equivalent to Medicare Part D. Consequently, the postretirement benefit obligation and net periodic postretirement benefit expense do not reflect any amount associated with the subsidy.

Assumed health care cost trend rate can have a significant effect on the amounts reported for the postretirement health care plan. A one-percentage point change in assumed health care costs would have the following effects:

	One		One
	Percentage		Percentage
	Point		Point
	Increase		Decrease
Effect on total service and interest cost components	$	26	$	(23	)
Effect on postretirement benefit obligation		520		(471	)

F-27

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The weighted average pension plan asset allocation is as follows:

	2006			2005
Equity securities		65	%		—
Fixed income		29	%		—
Real estate		6	%		—

The Company’s target pension plan asset allocation of equity securities, fixed income and real estate at February 3, 2007 was 65%, 30% and 5%, respectively. Investment objectives for the pension plan assets include:

•  Providing a long-term return on plan assets that provides sufficient assets to fund pension plan liabilities at an acceptable level of risk.

•  Maximizing the long-term return on plan assets by investing primarily in equity securities. The inclusion of additional asset classes with differing rates of return, volatility and correlation are utilized to reduce risk by providing diversification relative to equity securities.

•  Diversifying investments within asset classes to reduce the impact of losses in a single investment.

The pension plan assets are invested in compliance with the Employee Retirement Income Security Act as amended, and any subsequent regulations and laws. The Company does not permit direct purchases of its securities or the use of derivatives for the purpose of speculation.

Information about the expected cash flows related to the pension and other postretirement benefit plans is as follows:

			Medical and
	Pension		Life Insurance
	Benefits		Benefits
Expected Company contributions in 2007	$	964	$	913
Expected plan benefit payments for year:
2007	$	23,138	$	913
2008		19,679		910
2009		19,193		897
2010		17,246		873
2011		16,246		838
2012-2016		78,405		3,409

F-28

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

10.   LONG-TERM DEBT

Long-term debt consisted of the following:

	February 3,			January 28,
	2007			2006
New senior secured credit facility — expires March 6, 2011; interest payable periodically at varying rates (7.16% weighted average for 2006)	$	342,300		$	—
Senior notes — mature on March 15, 2014; interest payable each March 15 and September 15 at 10.25%		510,000			—
New mortgage loan facility — principal payable in varying monthly installments, with balance due March 6, 2016; interest payable monthly at 6.21%; secured by land and buildings		256,568			—
Revolving credit facility — terminated March 6, 2006; interest paid periodically at varying rates (4.91% weighted average for 2005)		—			25,550
Mortgage notes payable — principal payable in varying monthly installments through June 2016; interest payable monthly at 9.62%; secured by land and buildings		15,856			16,902
Mortgage note payable — principal payable January 1, 2011; interest payable monthly at 5.00%; secured by a building and fixtures		1,000			1,000
Total debt	$	1,125,724			43,452
Less: current maturities		(5,555	)		(961	)
Long-term debt	$	1,120,169		$	42,491

On March 6, 2006, The Bon-Ton Department Stores, Inc., a wholly owned subsidiary of The Bon-Ton Stores, Inc., and certain of its subsidiaries, Bank of America and certain other lenders entered into a Loan and Security Agreement (“New Senior Secured Credit Facility”) which provides for up to $1,000,000 of revolver borrowings. The New Senior Secured Credit Facility includes a last-in, first-out revolving credit facility of up to $900,000 and a first-in, last-out revolving credit facility of up to $100,000 and has a sub-limit of $150,000 for the issuance of standby and documentary letters of credit. All borrowings under the New Senior Secured Credit Facility are limited by amounts available pursuant to a borrowing base calculation, which is based on percentages of eligible inventory, real estate and fixed assets, with a reduction for applicable reserves. The New Senior Secured Credit Facility is guaranteed by The Bon-Ton Stores, Inc. and certain of its subsidiaries. The New Senior Secured Credit Facility is secured by substantially all of the assets of the Company, except for certain mortgaged real property. As part of the New Senior Secured Credit Facility, Bank of America and the other lenders will make available certain swing line loans in an aggregate amount not to exceed $75,000 outstanding at any one time. Borrowings under the New Senior Secured Credit Facility bear interest at either (i) the prime rate established by Bank of America, from time to time, plus the applicable margin (the “Prime Rate”) or (ii) the LIBOR rate from time to time, plus the applicable margin. The applicable margin will be determined based upon the excess availability under the New Senior Secured Credit Facility. The swing line loans bear interest at the same rate applicable to last in, first out Prime Rate loans. The Company is required to pay a commitment fee to the lenders for unused commitments at a rate of 0.25% to 0.30% per annum, based upon the unused portion of the total commitment under the New Senior Secured Credit Facility. The New Senior Secured Credit

F-29

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Facility expires March 6, 2011. Financial covenants contained in the New Senior Secured Credit Facility require that the minimum excess availability be greater than $75,000 at all times. In addition, there are certain restrictions against the incurrence of additional indebtedness, pledge or sale of assets, payment of dividends and distributions, and other similar restrictions. Dividends paid by the Company may not exceed $15,000 over the life of the agreement, or $4,000 in any single year. Capital expenditures are limited to $125,000 per year, with a one-year carryover of any prior year unused amount. The available borrowing capacity under the New Senior Secured Credit Facility will be used in the future for general corporate purposes. As of February 3, 2007, the Company had borrowings of $342,300, with $341,335 of borrowing availability (before taking into account the minimum borrowing availability covenant of $75,000) and letter-of-credit commitments of $47,855.

On March 6, 2006, The Bon-Ton Department Stores, Inc. entered into an indenture (the “Indenture”) with The Bank of New York, as trustee, under which The Bon-Ton Department Stores, Inc. issued $510,000 aggregate principal amount of its 101/4% Senior Notes due 2014 (the “Notes”). The Notes are guaranteed on a senior unsecured basis by The Bon-Ton Stores, Inc. and by each of its subsidiaries that is an obligor under the New Senior Secured Credit Facility. The Notes mature on March 15, 2014. The Notes may not be redeemed prior to March 15, 2010, except that the Company may redeem up to 35% of the Notes prior to March 15, 2009 through the proceeds of an equity offering. The interest rate of the Notes is fixed at 101/4% per year. Interest on the Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2006. The Indenture includes covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional debt, pay dividends and make distributions, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions, and sell certain assets or merge with or into other companies.

On March 6, 2006, certain bankruptcy remote special purpose entities (each an “SPE” and, collectively, the “SPEs”) that are indirect wholly owned subsidiaries of The Bon-Ton Stores, Inc. entered into loan agreements with Bank of America, pursuant to which Bank of America provided a new mortgage loan facility in the aggregate principal amount of $260,000 (the “New Mortgage Loan Facility”). The New Mortgage Loan Facility has a term of ten years and is secured by mortgages on twenty-three retail stores and one distribution center owned by the SPEs. Each SPE entered into a lease with each of The Bon-Ton Stores, Inc. subsidiaries operating on such SPE’s properties. A portion of the rental income received under these leases will be used to pay the debt service under the New Mortgage Loan Facility. The New Mortgage Loan Facility requires level monthly payments of principal and interest based on an amortization period of twenty-five years and the balance outstanding at the end of ten years will then become due and payable. The interest rate for the New Mortgage Loan Facility is a fixed rate of 6.2125%. Financial covenants contained in the New Mortgage Loan Facility require that the SPEs maintain certain financial thresholds, as defined in the agreements.

The Company used the net proceeds of the Notes offering and the New Mortgage Loan Facility, along with initial borrowings under its New Senior Secured Credit Facility, to finance the acquisition of Carson’s, pay related fees and expenses in connection with the acquisition and related financing transactions, and pay the outstanding balance under the Company’s previous revolving credit agreement.

Prior to March 6, 2006, the Company’s amended and restated revolving credit facility agreement (the “Credit Agreement”) provided a revolving line of credit of $300,000. Borrowing availability under the Credit Agreement was calculated based on eligible inventories, fixed assets and real estate, which were pledged as collateral. The revolving credit line interest rate, based on LIBOR or an index rate plus an applicable margin, and fee charges were determined by a formula based upon the Company’s borrowing availability. Under the Credit Agreement, the Company incurred fees at a

F-30

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

rate of 0.250 to 0.375 percentage point on the unused line of credit. As of January 28, 2006, the Company had borrowings of $25,550 and letter-of-credit commitments of $14,341, with $173,789 of borrowing availability (which was subject to the minimum borrowing availability covenant of $10,000). On March 6, 2006, the Credit Agreement was terminated and replaced with the Senior Secured Credit Facility in connection with the acquisition of Carson’s (see Note 2).

On May 17, 1996, the Company entered into a $23,400, twenty-year mortgage agreement secured by its four stores in Rochester, New York.

The Company entered into a loan agreement with the City of Scranton, Pennsylvania on July 5, 2000; the loan is secured by the Company’s store located in Scranton. The loan provided $1,000 to be used for certain store renovations. The loan agreement provides for interest payments, which began February 1, 2006 at a rate of 5.0% per annum. The principal balance is to be paid in full by January 1, 2011.

The Company was in compliance with all loan agreement restrictions and covenants during 2006.

The fair value of the Company’s debt, excluding interest rate swaps, was estimated at $1,149,957 and $45,192 at February 3, 2007 and January 28, 2006, respectively, and is based on an estimate of rates available to the Company for debt with similar features.

Debt maturities by year at February 3, 2007, are as follows:

2007	$	5,555
2008		5,915
2009		6,394
2010		7,864
2011		349,670
2012 and thereafter		750,326
	$	1,125,724

11.   INTEREST RATE DERIVATIVES

In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” the Company recognizes all derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, the Company generally designates the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). Changes in the fair value of a derivative that is designated as, and meets all required criteria for, a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. The portion of the change in fair value of a derivative associated with hedge ineffectiveness or the component of a derivative instrument excluded from the assessment of hedge effectiveness is recorded in current earnings. Also, changes in the entire fair value of a derivative that is not designated as a hedge are recorded in earnings. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes relating all derivatives that are designated as cash flow hedges to specific balance sheet liabilities.

F-31

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the respective derivative. In addition, if the forecasted transaction is no longer likely to occur, any amounts in accumulated other comprehensive income (loss) related to the derivative are recorded in the statement of income for the current period.

It is the policy of the Company to identify on a continuing basis the need for debt capital and evaluate financial risks inherent in funding the Company with debt capital. Reflecting the result of this ongoing review, the debt portfolio and hedging program of the Company is managed to (1) reduce funding risk with respect to borrowings made or to be made by the Company to preserve the Company’s access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) reduce the aggregate interest rate risk of the debt portfolio in accordance with certain debt management parameters. The Company enters into interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio in order to maintain the percentage of fixed-rate and variable-rate debt within parameters set by management. In accordance with these parameters, swap agreements are used to reduce interest rate risks and costs inherent in the Company’s debt portfolio. At February 3, 2007 and January 28, 2006, the Company had interest rate swap contracts outstanding to effectively convert a portion of its variable-rate debt to fixed-rate debt. These contracts entailed the exchange of fixed-rate and floating-rate interest payments periodically over the agreement life. The following table indicates the notional amounts as of February 3, 2007 and January 28, 2006 and the range of interest rates paid and received by the Company during the years ended on those respective dates:

	February 3,		January 28,
	2007		2006
Fixed swaps (notional amount)	$	100,000	$	30,000
Range of receive rate		5.36%-5.50%		2.20%-4.29%
Range of pay rate		5.48%-5.49%		5.43%

The two $50,000 interest rate swaps held at February 3, 2007 were entered into on July 14, 2006 and expire on July 14, 2011. The $30,000 interest rate swap held at January 28, 2006 expired February 6, 2006. The net income or expense from the exchange of interest rate payments associated with these swaps is included in interest expense. The estimated fair value of the interest rate swap agreements, based on dealer quotes, at February 3, 2007 and January 28, 2006, was an unrealized loss of $1,444 and $9, respectively, and represents the amount the Company would pay if the agreements were terminated as of said dates. At February 3, 2007 and January 28, 2006, the Company reflected other long-term liabilities of $1,444 and $9, respectively, to recognize the fair value of its interest rate swaps.

Changes in the fair value of derivatives qualifying as cash flow hedges are reported in accumulated other comprehensive income (loss). Gains and losses are reclassified into earnings as the underlying hedged item affects earnings, such as when quarterly settlements are made on the hedged forecasted transaction.

At February 3, 2007, it is expected that approximately $191 of net-of-tax losses in accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months. As of February 3, 2007, the maximum time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 53 months.

F-32

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

12.   INTEREST COSTS

Interest costs for the Company are as follows:

	2006			2005			2004
Interest costs incurred	$	107,538		$	12,262		$	13,539
Interest income		(324	)		(122	)		(95	)
Capitalized interest, net		(71	)		(88	)		(7	)
Interest expense, net	$	107,143		$	12,052		$	13,437
Interest paid	$	80,230		$	11,853		$	12,506

13.   SECURITIZATION OF RECEIVABLES

Prior to the termination of the receivables securitization program on July 8, 2005, the Company securitized its proprietary credit card portfolio through an accounts receivable facility (the “Facility”). Under the Facility agreement, which was contingent upon receivables meeting certain performance criteria, the Company sold through The Bon-Ton Receivables Partnership, LP, a wholly owned subsidiary of the Company and qualifying special purpose entity under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” up to $250,000 of an undivided percentage interest in the receivables on a limited recourse basis. In connection with the Facility agreement, the Company retained servicing responsibilities, subordinated interests and an interest-only strip, all of which were retained interests in the securitized receivables.

During 2005 and 2004, the Company recognized securitization income of $2,680 and $9,146, respectively. This income was reported as a component of selling, general and administrative expense.

The Company recognized servicing fees, which it reported as a component of selling, general and administrative expense, of $1,989 and $4,415 for 2005 and 2004, respectively. Net credit losses on the total managed credit card receivables were $6,253 and $13,480 for 2005 and 2004, respectively.

14.   COMMITMENTS AND CONTINGENCIES

Leases

The Company is obligated under operating leases for a significant portion of its store properties. Certain leases provide for additional rental payments based on a percentage of sales in excess of a specified base (contingent rentals) and for payment by the Company of operating costs (taxes, maintenance and insurance), both of which vary by lease.

F-33

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

At February 3, 2007, future minimum lease payments for the fixed, noncancelable terms of operating leases and the present value of net minimum lease payments under capital leases are as follows:

Year	Capital Leases			Operating Leases
2007	$	7,224		$	89,472
2008		7,375			87,219
2009		7,500			80,855
2010		7,500			71,175
2011		7,500			60,279
2012 and thereafter		89,375			247,367
Total net minimum rentals	$	126,474		$	636,367
Less: Amount representing interest		(55,082	)
Present value of net minimum lease payments, of which $1,936 is due within one year	$	71,392

Minimum rental commitments under operating leases are reflected without reduction for rental income due in future years under noncancelable subleases since income under these subleases is immaterial. Some of the store leases contain renewal options ranging from one to fifty-nine years. Included in the minimum lease payments under operating leases are leased vehicles, copiers, fax machines, computer equipment and a related-party commitment with an entity associated with the Company’s majority shareholder of $224 for years 2007 through 2010 and $112 for 2011.

Rental expense consisted of the following:

	2006		2005		2004
Operating leases:
Buildings:
Rental expense	$	80,532	$	45,243	$	43,491
Contingent rentals		9,794		2,967		3,019
Fixtures and equipment		3,408		2,713		1,252
Contingent rentals on capital leases		—		—		15
Totals	$	93,734	$	50,923	$	47,777

Rental expense includes amounts paid to an entity related to the Company’s majority shareholder of $224 for each of 2006, 2005 and 2004.

Selling space has been licensed to certain other retailers (“leased departments”) in many of the Company’s facilities. Future minimum lease payments and rental expense disclosed above are reflected without a reduction for leased departments license income.

F-34

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Contingencies

In connection with the acquisition of Carson’s, the Company assumed liability for the following matter but only to the extent it applies to the entities acquired from Saks: On October 25, 2005 the Chapter 7 trustee for the bankruptcy estate of Kleinert’s Inc. filed a complaint against Saks and several of its subsidiaries in the United States Bankruptcy Court for the Southern District of New York. In its initial complaint the plaintiff, as assignee, alleged breach of contract, fraud, and unjust enrichment, among other causes of action, and seeks compensatory and punitive damages due to Saks assessment of alleged improper chargebacks against Kleinert’s Inc. totaling approximately $4,000 which wrongful acts the plaintiff alleges caused the insolvency and bankruptcy of Kleinert’s Inc. On August 15, 2006 the plaintiff, as assignee, filed an amended complaint in which it asserts the following claims, among others: (1) defendants applied improper chargebacks to the accounts payable of Kleinert’s, which led to the extreme financial distress and Kleinert’s eventual bankruptcy and Kleinert’s incurred liabilities and lost profits of at least $100,000 and plaintiff requests punitive damages of no less than $50,000 (conversion claim); (2) from 1998-2003 defendants charged back an amount not less than $4,000 to Kleinert’s and these chargebacks improperly benefited the defendants, and plaintiff requests $4,000 on this claim (unjust enrichment claim); (3) defendants falsely represented that its $4,000 in chargebacks were proper and Kleinert’s reliance on defendants’ misrepresentations caused Kleinert’s to lose not less than $4,000 and caused it to file for bankruptcy resulting in liabilities and lost profits of $100,000, and plaintiff requests punitive damages of no less than $50,000 (fraud claim); (4) defendants wrongfully charged back at least $4,000 and these unwarranted chargebacks assisted Kleinert’s officers and directors in booking fictitious sales revenue and accounts receivable and perpetrating a fraud on Kleinert’s lenders in excess of $25,000, and plaintiff requests punitive damages of no less than $50,000 (fraud claim); (5) defendants used dishonest, improper and unfair means in conducting business with Kleinert’s and interfered with Kleinert’s relationship with its lenders (tortious interference with prospective economic advantage claim); (6) defendants assisted officers of Kleinert’s in breaching their fiduciary duties to Kleinert’s and to its creditors by falsifying borrowing base certificates given to the lenders, and defendants knew that their improper chargeback scheme was assisting these breaches of fiduciary duty by Kleinert’s officers, with respect to which plaintiff requests $100,000 plus $50,000 in punitive damages (aiding and abetting breach of fiduciary duty claim); (7) defendants knew that their improper chargeback scheme was assisting the perpetration of fraud by Kleinert’s officers, and plaintiff requests $100,000 plus $50,000 in punitive damages (aiding and abetting fraud claim); and (8) various fraudulent conveyance claims with respect to which plaintiff requests damages of $4,000.

On December 8, 2005 Adamson Apparel, Inc. filed a purported class action lawsuit against Saks in the United States District Court for the Northern District of Alabama. In its complaint the plaintiff asserts breach of contract claims and alleges that Saks improperly assessed chargebacks, timely payment discounts, and deductions for merchandise returns against members of the plaintiff class. The lawsuit seeks compensatory and incidental damages and restitution. Under the terms of the purchase agreement relating to the acquisition of Carson’s from Saks, the Company may have an obligation to indemnify Saks for any damages incurred by Saks under this lawsuit by Adamson Apparel solely to the extent that such damages relate to the business acquired from Saks.

In addition, the Company is party to legal proceedings and claims that arise during the ordinary course of business.

In the opinion of management, the ultimate outcome of any such litigation and claims, including the two matters detailed above, will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

F-35

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

15.   SHAREHOLDERS’ EQUITY

The Company’s capital structure consists of common stock with one vote per share and Class A common stock with ten votes per share. Transfers of the Company’s Class A common stock are restricted. Upon sale or transfer of ownership or voting rights of Class A common stock to other than permitted transferees, such shares will convert to an equal number of common stock shares. Additionally, the Company has authorized 5,000,000 shares of preferred stock; however, no preferred shares have been issued. Treasury stock is accounted for using the cost method.

16.   COMPREHENSIVE INCOME (LOSS)

The accumulated balances for each classification of other comprehensive income (loss) are as follows:

							Accumulated
	Pension and						Other
	Postretirement			Cash Flow			Comprehensive
	Benefit Plans			Hedges			Income (Loss)
Balance at January 31, 2004	$	—		$	(1,298	)	$	(1,298	)
Net current period change		—			818			818
Reclassification adjustments for gains (losses) reclassified into income		—			53			53
Balance at January 29, 2005		—			(427	)		(427	)
Net current period change					422			422
Balance at January 28, 2006		—			(5	)		(5	)
Net current period change		(313	)		(839	)		(1,152	)
Adjustment for the initial application of SFAS No. 158		2,346			—			2,346
Balance at February 3, 2007	$	2,033		$	(844	)	$	1,189

F-36

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The related tax effects allocated to each component of accumulated other comprehensive income (loss) are as follows:

	Before-Tax			Tax Benefit			Net-of-Tax
	Amount			(Expense)			Amount
2004:
Cash flow hedges:
Net derivative gain	$	1,321		$	(503	)	$	818
Reclassification adjustments for gains reclassified into income		86			(33	)		53
Other comprehensive income		1,407			(536	)		871
2005:
Cash flow hedges:
Net derivative gain		690			(268	)		422
Other comprehensive income		690			(268	)		422
2006:
Pension and postretirement benefit plans:
Prior service cost during the period		(18	)		7			(11	)
Actuarial net loss		(480	)		178			(302	)
		(498	)		185			(313	)
Cash flow hedges:
Net derivative loss		(1,444	)		605			(839	)
Other comprehensive loss	$	(1,942	)	$	790		$	(1,152	)

17.   STOCK-BASED COMPENSATION

The Company’s Amended and Restated 2000 Stock Incentive and Performance-Based Award Plan (“2000 Stock Plan”), as amended through June 20, 2006, provides for the granting of common stock options, restricted shares and restricted stock units to certain employees, officers, directors, consultants and advisors. A maximum of 2,600,000 shares may be granted under the 2000 Stock Plan, of which 1,180,812 shares remained available as of February 3, 2007. Vesting periods for the awards are at the discretion of the Company’s Board of Directors.

The Company’s Amended and Restated 1991 Stock Option and Restricted Stock Plan (“1991 Stock Plan”), as amended through June 17, 1997, provided for the granting of common stock options, performance-based common stock options as part of a long-term incentive plan for selected officers and restricted shares. A maximum of 1,900,000 shares were available under the 1991 Stock Plan; no shares remain available as of February 3, 2007.

Stock options granted during 2006 were granted with an exercise price equal to the market value of the underlying stock on the grant date, vest over three to four years and have a contractual

F-37

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

term of seven years. Stock options granted in 2005 and 2004 generally vest over two to four years and have a contractual term of seven or ten years.

Restricted shares granted during 2006 vest over one to three years. Employees granted restricted shares are not required to pay for the shares; however, they must remain employed with the Company until the restrictions on the shares lapse. Restricted shares granted in 2005 and 2004 generally vest over two to four years.

Restricted stock units granted during 2006, 2005 and 2004 vest over one to two years. Employees and directors who are granted restricted stock units are not required to pay for the shares but must remain employed by the Company, or continue to serve as a member of its Board of Directors, until the restricted stock units vest. In addition, vesting of certain restricted stock units awarded during 2006 is subject to the achievement of specified criteria based on Company performance.

The Company generally issues new stock to satisfy share-based award exercises.

Adoption of SFAS No. 123R

Effective January 29, 2006, the Company adopted SFAS No. 123R, which revised SFAS No. 123. SFAS No. 123R requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period that an employee is required to provide service in exchange for the award. Any awards of liability instruments to employees would be measured at fair value at each reporting date through settlement.

Prior to adopting SFAS No. 123R, the Company followed the intrinsic value method of accounting for stock-based employee compensation in accordance with APB No. 25 and related interpretations. The Company adopted SFAS No. 123R using the modified prospective application method, which requires that provisions of SFAS No. 123R are applied to all share-based awards granted, modified, repurchased or cancelled on January 29, 2006 and thereafter. For those grants made prior to January 29, 2006 that are nonvested and outstanding as of January 29, 2006, the Company started recognizing the remaining unrecognized compensation cost over the remaining service period as required by SFAS No. 123R. Accordingly, the results of prior periods have not been restated.

The following table shows the increase (decrease) effect of adopting SFAS No. 123R on selected reported items:

	2006
Income before income taxes	$	(2,095	)
Net income		(1,345	)
Basic earnings per shares		(0.08	)
Diluted earnings per share		(0.08	)
Cash flows provided by operating activities		(1,062	)
Cash flows provided by financing activities		1,062

F-38

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The following table illustrates the effect on net income and income per share for grants issued prior to January 29, 2006 had the Company applied the fair value recognition provisions of SFAS No. 123 to those grants in 2005 and 2004:

	2005			2004
Net income, as reported	$	26,014		$	20,162
Add: Stock-based compensation expense included in net income, net of income tax of $895 and $171 for 2005 and 2004, respectively		1,412			279
Deduct: Total stock-based compensation expense determined under fair-value-based method for all awards, net of income tax of $1,396 and $361 for 2005 and 2004, respectively		(2,174	)		(587	)
Pro forma net income	$	25,252		$	19,854
Net income per share:
Basic          As reported	$	1.61		$	1.27
Pro forma		1.56			1.25
Diluted       As reported	$	1.57		$	1.24
Pro forma		1.53			1.22

The compensation cost that has been recorded within SG&A expense for the Company’s share-based award plans was $5,779, $2,307 and $450 for 2006, 2005 and 2004, respectively. The total income tax benefit recognized in the statements of operations for stock-based award compensation was $2,069, $895 and $171 for 2006, 2005 and 2004, respectively.

Cash received from exercise under all share-based payment arrangements was $1,086, $1,442 and $2,312 for 2006, 2005 and 2004, respectively. The excess tax benefit realized for the tax deductions from share-based payment arrangements was $1,062, $1,022 and $889 for 2006, 2005 and 2004, respectively.

Awards with graded vesting are recognized using graded amortization.

Based upon an examination of forfeiture rates for the various classes of stock options, restricted stock units and restricted shares, Company management does not believe that the total number of options or shares that are vested and expected to vest as of February 3, 2007 are materially different from the respective number of options or shares outstanding as of February 3, 2007.

Stock Options

The fair value of each option award was estimated on the grant date using the Black-Scholes option valuation model and the assumptions noted in the following table:

	2006			2005			2004
Weighted average grant date fair value	$	13.75		$	8.99		$	7.76
Weighted average risk-free interest rate		4.9	%		4.1	%		3.9	%
Weighted average expected volatility		51.7	%		48.8	%		52.4	%
Weighted average expected dividend yield		0.3	%		0.5	%		0.7	%
Weighted average expected term (years)		4.6			5.1			7.7

F-39

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The risk-free interest rates used in 2006, 2005 and 2004 were based on the zero-coupon U.S. Treasury bond, with a term equal to the expected term of the stock options. The volatility used in 2006, 2005 and 2004 represents the historical volatility of the Company’s common shares over a period that approximates the expected term of the stock options. The expected dividend yields used in 2006, 2005 and 2004 were estimated based on historical dividend yields. The expected terms of options granted in 2006, 2005 and 2004 were estimated using the average of the vesting period and the contractual term, in accordance with guidance provided within SEC Staff Accounting Bulletin No. 107.

The Company’s stock options include stock options granted under the 2000 Stock Plan and the 1991 Stock Plan.

A summary of the stock options under the Company’s stock option plans as of February 3, 2007 and changes during 2006 are presented below:

						Weighted
						Average
				Weighted		Remaining		Aggregate
	Shares Under			Average per-Share		Contractual Term		Intrinsic
	Option			Exercise Price		(Years)		Value
Outstanding as of January 28, 2006		546,030		$	13.15
Granted		207,500			29.23
Exercised		(134,863	)		8.07
Forfeited		(10,000	)		19.82
Outstanding as of February 3, 2007		608,667			19.66		6.10	$	10,751
Exercisable as of February 3, 2007		211,167		$	11.88		5.83	$	5,371

The total intrinsic value of options exercised was $2,987, $2,701 and $4,169 during 2006, 2005 and 2004, respectively. As of February 3, 2007, there was $2,414 of total unrecognized compensation cost related to unvested stock options; that cost is expected to be recognized over a weighted average period of 0.95 years.

F-40

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Restricted Stock Units

Restricted stock units consist of those units granted under the 2000 Stock Plan. The fair value of each restricted stock unit award is calculated using the stock price at the date of grant. A summary of the restricted stock units as of February 3, 2007 and changes during 2006 are presented below:

					Weighted Average Grant-
	Restricted Stock Units				Date Fair Value
	Performance and				Performance and
	Service Required		Service Required		Service Required		Service Required
Outstanding as of January 28, 2006		—		46,375	$	—	$	15.09
Granted		20,259		16,849		21.90		24.92
Outstanding as of February 3, 2007		20,259		63,224		21.90		17.71

As of February 3, 2007, all restricted stock units in the above table were vested. As of February 3, 2007, there was no unrecognized compensation cost related to restricted stock units. Vested awards will be settled in shares after certain events and time periods occur, as defined within the terms of the restricted stock unit grant agreements.

The total fair value of restricted stock units vested during 2006, 2005 and 2004 was $1,385, $414 and $414, respectively.

The weighted-average grant date fair value of restricted stock units granted during 2006, 2005 and 2004 was $23.27 per unit, $17.89 per unit, and $13.05 per unit, respectively.

The Company pays cash dividend equivalents on most outstanding restricted stock units.

Restricted Shares

The Company’s restricted shares consist of restricted shares granted under the 2000 Stock Plan. The fair value of each restricted share award is calculated using the stock price at the date of grant. A summary of the restricted share awards as of February 3, 2007 and changes during 2006 are presented below:

				Weighted Average
				Grant-Date Fair
	Restricted Shares			Value
Nonvested as of January 28, 2006		471,647		$	17.58
Granted		149,269			27.86
Forfeited		(10,500	)		17.86
Nonvested as of February 3, 2007		610,416			20.09

As of February 3, 2007, there was $6,731 of total unrecognized compensation cost related to restricted shares that is expected to be recognized over a weighted average period of 2.32 years.

No restricted shares vested during 2006. The total fair value of shares vested during 2005 and 2004 was $907 and $659, respectively.

The Company pays cash dividends on all outstanding restricted shares.

F-41

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

18.   INCOME TAXES

Components of the income tax provision were as follows:

	2006			2005			2004
Current:
Federal	$	31,915		$	30,780		$	3,300
State		3,730			2,335			1,265
Total current		35,645			33,115			4,565
Deferred:
Federal		(8,838	)		(24,235	)		7,591
State		(7,166	)		3,249			(276	)
Total deferred		(16,004	)		(20,986	)		7,315
Income tax provision	$	19,641		$	12,129		$	11,880

F-42

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

Components of gross deferred tax assets and liabilities were comprised of the following:

	February 3,			January 28,
	2007			2006
Deferred tax assets:
Net operating losses	$	60,446		$	53,119
Property, fixtures and equipment		14,774			11,454
Accrued expenses		9,534			7,840
Inventories		15,122			7,541
Rent amortization		9,123			6,498
Deferred revenue		5,334			6,036
Alternative minimum tax credits		2,064			2,064
Bad debt reserve		536			671
Asset write-down		994			507
Sale and leaseback		697			651
Equity compensation		3,486			942
Other		1,139			405
Gross deferred tax assets		123,249			97,728
Less: Valuation allowance		(25,419	)		(43,910	)
Total gross deferred tax assets		97,830			53,818
Deferred tax liabilities:
Intangibles		(1,190	)		—
Pension obligations		(2,104	)		—
Other		(92	)		(239	)
Total gross deferred tax liabilities		(3,386	)		(239	)
Net deferred tax assets	$	94,444		$	53,579

In assessing the realizability of the deferred tax assets, the Company considered whether it was more-likely-than-not that the deferred tax assets will not be realized. The Company considered the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies and limitations pursuant to Section 382 of the Internal Revenue Code (“Section 382”). As a result, a valuation allowance of $25,419 and $43,910 was recorded at February 3, 2007 and January 28, 2006, respectively. If actual results differ from these estimates or these estimates are adjusted in future periods, the Company may need to adjust its valuation allowance, which could materially impact its financial position and results of operations.

At February 3, 2007, the Company had federal and state net operating loss carry-forwards of $95,900 and $291,025, respectively, which are available to offset future federal and state taxable income, subject to certain limitations imposed by Section 382. These net operating losses will expire at various dates from 2007 through 2026.

F-43

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Company has alternative minimum tax credits of $2,064 as February 3, 2007 and January 28, 2006, the use of which is subject to the limitations imposed by Section 382. The Company acquired these credits in connection with the acquisition of Elder-Beerman. These credits can be carried-forward indefinitely.

A valuation allowance reduction of $17,397 was recorded in 2006 in connection with purchase accounting for the acquisition of Carson’s, representing a reduction in the Company’s pre-acquisition valuation allowances against certain net operating losses acquired as part of the October 2003 acquisition of Elder-Beerman. The valuation allowance reduction was recorded pursuant to the projection of additional net operating loss utilization based on the expected accretive impact from Carson’s on the Company’s long-term pre-tax income.

A reconciliation of the statutory federal income tax rate to the effective tax rate is presented below:

	2006			2005			2004
Tax at statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		0.8			4.1			3.1
Valuation allowance changes, net		(6.7	)		(4.8	)		—
Changes in state deferred tax rate		(0.6	)		(1.4	)		(2.3	)
Other, net		1.0			(1.1	)		1.3
Effective tax rate		29.5	%		31.8	%		37.1	%

In 2006, 2005 and 2004, the Company made income tax payments (net of refunds) of $16,610, $10,125 and $14,442, respectively.

F-44

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

19.   QUARTERLY RESULTS (UNAUDITED)

	Quarter Ended
	April 29,			July 29,			October 28,			February 3,
2006:	2006			2006			2006			2007
Net sales	$	561,774		$	746,772		$	804,100		$	1,249,633
Other income		14,813			19,974			22,859			35,885
		576,587			766,746			826,959			1,285,518
Costs and expenses:
Costs of merchandise sold		351,580			485,933			509,829			771,420
Selling, general and administrative		199,780			258,361			273,581			324,750
Depreciation and amortization		18,514			26,823			28,756			29,096
Amortization of lease-related interests		702			1,046			831			1,141
Income (loss) from operations		6,011			(5,417	)		13,962			159,111
Interest expense, net		23,868			27,285			27,929			28,061
Income (loss) before income taxes		(17,857	)		(32,702	)		(13,967	)		131,050
Income tax provision (benefit)		(7,022	)		(12,927	)		(3,066	)		42,656
Net income (loss)	$	(10,835	)	$	(19,775	)	$	(10,901	)	$	88,394
Per Share Amounts — Basic:
Net income (loss)	$	(0.66	)	$	(1.20	)	$	(0.66	)	$	5.37
Basic weighted average shares outstanding		16,389,962			16,430,971			16,439,314			16,461,968
Diluted:
Net income (loss)	$	(0.66	)	$	(1.20	)	$	(0.66	)	$	5.20
Diluted weighted average shares outstanding		16,389,962			16,430,971			16,439,314			16,986,165

The quarter ended April 29, 2006 includes results of the acquired Carson’s operations beginning March 5, 2006 and, reflected in interest expense, net, charges of $2,319 for the write-off of fees associated with the Company’s previous revolving credit agreement and $4,500 for fees associated with a bridge facility required in connection with the financing of the Carson’s acquisition.

The quarter ended February 3, 2007 represents a fourteen week period and includes the results of the acquired Parisian stores beginning October 29, 2006.

The quarters ended April 29, 2006, July 29, 2006, October 28, 2006 and February 3, 2007 include integration costs of $4,405, $3,753, $3,729 and $3,682, respectively, recorded within selling, general and administrative expense.

F-45

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The quarters ended October 28, 2006 and February 3, 2007 include asset impairment charges of $1,000 and $1,923, respectively, recorded within depreciation and amortization expense.

The quarter ended February 3, 2007 includes a state tax benefit of $4,100 recorded within income tax provision.

	Quarter Ended
	April 30,			July 30,			October 29,			January 28,
2005:	2005			2005			2005			2006
Net sales	$	262,533		$	274,346		$	285,676		$	464,615
Other income		2,158			1,814			2,126			14,327
		264,691			276,160			287,802			478,942
Costs and expenses:
Costs of merchandise sold		167,415			174,048			189,229			291,479
Selling, general and administrative		94,664			93,425			97,759			121,297
Depreciation and amortization		6,260			7,411			7,277			6,297
Amortization of lease-related interests		173			173			231			262
Income (loss) from operations		(3,821	)		1,103			(6,694	)		59,607
Interest expense, net		3,306			3,600			2,804			2,342
Income (loss) before income taxes		(7,127	)		(2,497	)		(9,498	)		57,265
Income tax provision (benefit)		(2,715	)		(1,052	)		(3,198	)		19,094
Net income (loss)	$	(4,412	)	$	(1,445	)	$	(6,300	)	$	38,171
Per Share Amounts — Basic:
Net income (loss)	$	(0.27	)	$	(0.09	)	$	(0.39	)	$	2.34
Basic weighted average shares outstanding		16,122,555			16,186,097			16,218,717			16,290,287
Diluted:
Net income (loss)	$	(0.27	)	$	(0.09	)	$	(0.39	)	$	2.30
Diluted weighted average shares outstanding		16,122,555			16,186,097			16,218,717			16,620,234

In connection with the sale of the proprietary credit card portfolio, the Company recorded pre-tax charges of $1,187, $1,008 and $74 in the quarters ended July 30, 2005, October 29, 2005 and January 28, 2006, respectively. Such amounts include the loss on the sale, costs associated with involuntary termination benefits and contract terminations, and accelerated depreciation.

F-46

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The quarter ended January 28, 2006 includes an income tax benefit adjustment of approximately $2,200 principally associated with a net reduction of the income tax valuation allowances that were established in connection with the October 2003 purchase of Elder-Beerman, partially offset by the income tax impact from the sale of the proprietary credit card portfolio.

20.   GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

On March 6, 2006, The Bon-Ton Department Stores, Inc., a wholly owned subsidiary of the Company, entered into an Indenture with The Bank of New York, as trustee, under which The Bon-Ton Department Stores, Inc. issued approximately $510,000 aggregate principal amount of its 101/4% Senior Notes due 2014 (see Note 10). The Notes are guaranteed on a senior unsecured basis by the Company and by each of the Company’s subsidiaries that is an obligor under the New Senior Secured Credit Facility.

The condensed consolidating financial information for the Company, the Company’s guarantor subsidiaries and the Company’s non-guarantor subsidiaries as of February 3, 2007 and January 28, 2006 and for 2006, 2005 and 2004 as presented below have been prepared from the books and records maintained by the Company and the guarantor and non-guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

F-47

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
February 3, 2007

	Bon-Ton
	(Parent					Guarantor		Non-Guarantor			Consolidating			Company
	Company)		Issuer			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1	$	7,122		$	17,610	$	—		$	—		$	24,733
Merchandise inventories		—		262,532			524,955		—			—			787,487
Prepaid expenses and other current assets		—		40,240			43,016		1,475			—			84,731
Deferred income taxes		—		2,038			15,820		—			—			17,858
Total current assets		1		311,932			601,401		1,475			—			914,809
Property, fixtures and equipment at cost, net		—		158,582			407,556		331,748			—			897,886
Deferred income taxes		—		11,145			63,061		2,380			—			76,586
Goodwill		—		2,965			24,412		—			—			27,377
Intangible assets, net		—		2,599			174,101		—			—			176,700
Investment in and advances to (from) affiliates		348,426		796,500			315,038		(586	)		(1,459,378	)		—
Other long-term assets		—		26,861			11,338		3,242			—			41,441
Total assets	$	348,427	$	1,310,584		$	1,596,907	$	338,259		$	(1,459,378	)	$	2,134,799
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	209,742		$	—	$	—		$	—		$	209,742
Accrued payroll and benefits		—		16,801			51,633		—			—			68,434
Accrued expenses		—		65,762			112,880		—			—			178,642
Current maturities of long-term debt and obligations under capital leases		—		—			1,936		5,555			—			7,491
Income taxes payable		2,031		(7,428	)		52,575		908			—			48,086
Total current liabilities		2,031		284,877			219,024		6,463			—			512,395
Long-term debt and obligations under capital leases, less current maturities		—		853,300			69,456		266,869			—			1,189,625
Other long-term liabilities		—		29,417			56,966		—			—			86,383
Total liabilities		2,031		1,167,594			345,446		273,332			—			1,788,403
Shareholders’ equity		346,396		142,990			1,251,461		64,927			(1,459,378	)		346,396
Total liabilities and shareholders’ equity	$	348,427	$	1,310,584		$	1,596,907	$	338,259		$	(1,459,378	)	$	2,134,799

F-48

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
January 28, 2006

	Bon-Ton
	(Parent					Guarantor			Non-Guarantor		Consolidating			Company
	Company)		Issuer			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	10	$	7,455		$	2,306		$	—	$	—		$	9,771
Merchandise inventories		—		154,126			130,458			—		—			284,584
Prepaid expenses and other current assets		—		22,587			5,825			—		—			28,412
Deferred income taxes		—		4,036			3,090			—		—			7,126
Total current assets		10		188,204			141,679			—		—			329,893
Property, fixtures and equipment at cost, net		—		126,506			22,321			18,852		—			167,679
Deferred income taxes		—		2,156			44,035			262		—			46,453
Goodwill		—		2,965			—			—		—			2,965
Intangible assets, net		—		2,850			2,163			—		—			5,013
Investment in and advances to (from) affiliates		296,979		(33,327	)		(51,569	)		210		(212,293	)		—
Other long-term assets		—		8,498			138			704		—			9,340
Total assets	$	296,989	$	297,852		$	158,767		$	20,028	$	(212,293	)	$	561,343
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	87,318		$	—		$	—	$	—		$	87,318
Accrued payroll and benefits		—		15,267			3,719			—		—			18,986
Accrued expenses		—		26,560			26,132			—		—			52,692
Current maturities of long-term debt and obligations under capital leases		—		—			74			961		—			1,035
Income taxes payable		4,895		13,285			8,437			126		—			26,743
Total current liabilities		4,895		142,430			38,362			1,087		—			186,774
Long-term debt and obligations under capital leases, less current maturities		—		26,550			24			15,941		—			42,515
Other long-term liabilities		—		31,379			8,581			—		—			39,960
Total liabilities		4,895		200,359			46,967			17,028		—			269,249
Shareholders’ equity		292,094		97,493			111,800			3,000		(212,293	)		292,094
Total liabilities and shareholders’ equity	$	296,989	$	297,852		$	158,767		$	20,028	$	(212,293	)	$	561,343

F-49

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
2006

	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	645,159		$	2,717,120		$	—		$	—		$	3,362,279
Other income		—			21,197			72,334			—			—			93,531
		—			666,356			2,789,454			—			—			3,455,810
Costs and expenses:
Costs of merchandise sold		—			429,885			1,688,877			—			—			2,118,762
Selling, general and administrative		2			213,490			879,773			12			(36,805	)		1,056,472
Depreciation and amortization		—			27,526			64,846			10,817			—			103,189
Amortization of lease-related interests		—			470			3,250			—			—			3,720
(Loss) income from operations		(2	)		(5,015	)		152,708			(10,829	)		36,805			173,667
Other income (expense):
Intercompany interest income		1,700			—			—			—			(1,700	)		—
Intercompany rental and royalty income		—			—			10,606			26,199			(36,805	)		—
Equity in earnings (losses) of subsidiaries		64,826			150,035			—			—			(214,861	)		—
Interest expense, net		—			(80,194	)		(11,978	)		(16,671	)		1,700			(107,143	)
Income (loss) before income taxes		66,524			64,826			151,336			(1,301	)		(214,861	)		66,524
Income tax provision (benefit)		19,641			18,936			56,297			(541	)		(74,692	)		19,641
Net income (loss)	$	46,883		$	45,890		$	95,039		$	(760	)	$	(140,169	)	$	46,883

F-50

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
2005

	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	670,003		$	617,167		$	—		$	—		$	1,287,170
Other income		—			11,337			9,088			—			—			20,425
		—			681,340			626,255			—			—			1,307,595
Costs and expenses:
Costs of merchandise sold		—			427,645			394,526			—			—			822,171
Selling, general and administrative		7			216,725			205,072			(208	)		(14,451	)		407,145
Depreciation and amortization		—			21,034			5,021			1,190			—			27,245
Amortization of lease-related interests		—			622			217			—			—			839
(Loss) income from operations		(7	)		15,314			21,419			(982	)		14,451			50,195
Other income (expense):
Intercompany interest income		10,197			—			—			—			(10,197	)		—
Intercompany rental and royalty income		—			—			11,804			2,647			(14,451	)		—
Equity in earnings (losses) of subsidiaries		27,953			28,266			—			—			(56,219	)		—
Interest expense, net		—			(15,627	)		(4,732	)		(1,890	)		10,197			(12,052	)
Income (loss) before income taxes		38,143			27,953			28,491			(225	)		(56,219	)		38,143
Income tax provision (benefit)		12,129			7,234			11,510			(81	)		(18,663	)		12,129
Net income (loss)	$	26,014		$	20,719		$	16,981		$	(144	)	$	(37,556	)	$	26,014

F-51

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
2004

	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	679,037		$	631,335		$	—		$	—		$	1,310,372
Other income		—			4,941			4,310			—			—			9,251
		—			683,978			635,645			—			—			1,319,623
Costs and expenses:
Costs of merchandise sold		—			428,208			402,206			—			—			830,414
Selling, general and administrative		8			225,242			213,736			1			(23,066	)		415,921
Depreciation and amortization		—			19,972			6,116			1,190			—			27,278
Amortization of lease-related interests		—			422			109			—			—			531
(Loss) income from operations		(8	)		10,134			13,478			(1,191	)		23,066			45,479
Other income (expense):
Intercompany interest income		10,197			—			—			—			(10,197	)		—
Intercompany rental and royalty income		—			—			20,418			2,648			(23,066	)		—
Equity in earnings (losses) of subsidiaries		21,853			27,774			—			—			(49,627	)		—
Interest expense, net		—			(16,055	)		(5,801	)		(1,778	)		10,197			(13,437	)
Income (loss) before income taxes		32,042			21,853			28,095			(321	)		(49,627	)		32,042
Income tax provision (benefit)		11,880			7,648			10,704			(122	)		(18,230	)		11,880
Net income (loss)	$	20,162		$	14,205		$	17,391		$	(199	)	$	(31,397	)	$	20,162

F-52

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
2006

	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:	$	607		$	315,146		$	65,165		$	8,312		$	(271,567	)	$	117,663
Cash flows from investing activities:
Capital expenditures		—			(61,980	)		(38,997	)		—			—			(100,977	)
Acquisitions, net of cash acquired		—			(1,073,295	)		—			—			—			(1,073,295	)
Proceeds from sale of property, fixtures and equipment		—			1,750			766			—			—			2,516
Net cash used in investing activities		—			(1,133,525	)		(38,231	)		—			—			(1,171,756	)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		—			(961,605	)		(1,705	)		(4,478	)		—			(967,788	)
Proceeds from issuance of long-term debt		—			1,788,355			—			260,000			—			2,048,355
Intercompany financing activity		—			(616	)		(9,925	)		(261,026	)		271,567			—
Cash dividends paid		(1,702	)		—			—			—			—			(1,702	)
Proceeds from stock options exercised		1,086			—			—			—			—			1,086
Excess tax benefit from share-based compensation		—			1,062			—			—			—			1,062
Deferred financing costs paid		—			(25,031	)		—			(2,808	)		—			(27,839	)
Increase in bank overdraft balances		—			15,881			—			—			—			15,881
Net cash (used in) provided by financing activities		(616	)		818,046			(11,630	)		(8,312	)		271,567			1,069,055
Net (decrease) increase in cash and cash equivalents		(9	)		(333	)		15,304			—			—			14,962
Cash and cash equivalents at beginning of period		10			7,455			2,306			—			—			9,771
Cash and cash equivalents at end of period	$	1		$	7,122		$	17,610		$	—		$	—		$	24,733

F-53

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
2005

	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:	$	234		$	141,784		$	32,495		$	665		$	(21,354	)	$	153,824
Cash flows from investing activities:
Capital expenditures		—			(15,032	)		(14,147	)		—			—			(29,179	)
Acquisition, net of cash acquired		—			(2,054	)		—			—			—			(2,054	)
Proceeds from sale of property, fixtures and equipment		—			249			2,056			209			—			2,514
Net cash (used in) provided by investing activities		—			(16,837	)		(12,091	)		209			—			(28,719	)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		—			(447,694	)		(745	)		(874	)		—			(449,313	)
Proceeds from issuance of long-term debt		—			312,700			—			—			—			312,700
Intercompany financing activity		—			(226	)		(21,128	)		—			21,354			—
Cash dividends paid		(1,668	)		—			—			—			—			(1,668	)
Proceeds from stock options exercised		1,442			—			—			—			—			1,442
Deferred financing costs paid		—			(336	)		—			—			—			(336	)
Increase (decrease) in bank overdraft balances		—			3,190			(4,257	)		—			—			(1,067	)
Net cash used in financing activities		(226	)		(132,366	)		(26,130	)		(874	)		21,354			(138,242	)
Net increase (decrease) in cash and cash equivalents		8			(7,419	)		(5,726	)		—			—			(13,137	)
Cash and cash equivalents at beginning of period		2			14,874			8,032			—			—			22,908
Cash and cash equivalents at end of period	$	10		$	7,455		$	2,306		$	—		$	—		$	9,771

F-54

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
2004

	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:	$	(718	)	$	12,563		$	36,475		$	718		$	(20,385	)	$	28,653
Cash flows from investing activities:
Capital expenditures		—			(24,167	)		(7,356	)		—			—			(31,523	)
Acquisition, net of cash acquired		—			(185	)		—			—			—			(185	)
Proceeds from sale of property, fixtures and equipment		—			150			140			—			—			290
Net cash used in investing activities		—			(24,202	)		(7,216	)		—			—			(31,418	)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		—			(380,823	)		(1,823	)		(718	)		—			(383,364	)
Proceeds from issuance of long-term debt		—			388,900			—			—			—			388,900
Intercompany financing activity		—			710			(21,095	)		—			20,385			—
Cash dividends paid		(1,602	)		—			—			—			—			(1,602	)
Proceeds from stock options exercised		2,312			—			—			—			—			2,312
Deferred financing costs paid		—			(526	)		—			—			—			(526	)
Increase (decrease) in bank overdraft balances		—			4,937			(2,819	)		—			—			2,118
Net cash provided by (used in) financing activities		710			13,198			(25,737	)		(718	)		20,385			7,838
Net (decrease) increase in cash and cash equivalents		(8	)		1,559			3,522			—			—			5,073
Cash and cash equivalents at beginning of period		10			13,315			4,510			—			—			17,835
Cash and cash equivalents at end of period	$	2		$	14,874		$	8,032		$	—		$	—		$	22,908

21.   SUBSEQUENT EVENTS

On March 29, 2007, the Company announced a quarterly cash dividend of $0.05 per share on Class A common stock and common stock, payable May 1, 2007 to shareholders of record as of April 16, 2007.

F-55

Schedule II: VALUATION AND QUALIFYING ACCOUNTS
THE BON-TON STORES, INC. AND SUBSIDIARIES

	Balance at		Charged to									Balance at
	Beginning		Costs &									End of
Classification	of Period		Expenses			Deductions			Other			Period
Year ended January 29, 2005:
Allowances for doubtful accounts and sales returns	$	6,132,000	$	13,520,000	(1)	$	(13,480,000	)(2)	$	—		$	6,172,000
Accrual for sales returns	$	1,339,000	$	—		$	(141,000	)	$	—		$	1,198,000
Year ended January 28, 2006:
Allowances for doubtful accounts and sales returns	$	6,172,000	$	6,225,000	(1)	$	(6,258,000	)(2)	$	(6,139,000	)(3)	$	—
Accrual for sales returns	$	1,198,000	$	—		$	(290,000	)	$	3,172,000	(3)	$	4,080,000
Year ended February 3, 2007:
Accrual for sales returns	$	4,080,000	$	—		$	(2,605,000	)	$	10,044,000	(4)	$	11,519,000

NOTES:

(1)	Provision for merchandise returns and loss on credit sales.
(2)	Uncollectible accounts written off, net of recoveries.
(3)	Adjustment related to the proprietary credit card portfolio sale to HSBC Bank Nevada, N.A.
(4)	Adjustment represents acquisition purchase accounting.

F-56

EXHIBIT INDEX

Exhibit			Description
	10	.2(b)	First Amendment to Employment Agreement with David B. Zant
	10	.14	The Bon-Ton Stores, Inc. Deferred Compensation Plan
	10	.16	The Bon-Ton Stores, Inc. Change of Control and Material Transaction Severance Plan for Certain Employees of Acquired Employers
	10	.22(c)	Second Amendment to the Credit Card Program Agreement
	10	.28(c)	Amendment No. 2 to Amended and Restated Transition Services Agreement between Saks Incorporated and The Bon-Ton Stores, Inc.
	10	.29(a)	Carson Pirie Scott & Co. Supplemental Executive Retirement Plan
	10	.29(b)	First Amendment to the Carson Pirie Scott & Co. Supplemental Executive Retirement Plan
	10	.31(a)	Private Brands Agreement between The Bon-Ton Stores, Inc. and Belk, Inc.
	10	.31(b)	Amendment No. 1 to the Private Brands Agreement between The Bon-Ton Stores, Inc. and Belk, Inc.
	21		Subsidiaries of the Registrant
	23		Consent of KPMG LLP
	31	.1	Certification of Byron L. Bergren
	31	.2	Certification of Keith E. Plowman
	32		Certification Pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934

EX-10.2(B)

                                                                 EXHIIBT 10.2(b)

                     FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

      This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of May 1, 2006
("First Amendment"), is by and between THE BON-TON STORES, INC., a Pennsylvania
corporation (the "Company"), and DAVID ZANT ("Employee").

                                   W I T N E S S E T H:

      WHEREAS, the Company and Employee entered into an Agreement dated as of
December 13, 2004 ("Agreement") with respect to the employment of Employee as
the Vice Chairman and Chief Merchandising Officer of the Company;

      WHEREAS, the Agreement terminates on January 31, 2008, unless sooner
terminated by the Company or the Employee; and

      WHEREAS, the Human Resources and Compensation Committee ("HRCC") of the
Company's Board of Directors have approved certain modifications to the
Agreement.

      NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein and intending to be legally bound hereby, the Company and
Employee agree as follows:

      1. Position and Responsibilities. Amendment of Section 1(a) of the
Agreement. Section 1(a) of the Agreement is deleted and the following is
substituted in lieu thereof:

      "The Company and the Employee agree that Employee shall be transferred to
      the position of the Company's Vice Chairman, Private Brand and Planning &
      Allocation. Employee shall have the responsibilities for the Company's
      Private Brand, Planning and Allocation, Internet Promotion and Sales
      matters and shall report to the President and Chief Executive Officer or
      such other direct report as the President and Chief Executive Officer may
      designate."

      2. Place of Performance. Amendment of Section 3 of the Agreement. Section
3 of the Agreement is deleted and the following is substituted in lieu thereof:

      "Place of Performance. Employee's shall be based at the regular executive
      offices of the Company in Milwaukee, Wisconsin, except for travel required
      for Company business. Employee's cost of relocation to Milwaukee,
      Wisconsin shall be fully reimbursed in accordance with the Company's
      relocation policy. In the event of a relocation of the Company's executive
      offices in the future requiring Employee to relocate his residence,
      Employee shall relocate subject to reimbursement for relocation expenses
      on the same basis and to the same extent as other similarly situated
      Company executives."



      3. Compensation. Amendment of Section 4(c) of the Agreement. Section 4(c)
of the Agreement is deleted and the following is substituted in lieu thereof:

      "Annual Bonus. Employee will participate in The Bon-Ton Stores, Inc. Cash
      Bonus Plan ("Cash Bonus Plan") in accordance with its terms and conditions
      as it may be amended in accordance with its provisions or such other
      annual bonus plan as may be established by the Company. For each of the
      fiscal years of the Company during the Term, Employee shall be eligible to
      earn a bonus, with the following parameters: a threshold bonus of 56.25%
      of Employee's Base Salary; a target bonus of 75% of Employee's Base
      Salary; and a maximum bonus of 112.5% of Employee's Base Salary. If
      earned, one bonus will be paid depending on the level of achievement with
      respect to performance measures determined for each of the Company's
      fiscal years by the Human Resources and Compensation Committee ("HRCC").
      The HRCC shall retain discretion with respect to this bonus as is provided
      under the terms of the Cash Bonus Plan. To the extent reasonably
      practicable, the annual bonus shall be computed within 90 days following
      the close of the Company's fiscal year and paid within 30 days of its
      computation. Employee must be employed on the last day of the Company's
      fiscal year to receive a bonus, except as otherwise provided in Paragraph
      7(a)(iii) of this First Amendment with respect to a Discharge Without
      Cause, Resignation for Good Reason or Resignation Without Good Reason as
      those terms are defined below."

      4. Other Benefits. Amendment of Section 7 of the Agreement.

            (a) Section 7 of the Agreement is amended to set forth the following
agreement between the Company and Employee: Employee shall be entitled to
payment of his reasonable attorneys fees incurred in connection with this First
Amendment up to a maximum of $3,000.

            (b) In all other respects, Section 7 of the Agreement shall remain
in effect.

      5. Termination of Employment. Amendment of Section 9(c) of the Agreement.

            (a) Resignation for Good Reason. Section 9(c) of the Agreement is
amended to set forth the following agreement between the Company and Employee:
For purposes of the Agreement, "Good Reason" shall mean any of the following
violations of the Agreement by the Company: causing Employee, without Employee's
consent, to cease to have duties and responsibilities commensurate with those of
Vice Chairman, Private Brand and Planning & Allocation; any reduction in the
Employee's base salary; any reduction in the Employee's potential bonus
eligibility amounts; any required relocation from the Milwaukee, Wisconsin area;
and any substantial breach of any material provision of this Agreement.

            (b) In all other respects, Section 9(c) of the Agreement shall
remain in effect.

      6. Termination of Employment. Amendment of Section 9(e) of the Agreement.
Section 9(e) of the Agreement is deleted and the following is substituted in
lieu thereof:

                                     - 2 -



      "Discharge for Cause. The Company may discharge Employee at any time for
      "Cause," which shall be limited to: Employee's material and serious breach
      or neglect of Employee's responsibilities; willful violation or disregard
      of standards of conduct established by law; willful violation or disregard
      of standards of conduct established by Company policy as may from time to
      time be communicated to Employee; fraud, willful misconduct,
      misappropriation of funds or other dishonesty; conviction of a crime of
      moral turpitude; any misrepresentation made in this Agreement; or any
      material breach by Employee of any provision of this Agreement (including,
      without limitation, acceptance of employment with another company or
      performing work or providing advice to another company, as an employee,
      consultant or in any other similar capacity while still an employee of the
      Company)."

      7. Payments Upon Termination. Amendment of Section 10(a) of the Agreement.
Section 10(a) of the Agreement is deleted and the following is substituted in
lieu thereof:

            "(a) Discharge Without Cause, Resignation for Good Reason or
Resignation Without Good Reason. If Employee is discharged without Cause,
resigns for Good Reason or resigns without Good Reason, other than following a
Change in Control, Employee shall receive:

                  (i) his then current rate of base salary, less taxes and
normal deductions, for a period of twelve (12) months, payable in equal
installments in accordance with the Company's regular payroll practices. To the
extent Employee resigns without Good Reason, any severance payments shall be
offset by the annual base salary received by Employee during the period covered
by the severance payment from any subsequent employment;

                  (ii) continuation of the Company's contribution towards his
Company group medical benefits for up to twelve (12) months or until Employee
becomes eligible for comparable benefits at a new employer;

                  (iii) after having completed at least three (3) months of
employment in the Company's fiscal year, a pro-rata bonus for that year (based
on the number of days employed in the fiscal year) based on the Company's full
year performance in accordance with Section 4(c) of the Agreement, as amended by
this First Amendment. The bonus, if any, will be paid as soon as practicable
after the end of the fiscal year in which the termination occurs.

The Employee's right to any payments or benefits provided under Section 10(a) of
the Agreement, as amended by this First Amendment, shall be contingent upon (i)
execution by the Employee at or about the time of termination of his employment
of a general release of claims (including without limitation contractual, common
law and statutory claims) in a form satisfactory to the Company in favor of the
Company and its officers, directors, executives and agents substantially; and
(ii) compliance by the Employee with all of the terms of this Agreement, as
amended by this First Amendment, including without limitation paragraphs 11 and
12 of the Agreement, as amended by this First Amendment."

                                     - 3 -



      8. Non-Competition and Confidentiality. Amendment of Section 12(a)(ii) of
the Agreement.

            (a) Section 12(a)(ii) of the Agreement is amended to set forth the
following agreement between the Company and Employee as follows: The phrase
"After the cessation of his employment" is deleted.

            (b) In all other respects, Section 12(a)(ii) of the Agreement shall
remain in effect.

      9. Defined Terms. Capitalized terms used but not defined herein shall have
the meanings ascribed thereto in the Agreement.

      10. Controlling Law. This First Amendment and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.

      11. Execution in Counterparts. This First Amendment may be executed in any
number of counterparts, each of which shall be deemed to be an original against
any party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This First Amendment shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties hereto.

      12. Effect of Amendment. Except as may be affected by this First
Amendment, all of the provisions of the Agreement, as amended hereby, shall
continue in full force and effect. The provisions of this First Amendment shall
not constitute a waiver or modification of any terms or conditions of the
Agreement other than as expressly set forth herein.

      IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have duly executed and delivered, in Pennsylvania, this First Amendment.

THE BON-TON STORES, INC.

   /s/ Byron Bergren                                        8/11/06
- -----------------------------                               --------------------
By: Byron Bergren                                           Date
    Chief Executive Officer

EMPLOYEE

  /s/ David  Zant                                           8-10-06
- -----------------------------                               --------------------
By: David  Zant                                             Date

                                     - 4 -

EX-10.14

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                                                                               .
                                                                               .

                                                                   EXHIBIT 10.14

                   BON-TON DEFERRED COMPENSATION PLAN DOCUMENT

                                TABLE OF CONTENTS



Article                                                           Page
- -------                                                           ----
                                                               
1.    Purpose of the Plan......................................    1

2.    Definitions..............................................    1

3.    Participation............................................    2

4.    Deferrals and Company Contributions......................    3

5.    Maintenance of Accounts..................................    4

6.    Payment of Benefits......................................    5

7.    Amendment or Termination.................................    6

8.    General Provisions.......................................    7




                         ARTICLE 1. PURPOSE OF THE PLAN

This Plan has been authorized by the Board of Directors to be effective on and
after July 1, 1994, and is intended to promote contributions by a select group
of management or highly compensated employees of the Company by providing such
individuals with an opportunity to defer a portion of compensation they may
receive as base salary or as a bonus under a bonus program maintained by the
Company. The Plan is unfunded.

                             ARTICLE 2. DEFINITIONS

2.01  "ACCOUNT" shall mean the bookkeeping account maintained for each
      Participant to record the amount of Base Salary and/or Bonus such
      participant has elected to defer pursuant to Article 4, and the Company
      contribution, if any and as provided in Section 4.03, all as adjusted
      pursuant to Article 5.

2.02  "ADMINISTRATIVE COMMITTEE" shall mean the committee established by the HR
      Compensation Committee with the responsibilities set forth in this Plan.

2.03  "AFFILIATED COMPANY" shall mean any company, corporation or business
      directly or indirectly controlled by the Company, whether or not such
      company, corporation or business participates in the Plan.

2.04  "BASE SALARY" shall mean the Participant's annual fixed compensation paid
      periodically during the calendar year, including allowances but excluding
      any Bonus or other form of special pay.

2.05  "BENEFICIARY" shall mean one or more beneficiaries or contingent
      beneficiaries designated by a Participant pursuant to Section 6.06.

2.06  "BONUS" shall mean the amount, if any, of cash awarded to an employee of
      the Company under the Company's performance bonus program, a "guaranteed"
      performance bonus or other bonus approved by the HR Compensation
      Committee. Excluded from the "bonus" determination shall include payments
      designated for the purpose of retention, relocation or as a sign-on bonus.

2.07  "CHANGE OF CONTROL" shall be as defined in the 2000 Amended and Restated
      Stock Option and Restricted Stock Plan of the Company, or any successor
      plan thereof.

2.08  "COMPANY" shall mean Bon-Ton Department Stores, Inc., a Pennsylvania
      corporation.

2.09  "COMPENSATION COMMITTEE" shall mean the Human Resources/Compensation
      Committee of the Board of Directors of the Company.

2.10  "DEFERRAL AGREEMENT" shall mean the completed agreement, including any
      amendments, attachments and appendices thereto, in such form approved by
      the Plan Administrator, between an Eligible Executive and the Company,
      under which the Eligible Executive agrees to defer Base Salary and/or a
      Bonus under the Plan.

2.11  "EFFECTIVE DATE" shall mean July 1, 1994, the effective date of the Plan.

                                       1



2.12  "ELIGIBLE EXECUTIVE" shall mean an employee of the Company designated as
      eligible to participate in this Plan by the Compensation Committee.

2.13  "PARTICIPANT" shall mean, except as otherwise provided in Article 3, each
      Eligible Executive who has executed a Deferral Agreement pursuant to the
      requirements of Section 3.01.

2.14  "PLAN" shall mean the Deferred Compensation Plan for Bon-Ton Department
      Stores, Inc. as set forth in this document, as it may be amended from time
      to time.

2.15  "PLAN ADMINISTRATOR" shall mean the individual(s) appointed by the
      Administrative Committee with the responsibilities set forth in this Plan.

2.16  "PLAN YEAR" shall mean the calendar year, except that the 1994 Plan Year
      shall begin on the Effective Date and continue to the succeeding December
      31.

2.17  "SAVINGS PLAN" shall mean Bon-Ton Stores, Inc. Retirement Contribution
      Plan.

2.18  "VALUATION DATE" shall mean the last business day of each calendar quarter
      following the Effective Date, or such other day as the Plan Administrator
      may determine.

                            ARTICLE 3. PARTICIPATION

3.01  IN GENERAL

      a.    An Eligible Executive shall become a Participant as of the date such
            Eligible Executive first files a Deferral Agreement with the Plan
            Administrator, provided however, such Deferral Agreement shall be
            effective for purposes of deferring Base Salary or cash Bonus only
            as provided in Article 4.

      b.    The Deferral Agreement shall be in writing and be properly completed
            upon a form approved by the Plan Administrator who shall be the sole
            judge of the proper completion thereof. Such Deferral Agreement
            shall provide, subject to the limitation specified in Section
            4.02(a), for the deferral of a portion of Base Salary or all or any
            portion of cash Bonus and for an investment election as provided in
            Section 5.01. The Deferral Agreement shall include such other
            provisions as the Administrative Committee deems appropriate.

3.02  TERMINATION OF PARTICIPATION; RE-EMPLOYMENT

      a.    Participation shall cease upon a Participant's termination of
            employment with the Company except to the extent otherwise provided
            in Section 6.02.

      b.    If a former Participant whose participation in the Plan ceased under
            Section 3.02(a) is re-employed as an Eligible Executive, the former
            Participant may again become a Participant in accordance with the
            provisions of Section 3.01.

                                       2



                 ARTICLE 4. DEFERRALS AND COMPANY CONTRIBUTIONS

4.01  FILING REQUIREMENTS

      a.    Annual Elections

            1.    Prior to the close of business on December 31 in any Plan
                  Year, an Eligible Executive may elect, subject to the limits
                  of Section 4.02(a) below, to defer a portion of Base Salary
                  that is otherwise earned and payable in the succeeding Plan
                  Year or cash Bonus earned in the succeeding Plan Year (and
                  paid in the year following) by filing a Deferral Agreement
                  with the Plan Administrator.

            2.    The Plan Administrator may designate an earlier election date.
                  If December 31 does not fall on a business day, such filing
                  must be made by the close of business on the last prior
                  business day.

            3.    If an employee becomes an Eligible Executive on or after
                  January 1 in any Plan Year, he may elect to defer Base Salary
                  or cash Bonus for that year by filing a Deferral Agreement
                  with the Plan Administrator prior to the close of business on
                  the thirtieth business day following the date he becomes an
                  Eligible Executive; provided, however, that cash Bonus may be
                  deferred only if the amount of Bonus for that Plan Year has
                  not already been determined by appropriate action of the Board
                  of Directors and Base Salary may be deferred only to the
                  extent it has not yet become earned and payable.

            4.    Upon written notification to an Eligible Executive by the Plan
                  Administrator, an election may be required in advance of the
                  dates indicated above, but may not be accepted by the Plan
                  Administrator if delivered later than the dates indicated
                  above.

            5.    Notwithstanding any other provision to the contrary, an
                  election to defer any part of Base Salary payable in the 1994
                  Plan Year shall be made within 30 days from the Effective Date
                  and shall apply to Base Salary earned and payable after July
                  31, 1994.

      b.    A Participant's election to defer Base Salary or cash Bonus for any
            Plan Year shall become irrevocable on the last day the deferral of
            such Base Salary or cash Bonus may be elected under Section 4.01(a).
            A Participant may revoke or change his election to defer Base Salary
            or cash Bonus at any time prior to the date the election becomes
            irrevocable. Any such revocation or change shall be made in a form
            and manner determined by the Plan Administrator.

      c.    Except as to a Participant who becomes an Eligible Employee on or
            after January 1 of the then current Plan Year, a Participant's
            Deferral Agreement shall apply only with respect to Base Salary
            earned and payable in the Plan Year following the Plan Year in which
            the Deferral Agreement is filed with the Plan Administrator under
            Section 4.01(a). A Participant's Deferral Agreement shall only apply
            to cash Bonus earned in a full plan year after the Deferral
            Agreement is filed with the Plan Administrator under Section
            4.01(a). An Eligible Executive must file, in accordance with the
            provisions of Section 4.01(a), a new deferral Agreement for each
            Plan Year the Eligible Executive desires to defer Base Salary or
            cash Bonus.

      d.    Notwithstanding anything in this Plan to the contrary, if an
            Eligible Executive

            1.    receives a withdrawal on account of hardship from any plan
                  maintained by the Company which meets the requirements of
                  Section 401(k) of the Internal Revenue Code (or any successor
                  thereto), and

            2.    is precluded from making contributions to such 401(k) plan for
                  at least 6 months after receipt of the hardship withdrawal,

                                       3



      no amounts shall be deferred under this Plan pursuant to the Eligible
      Executive's Deferral Agreements until such time as the Eligible Executive
      is again permitted to contribute to such 401(k) plan. Any Base Salary or
      cash Bonus payment which would have been deferred pursuant to a Deferral
      Agreement but for the application of this Section 4.01(d) shall be paid to
      the Eligible Executive as if he had not entered into a Deferral Agreement.

4.02  AMOUNT AND TIMING OF DEFERRAL

   a. An Eligible Executive who is designated an Officer of the Company by the
      Compensation Committee may defer up to 20% of Base Salary, provided the
      minimum deferral of Base Salary shall not be less than $5,000. Any
      Eligible Executive may defer up to 100% of cash Bonus, provided the
      minimum deferral election of cash Bonus shall not be less than $1,000. Any
      deferral of Base Salary or cash Bonus shall, as to amount, either be in
      whole percentages or in increments of $1,000. All deferrals must be made
      in full calendar years and must be deferred to not earlier than the third
      January 1 succeeding the date the Base Salary or cash Bonus deferred would
      otherwise first be payable.

   b. The Administrative Committee may establish such other maximum or minimum
      limits on the amount of Base Salary or cash Bonus which may be deferred or
      the timing of such deferral. Eligible Executives shall be given written
      notice of any such limits at least ten business days prior to the date
      they take effect.

4.03  AMOUNT OF COMPANY CONTRIBUTION

      Each Participant's Account may be credited with an additional amount equal
      to the difference between the amount of the contribution the Company would
      have made to such participant for that Plan Year under Section 4(e) of the
      Savings Plan but for the Participant's deferral of compensation under this
      Plan and the amount actually contributed by the Company to such
      Participant under Section 4(e) of the Savings Plan for that Plan Year. The
      Company contribution pursuant to this Section 4.03 shall be credited to
      such Participant's Account on the first day of the month following the
      Company's contribution to Participant's Savings Plan.

4.04  CREDITING TO ACCOUNT

      The amount of Base Salary or cash Bonus which a Participant has elected to
      defer pursuant to Section 4.02 shall be credited to such Participant's
      Account no later than the first business day of the first calendar month
      following the date the Base Salary or cash Bonus would have been paid to
      the Participant in the absence of a Deferral Agreement.

4.05  VESTING

      A Participant shall at all times be 100% vested in his Account.

                       ARTICLE 5. MAINTENANCE OF ACCOUNTS

5.01  INTEREST ON ACCOUNTS

      The Company shall credit the Accounts with interest computed as follows:
      Each Participant shall elect in his Deferral Agreement to have the amounts
      credited to his Account indexed to the Balanced Fund and/or the Bond
      (Fixed Income) Fund offered under the Savings Plan, or the successor to
      either under the Savings Plan, provided, however, that if the Participant
      shall elect to have a portion indexed to each, such

                                       4



      apportionment must be in whole percentage increments. Such earnings and
      losses shall be net of fund expenses.

      The Participant may change his election to index to either the Balanced
      Fund or the Bond Fund, as to the amounts then credited to his Account
      and/or future deferrals, by filing an appropriate written notice with the
      Plan Administrator pursuant to the same rules in effect concerning the
      change of investment elections under the Savings Plan. If a Participant
      fails to make an election under this Section 5.01, he shall be deemed to
      have elected to have indexed his Account to the Bond Fund.

5.02  INDIVIDUAL ACCOUNTS

      The Plan Administrator shall maintain, or cause to be maintained, records
      showing the balance of each Participant's Account. On or about March 1 and
      September 1 of each year, each Participant shall be furnished with a
      statement setting forth the value of his Account.

5.03  VALUATION OF ACCOUNTS

   a. The Plan Administrator shall value or cause to be valued each
      Participant's Account at least quarterly. On each Valuation Date there
      shall be allocated to the Account of each Participant the appropriate
      amount determined in accordance with Section 5.01.

   b. Whenever an event requires a determination of the value of a Participant's
      Account, the value shall be computed as of the Valuation Date coincident
      with, or immediately following, the date of the event.

                         ARTICLE 6. PAYMENT OF BENEFITS

6.01  COMMENCEMENT OF PAYMENT

      Except as otherwise provided in this Article 6, a Participant's Account
      shall be distributed in cash in a single sum as soon as practicable after
      the Valuation Date coincident with or immediately following the earliest
      of (a) the date(s) the Participant elects to have such Account paid to
      him; provided, however, in no event shall any such amount be payable
      within three years of the January 1 of the Plan Year during which such
      compensation was deferred; (b) the date the employment of the Participant
      by the Company is terminated; or (c) the date of a Change of Control of
      the Company. Distributions are subject to pending regulations from the IRS
      regarding code section 409A.

6.02  PAYMENT ON RETIREMENT

      Notwithstanding the foregoing, if a Participant terminates employment due
      to retirement, he may elect, in lieu of a single sum payment, to receive
      distribution of his Account in annual installments over a period not to
      exceed fifteen years, provided, however, any such election must be made at
      least two years prior to the Participant's retirement date. Any such
      election shall supersede any prior election as to payment of the Account.
      If such election is not so made, a single sum payment shall be made. The
      amount of each annual installment shall equal the balance in his Account
      as of the Valuation Date coincident with or next preceding the date of
      each payment, divided by the remaining number of installments payable. As
      used in this Section 6.02, retirement shall mean normal retirement at age
      65 or early retirement at not earlier than age 55 with five years of
      continuous service as an Officer with the Company.

                                       5



6.03  PAYMENT ON DEATH

      Except with respect to payments made pursuant to Section 6.04, if a
      Participant dies prior to receiving full payment of his Account, the
      remaining amount in his Account shall be payable in cash in a single sum
      to his Beneficiary as soon as practicable after the Valuation Date
      coincident with or next following his death.

6.04  PAYMENT ON VOLUNTARY TERMINATION

      If a Participant shall voluntarily terminate his employment with the
      Company, the Administrative Committee may elect, in lieu of a single sum
      payment, to pay the Account in annual installments over a period not to
      exceed three years. The amount of each annual installment shall equal the
      balance in his Account as of the Valuation Date coincident with or next
      preceding the date of each payment divided by the remaining number of
      installments payable.

6.05  HARDSHIP PAYMENTS

   a. While employed by the Company, a Participant may, in the event of a severe
      financial hardship, request a withdrawal from his Account. The request
      shall be made in a time and manner determined by the Administrative
      Committee, shall not be for a greater amount than the amount required to
      meet the financial hardship, and shall be subject to approval by the
      Administrative Committee, which approval shall be at the sole discretion
      of the Administrative Committee.

   b. For purposes of this Section 6.05, financial hardship shall include:

            1.    sudden or unexpected illness or accident of the Participant or
                  of a dependent of the Participant;

            2.    loss of the Participant's property due to a casualty or other
                  extraordinary circumstances arising as a result of events
                  beyond the control of the Participant;

            3.    any other extraordinary circumstances of the Participant if
                  such circumstances would result in a present or impending
                  critical financial need which the Participant is unable to
                  satisfy with funds reasonably available from other sources.

   c. Except as otherwise provided in this Article 6, no portion of a
      Participant's Account may be withdrawn prior to the date the Participant
      elected in the Deferral Agreement.

6.06  DESIGNATION OF BENEFICIARY

      A Participant may, in a time and manner determined by the Plan
      Administrator, designate a Beneficiary (which may include the
      Participant's estate) to receive any benefits which may be payable under
      this Plan upon his death. If the Participant fails to designate a
      Beneficiary, or if the Beneficiary fails to survive the Participant, such
      benefits shall be paid to the Participant's estate. A Participant may
      revoke or change any designation made under this Section 6.06 in a time
      and manner determined by the Plan Administrator.

                       ARTICLE 7. AMENDMENT OR TERMINATION

7.01  RIGHT TO TERMINATE

      The Company may, by action of the Compensation Committee, terminate this
      Plan and the related Deferral Agreements at any time. In the event the
      Plan and related Deferral Agreements are terminated, each Participant or
      Beneficiary shall receive a single sum payment in cash equal to the
      balance of his Account. The single sum payment shall be made as soon as
      practicable following the date the Plan is terminated and

                                       6



      shall be in lieu of any other benefit which may be payable to the
      Participant or Beneficiary under this Plan.

7.02  RIGHT TO AMEND

      The Company may, by action of the Compensation Committee, amend this Plan
      and the related Deferral Agreements in any way on 30 days prior notice to
      the Participants. If any amendment to this Plan or to the Deferral
      Agreements shall adversely affect the rights of a Participant, such
      Participant must consent in writing to such amendment prior to its
      effective date. If such Participant does not consent to the amendment, the
      Plan and related Deferral Agreements shall be deemed terminated with
      respect to such Participant and he shall receive a single sum payment of
      his Account in cash as soon thereafter as is practicable. Notwithstanding
      the foregoing, a change in any investment index options under Section
      5.01, or the imposition of additional limits upon future deferral
      elections shall not be deemed to adversely affect any Participant's
      rights.

                          ARTICLE 8. GENERAL PROVISIONS

8.01  ADMINISTRATION

   a. This Plan shall be administered by the Plan Administrator appointed by the
      Administrative Committee. The Administrative Committee shall establish
      rules for the administration of the Plan and shall have discretionary
      authority to interpret and construe the Plan. The Plan Administrator shall
      take any other action necessary to the proper operation of the Plan.

   b. Prior to paying any benefit under this Plan, the Plan Administrator may
      require the Participant or Beneficiary to provide such information or
      material as the Plan Administrator, in his sole discretion, shall deem
      necessary to make any determination he may be required to make under this
      Plan. The Plan Administrator may withhold payment of any benefit under
      this Plan until he receives all such information and material and is
      reasonably satisfied of its accuracy.

   c. Any disputes between a Participant or Beneficiary and the Plan
      Administrator shall be subject to resolution by determination of the
      Administrative Committee.

   d. All acts and decisions of the Administrative Committee shall be final and
      binding upon all Participants, former Participants, Beneficiaries, and
      employees of the Company.

8.02  NO FUNDING

      Nothing contained in this Plan or in a Deferral Agreement shall require
      the Company to segregate any monies from its general funds, or to create
      any trusts, or to make any special deposits for any amounts to be paid to
      any Participant, former Participant or Beneficiary. Neither a Participant,
      former Participant, Beneficiary, or their heirs or personal
      representatives, shall have any right, title or interest in or to any
      funds of the Company on account of this Plan or on account of having
      completed a Deferral Agreement.

8.03  NO CONTRACT OF EMPLOYMENT

      The existence of this Plan or of a Deferral Agreement does not constitute
      a contract for continued employment between an Eligible Executive or a
      Participant and the Company. Except as otherwise limited by the terms of
      any valid employment contract or agreement entered into between the
      Company and an Eligible Executive or Participant, the Company reserves the
      right to modify an Eligible Executive's or Participant's remuneration and
      to terminate an Eligible Executive or a Participant for any reason and at
      any

                                       7



      time, not with standing the existence of this Plan or of a Deferral
      Agreement.

8.04  WITHHOLDING TAXES

      All payments under this Plan shall be net of an amount sufficient to
      satisfy any federal, state or local withholding tax requirements.

8.05  NONALIENATION

      The right to receive any benefit under this Plan may not be transferred,
      assigned, pledged or encumbered by a Participant, former Participant, or
      Beneficiary in any manner and any attempt to do so shall be void. No such
      benefit shall be subject to garnishment, attachment or other legal or
      equitable process without the prior written consent of the Company.

8.06  CLAIMS PROCEDURE

      The Plan Administrator shall provide adequate notice in writing to any
      Participant, former Participant or Beneficiary whose claim for a
      withdrawal or payment under this Plan has been denied, setting forth the
      specific reasons for such denial. A reasonable opportunity shall be
      afforded to any such Participant, former Participant or Beneficiary for a
      full and fair review by the Administrative Committee of a decision denying
      the claim. The Administrative Committee's decision on any such review
      shall be final and binding on the Participant, former Participant or
      Beneficiary and all other interested persons.

8.07  FACILITY OF PAYMENT

      In the event the Administrative Committee shall find that a Participant or
      his Beneficiary is unable to care for his affairs because of illness or
      accident, the Administrative Committee may direct that any benefit payment
      due, unless claim shall have been made therefore by a duly appointed legal
      representative, be paid to his spouse, a child, a parent or other blood
      relative, or to a person with whom he resides, and any such payment so
      made shall be a complete discharge of the liabilities of the Plan and/or
      the Company therefore.

8.08  LIMITATION OF LIABILITY

      The Company, the members of the Compensation Committee and of the
      Administrative Committee, the Plan Administrator, and any officer,
      employee or agent of the Company shall not incur any liability
      individually or on behalf of any other individuals or on behalf of the
      Company for any act or failure to act made in good faith in relation to
      this Plan.

8.09  INDEMNIFICATION

      The members of the Compensation Committee and of the Administrative
      Committee, the Plan Administrator, and the officers, employees and agents
      of the Company shall, unless prohibited by any applicable law, be
      indemnified by the Company against any and all liabilities arising by
      reason of any act, or failure to act, in relation to the Plan including,
      without limitation, expenses reasonably incurred in the defense of any
      claim relating to the Plan, amounts paid in any compromise or settlement
      relating to the Plan and any civil penalty or excise tax imposed by any
      applicable statute, if:

   a. the act or failure to act shall have occurred

            1.    in the course of the person's service as an officer, employee
                  or agent of the Company or as a member of the Compensation
                  Committee or of the Administrative Committee or as the Plan
                  Administrator, or

            2.    in connection with a service provided with or without charge
                  to the Plan or to the Participants or

                                       8



                  Beneficiaries of the Plan, if such service was requested by
                  the Compensation Committee or the Administrative Committee or
                  the Plan Administrator, and

   b. the act or failure to act was made in good faith. This determination shall
      be made by the Company and shall be conclusive.

      The foregoing indemnification shall be from the assets of the Company.
      However, the Company's obligation hereunder shall be offset to the extent
      of any otherwise applicable insurance coverage under a policy maintained
      by the Company or any other person, or other source of indemnification.

8.10  PAYMENT OF EXPENSES

      All administrative expenses of the Plan and all benefits under the Plan
      shall be paid from the general assets of the Company.

8.11  CONSTRUCTION

   a. The Plan is intended to constitute an unfunded deferred compensation
      arrangement for a select group of management or highly compensated
      personnel. All rights hereunder shall be governed by and construed in
      accordance with the Employee Retirement Income Security Act of 1974, as
      amended, and the laws of the Commonwealth of Pennsylvania.

   b. The masculine pronoun shall mean the feminine wherever appropriate.

   c. The captions inserted in the Plan are inserted as a matter of convenience
      and shall not affect the construction of the Plan.

IN WITNESS WHEREOF, Bon-Ton Department Stores, Inc. has caused this Plan to be
amended this 15th day of March, 2005.

                                          BON-TON DEPARTMENT STORES, INC.

                                       9

EX-10.16

                                                                   EXHIBIT 10.16

          CHANGE OF CONTROL AND MATERIAL TRANSACTION SEVERANCE PLAN FOR
                     CERTAIN EMPLOYEES OF ACQUIRED EMPLOYERS

      On April 3, 2006, the Human Resources and Compensation Committee (the
"HRCC") of the Board of Directors (the "Board") of The Bon-Ton Stores, Inc. (the
"Company") adopted a Change of Control and Material Transaction Severance Plan
for Certain Employees of Acquired Employers (the "Severance Plan"), to protect
certain former participants in the Saks Incorporated Change of Control and
Material Transaction Severance Plan (the "Saks Plan") as required under the
terms of the Purchase Agreement between Saks Incorporated and the Company dated
October 24, 2005 and amended on February 16, 2006 (the "Purchase Agreement").
The Severance Plan was effective as of 12:01 a.m., Chicago time, on March 5,
2006. The new employees of the Company who are former employees of Saks
Incorporated and were participants under the Saks Plan are eligible to
participate in the Severance Plan if they became an employee of the Company on
or shortly after the date the Severance Plan became effective. The Severance
Plan provides for severance benefits if (1) a participant's employment is
terminated by the Company without Cause (as defined in the Severance Plan) and
as a result of, and within two years after, a Change of Control or (2) a
participant terminates his or her employment with the Company for Good Reason
(as defined in the Severance Plan) within two years after a Change of Control.
For purposes of the Severance Plan, "Change of Control" means consummation of
the transactions contemplated by the Purchase Agreement. The severance benefit
is calculated based on the title a participant held with Saks Incorporated
immediately prior to the effective date of the Severance Plan, as indicated in
the following chart:

                  SCHEDULE OF BENEFITS UNDER THE SEVERANCE PLAN



POSITION OF EMPLOYMENT IMMEDIATELY PRIOR
TO EFFECTIVE DATE OF THE SEVERANCE PLAN                 SEVERANCE PAYMENT IN ACCORDANCE WITH
(GROUP OF DESIGNATED EXECUTIVES)                        SECTION 3.C OF THE SEVERANCE PLAN
- ----------------------------------------                ------------------------------------
                                                     
Division Presidents and Corporate Executive Vice        104 weeks
Presidents and Senior Vice Presidents

Division Executive Vice Presidents and Senior Vice      78 weeks
Presidents

Corporate Vice Presidents and Division DMMs             52 weeks

Director-level associates and Buyers                    26 weeks

Other exempt associates                                 (1) 2 weeks plus (2) 1 week per
                                                        completed year of service measured
                                                        from employment anniversary date to
                                                        employment anniversary date up to a
                                                        maximum of 12 weeks. For example,
                                                        the total severance payment for
                                                        associates with 5 completed years of
                                                        service would be 7 weeks of base
                                                        salary and the total severance
                                                        payment for associates with 12 or
                                                        more completed years of service
                                                        would be 14 weeks of base salary.


      The Severance Plan is intended to qualify as an unfunded welfare plan
under Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended.

EX-10.22(C)

                                                                EXHIBIT 10.22(c)

              SECOND AMENDMENT TO THE CREDIT CARD PROGRAM AGREEMENT

      This Second Amendment to the Credit Card Program Agreement ("Second
Amendment") is made and entered into as of the 15th day of December, 2006
("Amendment Effective Date") by and between HSBC Bank Nevada, National
Association ("HSBC"), and The Bon-Ton Stores, Inc. ("Bon-Ton") to that certain
Credit Card Program Agreement, dated as of June 20, 2005 ("Agreement"), as
amended by the First Amendment to the Credit Card Program Agreement dated
effective as of March 1, 2006.

      WHEREAS, the parties recognize that Bon-Ton has purchased from Belk, Inc.
("Belk") four (4) Parisian-branded retail store locations ("the Parisian
Stores");

      WHEREAS, the parties recognize that, in connection with the purchase of
the Parisian Stores, that HSBC has agreed to purchase from GE Money Bank ("GE")
certain private label credit card accounts associated with the Parisian Stores
("the Parisian Accounts"); and,

      WHEREAS, the parties desire to further amend the Agreement to reflect
their agreement as to the incorporation of the Parisian Accounts into the
Program.

      NOW THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth below and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, HSBC and Bon-Ton do
hereby agree as follows:

      1. HSBC will purchase the Parisian Accounts from GE pursuant to a Purchase
and Sale Agreement to be executed concurrently with this Second Amendment;
further, the parties agree that the Parisian Accounts will be considered
"Accounts" as defined in the Agreement, with the exceptions as agreed to in
Section 3 of this Second Amendment.

      2. The parties agree that during the period of time beginning with the
Amendment Effective Date and ending at 11:59 p.m. on February 3, 2007, the
Parisian Accounts will be serviced pursuant to an agreement that HSBC Private
Label Corporation (f/k/a Household Corporation) an Affiliate of HSBC, has with
Jackson Office Properties, Inc. (f/k/a North Park Fixtures, Inc., the successor
to McRae's, Inc.), dated April 15, 2003 ("the Servicing Agreement"). Beginning
on February 4, 2007, the Parisian Accounts will be serviced by HSBC Private
Label Corporation.

      3. The parties agree to the provisions contained in Schedule 3 to this
Second Amendment.

      To the extent the provisions of this Second Amendment are inconsistent
with the Agreement, this Second Amendment shall govern.

      This Second Amendment supersedes all prior communications and shall be
binding upon and inure to the benefit of the parties, their respective
successors and assigns.

      All capitalized terms not otherwise defined herein shall have the same
meaning afforded them in the Agreement.

      Except as otherwise modified herein, the terms and conditions of the
Agreement remain in full force and effect.

      In witness whereof, the parties hereby execute this Second Amendment by
their authorized representatives.

The Bon-Ton Stores, Inc.                 HSBC Bank Nevada, National Association

By: /s/ H. Todd Dissinger                By: /s/ Asim Majeed
    ------------------------                 --------------------
H. Todd Dissinger                        Asim Majeed
Vice President and Secretary             Executive Vice President

                                       1

EX-10.28(C)

                                                               EXHIBIT 10.28 (c)


                               AMENDMENT NO. 2 TO
               AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT
                          (SELLER AS SERVICE PROVIDER)

          This AMENDMENT NO. 2 TO AMENDED AND RESTATED TRANSITION SERVICES
AGREEMENT (SELLER AS SERVICE PROVIDER) (this "Amendment"), dated as of December
20, 2006, is made by and between Saks Incorporated, a Tennessee corporation
("Seller"), and The Bon-Ton Stores, Inc., a Pennsylvania corporation ("Buyer").

                                    RECITALS

          WHEREAS, Seller and Buyer are parties to that certain Amended and
Restated Transition Services Agreement (Seller as Service Provider), dated as of
March 10, 2006 and effective as of March 5, 2006, as amended by that certain
Amendment No. 1, dated as of June 5, 2006 (as amended, the "Agreement"); and

          WHEREAS, the parties desire to amend the Agreement to extend the term
during which certain Services are provided by Seller or its Affiliates to Buyer
and its Affiliates (with respect to the Business) and terminate or reduce other
Services;

          NOW, THEREFORE, the parties hereto agree as follows:

          1. Termination of Procurement and Sign Making Service. Pursuant to
Section 8 of the Agreement, Buyer hereby terminates the Procurement and Sign
Making Service effective as of October 4, 2006. Buyer acknowledges and agrees
that, pursuant to Section 7(d) of the Agreement, it shall remain liable for (i)
the payment of fees and expenses accruing for the period prior to termination
even though such fees may not become due until after termination and (ii) 50% of
the monthly fees associated with the Procurement and Sign Making Service (in the
amount of $28,382 per month) from October 5, 2006 through March 4, 2007.

          2. Amendment and Restatement of Annex A. The parties acknowledge and
agree that Annex A to the Agreement shall be amended and restated in its
entirety as set forth in Schedule I hereto (and, where applicable, Annex B to
the Agreement shall be deemed to be modified by the amendments to Annex A).

          3. Waiver of Extension and Termination Rights With Respect to Certain
Services. In consideration for the reductions in services and monthly fees for
Services as set forth in Section 2 of this Amendment, Buyer acknowledges and
agrees that, notwithstanding Sections 7 and 8 of the Agreement, except as
expressly set forth in this Amendment, Buyer shall have no further right to
renew or terminate early any of the following Services: (a) Loss Prevention, (b)
Logistics, (c) Accounting, (d) Bankcard Processing, (e) Financial Planning and
Internal Reporting (Hyperion), (f) Store Planning, Construction, Facilities
Maintenance and Energy, (g) Information Technology/ Telecommunications, (h) Real
Estate, and (i) Procurement and Sign Making.



          4. Capitalized Terms. Terms that are used but not defined herein shall
have the meanings ascribed to such terms in the Agreement.

          5. Execution in Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.

                            [Signature Page Follows]

                                       2


          IN WITNESS WHEREOF, each of the parties has caused this Amendment to
be duly executed as of the date set forth above.

                                 SAKS INCORPORATED

                                 By:  /s/ Charles J. Hansen
                                      -----------------------------------
                                      Name:  Charles J. Hansen
                                      Title: Executive Vice President and
                                             General Counsel

                                 THE BON-TON STORES, INC.

                                 By:  /s/ Keith E. Plowman
                                      -----------------------------------
                                      Name:  Keith E. Plowman
                                      Title: EVP & CFO

                      Signature Page to Amendment No. 2 to
 Amended and Restated Transition Services Agreement (Seller as Service Provider)

EX-10.29(A)

                                                                EXHIBIT 10.29(a)

                            CARSON PIRIE SCOTT & CO.

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

          As Adopted Effective February 1, 1990 (and including amendments
through ____________________________, 1996)




                            CARSON PIRIE SCOTT & CO.

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                      As Adopted Effective February 1, 1990
               (and including amendments through October 4, 1994)

     This Plan, originally effective as of February 1, 1990, was adopted by P.A.
Bergner & Co., the predecessor to Carson Pirie Scott & Co., as an unfunded plan
for the purpose of providing supplemental retirement benefits to a select group
of management or highly compensated employees.

     The Plan has been subsequently amended to clarify the Plan's vesting
formula, to reflect the sponsor's corporate reorganization and to address the
effect of a change in control. Such amendments, through October 4, 1994, are
hereby reflected in this restated document.



                            CARSON PIRIE SCOTT & CO.

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                      As Adopted Effective February 1, 1990
               (and including amendments through October 4, 1994)

                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                         
ARTICLE 1  -  DEFINITIONS                                                     1

ARTICLE 2  -  ELIGIBILITY AND PARTICIPATION                                   6

        2.1.  Eligibility                                                     6

        2.2.  Participation                                                   6

        2.3.  Re-Employed Participants                                        6

        2.4.  Termination of Participation                                    7

ARTICLE 3  -  VESTING AND FORFEITURES                                         8

        3.1.  Vesting                                                         8

        3.2.  Forfeiture Upon Death                                           8

        3.3.  Other Forfeitures                                               9

        3.4.  Non-Competition                                                 9

ARTICLE 4  -  RETIREMENT BENEFITS                                            11

        4.1.  Accrued Benefit                                                11

        4.2.  Time of Payment                                                12

        4.3.  Form of Payment                                                12

        4.4.  Death Benefit                                                  13

        4.5.  Optional Benefit Forms                                         13

        4.6.  Simultaneous Death                                             14

        4.7.  Designation of Beneficiary                                     14


                                                                         
ARTICLE 5  -  CLAIMS                                                         15

        5.1.  Claims Procedure                                               15

        5.2.  Claims Review Procedure                                        15

ARTICLE 6  -  COMMITTEES                                                     17

        6.1.  Quorum                                                         17

        6.2.  Duties                                                         17

        6.3.  Binding Authority                                              18

        6.4.  Exculpation                                                    18

        6.5.  Indemnification                                                19

        6.6.  Compensation                                                   19

        6.7.  Information                                                    19

        6.8.  Self-interest                                                  20

ARTICLE 7  -  GENERAL PROVISIONS                                             21

        7.1.  Non-Property Interest                                          21

        7.2.  Disclosure                                                     21

        7.3.  Other Rights                                                   21

        7.4.  Amendment or Termination                                       22

        7.5.  Severability                                                   22

        7.6.  No Employment Rights                                           22

        7.7.  Incapacity                                                     23

        7.8.  Absence of Security Interest                                   23

        7.9.  Transferability of Rights                                      23

        7.10. Governing Law                                                  24

ARTICLE 8  -  CHANGE IN CONTROL                                              25

        8.1   Effect of Change in Control on Vesting                         25

        8.2   Effect of Change in Control on Distributions                   25

        8.3.  Change in Control                                              26



                                       ii


                                    ARTICLE 1

                                   DEFINITIONS

The following words and phrases as used herein shall have the following
meanings, unless a different meaning is required by the context:

1.1.   "ACCRUED BENEFIT" means, with respect to each Participant, the amount
       determined in accordance with Section 4.1.

1.2.   "ACTUARIAL ASSUMPTIONS" means the actuarial assumptions established from
       time to time by the Retirement Plan Committee in accordance with Section
       6.2. Initially, such actuarial assumptions shall be based or the 1983
       Group Annuity Mortality Table and an 8% annual interest rate.

1.3.   "AVERAGE COMPENSATION" means, with respect to each Participant, the
       average of such Participant's Compensation based on any five calendar
       years of the Company (whether or not consecutive) out of such
       Participant's last ten years of service as an Eligible Employee in which
       such Participant earned the highest amount of Compensation.

1.4.   "CAUSE" means any of the following:

       (i) fraud, embezzlement, theft or dishonesty against the Company or any
       of its subsidiaries or affiliates or the Board of Directors of the
       Company;

       (ii) any felony or misdemeanor involving moral turpitude for which a
       Participant is convicted or pleads nolo contendere or which, in the
       reasonable opinion of the

                                      -1-


       Board of Directors of the Company, may cause embarrassment to the Company
       or any of its subsidiaries or affiliates;

       or

       (iii) any failure to follow reasonable directions or instructions of the
       Chief Executive Officer or Board of Directors of the Company or a breach
       of the Participant's material obligations under any employment agreement
       with the Company, and such failure or breach shall have continued for a
       period of 30 days after receipt of written notice thereof from the Chief
       Executive Officer or Board of Directors of the Company.

1.5.   "CODE" means the Internal Revenue Code of 1986, amended from time to
       time.

1.6.   "COMPANY" means Carson Pirie Scott & Co., and its successors and assigns.

1.7.   "COMPENSATION" means, with respect to any Participant during a calendar
       year, the base salary plus regular annual bonuses awarded under the
       Carson Pirie Scott & Co. Executive Bonus Plan, if any, paid to such
       Participant for service as an Eligible Employee during such calendar
       year, including salary deferral contributions made in accordance with
       Section 401(k) of the Code and deferrals to the Carson Pirie Scott & Co.
       Deferred Compensation Plan, but excluding any other compensation
       (including, but not limited to, amounts payable under the P. A. Bergner &
       Co. Incentive Compensation Plan, the Carson Pirie Scott & Co. 1993 Stock
       Incentive Plan, the Carson Pirie Scott & Co.

                                      -2-


       Long-Term Incentive Plan, and any similar long-term incentive plan or
       incentive compensation plan, any special bonuses or any non-cash
       compensation, and any severance payments). Compensation paid to
       Participant for service as an Eligible Employee for less than a full
       calendar year shall not be annualized.

1.8.   "COMPENSATION COMMITTEE" means the Compensation Committee of the Board of
       Directors of the Company.

1.9.   "EC BENEFIT" shall have the meaning set forth in Section 4.1.

1.10.  "ELIGIBLE EMPLOYEE" MEANS any person who is an Employee and is eligible
       to participate in the Plan on or after February 1, 1990 in accordance
       with the provisions of Article II, except that any Employee with an
       individual supplemental retirement income arrangement with the Company or
       any of its subsidiaries or affiliates shall be eligible only to the
       extent provided in writing under such arrangement or other agreement with
       the Company.

1.11.  "EMPLOYEE" means any person employed by the Company or any of its
       subsidiaries or affiliates other than as a director, consultant or
       independent contractor, and any other person who receives severance pay
       from the Company and is entitled to be treated as an employee in
       accordance with an employment agreement.

1.12.  "EMPLOYERS" means the Company and any of its subsidiaries or affiliates
       participating in the Plan pursuant to a

                                      -3-


       written designation of the Board of Directors of the Company.

1.13.  "EXECUTIVE COMMITTEE" means the Executive Committee of the Company, the
       members of which are appointed from time to time by the Chief Executive
       Officer of the Company subject to written confirmation by the
       Compensation Committee or Board of Directors of the Company.

1.14.  "OFFSETS" shall have the meaning set forth in Section 4.1.

1.15.  "PARTICIPANT" means any Eligible Employee who has received a written
       notice of his or her participation in the Plan or any former Eligible
       Employee who is entitled to benefits hereunder.

1.16.  "PLAN" means the Carson Pirie Scott & Co. Supplemental Executive
       Retirement Plan, as set forth herein and as amended from time to time.

1.17.  "PLAN YEAR" means the twelve-month period commencing on February 1 of
       each year, beginning with February 1, 1990.

1.18.  "RETIREMENT PLAN COMMITTEE" means the Retirement Plan Committee of the
       Company, the members of which are appointed from time to time by the
       Board of Directors of the Company.

1.19.  "SEC BENEFIT" shall have the meaning set forth in Section 4.1.

1.20.  "SENIOR EXECUTIVE COMMITTEE" means the Senior Executive Committee of the
       Company, the members of which are appointed from time to time by the
       Chief Executive Officer of the Company, subject to written confirmation
       by the

                                      -4-


       Compensation Committee or the Board of Directors of the Company.

1.21.  "START-UP BENEFIT" means the initial amount, if any, of a Participant's
       Accrued Benefit as may be determined by the Compensation Committee in its
       sole discretion and set forth in a written notice of participation
       provided to the Participant upon his or her admission as a Participant in
       the Plan.

1.22.  "TOTAL DISABILITY" means any permanent mental or physical condition which
       (i) prevents a Participant from reasonably discharging the duties of his
       or her position, (ii) is attested to in writing from time to time by a
       physician selected by the Company and reasonably acceptable to the
       Participant, and (iii) has continued for at least 6 consecutive months or
       for a period aggregating 6 months in any period of 18 consecutive months
       for the same or related condition.

1.23.  "YEAR OF SERVICE" means, with respect to each Participant, each
       twelve-month period of service as an Employee without duplication.
       Periods of service of fewer than twelve months shall be disregarded.

1.24.  "VESTED ACCRUED BENEFIT" means, as of any determination date, the vested
       portion of a Participant's Accrued Benefit determined in accordance with
       Article 3 and the actuarial assumptions in effect on the date of the
       Participant's termination of his or her status as an Employee.

                                      -5-


                                    ARTICLE 2

                         ELIGIBILITY AND PARTICIPATION

2.1.   Eligibility. Each Employee who is a member of the Senior Executive
       Committee or Executive Committee shall be eligible to participate in the
       Plan, subject to written approval of such eligibility and participation
       by the Compensation Committee in its sole discretion. In addition, the
       Chief Executive Officer of the Company may from time to time submit names
       of Employees to the Compensation Committee for its approval of such
       Employees' participation in the Plan, which approval shall be at the sole
       discretion of the Compensation Committee.

2.2.   Participation. The Compensation Committee shall notify each Eligible
       Employee in writing of his or her eligibility to participate in the Plan
       and, in the sole discretion of the Compensation Committee, of any
       Start-Up Benefit granted to such Eligible Employee. Eligible Employees
       shall not become Participants until they have delivered to the
       Compensation Committee their written acceptance of the terms and
       conditions of the Plan and of any additional terms and conditions of
       their accrual of benefits pursuant to Article 4.

2.3.   Re-Employed Participants. Any former Participant who has forfeited all or
       any part of his or her Accrued Benefit by reason of a termination of
       status as an Employee prior to age 55 and who is subsequently re-employed
       as an Employee

                                      -6-


       on a substantially full-time basis shall be eligible to participate in
       the Plan in accordance with Sections 2.1 and 2.2, except that, unless
       otherwise agreed to in writing by the Compensation Committee, his or her
       prior Accrued Benefit shall remain forfeited and not be restored until
       the Participant has completed 5 Years of Service as an Eligible Employee
       following such re-employment. Any former Participant who terminates his
       or her status as an Employee on or after attaining age 55 shall be
       eligible to participate in the Plan upon re-employment as an Eligible
       Employee on a substantially full-time basis, but payment of such
       Participant's benefit under the Plan shall be suspended during such
       re-employment.

2.4.   Termination of Participation. The Compensation Committee reserves the
       right, in its sole discretion, to suspend or terminate at any time any
       Participant's participation in all or any portion of the Plan by giving
       written notice thereof to the Participant, except that in no event shall
       such suspension or termination reduce the Vested Accrued Benefit of such
       Participant. A notice of suspension or termination of participation may
       relate to, but need not be limited to, a Participant's eligibility for
       benefit accrual, vesting or redetermination of Average Compensation, or
       all of the above.

                                      -7-


                                    ARTICLE 3

                             VESTING AND FORFEITURES

3.1.   Vesting. No Participant (other than members of the Senior Executive
       Committee on January 1, 1991) shall become vested under the Plan with
       respect to any Accrued Benefit prior to attaining age 55 while an
       Employee. Subject to the other provisions of this Article and Section
       2.4, a Participant who has attained age 55 while an Employee and members
       of the Senior Executive Committee on January 1, 1991, shall become vested
       under this Plan with respect to his or her Accrued Benefit in accordance
       with the vesting schedule set forth below:



                                                                 Vested
Years of Service                                               Percentage
- ----------------                                               ----------
                                                            
less than 5                                                        0%
   5                                                              50%
   6                                                              60%
   7                                                              70%
   8                                                              80%
   9                                                              90%
10 or more                                                       100%


       In addition, a Participant shall become vested under the Plan, regardless
       of Years of Service, (i) 100% upon such Participant's incurrence of a
       Total Disability while an Employee or (ii) in accordance with the terms
       of any employment agreement between such Participant and the Company.

3.2.   Forfeiture Upon Death. Notwithstanding any other provision of the Plan, a
       Participant shall forfeit his or her Vested Accrued Benefit, in its
       entirety, upon the

                                      -8-


       Participant's death, unless the Participant has terminated service as an
       Employee prior to his or her death and has elected to receive payment
       under the Plan in a form providing a survivor benefit, in which event
       such survivor benefit shall be paid in accordance with its terms.

3.3.   Other Forfeitures. A Participant's Vested Accrued Benefit shall, to the
       extent not already paid, be forfeited in its entirety upon the
       Participant's termination of his or her status as an Employee for Cause
       or upon his or her breach of the provisions of Section 3.4. In addition,
       a Participant's Accrued Benefit, to the extent not vested in accordance
       with Section 3.1, shall be forfeited in its entirety upon the
       Participant's termination of service (other than for Total Disability) as
       an Employee prior to age 55.

3.4.   Non-Competition. The payment of benefits defined in Article 4 to any
       Participant shall cease and, to the maximum extent permitted by law, all
       unpaid amounts shall be forfeited if, (i) the Participant uses or
       discloses to any third person any material trade secret or other material
       confidential information of the Company or its subsidiaries or
       affiliates, or (ii) within eighteen months following the Participant's
       termination of employment with the Company or any of its subsidiaries or
       affiliates before attaining age 62, the Participant competes, directly or
       indirectly, with any business of the Company or any of its subsidiaries
       or affiliates in which the

                                      -9-


       Participant was engaged in at the time of such termination of employment
       (the "Former Business Activity"), unless such competition occurs more
       than 25 miles from any location of the Former Business Activity in
       existence at the time of such termination or the Participant obtains the
       prior written consent of the Compensation Committee. This Section will be
       applicable to competition as an investor, employee, consultant, officer
       or director; provided that nothing in this Section 3.4 shall prevent any
       such Participant's investment in the securities of any company so long as
       he does not own, directly or indirectly, more than 5% of the voting stock
       of such company.

                                      -10-


                                    ARTICLE 4

                               RETIREMENT BENEFITS

4.1.   Accrued Benefit. The Accrued Benefit of a Participant as of any
       determination date shall be stated in the form of a single life annuity
       for the Participant, commencing as of the date the Participant attains
       age 62 or, if later, the determination date (using the actuarial
       assumptions in effect on such date), and shall be for an amount equal to
       the sum of the Participant's EC Benefit plus SEC Benefit (which sum shall
       not be less than the Participant's Start-up Benefit or greater than 40%
       of the Participant's Average Compensation), reduced by the Offsets,
       further described below:

               EC Benefit. A Participant's EC Benefit is the product of (a)
          .243% (.00243), (b) the Participant's Average Compensation, and (c)
          the number of the Participant's calendar month of service as a member
          of the Executive Committee and not of the Senior Executive Committee;
          provided that in no event shall such product exceed 35% of the
          Participant's Average Compensation.

               SEC Benefit. A Participant's SEC Benefit is the product of (a)
          .278% (.00278), (b) the Participant's Average Compensation, and (c)
          the number of the Participant's calendar months of service as a member
          of the Senior Executive Committee; provided that in no event shall
          such product exceed 40% of the Participant's Average Compensation.

               Offsets. A Participant's Offsets are as follows: (i) The value of
          any benefit payable under any defined benefit plan of the Company or
          any of its subsidiaries or affiliates, plus (ii) the value of any
          vested benefit under any defined benefit plan or non-qualified
          supplemental retirement plan with respect to any business acquired by
          the Company or any of its subsidiaries or affiliates that has accrued
          to the Participant prior to the date of such

                                      -11-


          acquisition, plus (iii) 100% of the Participant's Primary Social
          Security Benefit, plus (iv) the value of any other retirement benefit
          provided by any retirement plan maintained by the Company or any of
          its subsidiaries or affiliates other than benefits under a 401(k)
          plan, the Carson Pirie Scott & Co. Deferred Compensation Plan, and the
          P.A. Bergner & Co. Incentive Compensation Plan.

       A Participant who attains age 62 while an Employee shall not cease to
       accrue further benefits under the Plan unless the Participant has reached
       the maximum benefit limit set forth in Section 4.1. If the Participant
       accrues a further benefit after attaining age 62, the Participant's
       Accrued Benefit shall be determined as of the date of the last such
       accrual.

4.2.   Time of Payment. A Participant shall be entitled to payment of the vested
       portion of his or her Accrued Benefit commencing upon the Participant's
       termination of his or her status as an Employee on or after attaining
       age 62; provided, however, that the Retirement Plan Committee in its
       discretion may, at the Participant's written request, accelerate or defer
       the commencement of payment to the date requested by the Participant. If
       a Participant becomes re-employed as an Employee on a substantially
       full-time basis after payment has commenced, payments under the Plan
       shall be suspended until the Participant terminates such reemployment.

4.3.   Form of Payment. Unless an optional form of benefit is elected by a
       Participant in accordance with Section 4.4, a Participant's Vested
       Accrued Benefit shall be payable in the form of an annuity for the life
       of the Participant in

                                      -12-


       accordance with the payroll practices of the Company for its executive
       officers. Actuarial principles adopted from time to time by the
       Retirement Plan Committee shall be used to determine the amount of each
       periodic payment and of the optional forms of payment. The amount of
       benefit under the Plan that would otherwise be payable to a Participant
       at age 62 shall be actuarially reduced, in accordance with the Actuarial
       Assumptions, if it commences to be paid prior to the Participant's 62nd
       birthday. If the commencement of payment of a Participant's benefit is
       deferred by the Retirement Plan Committee pursuant to Section 4.2 (other
       than by reason of re-employment) beyond the Participant's 62nd birthday,
       such benefit shall be actuarially increased in accordance with the
       Actuarial Assumptions.

4.4.   Death Benefit. A death benefit shall be payable to the designated
       beneficiary of a Participant upon such Participant's death only if an
       optional form of benefit providing for a survivor benefit is selected by
       the Participant. Such death benefit shall be payable only if such
       Participant's death occurs at a time he is receiving benefits under the
       Plan under Section 4.2 (or was receiving benefits but had such benefits
       suspended as a result of reemployment in accordance with Section 4.2).

4.5.   Optional Benefit Forms. When a Participant who is entitled to a Vested
       Accrued Benefit terminates service as an Employee, the Participant may
       elect an optional form of

                                      -13-


       payment (other than a lump sum) as permitted by the Retirement Plan
       Committee at the time of such termination. All optional forms of payment
       shall be actuarially equivalent to the normal form of payment expressed
       in Section 4.3. The Retirement Plan Committee may, in its sole
       discretion, select the optional forms of payment permitted under the Plan
       except such optional forms shall always include (i) a joint and 50%
       survivor annuity and (ii) a joint and 100% survivor annuity. The
       Retirement Plan Committee, in its sole discretion, may prepay, in
       accordance with reasonable actuarial assumptions adopted from time to
       time by the Retirement Plan Committee, all or any portion of a
       Participant's Vested Accrued Benefit without penalty.

4.6.   Simultaneous Death. In the event of the simultaneous death of a
       Participant and his or her designated beneficiary, it shall be presumed
       for purposes of this Article that the beneficiary of the Participant
       predeceased the Participant.

4.7.   Designation of Beneficiary. A Participant who elects an optional form of
       benefit providing for a survivor benefit in the event of the
       Participant's death shall designate in writing one or more beneficiaries
       to receive such survivor benefit. Any such designation shall be
       irrevocable once payments have commenced.

                                      -14-


                                    ARTICLE 5

                                     CLAIMS

5.1.   Claims Procedure. If any Participant or his or her designated beneficiary
       has a claim for benefits which is not being paid, such claimant may file
       with the Retirement Plan Committee a written claim setting forth the
       amount and nature of the claim, supporting facts, and the claimant's
       address. The Retirement Plan Committee shall notify each claimant of its
       decision in writing by registered or certified mail within 60 days after
       its receipt of a claim or, under special circumstances, within 120 days
       after its receipt of a claim. If a claim is denied, the written notice of
       denial shall set forth the reasons for such denial, refer to pertinent
       Plan provisions on which the denial is based, describe any additional
       material or information necessary for the claimant to realize the claim,
       and explain the claim review procedure under the Plan.

5.2.   Claims Review Procedure. A claimant whose claim has been denied or such
       claimant's duly authorized representative may file, within 60 days after
       notice of such denial is received by the claimant, a written request for
       review of such claim by the Compensation Committee. If a request is so
       filed, the Compensation Committee shall review the claim and notify the
       claimant in writing of its decision within 30 days after receipt of such
       request. In special

                                      -15-


       circumstances, the Compensation Committee may extend for up to 30
       additional days the deadline for its decision. The notice of the final
       decision of the Compensation Committee shall include the reasons for its
       decision and specific references to the Plan provisions on which the
       decision is based. The decision of the Compensation Committee shall be
       final and binding on all parties.

                                      -16-


                                    ARTICLE 6

                                   COMMITTEES

6.1.   Quorum. A majority of the members of the Compensation Committee or
       Retirement Plan Committee, as the case may be, shall constitute a quorum
       for any meeting of such committee held with respect to the Plan, and the
       acts of a majority of the members of either such committee, whether at a
       meeting or approved in writing without a meeting shall be valid acts of
       such committee.

6.2.   Duties. The Compensation Committee shall have the power, discretion, and
       duty to do all things necessary or convenient to effect the intent and
       purposes of the Plan, whether or not such powers and duties are
       specifically set forth herein, and, by way of amplification and not
       limitation of the foregoing, the Compensation Committee shall have the
       discretion and power to:

       (A)    provide rules and regulations for the management, operation and
              administration of the Plan, and, from time to time, amend or
              supplement such rules and regulations;

       (B)    construe the Plan in its sole discretion to the fullest extent
              permitted by law, which shall be final and conclusive upon all
              parties hereto;

       (C)    correct any defect, supply any omission, or reconcile any
              inconsistency in the Plan in such manner and to

                                      -17-


              such extent as it shall deem appropriate in its sole discretion
              to carry the same into effect;

       (D)    establish actuarial principles and assumptions from time to time
              for use with respect to the Plan (unless such actuarial principles
              and assumptions are otherwise established by the Retirement Plan
              Committee as described in Sections 1.2 and 4.5); and

       (E)    delegate all or any portion of the power to manage, operate and
              administer the Plan to the Retirement Plan Committee.

6.3.   Binding Authority. The acts and determinations of the Compensation
       Committee or its duly authorized delegate within the powers conferred by
       the Plan shall be final and conclusive for all purposes of the Plan, and
       shall not be subject to any appeal or review. If challenged in court, any
       such act or determination shall not be subject to de novo review and
       shall not be overturned unless proven to be arbitrary and capricious
       based upon the evidence considered by the Compensation Committee or its
       duly authorized delegate at the time of such act or determination.

6.4.   Exculpation. No member of the Compensation Committee or the Retirement
       Plan Committee shall be directly or indirectly responsible or otherwise
       liable by reason of any action or default as a member of that committee
       or of the exercise of or failure to exercise any power or discretion as
       such member, except for such action,

                                      -18-


       default, exercise or failure to exercise resulting from such member's
       gross negligence or willful misconduct. No member of the Compensation
       Committee or the Retirement Plan Committee shall be liable in any way for
       the acts or defaults of any other member of the committee, or any of its
       advisors, agents or representatives.

6.5.   Indemnification. The Company shall indemnify and hold harmless each
       member of the Compensation Committee or Retirement Plan Committee against
       any and all expenses and liabilities arising out of his or her own
       membership on either such committee, except expenses and liabilities
       arising out of a member's gross negligence or willful misconduct.

6.6.   Compensation. Members of the Compensation Committee or Retirement Plan
       Committee who are employees of the Company shall not receive any
       compensation for their services rendered as such members. No other
       members of either such Committee shall receive any compensation for their
       services rendered as members unless otherwise agreed to by the Board of
       Directors of the Company, but such member shall be entitled to be
       reimbursed for reasonable expenses incurred by them in administering the
       Plan. Any such compensation and expenses, as well as extraordinary
       expenses authorized by the Company, shall be paid by the Company.

6.7.   Information. The Company may furnish to the Committees in writing all
       information the Committees may deem

                                      -19-


       appropriate for the exercise of their powers and duties in the
       administration of the Plan. Such information may include, but shall not
       be limited to, the names of all Participants, their earnings and their
       dates of birth,employment, termination of employment, retirement or
       death. Such information shall be conclusive for all purposes of the
       Plan, and the Committees shall be entitled to rely thereon without any
       investigation thereof.

6.8.   Self-interest. No member of the Compensation Committee or the Retirement
       Plan Committee may act, vote or otherwise influence a decision of either
       such committee specifically relating to his or her benefits, if any,
       under the Plan.

                                      -20-


                                    ARTICLE 7

                               GENERAL PROVISIONS

7.1.   Non-Property Interest. Any Participant who may have or claim any interest
       in or right to any compensation, payment, or benefit payable hereunder,
       shall rely solely upon the unsecured promise of the Company, as set forth
       herein for the payment thereof, and nothing herein contained shall be
       construed to give to or vest in the Participant or any other person now
       or at any time in the future, any right, title, interest, or claim in or
       to any specific asset, fund, reserve, account, insurance or annuity
       policy or contract, or other property of any kind whatsoever owned by the
       Company, or in which the Company may have any right, title, or interest,
       now or at any time in the future.

7.2.   Disclosure. The Retirement Plan Committee shall make available to each
       Participant for examination at the principal office of the Company (or at
       such other location as may be determined by the Retirement Plan
       Committee), a copy of the Plan and such of its records, or copies
       thereof, as may pertain to any benefits of such Participant under the
       Plan.

7.3.   Other Rights. The Plan shall not affect or impair the rights or
       obligations of the Company or a Participant under any other contract,
       arrangement, or pension, profit sharing or other compensation plan.

                                      -21-


7.4.   Amendment or Termination. Notwithstanding any other provision of the
       Plan, the Plan may be amended, modified, suspended, or terminated by the
       Compensation Committee in its sole discretion, except no such action, by
       itself, shall create a forfeiture of or otherwise reduce a Participant's
       Vested Accrued Benefit. No Participant or his or her spouse, heirs and
       beneficiaries shall have any contractual right to future benefits
       otherwise payable as of the date of termination of the Plan. Upon
       termination of the Plan, the Vested Accrued Benefits shall be payable in
       accordance with the terms of the Plan, except to the extent determined
       otherwise by the Compensation Committee.

7.5.   Severability. If any term or condition of the Plan shall be invalid or
       unenforceable to any extent or in any application, then the remainder of
       the Plan, with the exception of such invalid or unenforceable provision,
       shall not be affected thereby, and shall continue in effect and
       application to its fullest extent.

7.6.   No Employment Rights. Neither the establishment of the Plan, any
       provisions of the Plan, nor any action of the Compensation Committee or
       Retirement Plan Committee shall be held or construed to confer upon any
       employee the right to a continuation of employment by the Company.
       Subject to any applicable employment contract, the Company reserves the
       right to dismiss any employee, or otherwise deal with any employee to the
       same extent as though the Plan had not been adopted.

                                      -22-


7.7.   Incapacity. If the Retirement Plan Committee determines that a
       Participant or a designated beneficiary is unable to care for his or her
       affairs because of illness or accident or other physical or mental
       disability or because he or she is a minor, the Retirement Plan Committee
       may cause the payments due to such person to be made to another person
       (including a duly appointed guardian, committee or other legal
       representative) for his or her benefit without any responsibility of the
       Retirement Plan Committee to see to the application of such payment. Any
       such payment shall be a complete discharge of the Company's obligation to
       such person under the Plan.

7.8.   Absence of Security Interest. The Plan is unfunded and any liability of
       the Company to any person with respect to benefits payable under the Plan
       shall give rise only to a claim as an unsecured creditor against the
       general assets of the Company.

7.9.   Transferability of Rights. No Participant or spouse of a Participant
       shall have any right to commute, encumber, transfer or otherwise dispose
       of or alienate any present or future right or expectancy which he may
       have at any time to receive payments of benefits hereunder, which
       benefits and the right thereto are expressly declared to be
       non-assignable and nontransferable, except to the extent required by law.
       Any attempt to transfer or assign a benefit, or any rights granted
       hereunder, by a Participant or the spouse of a Participant shall, in the
       sole

                                      -23-


       discretion of the Compensation Committee (after consideration of such
       facts as it deems pertinent), be grounds for terminating any rights of
       the Participant, his joint or contingent annuitant or beneficiary, to any
       portion of the Plan benefits not previously paid.

7.10.  Governing Law. The Plan shall be construed, administered, and enforced
       according to the laws of the State of Illinois except to the extent that
       such laws are preempted by the federal laws of the United States of
       America.

                                      -24-


                                    ARTICLE 8

                                CHANGE IN CONTROL

8.1    Effect of Change in Control on Vesting. Notwithstanding any other
       provision of this Plan to the contrary, in the event of a Change in
       Control, all Participants who remain employed with the Company at the
       time of a Change in Control shall become fully vested in their entire
       Accrued Benefit hereunder.

8.2    Effect of Change in Control on Distributions. Notwithstanding any other
       provision of this Plan to the contrary, in the event of a Change in
       Control, each Participant who remains employed with the Company at the
       time of a Change in Control shall receive an immediate single sum
       distribution of the entire present value of the Participant's Accrued
       Benefit within 60 days after the Participant's termination of employment
       for any reason if the termination occurs within two years after the
       Change in Control. Further, any Participant who terminated
       employment prior to the Change in Control and who is in pay status at the
       time of the Change in Control shall receive an immediate single sum
       distribution of the present value of the Participant's remaining Vested
       Accrued Benefit within 60 days after the Change in Control. For purposes
       of this Section 8.2, the present value of a Participant's Accrued Benefit
       shall be determined using either the interest rate used in the

                                      -25-


       Actuarial Assumptions in effect with respect to the Plan at the time of
       the Change in Control or the interest rate or rates which would be used
       by the Pension Benefit Guaranty Corporation to value annuities (immediate
       or deferred, whichever is appropriate) for plans terminating as of the
       first day of the Plan Year during which the distribution is made,
       whichever results in the larger benefit. (Participants who are employed
       at the time of a Change in Control but who do not terminate employment
       within two years after the Change in Control and Participants who
       terminated employment prior to a Change in Control but who are not in
       pay status at the time of the Change in Control shall receive
       distribution of their Vested Accrued Benefits in accordance with Article
       4 and the terms of this Plan without regard to this Section 8.2.)

8.3.   Change in Control. For purposes of this Article 8, the term "Change in
       Control" shall have the same meaning as given it in the Carson Pirie
       Scott & Co. 1993 Stock Incentive Plan, as amended from time to time.

                                      -26-

EX-10.29(B)

                                                                EXHIBIT 10.29(b)

                            CARSON PIRIE SCOTT & CO.

                             OFFICER'S CERTIFICATE

      WHEREAS, Carson Pirie Scott & Co. (the "Company") has adopted and
currently maintains the Carson Pirie Scott & Co. Supplemental Executive
Retirement Plan (the "Plan"); and

      WHEREAS, the Company desires to amend the Plan to clarify certain Plan
provisions; and

      WHEREAS, by resolutions dated October 4, 1994, the Carson Pirie Scott &
Co. Compensation Committee authorized the Company's Vice President and General
Counsel to make any amendments to the Plan as may be necessary to clarify the
Plan or otherwise;

      NOW, THEREFORE, the Carson Pirie Scott & Co. Supplemental Executive
Retirement Plan is hereby amended as follows:

      1.    The definition of "Average Compensation" in Section 1.3 of the Plan
            is amended by replacing the reference to "five fiscal years" with
            the phrase "five calendar years."

      2.    The definition of "Compensation" in Section 1.7 of the Plan is
            amended in its entirety to read as follows:

            "Compensation" means, with respect to any Participant during a
            calendar year, the base salary plus regular annual bonuses awarded
            under the Carson Pirie Scott & Co. Executive Bonus Plan, if any,
            paid to such Participant for service as an Eligible Employee during
            such calendar year, including salary deferral contributions made in
            accordance with Section 401 (k) of the Code and deferrals to the
            Carson Pirie Scott & Co. Deferred Compensation Plan, but excluding
            any other compensation (including, but not limited to, amounts
            payable under the P. A. Bergner & Co. Incentive Compensation Plan,
            the Carson Pirie Scott & Co. 1993 Stock Incentive Plan, the Carson
            Pirie Scott & Co. Long-Term Incentive Plan, and any similar
            long-term incentive plan or incentive compensation plan, any special
            bonuses or any non-cash compensation, and any severance payments).
            Compensation paid to a Participant for service as an Eligible



            Employee for less than a full calendar year shall not be
            annualized."

      3.    The first sentence of Section 3.1 dealing with vesting shall be
            amended In its entirety to read as follows:

            "No participant (other than members of the Senior Executive
            Committee on January 1, 1991) shall become vested under the Plan
            with respect to any Accrued Benefit prior to attaining age 55 while
            an Employee."

      The above amendments are intended to clarify the Plan document to reflect
the Plan's current administration of the Supplemental Executive Retirement Plan.

                                      -2-

EX-10.31(A)

                                                                EXHIBIT 10.31(a)

                            PRIVATE BRANDS AGREEMENT

            This PRIVATE BRANDS AGREEMENT (this "Agreement"), dated as of
October 30, 2006 and effective as of October 29, 2006 (the "Effective Time"), is
made between Belk, Inc., a Delaware corporation ("Seller"), and The Bon-Ton
Stores, Inc., a Pennsylvania corporation ("Buyer").

                                    RECITALS

            WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as
of August 1, 2006, by and between Saks Incorporated ("Saks") and Seller (the
"Stock Purchase Agreement"), Saks has sold to Seller, and Seller has purchased,
all of the outstanding capital stock of Parisian Stores, Inc., an Alabama
corporation, Parisian Wholesalers, Inc., an Alabama corporation, and Parisian
Alabama, Inc., a Delaware corporation (each, a "Company" and, collectively, the
"Companies"); and

            WHEREAS, following the completion of the transactions contemplated
by the Stock Purchase Agreement, the Companies were merged with and into Seller;
and

            WHEREAS, Seller is engaged in the business of owning and operating
retail department stores under the nameplate Parisian (the "Parisian Business");
and

            WHEREAS, in connection with the transactions contemplated by the
Stock Purchase Agreement, Saks and Seller have entered into a Private Brands
Agreement, dated as of October 25, 2006 (the "Saks Private Brands Agreement"),
pursuant to which Saks and Seller have made certain agreements with respect to
the sale of merchandise bearing private label brands; and

            WHEREAS, pursuant to that certain Asset Purchase Agreement, dated as
of October 23, 2006, by and between Seller and Buyer (the "Asset Purchase
Agreement"), Seller has sold to Buyer, and Buyer has purchased, certain assets
used in connection with the operation of the following four Parisian department
stores that Seller acquired as part of the Parisian Business (collectively, the
"Stores"): Fairfield Commons, Beavercreek, Ohio; Circle Center, Indianapolis,
Indiana; Meadowbrook Mall, Rochester Hills, Michigan; and Laurel Park Place,
Livonia, Michigan; and

            WHEREAS, in connection with the transactions contemplated by the
Asset Purchase Agreement, Seller and Buyer desire to enter into certain
agreements with respect to the sale of merchandise bearing private label brands
by Buyer at the Stores.

            NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:



            1.    SCOPE.

            (a) For the purposes of this Agreement: (i) "Products" shall mean
collectively Inventory Products, On Order Products, Direct Order Merchandise and
Replenishment Merchandise; (ii) "Inventory Products" shall mean merchandise
bearing a Private Brand in the inventory of the Business (as defined in the
Asset Purchase Agreement) at the Effective Time that is located in the Stores or
is being held for sale in the Stores; (iii) "On Order Products" shall mean
merchandise, including sample merchandise, attributable to the Business bearing
a Private Brand that is the subject of purchase orders or commitment sheets
issued by Saks or its Affiliates or Seller or its Affiliates and accepted by
Vendors prior to the Effective Time that was ordered for the Stores and
scheduled for delivery to the Stores on or prior to February 20, 2007 and remain
unfilled as of the Effective Time, all as set forth on Schedule 1 attached
hereto; (iv) "Direct Order Merchandise" shall mean merchandise bearing a Private
Brand sourced from Vendors located in the United States that Seller or its
Affiliate or Saks or its Affiliate or Buyer or its Affiliate (to the extent
permitted by the applicable Vendors) shall order directly from the Vendors in
accordance with this Agreement, but excluding Replenishment Merchandise; (v)
"Replenishment Merchandise" shall mean regularly stocked merchandise bearing a
Private Brand that Seller or its Affiliate or Saks or its Affiliate or Buyer or
its Affiliate (to the extent permitted by the applicable Vendors) shall maintain
on its replenishment system and order directly from Vendors for the Parisian
Business including the Stores and as to which Seller or its Affiliates shall
otherwise deal directly with Vendors; (vi) "Saks Sourced Products" shall mean,
collectively, Inventory Products and On Order Products; and (vii) "Private
Brands" shall mean, collectively, those trademarks set forth on Exhibit A and
identified as owned by third parties and licensed to Saks ("Third Party Brands")
or Seller or its Affiliates ("Seller Licensed Brands") or owned by Seller or its
Affiliates ("Seller Owned Brands"). Notwithstanding the foregoing, Associated
Merchandising Corporation shall not be a Vendor of Direct Order Merchandise but
shall be a Vendor of On Order Products and Replenishment Merchandise.

            (b) Subject to obtaining any necessary consents or approvals from
Vendors or the owners or licensors of any applicable Third Party Brands, Buyer's
obligations to purchase Inventory Products and On Order Products shall be firm
and not subject to modification or cancellation.

            (c) Buyer acknowledges that: (i) neither Saks nor Seller is a
manufacturer of the Products; (ii) Saks has entered or will enter into
agreements with one or more third party vendors, agents or service providers
("Vendors") to enable Saks to deliver Saks Sourced Products to Seller and Seller
to acquire Replenishment Merchandise and Direct Order Merchandise from Vendors;
(iii) Saks has agreed that Seller and its Affiliates may enter into direct
business relationships with Vendors of Replenishment Merchandise and Direct
Order Merchandise for the purposes of acquiring such merchandise; and (iv) Buyer
will receive the benefits of Saks' and Seller's business relationships with
Vendors and the owners or licensors of the Third Party Brands.

            (d) With respect to Products bearing Third Party Brands ("Third
Party Branded Products"), Buyer acknowledges that: (i) neither Saks nor Seller
owns the Third Party Brands; (ii) Saks has entered into license agreements with
third parties that impose upon Saks certain obligations and restrictions with
respect to the use of Third Party Brands and the sale and

                                      -2-


marketing of the Third Party Branded Products; (iii) Saks must obtain the
consent of the owners or licensors of the Third Party Brands in order to permit
the transfer or sale to Seller of Third Party Branded Products (including Third
Party Branded Products which Seller will transfer or sell to Buyer), and the
resale of the Third Party Branded Products to customers (including Third Party
Branded Products sold in the Stores); (iv) it shall be necessary for Seller to
take certain actions with respect to Third Party Branded Products in order to
prevent Saks from being in breach or default of obligations under its license
agreements for the Third Party Brands (and for Buyer to take certain actions
with respect to Third Party Branded Products under this Agreement in order to
prevent Seller from being in breach or default of its obligations under the Saks
Private Brands Agreement); and (v) agreements relating to Third Party Brands may
terminate prior to the expiration or termination of this Agreement (in which
case Saks shall be under no obligation to make such Third Party Branded Products
available to Seller and Seller shall be under no obligation to make such Third
Party Branded Products available to Buyer).

            (e) Subject to any obligations under the license agreements for
Third Party Brands and the obligations of Seller under the Saks Private Brands
Agreement, Buyer will promote, market and sell the Third Party Branded Products
in the Stores in the same manner and to the same extent as the Third Party
Branded Products were promoted, marketed and sold by Seller and its Affiliates
prior to the Effective Time. Without limiting the generality of the foregoing,
Buyer shall be responsible for the proportionate share attributable to the
Business (to the extent not prohibited by the applicable Vendors) of Seller's
portion of any advertising or promotional obligations set forth in any license
agreement between Saks and the owner or licensor of any Third Party Brand in
effect as of the Effective Time which are charged to Seller pursuant to the Saks
Private Brands Agreement and any such license agreement entered into after the
Effective Time with the consent of Seller and Buyer with the owner or licensor
of a Third Party Brand which are charged to Seller pursuant to the Saks Private
Brands Agreement. Subject to the consent of the owner or licensor of each Third
Party Brand, Buyer shall sell the Third Party Branded Products purchased
hereunder to retail customers in the ordinary course of business only in the
Stores. With respect to the promotion, marketing and sale of Third Party Branded
Products in the Stores, when and as requested (subject to reasonable notice) by
Saks or Seller, Buyer shall take any action deemed reasonably necessary by Saks
or Seller to protect the image, reputation and goodwill represented by the Third
Party Brands, to enable Seller to remain in compliance with its obligations
under the Saks Private Brands Agreement, and to enable Saks to remain in
compliance with Saks' obligations under any license agreement in effect as of
the Effective Time and any such license agreement entered into after the
Effective Time with the consent of Seller and Buyer with the owner or licensor
of a Third Party Brand. Without limiting the generality of the foregoing, when
and as requested by Saks or Seller, Buyer shall: (i) deliver to Seller copies of
advertising or promotional material for Third Party Branded Products with
respect to the Stores; and (ii) modify or discontinue any advertising or
promotional material or other activity or practice with respect to the Third
Party Branded Products with respect to the Stores that is not in compliance with
the requirements of this Agreement or the Saks Private Brands Agreement or Saks'
license agreements for the Third Party Brands.

            (f) Buyer shall not alter any Third Party Brand on any Third Party
Branded Product, apply or use any Third Party Brand on other goods or with
respect to any services, or relabel, retag (to the extent of modifying any
Private Brand or tradename on a tag), modify or repackage the Third Party
Branded Products in any manner. Seller's obligation to deliver or sell

                                      -3-


to Buyer any Saks Sourced Products under this Agreement or the Asset Purchase
Agreement, or Buyer's or Seller's right to purchase from Vendors Replenishment
Merchandise or Direct Order Merchandise for the Stores, shall be conditioned
upon the receipt by Saks of any consent or approval required under an agreement
between Saks and a Vendor or the owner or licensor of any Third Party Brand.
Seller hereby agrees to exercise all rights of Seller under the Saks Private
Brands Agreement to cause Saks to use its commercially reasonable efforts to
obtain from any Vendors or the owners or licensors of any applicable Third Party
Brand any consents necessary for Saks to perform its obligations under the Saks
Private Brands Agreement and for Seller to perform its obligations under this
Agreement and for Buyer to sell all Third Party Branded Products purchased
hereunder in the ordinary course of business at the Stores in accordance with
the requirements of the license agreements for the Third Party Brands, provided
neither Saks nor Seller shall be obligated to pay any money or provide other
consideration to a Vendor or the owner or licensor of a Third Party Brand in
order to obtain any such consent. The delivery or sale of Third Party Branded
Products to Buyer pursuant to this Agreement shall not be deemed to be a grant
to Buyer of any right, title, interest or license in and to the Third Party
Brands or other intellectual property rights in the Third Party Branded Products
other than the limited right to promote, market and sell the Third Party Branded
Products at the Stores in accordance with the terms of the Saks Private Brands
Agreement and this Agreement. Buyer shall not seek to register or otherwise
contest the ownership of any Third Party Brand used on the Products.

            (g) Buyer acknowledges that: (i) Saks' agreement with AMC ("AMC
Agreement"), a Vendor of Saks Sourced Products, Direct Order Merchandise and
Replenishment Merchandise, contains an annual minimum service charge requirement
with respect to Saks Sourced Products to be purchased under this Agreement and
Replenishment Merchandise and Direct Order Merchandise to be purchased directly
by Saks or Seller or Buyer; and (ii) Saks' license agreement with the owner or
licensor of certain Third Party Brands contain annual minimum royalty
obligations with respect to the Retail Sales (as hereinafter defined) of certain
Third Party Branded Products. The quantities of Saks Sourced Products to be
purchased under the Saks Private Brands Agreement by Saks from AMC and
Replenishment Merchandise and Direct Order Merchandise to be purchased by Seller
or Buyer directly from AMC pursuant to this Agreement represent a substantial
portion of the goods to be purchased by Saks under the AMC Agreement. The
royalties attributable to certain Third Party Branded Products to be purchased
under the Saks Private Brands Agreement represent a significant portion of Saks'
minimum royalty obligations under the applicable license agreements for the
Third Party Brands. Accordingly, Buyer shall be responsible for a proportionate
share represented by the Business of Seller's share of any shortfall in meeting
the applicable minimums set forth in Exhibit B to the Saks Private Brands
Agreement if, in the case of the AMC Agreement, Seller's purchases of Saks
Sourced Products purchased by Saks from AMC or Replenishment Merchandise and
Direct Order Merchandise purchased by Seller or Buyer from AMC, or in the case
of the license agreements, royalties from Retail Sales of the affected Third
Party Branded Products, fail to meet the minimum amounts set forth on Exhibit B
to this Agreement for the periods indicated; provided, however, that Buyer shall
not be responsible for any portion of the shortfall to the extent that any
portion of such shortfall is attributable to the failure of Saks to obtain from
any Vendors or the owners or licensors of the affected Third Party Brands any
consents or approvals required under any agreement between Saks and a Vendor or
such owner or licensor. Subject to the foregoing, Buyer's proportionate share of
Seller's share of a shortfall shall be equal to: (A) in the case of the

                                      -4-


AMC Agreement, the amount, if any, by which the minimum set forth on Exhibit B
to this Agreement exceeds the sum of the service charges payable to AMC
attributable to Seller's actual purchases on behalf of Buyer pursuant to this
Agreement of Saks Sourced Products, and all purchases pursuant to this Agreement
of Direct Order Merchandise and Replenishment Merchandise, for the Stores and
sourced through AMC; and (B) in the case of each of the affected Third Party
Branded Products, the amount, if any, by which the minimum set forth on Exhibit
B to this Agreement exceeds the sum of the royalties actually paid by Saks based
upon Buyer's Retail Sales of such Third Party Branded Products. For the purposes
of this Agreement, "Retail Sales" shall mean Buyer's gross retail sales price of
the Third Party Branded Products, less amounts granted for returns or allowances
to retail customers who purchase the Third Party Branded Products. Retail Sales
shall not include any sales or use taxes collected by Buyer from a retail
customer. Notwithstanding the foregoing, Buyer shall not be obligated to pay any
share of a shortfall for an applicable period if Saks or Seller is not obligated
to pay any shortfall with respect to its contracted minimum to AMC or the owner
or licensor of a Third Party Brand. Seller agrees that Buyer shall receive a
credit against the AMC minimum service charges and the minimum royalty charges
of Third Party Branded Products set forth in Exhibit B to this Agreement in the
amount of any excess above required minimums of service charges or commissions
attributable to purchases of merchandise by Buyer directly from AMC or any
excess above required minimums of royalties in respect of such Third Party
Branded Products pursuant to any private brands agreement between Saks and Buyer
with respect to other stores operated by Buyer; provided, however, that Buyer
shall indemnify and hold harmless Seller (without regard to any limitations set
forth in Section 10(a); except that Buyer shall have no indemnity obligation
hereunder to the extent that such claims arise from the fraud, gross negligence
or willful misconduct of Seller or its Affiliates) against any damages incurred
by Seller to Saks resulting from Buyer's setoff of such amounts against the
minimums set forth in Exhibit B to this Agreement provided that Buyer shall be
given notice of and have the right to defend any such claim brought by Saks and
Seller shall not settle any such claim without the prior written consent of
Buyer.

            (h) Buyer acknowledges that Saks' license agreement with the
licensor of the Laura Ashley Brands ("Laura Ashley License") expires on December
31, 2007, and that Saks has an obligation for minimum royalties through such
date. On or prior to the expiration or termination of the Saks Private Brands
Agreement, Seller shall enter into a sublicense agreement or similar arrangement
with Saks under the terms of which Seller will be licensed to source Laura
Ashley branded merchandise from third parties, will be obligated to pay the
royalties on the Retail Sales of such merchandise, and will be obligated to pay
its proportionate share of the minimum royalties of Saks determined in
accordance with the principles set forth in Section 1(g). The sublicense will
contain such other terms and conditions as are required under the Laura Ashley
License and as are customary for an agreement of this nature. The sublicense
shall be subject to the consent of the licensor under the terms of the Laura
Ashley License. Seller will use commercially reasonable efforts to cause Saks to
enter into a sublicense agreement or similar arrangement with Buyer under the
terms of which Buyer will be licensed to source Laura Ashley branded merchandise
from third parties, will be obligated to pay the royalties on the Retail Sales
of such merchandise at the Stores, and will be obligated to pay its
proportionate share of the minimum royalties of Saks determined in accordance
with the principles set forth in Section 1(g).

            (i) Under the Saks Private Brands Agreement, Saks has agreed to
permit Seller to establish a direct business relationship with each Vendor of
Replenishment Merchandise

                                      -5-


and Direct Order Merchandise. Seller shall provide Buyer such information as
Buyer may reasonably require in order for Buyer to place orders for
Replenishment Merchandise and Direct Order Merchandise through Seller. Seller
agrees that it shall, at the request of Buyer, place orders for Replenishment
Merchandise and Direct Order Merchandise on behalf of Buyer until such time as
Buyer shall have the right and the ability to place such orders directly with
such Vendors. The commercial terms for the acquisition by Seller on behalf of
Buyer of Replenishment Merchandise and Direct Order Merchandise shall be
established between Seller and the Vendors, with the prior written consent of
Buyer. Without limiting the generality of the foregoing, all orders for
Replenishment Merchandise and Direct Order Merchandise for the Stores by Seller
on behalf of Buyer shall, at the request of Buyer, be placed by Seller for the
account of Buyer directly with each Vendor, with invoices for the Replenishment
Merchandise and Direct Order Merchandise with respect to such orders to be
issued by each Vendor to Seller and by Seller to Buyer, and payment to be made
by Buyer directly to Seller on or before the date on which payment is required
to be made on an invoice submitted by each Vendor. Replenishment Merchandise and
Direct Order Merchandise for the Stores bearing Third Party Brands shall be
subject to the royalty obligations under Section 2(c). Replenishment Merchandise
purchased for the Stores from AMC shall be credited against Buyer's
proportionate share of Seller's portion of Saks' annual minimum service charge
obligation to AMC under Section 1(g). In connection therewith, within ten (10)
days following the end of each month, Buyer shall submit to Seller a written
report identifying the quantity, Buyer's fully landed cost and first cost of any
Replenishment Merchandise purchased for the Stores from AMC and delivered to
Buyer during the preceding month, and such other information as Seller may
reasonably require.

            (j) THIS AGREEMENT AND THE ASSET PURCHASE AGREEMENT STATE THE ONLY
TERMS AND CONDITIONS UNDER WHICH SELLER SHALL SELL TO BUYER, AND BUYER SHALL
PURCHASE FROM SELLER, THE SAKS SOURCED PRODUCTS.

            2.    PRICE AND SALES REPORTS.

            (a) The price for Inventory Products has been established and shall
be deemed to be subsumed within the purchase price for the Assets purchased
under the Asset Purchase Agreement.

            (b) The price for On Order Products for the Stores shall be Saks'
fully landed cost for such Products (including the invoice price from each
Vendor of On Order Products, all freight (air, ocean or land), insurance,
duties, brokers or agents fees or commissions, imposts, levies, taxes or other
amounts paid by Saks with respect to the procurement of On Order Products) plus
a load factor allocated to the Products. The load factor shall be seven and
one-half percent (7.5%) of the fully landed cost of the On Order Products.

            (c) Seller shall exercise its rights under the Saks Private Brands
Agreement to cause Saks to pay when due all royalties payable by Saks to the
owners or licensors of the Third Party Brands. Within fifteen (15) days
following the end of a calendar quarter (i.e., each three (3) month period
ending on March 31, June 30, September 30 and December 31 of each year), Buyer
shall submit to Seller, and Seller shall incorporate into Seller's report
submitted to Saks, a written sales report signed and certified as accurate in
all material respects by an officer of Buyer

                                      -6-


identifying the Retail Sales of each category of Third Party Branded Products
sold by Buyer in the Stores during the applicable quarter. Such report shall be
required even if no sales of a particular Third Party Branded Product have been
made in the Stores in such quarter. In no event shall Seller's receipt of
Buyer's report be deemed to be a waiver of Seller's right to challenge (on
behalf of itself or the owner or licensor of a Third Party Brand) the accuracy
of any report or the amount of any payment due from Buyer.

            (d) So long as Seller is required to maintain an irrevocable letter
of credit ("LOC") for the benefit of Saks under the Saks Private Brands
Agreement, Buyer shall pay to Seller a proportionate share of the fees paid and
payable to the issuer of such LOC (the "LOC Bank") with respect to the issuance
and maintenance of such LOC during the Term. Seller shall submit to Buyer (i)
within five (5) days after the date of this Agreement an invoice for Buyer's
proportionate share of any LOC fees prepaid by Seller with respect to the
issuance of the LOC prior to the date hereof for periods during the Term and
(ii) at least five (5) days prior to the date on which Seller shall be obligated
to pay any additional fees to the LOC Bank with respect to the maintenance of
the LOC during the Term an invoice for Buyer's proportionate share of such fees.
Buyer shall pay the amount of each invoice submitted by Seller pursuant to this
Section 2(d) within five (5) days of the date of such invoice. Buyer's
proportionate share of any applicable LOC shall be equal to that percentage of
the total On Order Products secured by such LOC that are designated for the
Stores.

            3.    DELIVERY, TITLE AND RISK OF LOSS.

            (a) Inventory Products shall be deemed to be delivered to Buyer as
of the date hereof. On Order Products shall be deemed to be delivered to Buyer
at such time as the On Order Products are delivered to Saks by a Vendor under
the applicable purchase order or other agreement between Saks and the Vendor but
only after the date that such On Order Products have been identified for
shipment to the Stores.

            (b) Freight, insurance and other costs attributable to the delivery
and sale of On Order Products shall be determined in accordance with Saks' past
practices.

            (c) Title and risk of loss for Inventory Products shall be deemed to
have passed to Buyer as of the date hereof. Title and risk of loss for On Order
Products shall be deemed to pass automatically from Seller to Buyer at such time
as title and risk of loss passes from the Vendor to Saks pursuant to the
applicable purchase order or other agreement between Saks and the Vendor.

            (d) Upon receipt Buyer shall have the right to reject any delivery
of On Order Products that is shipped late or that is non-conforming, provided
Buyer indemnifies Seller with respect to all claims that may arise with respect
to such rejection without regard to any limitations set forth in Section 10(a)
except to the extent that such claims arise from the fraud, gross negligence or
willful misconduct of Seller or its Affiliates.

            4.    BILLING AND PAYMENT.

            (a) Buyer shall promptly pay Seller's invoices and other amounts due
under this Agreement. Seller will provide reasonable additional information
requested by Buyer in

                                      -7-


writing supporting Seller's invoices. Unless otherwise provided herein or
directed otherwise by Seller, Buyer shall pay all invoices or other amounts due,
as applicable, in the case of invoices, not later than fifteen (15) days
following receipt by Buyer of Seller's invoice, or, in the case of other
amounts, on the due date. Buyer shall not be entitled to offset any amounts
owing to it by Saks or any of Saks' Affiliates or Seller or any of Seller's
Affiliates against amounts payable by Buyer hereunder or under any other
agreement or arrangement. Should Buyer reasonably and in good faith dispute any
portion of an invoice, Buyer shall pay the undisputed portion of the invoice in
accordance with this Section 4(a) and promptly notify Seller in writing of the
nature and basis of the dispute.

            (b) All charges and fees to be paid by Buyer to Seller under this
Agreement are exclusive of any applicable taxes required by law to be collected
from Buyer (including withholding, sales, use, excise or services taxes, which
may be assessed on the provision of any services hereunder). If a withholding,
sales, use, excise or services tax is assessed on the delivery or sale of Saks
Sourced Products or the provision of any other services under this Agreement,
Buyer shall pay directly, reimburse or indemnify Seller and its Affiliates for
such tax. The parties shall cooperate with each other in determining the extent
to which any tax is due and owing under the circumstances, and shall provide and
make available to each other any resale certificate, information regarding
out-of-state use of materials, services or sale, and other exemption
certificates or information reasonably requested by the other party; provided
that if any such tax is assessed against Seller by Saks, Buyer shall be
obligated to pay directly, reimburse or indemnify Seller and its Affiliates for
such tax.

            (c) All payments required to be made pursuant to this Agreement
shall bear interest from and including: (i) the date ten (10) days following
receipt by Buyer of Seller's invoice for undisputed invoiced amounts (but only
in cases in which Buyer has not paid within ten (10) days following receipt by
Buyer of Seller's invoice); or (ii) the due date with respect to other amounts,
in each case to but excluding the date of payment at a rate equal to one percent
(1%) per month, or such higher rate as Saks or Seller may be obligated to pay to
an owner or licensor under a license agreement for a Third Party Brand, or to a
Vendor under an applicable agreement or purchase order. Such interest shall be
payable at the same time as the payment to which it relates is made and shall be
calculated on the basis of the number of days (excluding the payment date) by
which the payment date follows the date such payment is due.

            5.    BOOKS AND RECORDS; AUDITS.

            (a) Buyer shall prepare and maintain complete and accurate books of
account and records (specifically including without limitation the originals or
copies of documents supporting entries in the books of account and records)
covering all transactions arising out of or relating to this Agreement. Seller
and its duly authorized representatives (or in the case of Third Party Branded
Products, the owner or licensor of the Third Party Brand), upon appropriate
advance notice to Buyer, shall have the right, during regular business hours,
for the duration of this Agreement, and for a term of one (1) year following the
early termination or expiration of this Agreement, to audit said books of
account and records and examine all other documents and materials in the
possession of, or under the control of, Buyer with respect to the subject matter
of this Agreement. All such books of account, records and documents shall be
kept available by Buyer for at least one (1) year after the early termination or
expiration of this Agreement.

                                      -8-


            (b) If, as a result of any audit of Buyer's books and records, it is
shown that with respect to any calendar quarter during the Term (as hereafter
defined), royalties or minimums paid by Buyer to Seller were: (i) less than the
amounts which should have been paid, Buyer immediately shall pay such shortfall
to Seller together with the interest due under Section 4(e) with respect to the
shortfall; and (ii) greater than the amounts which should have been paid, Seller
shall refund such overpayment to Buyer to the extent Seller is entitled to, or
obtains after utilizing commercially reasonable efforts without incurring any
cost or expense, a refund of the overpayment from a Vendor or the owner or
licensor of a Third Party Brand. If the amount of a shortfall is equal to or
more than the percentage in the applicable license agreement for a Third Party
Brand of the payment actually due Seller, Buyer shall reimburse Seller for the
cost to Seller of such audit.

            (c) In addition to any inspection or audit by Seller under Section
5(a). Buyer shall permit Saks and the owner or licensor of a Third Party Brand,
as applicable, to inspect the facilities and operations where Buyer conducts
business activities with respect to Stores to the extent required by the Saks
Private Brands Agreement or the agreement relating to the applicable Third Party
Brand.

            6.    TERM OF AGREEMENT; TERMINATION.

            (a) This Agreement shall commence on the Effective Time and shall
continue (unless sooner terminated pursuant to the terms hereof) through January
31, 2007 ("Term"). This Agreement shall not be subject to renewal.

            (b) Buyer may terminate this Agreement at any time upon written
notice to Seller in the event of a material breach of this Agreement by Seller.
Such termination shall become effective thirty (30) days from the date of
Seller's receipt of such notice unless the breach is cured.

            (c) Seller may terminate this Agreement at any time upon written
notice to Buyer in the event of a material breach of this Agreement by Buyer.
Such termination shall become effective thirty (30) days from the date of
Buyer's receipt of such notice unless the breach is cured; provided, that if
such breach relates to the non-payment by Buyer of any amount due under Section
4, then termination under this Section 6(c) shall be effective twenty (20) days
from the date of receipt of notice of breach from Seller unless all unpaid fees
or expenses that are in payment default have been paid in full within such
20-day period.

            (d) Following the expiration of this Agreement under Section 6(a) or
the termination of this Agreement by Buyer under Section 6(b). but subject to
the terms and conditions of this Agreement, Seller shall continue to deliver any
previously undelivered On Order Products. Following any termination of this
Agreement by Seller under Section 6(c). but subject to the terms and conditions
of this Agreement, Seller may elect to continue to deliver any previously
undelivered On Order Products, provided under no circumstances shall Seller be
obligated to do so.

            (e) Notwithstanding any other provision in this Agreement to the
contrary, whether this Agreement expires or is terminated by Seller or Buyer, or
whether this Agreement is

                                      -9-


subject to a partial termination under Section 7, Buyer shall remain liable for
the payment of all amounts due with respect to Products delivered under the
terms of this Agreement, even though Products may not be delivered or sold until
after such expiration or termination; provided that the parties acknowledge and
agree that Buyer shall have no obligation with respect to any Product that is
not scheduled for delivery to the Stores prior to February 20, 2007. Further, in
the event of expiration or termination of this Agreement, Sections 1(e) through
l(i), 2, 3, 4, 5, 6, 8, 10, 11 and 13 through 22 shall continue in full force
and effect; provided that Sections 1(g) and 1(h) shall not survive if this
Agreement is terminated pursuant to Section 6(b). Notwithstanding any other
provisions of this Agreement, in no event will Buyer have any obligations
whatsoever arising from Section 1(g) or otherwise relating to the minimum
service charges or royalties set forth in Exhibit B or for any load factor
payments pursuant to Section 2(b), in any such case for any period other than
during the Term.

            7. PARTIAL TERMINATION. Subject to Section 6(d), this Agreement
shall automatically terminate with respect to: (i) any category of Third Party
Branded Product upon the expiration or termination for any reason of the
applicable license agreement between Saks and the owner or licensor of the Third
Party Brand; (ii) any other Product affected by the expiration or termination of
a purchase order, sourcing or other agreement between Saks or Seller and a
Vendor of the Product; or (iii) all Products upon termination of the Saks
Private Brands Agreement.

            8. CONFIDENTIALITY. Each party shall, and shall cause each of its
Affiliates and each of its and their officers, directors and employees to, hold
all information relating to the business of the other party (and in the case of
Buyer information of Saks and its Affiliates disclosed by Seller or any of its
Affiliates to Buyer) disclosed to it by reason of this Agreement (the
"Confidential Information") confidential, and shall not disclose or permit to be
disclosed any such Confidential Information to any third party unless legally
required to disclose such information; provided, however, that to the extent
that a Person receiving Confidential Information hereunder may receive the
written advice of outside counsel that disclosure of any Confidential
Information is required in order that such Person not commit a violation of law,
such Person: (a) to the extent not inconsistent with such Person's obligation to
disclose, will give the other party hereto prompt notice of such request so that
such party may seek an appropriate protective order; (b) may only disclose such
information if it shall first have used commercially reasonable efforts to, and,
if practicable, shall have afforded the other party the opportunity to, obtain
an appropriate protective order or other satisfactory assurance of confidential
treatment for the information required to be so disclosed; and (c) if such
protective order or other remedy is not obtained, or the other party waives such
Person's compliance with the provisions of this Section 8, shall only furnish
that portion of the Confidential Information which is legally required to be so
disclosed. As used herein, "Confidential Information" does not include any
information that: (i) is or becomes generally available to the public other than
as a result of a disclosure by the party receiving the Confidential Information
in violation of this Agreement; (ii) was available to the receiving party on a
non-confidential basis prior to its disclosure by the disclosing party; (iii)
becomes available to the receiving party from a Person other than the disclosing
party or its Affiliates who is not, to the receiving party's knowledge, subject
to any legally binding obligation to keep such information confidential; or (iv)
such party demonstrates is or was independently developed by or on behalf of a
party without the direct or indirect use of any of the other party's
Confidential Information.

                                      -10-


            9. THIRD PARTY NON-DISCLOSURE AGREEMENTS. To the extent that any
information disclosed under this Agreement requires a specific form of
non-disclosure agreement under the terms of an applicable license agreement for
a Third Party Brand as a condition of its disclosure or use, Buyer shall execute
(and shall cause Buyer's employees to execute, if and to the extent required)
any such form in substantially the same form executed by Saks or Seller (if
required). To the extent Buyer reasonably requires information with respect to a
license agreement for a Third Party Brand, Seller will exercise its rights under
the Saks Private Brands Agreement to require Saks to provide such information,
subject to obtaining any necessary consent from the licensor. Buyer acknowledges
that a licensor may grant or withhold any such consent in its sole discretion.

            10.   LIMITATION OF LIABILITY; DISCLAIMER; INDEMNITY.

            (a) Neither party nor their respective Affiliates shall be liable to
the other party and its Affiliates or any third party for any special,
incidental, consequential (including loss of revenues or profits), exemplary or
punitive damages arising from any claim relating to this Agreement or any of the
Products to be provided hereunder or the performance of or failure to perform
such party's obligations under this Agreement, whether such claim is based on
warranty, contract, tort (including negligence or strict liability) or
otherwise, all of which are hereby excluded by agreement of the parties
regardless of whether or not a party to this Agreement has been advised of the
possibility of such damages. Any of the foregoing categories of damages Seller
is required to pay a third party on account of or attributable to Buyer's
conduct shall be deemed to be direct damages of Seller and not subject to the
previous sentence. SELLER SPECIFICALLY DISCLAIMS ALL WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS OR NON-INFRINGEMENT.
Seller shall have no liability to Buyer for any breach by Saks of its
obligations under the Private Brands Agreement so long as Seller uses its
commercially reasonable efforts to exercise all rights of Seller under the
Private Brands Agreement in respect of such breach. Notwithstanding the
foregoing, Seller's cumulative aggregate liability to Buyer and its Affiliates
under this Agreement shall not exceed the amount paid by Buyer for the Products
giving rise to the claim unless such claim arises from fraud or willful
misconduct of Seller or its Affiliates. Notwithstanding anything contained
herein to the contrary, the limitations set forth in this Section 10(a) shall
not apply with respect to any breach of Section 8.

            (b) Buyer shall indemnify Seller and its Affiliates against all
Losses attributable to: (i) third party claims arising from or relating to the
activities contemplated by this Agreement to the extent that such Losses arise
from the fraud, gross negligence or willful misconduct of Buyer, any of its
Affiliates or any of their respective employees, officers or directors; and (ii)
product liability claims involving personal injury or property damage arising
out of the use of any Product sold by Buyer at the Stores. With respect to
product liability claims, nothing in the foregoing indemnity shall preclude
Buyer from seeking recourse against the manufacturer of any Product giving rise
to the claim.

            (c) Seller shall indemnify Buyer and each of its Affiliates against
all Losses attributable to any third party claims arising from or relating to
the activities contemplated by this Agreement to the extent that such Losses
arise from the fraud, gross negligence or willful

                                      -11-


misconduct of Seller, any of its Affiliates or any of their respective
employees, officers or directors.

            (d) All claims for indemnification pursuant to this Section 10 shall
be made in accordance with the procedures set forth in Sections 11.3 and 11.5 of
the Asset Purchase Agreement.

            (e) At its expense, Buyer shall procure and maintain in full force
and effect at all times during which the Products are being sold by Buyer at the
Stores, and for a period of one (1) year thereafter, with responsible insurance
carriers reasonably acceptable to Seller at least Five Million Dollars
($5,000,000) of products liability insurance coverage with respect to its sale
of the Products at the Stores. Such insurance coverage shall name Seller as an
additional insured and shall provide for a minimum of twenty (20) days prior
written notice to Seller in the event that the insurance carrier intends to
cancel or substantially reduce the insurance coverage. Such insurance coverage
may be obtained in conjunction with a policy of product liability insurance
which covers other products manufactured and/or sold by Buyer. Buyer shall also
procure and maintain during the Term of this Agreement and for a period of one
(1) year thereafter, at least the minimum business insurance coverages,
including but not limited to bodily injury, property damage, workers
compensation, business interruption and general liability that are required by
the laws and regulations of any jurisdiction in which Buyer sells the Products.
Upon request, Buyer shall furnish or cause to be furnished to Seller a
certificate(s) of insurance evidencing the maintenance of the insurance
coverages required by this Section 10(e).

            11. RELATIONSHIP OF PARTIES. The contractual relationship between
the parties established under this Agreement is solely that of seller and
purchaser. Except as specifically provided herein, neither party shall: (a) act
or represent or hold itself out as having authority to act as an agent or
partner of the other party; or (b) in any way bind or commit the other party to
any obligations or agreement. Nothing contained in this Agreement shall be
construed as creating a partnership, joint venture, agency, trust, fiduciary
relationship or other association of any kind, each party being individually
responsible only for its obligations as set forth in this Agreement. The
parties' respective rights and obligations hereunder shall be limited to the
contractual rights and obligations expressly set forth herein on the terms and
conditions set forth herein.

            12. FORCE MAJEURE. If Saks or any of its Affiliates or Seller or any
of its Affiliates or any Vendor is prevented from or delayed in complying,
either totally or in part, with any of the terms or provisions of the Saks
Private Brands Agreement or this Agreement by reason of fire, flood, storm,
strike, walkout, lockout or other labor trouble or shortage, delays by
unaffiliated suppliers or carriers, shortages of fuel, power, raw materials or
components, any law, order, proclamation, regulation, ordinance, demand, seizure
or requirement of any governmental authority, riot, civil commotion, war,
rebellion, acts of terrorism, nuclear accident or other causes beyond the
reasonable control of any such Person or other acts of God, or acts, omissions
or delays in acting by any governmental or military authority or Buyer, then
upon notice to Buyer, the affected provisions and/or other requirements of this
Agreement shall be suspended during the period of such disability and Seller
shall have no liability to Buyer, its Affiliates or any other Person in
connection therewith. Seller and Buyer shall make commercially reasonable
efforts to remove such disability within thirty (30) days after giving notice of
such disability; provided,

                                      -12-


however, that nothing in this Section 12 will be construed to require the
settlement of any strike, walkout, lockout or other labor dispute on terms
which, in the reasonable judgment of Seller, are contrary to its interest or
require that Seller take any action against Saks. It is understood that the
settlement of a strike, walkout, lockout or other labor dispute or a dispute
with Saks under the Saks Private Brands Agreement will be entirely within the
discretion of Seller.

            13. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by private courier or by registered or certified mail, and
shall be deemed given when so delivered personally, by facsimile or by private
courier or, if mailed, two business days after the mailing, as follows:

            If to Seller, to:

                     Belk, Inc.
                     2801 West Tyvola Road
                     Charlotte, NC 28217
                     Facsimile: (704)357-1883
                     Attention: General Counsel

            with a copy to:

                     King & Spalding
                     1180 Peachtree Street
                     Atlanta, GA 30309
                     Facsimile: (404) 572-5132
                     Attention: John D. Capers, Jr.

            If to Buyer, to:

                     The Bon-Ton Stores, Inc.
                     2801 East Market Street
                     York, Pennsylvania 17402
                     Facsimile: (717) 751-3008
                     Attention: Vice President and General Counsel

            with a copy to:

                     Wolf, Block, Schorr and Solis-Cohen LLP
                     1650 Arch Street, 22nd Floor
                     Philadelphia, Pennsylvania 19103
                     Facsimile: (215) 977-2334
                     Attention: Henry Miller, Esq.

or to such other address as such party may indicate by a notice delivered to the
other party hereto.

            14. SUCCESSORS AND ASSIGNS. The rights under this Agreement shall
not be assignable by Buyer and the duties shall not be delegated by Buyer
without the prior written

                                      -13-


consent of Seller, such consent not to be unreasonably withheld or delayed;
provided, however, that Buyer may assign its rights under this Agreement to any
direct or indirect wholly owned subsidiary of Buyer provided that no such
assignment shall relieve Buyer of any of its obligations hereunder. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their successors and permitted assigns. Except for the rights afforded
owners or licensors of Third Party Brands expressly set forth herein, nothing in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon any Person other than the parties and successors and assigns
permitted by this Section 14 any right, remedy or claim under or by reason of
this Agreement. Without limiting the generality of foregoing, Buyer acknowledges
that except as set forth herein this Agreement does not confer upon Buyer any
rights under the Saks Private Brands Agreement and that under no circumstances
will Buyer have any right to make any claim against Saks or otherwise to
communicate with Saks with respect to the transactions contemplated by this
Agreement except through Seller as specifically provided in this Agreement.

            15. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits
attached hereto and the other documents delivered pursuant hereto contain the
entire understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all other prior representations,
warranties, agreements, understandings or letters of intent between or among any
of the parties hereto (it being understood, however, that the Asset Purchase
Agreement and agreements contemplated thereby set forth certain additional
understandings between Seller and Buyer regarding the relationship between
Seller and Buyer after the Effective Time). This Agreement shall not be amended,
modified or supplemented except by a written instrument signed by an authorized
representative of the parties hereto.

            16. PARTIAL INVALIDITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.

            17. WAIVERS. Any term or provision of this Agreement may be waived,
or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.

            18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be considered an original instrument, but all
of which shall be considered one and the same agreement, and shall become
binding when one or more counterparts have been signed by each of the parties
hereto and delivered to Seller and Buyer.

                                      -14-


            19. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York without giving
effect to the principles of conflicts of law thereof except Section 5-1401 of
the New York General Obligations Law.

            20. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

            21. INTERPRETATION. Capitalized terms used in this Agreement and not
otherwise defined herein have the meanings given to such terms in the Asset
Purchase Agreement. For purposes of this Agreement: (a) the words "include,"
"includes" and "including" shall be deemed to be followed by the words "without
limitation"; (b) the word "or" is not exclusive; and (c) the words "herein,"
"hereof," "hereby," "hereto" and "hereunder" refer to this Agreement as a whole.
Unless the context otherwise requires, references herein (i) to Sections mean
the Sections of this Agreement and (ii) to an agreement, instrument or other
document means such agreement, instrument or other document as amended,
supplemented and modified from time to time to the extent permitted by the
provisions thereof and by this Agreement. Headings of Sections are inserted for
convenience of reference only and shall not be deemed a part of or to affect the
meaning or interpretation of this Agreement. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting an instrument or causing any
instrument to be drafted.

            22. EXHIBITS AND SCHEDULES. Exhibits A and B shall be construed with
and as an integral part of this Agreement to the same extent as if it was set
forth verbatim herein.

                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

                                      -15-


            IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed, ail as of the Effective Time.

                                BELK, INC.

                                By: /s/ Ralph A. Pitts
                                    -------------------------------------
                                      Name: Ralph A. Pitts
                                      Title: Executive Vice President and
                                             General Counsel

                                THE BON-TON STORES, INC.

                                By:
                                    -------------------------------------
                                      Name:
                                      Title:

                                 SIGNATURE PAGE
                                       TO
                            PRIVATE BRANDS AGREEMENT



            IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed, all as of the Effective Time.

                                BELK, INC.

                                By:
                                    --------------------------------------
                                      Name:
                                      Title:

                                THE BON-TON DEPARTMENT STORES, INC.

                                By: /s/ Keith E. Plowman
                                    --------------------------------------
                                      Name: Keith E. Plowman
                                      Title: Executive Vice President and Chief
                                             Financial Officer

                                 SIGNATURE PAGE
                                       TO
                            PRIVATE BRANDS AGREEMENTS

EX-10.31(B)

                                                                EXHIBIT 10.31(b)

                                                               EXECUTION VERSION

                                 AMENDMENT NO. 1

      This AMENDMENT NO. 1 to the Agreements (as hereinafter defined) (this
"Amendment"), dated as of December 20, 2006, is made by and among Saks
Incorporated, a Tennessee corporation ("Saks"), The Bon-Ton Stores, Inc., a
Pennsylvania corporation ("Bon-Ton"), and Belk, Inc, a Delaware corporation
("Belk").

                                   WITNESSETH:

      WHEREAS, Saks and Parisian Stores, Inc., an Alabama corporation
("Parisian") are parties to that certain Product Sourcing Agreement, dated as of
September 6, 2006 (the "Belk Product Sourcing Agreement");

      WHEREAS, Parisian has been merged with and into Belk and, as a consequence
of that merger, Belk is the successor in interest to Parisian under the Belk
Product Sourcing Agreement;

      WHEREAS, Bon-Ton and Belk are parties to that certain Private Brands
Agreement, dated as of October 30, 2006, and effective as of October 29, 2006
(the "Bon-Ton Private Brands Agreement," and together with the Belk Product
Sourcing Agreement, the "Agreements");

      WHEREAS, Saks and Belk desire to amend the Belk Product Sourcing
Agreement; and

      WHEREAS, Belk and Bon-Ton desire to amend the Bon-Ton Private Brands
Agreement.

      NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, and intending to be legally bound hereby, the parties hereto
agree that each of the Belk Product Sourcing Agreement and the Bon-Ton Private
Brands Agreement shall be and hereby is amended as follows:

      1. Amendment to the Bon-Ton Private Brands Agreement. Belk and Bon-Ton
acknowledge and agree that Exhibit B to the Bon-Ton Private Brands Agreement is
hereby amended and restated to read in its entirety as set forth in Attachment I
hereto.

      2. Amendment to Belk Product Sourcing Agreement. Saks and Belk acknowledge
and agree that Section 3(a) of the Belk Product Sourcing Agreement is hereby
amended and restated to read in its entirety as follows:

            "(a) Minimum Payment. In consideration of Supplier's commitment to
      continue sourcing Licensed Articles and to delegate its sourcing rights
      hereunder, during the Term, Retailer shall pay to Supplier in addition to
      the cost of Licensed Articles sourced from Supplier or purchased directly
      from Authorized Manufacturers the total sum of $698,642 ("Minimum
      Payment") payable in installments as follows:

            (i) with respect to the period commencing on the Effective Date and
            concluding September 30, 2006, the sum of $125,575;



            (ii) with respect to the Calendar Quarter commencing October 1,
            2006, and concluding December 31, 2006, the sum of $114,219; and

            (iii) with respect to the period commencing on January 1, 2007 and
            concluding December 31, 2007, the sum of $458,848 payable in
            Quarterly installments of $114,712."

      3. Agreements as Amended. The term "Agreement" as used in the Belk Product
Sourcing Agreement shall be deemed to refer to the Belk Product Sourcing
Agreement as amended hereby, the term "Agreement" as used in the Bon-Ton Private
Brands Agreement shall be deemed to refer to the Bon-Ton Private Brands
Agreement as amended hereby, and this Amendment shall be effective as of October
28, 2006, as if executed on such date. It is expressly understood and agreed
that except as provided above, all terms, conditions and provisions contained in
the Belk Product Sourcing Agreement and the Bon-Ton Private Brands Agreement
shall remain in full force and effect without any further change or modification
whatsoever.

      4. Full Force and Effect. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Amendment, the Belk Product
Sourcing Agreement and the Bon-Ton Private Brands Agreement, shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

      5. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of New York without giving effect
to the principles of conflicts of law thereof except Section 5-1401 of the New
York General Obligations Law.

      6. Execution in Counterparts. This Amendment may be executed in two or
more counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

                     [Remainder of Page Intentionally Blank]

                                      -2-



      IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.

                                SAKS INCORPORATED

                                By: /s/ Charles J. Hansen
                                    -----------------------------------------
                                    Name:  CHARLES J. HANSEN
                                    Title: Executive vice President

                                THE BON-TON STORES, INC.

                                BY:  /s/ Keith E. Plowman
                                     -----------------------------------------
                                     Name: Keith E. Plowman
                                     Title: E.V.P./C.F.O.

                                BELK, INC.

                                BY:  /s/ Paul Thum Suden
                                     ---------------------------------------
                                     Paul Thum Suden
                                     Executive Vice President

EX-21

                                                                               .
                                                                               .
                                                                               .

                                   EXHIBIT 21

                         SUBSIDIARIES OF THE REGISTRANT



                                                                        JURISDICTION OF
SUBSIDIARY                                                              ORGANIZATION
- ----------                                                              ----------------
                                                                     
Bonstores Realty One, LLC                                               Delaware
Bonstores Realty Two, LLC                                               Delaware
Bon-Ton Distribution, Inc.                                              Illinois
Carson Pirie Scott II, Inc.                                             Mississippi
Carson Pirie Scott, LLC                                                 Alabama
Elder-Beerman Holdings, Inc.                                            Ohio
Elder-Beerman Operations, LLC                                           Ohio
Elder-Beerman West Virginia, Inc.                                       West Virginia
Herberger's Department Stores, LLC                                      Minnesota
McRIL, LLC                                                              Virginia
The Bon-Ton Department Stores, Inc.                                     Pennsylvania
The Bon-Ton Giftco, Inc.                                                Florida
The Bon-Ton Properties - Eastview L. P.                                 Delaware
The Bon-Ton Properties - Greece Ridge L. P.                             Delaware
The Bon-Ton Properties - Irondequoit L. P.                              Delaware
The Bon-Ton Properties - Marketplace L. P.                              Delaware
The Bon-Ton Stores of Lancaster, Inc.                                   Pennsylvania
The Bon-Ton Trade, LLC                                                  Delaware
The Elder-Beerman Stores Corp.                                          Ohio


All subsidiaries are wholly owned.

EX-23

                                   EXHIBIT 23

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
The Bon-Ton Stores, Inc.:

We consent to the incorporation by reference in the registration statements on
Form S-8 (File Nos. 33-43105, 33-51954, 333-36633, 333-36661, 333-36725,
333-46974, 333-65120, 333-118700, and 333-139107), and Form S-3 (File No.
333-112425) of The Bon-Ton Stores, Inc. of our reports dated April 17, 2007,
with respect to the consolidated balance sheets of The Bon-Ton Stores, Inc. and
subsidiaries as of February 3, 2007 and January 28, 2006, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the fiscal years in the three-year period ended February 3, 2007, and the
related financial statement schedule, management's assessment of the
effectiveness of internal control over financial reporting as of February 3,
2007 and the effectiveness of internal control over financial reporting as of
February 3, 2007, which reports appear in the February 3, 2007 annual report on
Form 10-K of The Bon-Ton Stores, Inc. Our report dated April 17, 2007 on the
consolidated financial statements refers to the adoption of Statement of
Financial Accounting Standards No. 123R "Share-Based Payment," effective January
29, 2006, and Statement of Financial Accounting Standards No. 158 "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans,"
effective February 3, 2007.

/s/ KPMG LLP

Philadelphia, Pennsylvania
April 17, 2007

EX-31.1

                                  EXHIBIT 31.1

                        CERTIFICATION OF BYRON L. BERGREN

            I, Byron L. Bergren, certify that:

1)    I have reviewed this Annual Report on Form 10-K of The Bon-Ton Stores,
      Inc.;

2)    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3)    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4)    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b)    Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

      c)    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d)    Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

5)    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      functions):

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

      DATE:  April 17, 2007                   By: /s/ Byron L. Bergren
                                                  --------------------------
                                                  Byron L. Bergren
                                                  President and Chief
                                                  Executive Officer and Director

EX-31.2

                                  EXHIBIT 31.2

                        CERTIFICATION OF KEITH E. PLOWMAN

            I, Keith E. Plowman, certify that:

1)    I have reviewed this Annual Report on Form 10-K of The Bon-Ton Stores,
      Inc.;

2)    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3)    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4)    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b)    Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

      c)    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d)    Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

5)    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      functions):

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

      DATE:  April 17, 2007                 By: /s/ Keith E. Plowman
                                                -----------------------------
                                                Keith E. Plowman
                                                Executive Vice President,
                                                Chief Financial Officer and
                                                Principal Accounting Officer

EX-32

                                   EXHIBIT 32

   CERTIFICATIONS PURSUANT TO RULES 13a-14(b) and 15d-14(b) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

      In connection with the Annual Report of The Bon-Ton Stores, Inc. on Form
10-K for the period ended February 3, 2007, as filed with the Securities and
Exchange Commission (the "Report"), each of the undersigned officers of The
Bon-Ton Stores, Inc., certifies pursuant to 18 U.S.C. Section 1350, that:

1)    The Report fully complies with the requirements of section 13(a) or 15(d)
      of the Securities Exchange Act of 1934; and

2)    The information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of The Bon-Ton
      Stores, Inc.

  DATE: April 17, 2007                  By: /s/ Byron L. Bergren
                                            -----------------------------------
                                            Byron L. Bergren
                                            President and Chief
                                            Executive Officer and Director

                                        By: /s/ Keith E. Plowman
                                            -----------------------------------
                                            Keith E. Plowman
                                            Executive Vice President,
                                            Chief Financial Officer and
                                            Principal Accounting Officer

A signed original of this written statement has been provided to The Bon-Ton
Stores, Inc. and will be retained by The Bon-Ton Stores, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.